<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, 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 for the past 90 days. Yes X . No .
--- ---
There were 7,849,793 shares of common stock, $.01 par value per share,
outstanding on November 3, 1998
<PAGE>
PART I
ITEM 1. Financial Statements.
ATCHISON CASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
------------- --------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 8,799 $ 9,336
Customer accounts receivable, net of allowance for 92,118 88,469
doubtful accounts of $587 and $508, respectively
Inventories 64,664 62,146
Deferred income taxes 3,148 3,186
Other current assets 10,005 9,615
-------- --------
Total current assets 178,734 172,752
PROPERTY, PLANT AND EQUIPMENT, Net 148,682 137,290
INTANGIBLE ASSETS, Net 33,467 25,424
DEFERRED FINANCING COSTS, Net 695 746
OTHER ASSETS 9,425 9,927
-------- --------
TOTAL $371,003 $346,139
-------- --------
-------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
ATCHISON CASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Cont'd)
(In Thousands)
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
------------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 38,739 $ 37,259
Accrued expenses 52,336 52,690
Current maturities of long-term obligations 7,464 6,021
--------- ---------
Total current liabilities 98,539 95,970
LONG-TERM OBLIGATIONS 108,911 87,272
DEFERRED INCOME TAXES 13,889 12,608
OTHER LONG-TERM OBLIGATIONS 4,378 3,670
EXCESS OF FAIR VALUE OF ACQUIRED NET ASSETS 277 349
OVER COST, Net
POSTRETIREMENT OBLIGATION OTHER THAN PENSION 7,756 7,596
MINORITY INTEREST IN SUBSIDIARIES 4,206 3,060
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 82
authorized shares; 8,233,095 and 8,226,570
shares issued, respectively
Class A common stock (non-voting), $.01 par value, - -
700,000 authorized shares; no shares issued and
outstanding
Additional paid-in capital 81,015 80,957
Retained earnings 55,542 55,205
Accumulated foreign currency translation adjustment (663) (630)
--------- ---------
135,976 135,614
Less shares held in treasury:
Common stock, 284,702 and 36,002 shares, respectively, at cost (2,929) -
--------- ---------
Total stockholders' equity 133,047 135,614
--------- ---------
TOTAL $ 371,003 $ 346,139
--------- ---------
--------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
ATCHISON CASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
NET SALES $ 116,576 $ 68,796
COST OF GOODS SOLD 102,655 59,584
----------- -----------
GROSS PROFIT 13,921 9,212
OPERATING EXPENSES:
Selling, general and administrative 10,963 5,349
Amortization of intangibles 257 175
----------- -----------
Total operating expenses 11,220 5,524
----------- -----------
OPERATING INCOME 2,701 3,688
INTEREST EXPENSE 1,972 462
MINORITY INTEREST IN NET INCOME(LOSS) (8) 63
OF SUBSIDIARIES
----------- -----------
INCOME BEFORE TAXES 737 3,163
INCOME TAXES 400 1,338
----------- -----------
NET INCOME $ 337 $ 1,825
----------- -----------
----------- -----------
NET INCOME PER COMMON AND
EQUIVALENT SHARE:
BASIC $ 0.04 $ 0.22
----------- -----------
----------- -----------
DILUTED $ 0.04 $ 0.22
----------- -----------
----------- -----------
WEIGHTED AVERAGE NUMBER OF
COMMON AND EQUIVALENT
SHARES OUTSTANDING:
BASIC 8,139,140 8,147,959
----------- -----------
----------- -----------
DILUTED 8,151,523 8,211,076
----------- -----------
----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
ATCHISON CASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
------ ------
<S> <C> <C>
NET INCOME $ 337 $1,825
OTHER COMPREHENSIVE INCOME, BEFORE TAX:
Foreign currency translation adjustments (33) 5
------ ------
OTHER COMPREHENSIVE INCOME, BEFORE TAX $ 304 $1,830
INCOME TAX EXPENSE (BENEFIT) RELATED TO
ITEMS OF OTHER COMPREHENSIVE INCOME (13) 2
------ ------
OTHER COMPREHENSIVE INCOME, NET OF TAX $ 317 $1,828
------ ------
------ ------
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
ATCHISON CASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 337 $ 1,825
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 3,212 2,786
Minority interest in net income (loss) of subsidiaries (12) 68
(Gain) loss on disposal of capital assets (44) 56
Deferred income taxes 45 299
Changes in assets and liabilities (exclusive of effects of
acquired companies):
Receivables (194) (2,527)
Inventories (595) (1,297)
Other current assets 552 (234)
Accounts payable (1,319) (1,202)
Accrued expenses (2,374) (1,830)
Postretirement obligation other
than pension 160 112
Other (734) (12)
-------- --------
Cash used in operating activities (966) (1,956)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (6,896) (4,229)
Payment for purchase of net assets of subsidiaries,
net of cash acquired (13,009) (6,550)
Proceeds from sale of capital assets 551 754
Advances under subordinated note receivable - (400)
Payment for investments in unconsolidated subsidiaries (150) -
-------- --------
Cash used in investing activities (19,504) (10,425)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of costs 58 97
Payment for repurchase of common stock (2,929) -
Payment for purchase of stock in subsidiaries (358) -
Payments on long-term obligations (2,918) (73)
Net borrowings under revolving loan note 26,000 -
-------- --------
Cash provided by financing activities 19,853 24
EFFECT OF EXCHANGE RATE ON CASH 80 4
-------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS ($ 537) ($12,353)
CASH AND CASH EQUIVALENTS, Beginning of period 9,336 19,819
-------- --------
CASH AND CASH EQUIVALENTS, End of period $ 8,799 $ 7,466
-------- --------
-------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
6
<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, 1998, as included in the Company's 1998
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.
On July 1, 1998 the Company adopted Statement of Financial Accounting
Standards No. 130, "REPORTING COMPREHENSIVE INCOME". In accordance with
this statement the Company has presented a separate consolidated statement
of comprehensive income for the three-month period ended September 30,
1998, and has restated the three-month period ended September 30, 1997 for
comparative purposes.
Certain September 30, 1997 amounts have been reclassified to conform with
September 30, 1998 classifications.
2. Inventories
<TABLE>
<CAPTION>
As of
--------------------------
September 30, June 30,
1998 1998
---- ----
(Thousands)
<S> <C> <C>
Raw materials $10,499 $11,152
Work-in-process 41,413 37,939
Finished goods 7,099 7,385
Deferred supplies 5,653 5,670
------- -------
$64,664 $62,146
------- -------
------- -------
</TABLE>
7
<PAGE>
Income Taxes
The provision for income taxes consisted of:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
---- ----
(Thousands)
<S> <C> <C>
Current:
Domestic $ 132 $ 841
Foreign 223 198
------- -------
$ 355 $ 1,039
Deferred:
Domestic $ 10 $ 299
Foreign 35 ---
------- -------
$ 45 $ 299
------- -------
Total $ 400 $ 1,338
------- -------
------- -------
</TABLE>
4. Acquisitions
Effective September 1, 1998, the Company purchased 90% of the outstanding
capital stock of London Precision Machine & Tool Ltd. ("London Precision")
for U.S. $13.8 million in cash. London Precision, located in London,
Ontario, Canada, is an industrial machine shop which serves the locomotive,
mining and construction, pulp and paper markets, among others. The Company
financed this transaction with funds available under its revolving credit
facility. In connection with the acquisition of London Precision, the
Company recorded approximately $8.4 million of goodwill, which is being
amortized over 25 years. The transaction has been treated as a purchase
for financial reporting purposes. The results of operations of London
Precision have been included in the Company's statement of operations from
the date of acquisition.
5. Additional Cash Flow Information
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Cash paid during the period for:
Interest $ 2,417 $ 966
------- -------
------- -------
Income Taxes $ 2,297 $ 1,707
------- -------
------- -------
Supplemental schedule of noncash
Investing and financing activities:
Unexpended bond funds $ 0 $ 9
------- -------
------- -------
</TABLE>
8
<PAGE>
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 potential common stock. The Statement requires dual presentation of
basic and diluted EPS on the face of the income statement for entities with
complex capital structures and 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. EPS for prior periods have been restated
according to the new standard. Following is a reconciliation of basic and
diluted EPS for the three month periods ended September 30, 1998 and 1997,
respectively.
For the three months ended September 30, 1998
---------------------------------------------
<TABLE>
<CAPTION>
Weighted
Net Average Earnings
Income Shares Per Share
------ -------- ---------
<S> <C> <C> <C>
Basic EPS
Income available to
common stockholders $337,000 8,139,140 $0.04
Effect of Dilutive Securities
Options 12,383
-------- --------- -----
Diluted EPS $337,000 8,151,523 $0.04
-------- --------- -----
-------- --------- -----
For the three months ended September 30, 1997
---------------------------------------------
Weighted
Net Average Earnings
Income Shares Per Share
------ -------- ---------
Basic EPS
Income available to
common stockholders $1,825,000 8,147,959 $0.22
Effect of Dilutive Securities
Options 63,117
---------- --------- -----
Diluted EPS $1,825,000 8,211,076 $0.22
---------- --------- -----
---------- --------- -----
</TABLE>
9
<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 1999 were $116.6 million,
representing an increase of $47.8 million, or 69.5%, over net sales of $68.8
million in the first quarter of fiscal 1998. The operations acquired by the
Company since October 1, 1997 generated net sales of $50.4 million in the
first quarter of fiscal 1999, as follows:
<TABLE>
<CAPTION>
FY99 1st Qtr
Operation Date Acquired Net Sales
--------- ------------- ------------
<S> <C> <C>
Inverness Castings Group, Inc. 10/06/97 $11.4 million
Sheffield Forgemasters Group Limited 04/06/98 35.2 million
Claremont Foundry, Inc. 05/01/98 1.5 million
London Precision Machine & Tool Ltd. 09/01/98 2.3 million
</TABLE>
Excluding net sales generated by the operations acquired since October 1,
1997, net sales for the first quarter of fiscal 1999 were $66.2 million,
representing a decrease of $2.6 million, or 3.8%, from net sales of $68.8
million in the first quarter of fiscal 1998. This 3.8% decrease in net sales
was due primarily to decreases in net sales to the offshore oil and gas,
mining, power generation and petrochemical markets.
Gross profit for the first quarter of fiscal 1999 increased by $4.7 million,
or 51.1%, to $13.9 million, or 11.9% of net sales, compared to $9.2 million,
or 13.4% of net sales, for the first quarter of fiscal 1998. The increase in
gross profit was primarily due to increased sales volume levels resulting
from the acquisitions of Inverness Castings Group, Inc. ("Inverness"),
Sheffield Forgemasters Group Limited ("Sheffield") and London Precision
Machine & Tool Ltd. ("London Precision"). The decrease in gross profit as a
percentage of net sales is primarily attributable to (i) a decrease in the
absorption of overhead resulting from a reduction in net sales to the
offshore oil and gas, mining, power generation and petrochemical markets,
(ii) delayed shipments to the rail market due to selected parts shortages,
(iii) reduced productivity and excessive overtime due to power curtailments
under the Company's interruptable electricity contracts resulting from the
extreme heat during the quarter, (iv) continued productivity and scrap
problems at Inverness, (v) higher plant maintenance shutdown costs at
Atchison/St. Joe and Prospect Foundry, Inc. ("Prospect"), (vi) increased
warranty costs at Canada Alloy Castings Ltd. and (vii) increased training
costs, higher employee turnover and increased overtime due to the generally
tight labor market. Partially offsetting these factors were the contribution
from London Precision and improved results at the Company's Amite facility
due to increased sales volume levels and reduced employee turnover and
training.
Selling, general and administrative expense ("SG&A") for the first quarter of
fiscal 1999 was
10
<PAGE>
$11.0 million, or 9.4% of net sales, compared to $5.3 million, or 7.8% of net
sales, in the first quarter of fiscal 1998. The increase in SG&A was
primarily attributable to expenses associated with the operations acquired by
the Company since October 1, 1997. The increase in SG&A as a percentage of
net sales for the first quarter of fiscal 1999 was primarily due to higher
average SG&A as a percentage of net sales at Inverness and Sheffield .
Amortization of certain intangibles for the first quarter of fiscal 1999 was
$257,000, or 0.2% of net sales, as compared to $175,000, or 0.3% of net
sales, in the first quarter of fiscal 1998. The intangible assets consist of
goodwill recorded in connection with certain of the Company's acquisitions.
In connection with the acquisition of London Precision, the Company recorded
approximately $8.4 million of goodwill, which is being amortized over 25
years. 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 1999 increased to $2.0
million, or 1.7% of net sales, from $462,000, or 0.7% of net sales, in the
first quarter of fiscal 1998. The increase in interest expense is primarily
the result of an increase in the average amount of indebtedness outstanding
as a result of the Company's acquisitions.
Income tax expense for the first quarter of fiscal 1999 reflects an effective
rate of 54%, which is higher than the combined federal, state and provincial
statutory rate because of the provision for tax benefits at lower effective
rates on losses at certain subsidiaries. Income tax expense for the first
quarter of fiscal 1998 was provided at the combined federal, state and
provincial rate of approximately 42%.
As a result of the foregoing, net income for the first quarter of fiscal 1999
was $337,000, compared to net income of $1.8 million for the first quarter of
fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES:
- -------------------------------
Cash used in operating activities for the first quarter of fiscal 1999 was
$1.0 million, compared to cash used in operating activities of $2.0 million
for the first quarter of fiscal 1998. This decrease was primarily
attributable to trade receivable balances.
Working capital was $80.2 million at September 30, 1998, as compared to $76.8
million at June 30, 1998. The increase primarily resulted from decreased
accounts payable and accrued expenses balances and net additional working
capital of $1.7 million associated with the acquisition of London Precision,
partially offset by a $1.4 million increase in the current maturities of the
Company's existing outstanding indebtedness.
During the first quarter of fiscal 1999, the Company made capital
expenditures of $6.9 million, as compared to $4.2 million for the first
quarter of fiscal 1998. Included in the first quarter of fiscal 1999 were
capital expenditures of approximately $750,000 on a new machining cell at the
Atchison/St. Joe Division. Included in the first quarter of fiscal 1998 were
capital
11
<PAGE>
expenditures of $1.1 million on a new sand reclamation system at the
Atchison/St. Joe Division. The balance of capital expenditures in both
periods was primarily used for productivity related projects at each of the
Company's facilities.
On August 12, 1998, the Company announced that its Board of Directors had
authorized a stock repurchase program of up to 1.2 million common shares of
its then outstanding 8.2 million common shares. The stock repurchases may be
made from time to time at prevailing prices in the open market or in
privately negotiated transactions, depending on market conditions, the price
of Company's common stock and other factors. The Company will make such
stock repurchases using internally generated funds and borrowings under its
credit facility. The Company's Note Purchase Agreement currently allows
repurchases of up to nearly $6.2 million of Company common stock. Any share
repurchases will be added to the Company's treasury shares and will be
available for reissuance in connection with the Company's acquisitions,
employee benefit plans or for other corporate purposes. Through October 16,
1998, the Company had repurchased 347,300 shares at a cost of $3.9 million.
On October 7, 1998, the Company and its bank entered into the First Amendment
to the Amended and Restated Credit Agreement ("the Credit Agreement"). The
Credit Agreement consists of a $40 million term loan and a $70 million
revolving credit facility. This amendment permits the Company to repurchase
up to $24 million of its common stock, subject to a limitation of $10 million
in any fiscal year unless certain financial ratios are met, and provides for
an option to increase the revolving portion of the credit facility to $100
million if the Company issues senior subordinated notes. Proceeds from the
issuance of any senior subordinated notes must be used to permanently pre-pay
the $40 million term loan portion of the credit facility. Loans under the
credit facility may be used for general corporate purposes, acquisitions and
approved investments.
On October 12, 1998, the insurance company holding the Company's unsecured
senior notes granted a limited waiver increasing the permitted repurchases of
the Company's common stock from $3.2 million to $6.2 million.
Total indebtedness of the Company at September 30, 1998 was $116.4 million,
as compared to $93.3 million at June 30, 1998. This increase of $23.1
million primarily reflects indebtedness incurred of $13.8 million to finance
the acquisition of London Precision and $2.9 million to repurchase 248,700
shares of the Company's common stock. At September 30, 1998, $8.7 million
was available for borrowing under the Company's revolving credit facility.
Effective September 1, 1998, the Company purchased 90% of the outstanding
capital stock of London Precision for U.S. $13.8 million cash. London
Precision, located in London, Ontario, Canada, is an industrial machine shop
which serves the locomotive, mining and construction, pulp and paper markets,
among others. The Company financed this transaction with 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, working
12
<PAGE>
capital requirements and repurchases of the Company's common stock 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 unforseen
expenditures relating to compliance with environmental laws.
YEAR 2000 COMPUTER ISSUES
- -------------------------
The Company has conducted a comprehensive review of its hardware and software
systems to identify those systems that could be affected by the "Year 2000"
issue and has developed an implementation plan to resolve the identified
issues. The Company believes that, with replacement or modification of its
existing computer systems, updates by vendors and conversion to new software,
the Year 2000 issue will not pose significant operational problems for the
Company's computer systems. The Company expects to complete implementation of
computer systems that are Year 2000 compliant in fiscal 1999, although
testing may continue in the first two quarters of fiscal 2000. Based on its
review of non-information technology systems to date, the Company does not
anticipate the need to develop an extensive contingency plan for such systems
or to incur material costs in that regard.
The Company relies on a number of customers and suppliers, including banks,
telecommunication providers, utilities, and other providers of goods and
services. The inability of these third parties to conduct their business for
a significant period of time due to the Year 2000 issue could have a material
adverse impact on the Company's operations. The Company is currently
assessing the Year 2000 compliance of its significant customers and
suppliers. To date, the Company has been advised by over half of its
significant customers that they expect to be Year 2000 compliant by the end
of calendar 1999. There can be no assurance that the systems of other
companies that interact with the Company will be sufficiently Year 2000
compliant. The Company's reliance on single source suppliers, however, is
minimal, and the Company seeks to limit sole source supply relationships.
The Company, however, has entered into national service agreements for the
supply of certain raw materials and freight service from single sources. If
the Company does not identify or fix all Year 2000 problems in critical
operations, or if a major supplier or customer is unable to supply raw
materials or receive the Company's product, the Company's results of
operations or financial condition could be materially impacted.
Year 2000 project expenditures to date total $640,000. The Company expects
to incur an additional $1.5 million of costs. The Company presently
anticipates that it will complete its Year 2000 assessment and remediation by
June 30, 1999. However, there can be no assurance that the Company will be
successful in implementing its Year 2000 implementation plan according to the
anticipated schedule due to the potential lack of availability of trained
personnel and their ability to identify relevant computer codes, among other
uncertainties. Although the Company expects its internal systems to be Year
2000 compliant as described above, the Company intends to prepare a
contingency plan that will specify what it plans to do if it or important
external companies are not Year 2000 compliant in a timely manner. The
Company expects to prepare its contingency plan during fiscal 1999.
FORWARD-LOOKING STATEMENTS
- --------------------------
13
<PAGE>
The sections entitled "Liquidity and Capital Resources" and "Year 2000 Computer
Issues" contain forward-looking statements that involve a number of risks and
uncertainties. Forward-looking statements such as "expects," "intends,"
contemplating" and statements pertaining to the adequacy of funding for capital
expenditure and working capital requirements for the next two years are not
historical in nature. Among the 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 U.S.
dollar and British pound, interest rates, the availability of labor, the
competitive environment in the casting industry and changes in laws and
regulations that govern the Company's business, particularly environmental
regulations.
14
<PAGE>
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative information about market risk was addressed in Item
7A of the Company's Form 10-K for the fiscal year ended June 30, 1998. There has
been no material change to that information required to be disclosed in this
Form 10-Q filing.
15
<PAGE>
PART II
ITEM 1 - Legal Proceedings
NOT APPLICABLE
ITEM 2 - Changes in Securities and Use of Proceeds
Unregistered Securities Transactions
In lieu of cash compensation for services rendered in their capacity
as Directors of the Company, Mr. Ray Witt, Mr. John Whitney and Mr.
Stuart Uram were each provided at their election 757, 432 and 865
shares, respectively, of common stock on July 17, 1998, with a then-
current market value of $18.50 per share. Such transactions were
exempt from registration under the Securities Act of 1933, as amended
(the "Act"), pursuant to Section 4(2) of the Act.
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
4.1 First Amendment to Amended and Restated Credit Agreement
dated as of October 7, 1998, among the Company, the Banks
party thereto and Harris Trust and Savings Bank, as Agent.
4.2 Waiver dated as of October 12, 1998 to the Note Purchase
Agreement dated July 29, 1994 between the Company and
Teachers Insurance and Annuity Association of America.
10.1 Amendment No. 2 dated as of September 10, 1998 to Employment
Agreement between the Company and Hugh H. Aiken.
27 Financial Data Schedule
16
<PAGE>
(B) Reports on Form 8-K
The Company filed a Form 8-K dated August 12, 1998.
Item 7. Exhibits
(1) Press Release, dated August 12, 1998.
17
<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: November 3, 1998 /s/ HUGH H. AIKEN
----------------------------------
Hugh H. Aiken, Chairman of the
Board, President and Chief
Executive Officer
DATE: November 3, 1998 /s/ KEVIN T. MCDERMED
----------------------------------
Kevin T. McDermed, Vice President,
Chief Financial Officer, Treasurer
and Secretary
<PAGE>
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This First Amendment to Amended and Restated Credit Agreement (the
"AMENDMENT") dated as of October 7, 1998 among Atchison Casting Corporation
(the "BORROWER"), the Banks, and Harris Trust and Savings Bank, as Agent;
W I T N E S S E T H:
WHEREAS, the Borrower, Guarantors, Banks and Harris Trust and Savings
Bank, as Agent, have heretofore executed and delivered an Amended and
Restated Credit Agreement dated as of April 3, 1998 (the "CREDIT AGREEMENT");
and
WHEREAS, the parties hereto desire to amend the Credit Agreement as
provided herein;
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree that
the Credit Agreement shall be and hereby is amended as follows:
1. The definition of "EUROCURRENCY MARGIN" appearing in Section 1.3(b)
of the Credit Agreement is hereby amended by deleting the phrase "1.00% PER
ANNUM" appearing in clause (A) thereof and inserting in its place the phrase
"1.125% PER ANNUM."
2. A new Section 1.14 to the Credit Agreement is hereby amended as
follows:
SECTION 1.14. INCREASE IN COMMITMENTS. Prior to the Termination
Date, the Borrower shall have the right to increase the
Commitments up to an additional $30,000,000 (in a minimum amount
of $5,000,000 and integral multiples of $1,000,000 in excess
thereof) on a PRO RATA basis for each of the Banks in accordance
with the amount of their Commitment upon one Business Day's prior
written notice to the Agent PROVIDED THAT: (i) the Borrower may
exercise its right to increase the Commitments pursuant to this
Section 1.14 only one time, (ii) no Default or Event of Default
shall have occurred and be continuing on the date of such
increase or would result from such increase, (iii) on the date of
such increase the Borrower shall have repaid in full the
outstanding Term Loans from the proceeds of the issuance of
Subordinated Debt, and (iv) the increase in Commitments to become
effective on such date shall be in an amount no greater than the
aggregate principal amount of the Term Loans repaid on such date.
Upon the satisfaction of the foregoing provisions, the Commitment
of each Bank shall, without any further action on the part of the
Borrower or any Bank, be deemed amended to reflect the increase
as provided in this Section 1.14.
3. Section 2.1(a) of the Credit Agreement is hereby amended by
deleting clause (i) thereof in its entirety and inserting in its place the
following: "(i) PRIOR TO THE ISSUANCE OF SUBORDINATED DEBT BY THE BORROWER,
0.250% PER ANNUM FOR EACH DAY LEVEL I STATUS EXISTS AND
<PAGE>
FROM AND AFTER THE DATE ON WHICH THE BORROWER ISSUES ANY SUBORDINATED DEBT
0.375% PER ANNUM FOR EACH DAY LEVEL I STATUS EXISTS."
4. The definition of "RESTRICTED PAYMENT" contained in Section 4 of
the Credit Agreement is hereby amended in its entirety and as so amended
shall read as follows:
"RESTRICTED PAYMENT" means any payment or distribution or the
incurrence of any liability to make any payment or distribution,
in cash, property or other assets (other than shares of common
stock of the Borrower) upon or in respect of any share of any
class of capital stock of the Borrower or any warrants, rights or
options evidencing a right to purchase or acquire any securities
of the Borrower, including, without limiting the generality of
the foregoing, (i) payments or distributions as dividends and
(ii) Stock Repurchases.
5. Section 4 of the Credit Agreement is hereby further amended by
inserting in proper alphabetical order the new defined term "STOCK
REPURCHASES" as follows:
"STOCK REPURCHASES" means payments or distributions for the
purpose of purchasing, acquiring, retiring or redeeming any such
shares of stock (or any warrants, rights or options to purchase
or acquire any such securities) or the making of any other
distribution in respect of any such shares of stock (or any
warrants, rights or options evidencing a right to purchase or
acquire any such securities).
6. Section 7.19 of the Credit Agreement is hereby amended in its
entirety and as so amended shall read as follows:
SECTION 7.19. RESTRICTED PAYMENTS; RESTRICTED INVESTMENTS. The
Borrower will not, directly or indirectly (through a Subsidiary or
otherwise), declare, order, pay, distribute, make, or set apart any
sum or property for any Restricted Payment, and the Borrower will not
and will not permit any of its Subsidiaries to make or become
obligated to make any Restricted Investment unless, both at the time
of and immediately after effect has been given to such proposed
action:
(a) no Default or Event of Default shall have
occurred and be continuing; and
(b) the aggregate amount of
(i) all sums and property included in all Restricted
Payments directly or indirectly declared, ordered, paid,
made or set apart by the Borrower or any Subsidiary during
the period from and including March 31, 1994 to and
including the date of such proposed action (the "COMPUTATION
PERIOD"), plus
-2-
<PAGE>
(ii) the aggregate amount of all Restricted
Investments (at original cost) made during the Computation
Period (less any net return of capital through sale or other
liquidation thereof or other return of capital thereon) and
all commitments for Restricted Investments made by the
Borrower or any of its Subsidiaries outstanding on such date
shall not exceed the sum of (x) $8,000,000, PLUS (y) 50% of
Consolidated Net Income for the Computation Period (or minus
100% of Consolidated Net Income in the case of a deficit)
PLUS (z) the net cash proceeds received by the Borrower from
the issuance or sale during the Computation Period of shares
of its capital stock (other than any mandatorily redeemable
preferred stock); and, in any event, the aggregate amount of
Restricted Payments made during any fiscal year shall not
exceed 25% of Consolidated Net Income for the immediately
preceding fiscal year.
Notwithstanding anything in this Section 7.19 to the
contrary, Restricted Payments under this Section 7.19 shall
not include up to $24,000,000 in aggregate principal amount
of Stock Repurchases by the Borrower PROVIDED THAT (i) no
Default or Event of Default shall have occurred and be
continuing or would result from such Stock Repurchase; and
(ii) Stock Repurchases in excess of $10,000,000 in the
aggregate in any one fiscal year may occur only if after
giving effect to such Stock Repurchase the Borrower shall,
and shall demonstrate in writing to the Agent that it shall,
(i) maintain a level of performance at no less than 110% of
that required by Sections 7.15(a) and 7.15(e) and
(ii) maintain a level of performance at no greater than 90%
of that required by Sections 7.15(c), 7.15(d) and 7.15(f).
For all purposes of this Section 7.19, the amount involved
in any Restricted Payment directly or indirectly declared,
ordered, paid, distributed, made or set apart in property,
and the amount of any Restricted Investment made through the
transfer of property, shall be deemed to be the greater of
(1) the fair value of such property (as determined in good
faith by the Board of Directors) and (2) the net book value
thereof on the books of the Borrower or any of its
Subsidiaries (as determined in accordance with GAAP), in
each case as determined on the date such Restricted Payment
is declared, ordered, paid, distributed, made or set apart
or the date such Restricted Investment is made or committed
to be made, as the case may be.
-3-
<PAGE>
The Borrower will not pay any dividend which it has not
declared nor will it declare any dividend (other than
dividends payable solely in shares of its common stock) on
any shares of any class of its capital stock which is
payable more than 60 days after the date of declaration
thereof.
7. The Borrower represents and warrants to each Bank and the Agent
that (a) each of the representations and warranties set forth in Section 5 of
the Credit Agreement is true and correct on and as of the date of this
Amendment as if made on and as of the date hereof and as if each reference
therein to the Credit Agreement referred to the Credit Agreement as amended
hereby; (b) no Default and no Event of Default has occurred and is
continuing; and (c) without limiting the effect of the foregoing, the
Borrower's execution, delivery and performance of this Amendment have been
duly authorized, and this Amendment has been executed and delivered by duly
authorized officers of the Borrower.
8. This Amendment shall become effective upon satisfaction of the
following conditions precedent:
(i) the Borrower, the Banks, and the Agent shall have executed and
delivered this Amendment and the Guarantors shall have executed the consent
attached hereto; and
(ii) receipt by the Agent of the favorable written opinion of
Blackwell Sanders Peper Martin LLP, legal counsel to the Borrower, in form
and substance satisfactory to the Agent.
This Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterpart signature pages, each of
which when so executed shall be an original but all of which shall constitute
one and the same instrument. Except as specifically amended and modified
hereby, all of the terms and conditions of the Credit Agreement and the other
Credit Documents shall remain unchanged and in full force and effect. All
references to the Credit Agreement in any document shall be deemed to be
references to the Credit Agreement as amended hereby. All capitalized terms
used herein without definition shall have the same meaning herein as they
have in the Credit Agreement. This Amendment shall be construed and governed
by and in accordance with the internal laws of the State of Illinois.
-4-
<PAGE>
Dated as of the date first above written.
ATCHISON CASTING CORPORATION
By: /s/ Kevin T. McDermed
Title: V.P. & Treasurer
HARRIS TRUST AND SAVINGS BANK, in its
individual capacity as a Bank and as
Agent
By: /s/ Len E. Meyer
Title: Vice President
COMMERCE BANK, N.A.
By: /s/ Jeffrey R. Gray
Title: Vice President
MERCANTILE BANK
By: /s/ Susan D. Cott
Title:
KEY BANK NATIONAL ASSOCIATION
By: /s/ Sharon F. Weinstein
Title: Vice President
-5-
<PAGE>
COMERICA BANK
By: /s/ Jeffrey E. Peck
Title: Vice President
HIBERNIA NATIONAL BANK
By: Troy J. Villafarro
Title: Senior Vice President
NATIONAL WESTMINSTER BANK PLC
Nassau Branch
By: /s/ J. Brett
Title: Senior Manager
New York Branch
By: /s/ J. Brett
Title: Senior Manager
NORWEST BANK MINNESOTA, N.A.
By: /s/ R. Duncan Sinclair
Title: Vice President
-6-
<PAGE>
EXHIBIT 4.2
October 12, 1998
Mr. Kevin T. McDermed
Vice President & Chief Financial Officer
Atchison Casting Corporation
400 South Fourth Street
Atchison, Kansas 66002-0188
RE: NOTE PURCHASE AGREEMENT DATED AS OF JULY 29, 1994
Dear Mr. McDermed:
You have informed Teachers Insurance and Annuity Association of America
("TIAA") that Atchison Casting Corporation ("the "Company") would like to
take advantage of the opportunity to repurchase an amount of shares of its
common stock from certain shareholders. The proviso to Section 6.6(b) of the
above-referenced note purchase agreement (the "Note Purchase Agreement")
limits the aggregate amount of Restricted Payments and Restricted Investments
to a sum not to exceed 25% of Consolidated Net Income for the immediately
preceding year.
Notwithstanding anything to the contrary contained in Section 6.6 of the
Note Purchase Agreement, this letter constitutes an agreement by TIAA to
exclude an aggregate amount up to $3,000,000 from the provisions of Section
6.6 of the Note Purchase Agreement for the purpose of stock repurchases,
provided that no Default or Event of Default shall have occurred and be
continuing or would result from any such stock repurchases.
All capitalized terms used herein without definition shall have the same
meaning herein as they have in the Note Purchase Agreement.
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By: /s/ Loren S. Archibald
---------------------------------
Name: Loren S. Archibald
Title: Managing Director Private Placements
Acknowledged and agreed to:
ATCHISON CASTING CORPORATION
By: /s/ Kevin T. McDermed
---------------------------------
Name: Kevin T. McDermed
Title: Vice President & Treasurer
<PAGE>
AMENDMENT NO. 2 TO
EMPLOYMENT AGREEMENT
This Amendment No. 2 to Employment Agreement (the "Amendment") is made
and entered into this 10th day of September, 1998, by and between Atchison
Casting Corporation, a Kansas corporation (the "Company"), and Hugh H. Aiken
(the "Employee").
WHEREAS, the Company and the Employee entered into an Employment
Agreement dated as of June 14, 1991, which was amended to extend the term of
such agreement through June 14, 1998 (as amended, the "Employment
Agreement"), relating to the employment of the Employee as the Chief
Executive Officer of the Company; and
WHEREAS, the Company and the Employee desire and agree to amend the
Employment Agreement in the manner set forth in this Amendment;
NOW, THEREFORE, in consideration of mutual covenants and other good and
valuable consideration, the receipt and legal sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
1. EXTENSION OF TERM OF EMPLOYMENT. Section 1 of the Employment
Agreement is deleted in its entirety and is hereby replaced with the
following:
1. TERM. The Company shall employ the Employee for a
term commencing upon the date of this Agreement and
continuing through June 30, 2001. This Agreement shall be
considered renewed for a continuing three-year term on the
30th of June of each year hereafter unless the Company or
the Employee provides six months notice to the other party
that such party intends to terminate this Agreement.
2. EFFECTIVE DATE. This Amendment shall be effective as of June 14,
1998.
3. GENERAL. Except as expressly provided herein, the Employment
Agreement shall continue in full force and effect as modified hereby.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
day and year first written above.
ATCHISON CASTING CORPORATION
By: /s/ Kevin T. McDermed
--------------------------------
Name: Kevin T. McDermed
--------------------------------
Title: V. P. & Treasurer
--------------------------------
/s/ Hugh H. Aiken
-------------------------------------
Hugh H. Aiken
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 8,799
<SECURITIES> 0
<RECEIVABLES> 92,705
<ALLOWANCES> 587
<INVENTORY> 64,664
<CURRENT-ASSETS> 178,734
<PP&E> 186,740
<DEPRECIATION> 38,058
<TOTAL-ASSETS> 371,003
<CURRENT-LIABILITIES> 98,539
<BONDS> 0
0
0
<COMMON> 82
<OTHER-SE> 132,965
<TOTAL-LIABILITY-AND-EQUITY> 371,003
<SALES> 116,576
<TOTAL-REVENUES> 116,576
<CGS> 102,655
<TOTAL-COSTS> 11,220
<OTHER-EXPENSES> (8)
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<INCOME-TAX> 400
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