<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 6, 1998
---------------------
Atchison Casting Corporation
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Kansas 1-12541 48-1156578
- -------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
400 South Fourth Street, Atchison, Kansas 66002
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (913)367-2121
------------------
NONE
- -------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On April 6, 1998, Atchison Casting UK Ltd ("ACUK"), a subsidiary of the
registrant, 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 ongoing 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.
The purchase price was determined pursuant to arm's length negotiations between
the parties.
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 production, fossil and nuclear electricity generation
and forging ingots, which the registrant intends to continue.
The funds used for this acquisition were secured by bank loans extended by
Harris Trust and Savings Bank, as Agent, under the Amended and Restated Credit
Agreement dated April 3, 1998, among the registrant and the Banks party thereto.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired.
(1) Audited Consolidated Financial Statements of Sheffield
Forgemasters Group Limited as of April 6, 1998 and March 31,
1997 and for the twelve months ended April 6, 1998, March 31,
1997 and March 31, 1996 (attached as Appendix A hereto).
(b) Pro Forma Consolidated Financial Information.
(1) Pro Forma Consolidated Financial Information consisting of a pro
forma consolidated balance sheet as of March 31, 1998 and pro
forma consolidated statements of operations for the twelve-months
ended March 31, 1998, the nine-months ended March 31, 1998 and
the year ended June 30, 1997 (attached as Appendix B hereto).
(c) Exhibits.
<PAGE>
(2.1) The Offer from ACUK to the stockholders of Sheffield
dated April 6, 1998 (incorporated by reference to Exhibit 2.1 of
the Company's Current Report on Form 8-K dated 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
the Company's Current Report on Form 8-K dated April 16,
1998).
(4.1a) The Amended and Restated Credit Agreement dated as of
April 3, 1998, among the registrant, the Banks party thereto and
Harris Trust and Savings Bank, as Agent (incorporated by
reference to Exhibit 4.1a of the Company's Current Report on Form
8-K dated April 16, 1998).
(4.1b) Pledge and Security Agreement dated as of April 3,
1998, between the registrant and Harris Trust and Savings Bank,
as Agent (incorporated by reference to Exhibit 4.1b of the
Company's Current Report on Form 8-K dated April 16, 1998).
(4.2) Third Amendment dated as of April 3, 1998 to the Note
Purchase Agreement dated July 29, 1994 between the registrant and
Teachers Insurance and Annuity Association of America
(incorporated by reference to Exhibit 4.2 of the Company's
Current Report on Form 8-K dated 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 Atchison Casting Corporation
(incorporated by reference to Exhibit 10.1 on the Company's
Current Report on Form 8-K dated April 16, 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 hereunto duly authorized.
Atchison Casting Corporation
------------------------------
(Registrant)
/s/ Kevin T. McDermed
------------------------------
June 22, 1998 Kevin T. McDermed, Vice
President, Chief
Financial Officer,
Treasurer and Secretary
<PAGE>
APPENDIX A
Consolidated Financial Statements of
Sheffield Forgemasters Group Limited and subsidiaries
<PAGE>
REGISTERED NO: 3120721
Sheffield Forgemasters Group Limited
and subsidiaries
(formerly Sheffield Forgemasters Group plc)
Report and financial statements
for the year ended 31 March 1998
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES
REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1998
PAGE
REPORT OF THE INDEPENDENT AUDITORS 1
CONSOLIDATED PROFIT AND LOSS ACCOUNT 2
CONSOLIDATED BALANCE SHEET 3
CONSOLIDATED CASH FLOW STATEMENT 4 - 5
NOTES TO THE FINANCIAL STATEMENTS 6 - 25
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (1)
REPORT OF THE INDEPENDENT AUDITORS
TO THE SHAREHOLDERS OF SHEFFIELD FORGEMASTERS GROUP LIMITED
We have audited the consolidated balance sheets of Sheffield Forgemasters
Group Limited and its subsidiary undertakings ("The Group") as of 31 March
1998 and 31 March 1997 and the consolidated income statements and cash flow
statements for the two years ended 31 March 1998 which have been prepared on
the basis of preparation described in Note 1. These financial statements are
the responsibility of the Company's directors. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United Kingdom, which are substantially the same as auditing standards
generally accepted in the United States. These standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statements presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Group at 31
March 1998 and 31 March 1997, and the consolidated results of its operations and
its cash flows for each of the years in the two year period ended 31 March 1998
in conformity with generally accepted accounting principles in the United
Kingdom on the basis of preparation described in Note 1.
Accounting principles generally accepted in the United Kingdom vary in certain
respects from accounting principles generally accepted in the United States.
The application of the latter would have affected the determination of net
results, shareholders' equity and cash flows for the financial year ended 31
March 1998 and 31 March 1997 to the extent summarized in Note 3 to the
consolidated financial statements.
Coopers & Lybrand
Chartered Accountants
Nottingham
England
17 June 1998
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (2)
CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH 1998
<TABLE>
<CAPTION>
Notes 1998 1997
L'000 L'000
<S> <C> <C> <C>
TURNOVER -continuing operations 2 96,437 103,163
Cost of sales - continusing operations (77,568) (79,791)
Exceptional cost of sales 4 (1,010) -
------------ ------------
GROSS PROFIT 17,859 23,372
Net operating expenses -continuing operations 5 (19,076) (16,239)
------------ ------------
OPERATING (LOSS)/PROFIT - continuing operations (1,217) 7,133
Profit on disposal of properties 171 9
------------ ------------
(LOSS)/PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST (1,046) 7,142
Interest receivable (net) 8 2,232 1,087
------------ ------------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 9 1,186 8,229
Taxation 10 (1,023) (1,558)
------------ ----------
PROFIT FOR THE FINANCIAL YEAR 163 6,671
Dividends and appropriations 11 (257) (1,283)
------------ ------------
RETAINED (LOSS)/PROFIT FOR THE FINANCIAL PERIOD (94) 5,388
------------ ------------
------------ ------------
</TABLE>
The group has no material recognised gains and losses other than those noted
above and therefore no separate statement of total recognised gains and losses
has been presented.
There is no difference between the profit on ordinary activities before taxation
and the retained loss for the year stated above, and their historical cost
equivalents.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (3)
CONSOLIDATED BALANCE SHEET
AT 31 MARCH 1998
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
<S> <C> <C> <C>
FIXED ASSETS
Tangible assets 12 24,921 24,370
Loose tools 13 4,048 4,081
------------ ------------
28,969 28,451
------------ ------------
CURRENT ASSETS
Stocks and work in progress 15 14,666 16,686
Progress payments (1,004) (1,838)
------------ ------------
13,662 14,848
Debtors: amounts falling due after more than one year 16 154 137
Debtors: amounts falling due within one year 16 28,634 39,414
Cash 22,821 10,818
------------ ------------
65,271 65,217
CREDITORS: amounts falling due within one year 17 (30,571) (28,981)
------------ ------------
NET CURRENT ASSETS 34,700 36,236
------------ ------------
TOTAL ASSETS LESS CURRENT LIABILITIES 63,669 64,687
------------ ------------
CREDITORS: amounts falling due after more
than one year (including loans) 18 (1,006) (1,379)
Provisions for liabilities and charges 19 (2,792) (1,802)
ACCRUALS AND DEFERRED INCOME 20 (2,741) (3,014)
------------ ------------
(6,539) (6,195)
------------ ------------
NET ASSETS 57,130 58,492
------------ ------------
------------ ------------
CAPITAL AND RESERVES
Called-up share capital 22 751 28,195
Share premium account 23 2,098 2,098
Capital reserves 23 48,988 21,544
Profit and loss account 23 5,293 6,655
Equity shareholders' funds 57,130 29,766
Non-equity shareholders' funds - 28,726
------------ ------------
TOTAL SHAREHOLDERS' FUNDS 57,130 58,492
------------ ------------
------------ ------------
</TABLE>
The financial statements on pages 2 to 25 were approved by the board of
directors on 17 June 1998 and were signed on its behalf by:
D Fletcher }
}Directors
P S Barrett }
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (4)
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MARCH 1998
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
<S> <C> <C>
NET CASH INFLOW FROM CONTINUING OPERATING ACTIVITIES 15,095 7,992
(reconciliation to operating profits on page 5 ) ---------- ----------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 2,362 1,245
Interest paid (14) (45)
Interest paid on finance leases (107) (113)
---------- ----------
2,241 1,087
---------- ----------
TAXATION
UK corporation tax paid (494) (741)
Overseas tax received/( paid) 49 (131)
---------- ----------
(445) (872)
---------- ----------
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets (5,284) (3,948)
Purchase of loose tools (1,509) (1,246)
Sale of tangible fixed assets 3,794 240
Grants received - 177
Grants repaid (2) (257)
---------- ----------
(3,001) (5,034)
---------- ----------
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary - (5,745)
Net cash acquired with subsidiary - 3,338
---------- ----------
- (2,407)
---------- ----------
DIVIDENDS PAID (1,525) (15)
---------- ----------
CASH INFLOW BEFORE MANAGEMENT OF LIQUID RESOURCES AND FINANCING 12,365 751
---------- ----------
FINANCING
Issue of ordinary share capital - 11,446
Capital receipt 27,444 -
Redemption of preferred ordinary shares (27,444) -
Repayment of principal under finance leases (362) (194)
---------- ----------
(362) 11,252
Expenses of refinancing and acquisition - (1,276)
---------- ----------
(362) 9,976
---------- ----------
INCREASE IN CASH IN THE PERIOD 12,003 10,727
---------- ----------
---------- ----------
</TABLE>
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (5)
RECONCILIATION OF OPERATING PROFIT TO NET CASH FLOW FROM
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
<S> <C> <C>
CONTINUING ACTIVITIES
Operating (loss)/profit (1,217) 7,133
Depreciation on tangible fixed assets 977 704
Fixed asset and loose tools write off 804 -
Grant amortisation (271) (408)
(Profit)/Loss on sale of tangible fixed assets (41) 10
Depreciation on loose tools 1,386 1,201
(Decrease) increase in progress payments (1,069) 1,384
Decrease in stocks 2,021 2,044
Decrease/(increase) in debtors 10,335 (1,992)
Increase/(decrease) in creditors 1,180 (1,546)
Increase in provisions 990 (538)
---------- ----------
NET CASH INFLOW FROM CONTINUING OPERATING ACTIVITIES 15,095 7,992
---------- ----------
---------- ----------
</TABLE>
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (6)
1. PRINCIPAL ACCOUNTING POLICIES
The financial statements have been prepared in accordance with applicable
Accounting Standards in the United Kingdom and are stated in L sterling. A
summary of the more important group accounting policies is set out below.
BASIS OF ACCOUNTING
The structure of the group has undergone two major changes during the three
years to 31 March 1998:
- The Group was refinanced on 2 May 1996 by means of acquisition by the current
holding company. The consideration for the predecessor group was satisfied by
the issue of 52,359,132 ordinary 1 pence shares (credited as fully paid at 5
pence each) and 79,026,516 cumulative redeemable preferred ordinary shares of 30
pence each and cash amounting to L40, 745,000. The carrying value of the assets
exceeded the purchase price by L16,237,000.
- The Aerospace division was sold on 6 February 1998 for a consideration of
L65.6 million.
These UK GAAP financial statements have been prepared on the basis that the
business in existence at 31 March 1998 had been in existence for the whole of
the two years to 31 March 1997 in its current form. Consequently, the following
material adjustments have been made:
- The results of the Aerospace Division have been excluded throughout the
periods.
- The profit on disposal of the Aerospace Division has been excluded
- The extent of the refinancing at 2 May 1996 that related to the Aerospace
Division has been eliminated by removing debt attributable to the Aerospace
Division.
The interest expense has been adjusted to reflect the debt allocation to the
Aerospace Division.
All other costs directly related to the Aerospace Division have been eliminated.
Allocation of certain costs have been made on a pro rata basis which management
asserts is a reasonable allocation method. Transactions and balances with the
Aerospace division previously eliminated as inter-company transactions have been
reinstated as external transactions and balances.
The fair values attaching to the assets refinanced on 2 May 1996 have been
adopted as the carry forward basis.
The consolidated financial statements comprise the financial statements of the
company and its subsidiary undertakings made up to 5 April 1998. In previous
years the accounts were made up to the Saturday closest to 31 March in any
period.
The results of subsidiary undertakings acquired during the period are included
in the profit and loss account from the effective date of acquisition and the
results of subsidiary undertakings disposed of during the period are included in
the profit and loss account up to the date of disposal. Intra-group sales and
profits are eliminated fully on consolidation.
The financial statements are prepared on the historical cost basis of
accounting, modified to include the revaluation of certain fixed assets.
On acquisition of a subsidiary, all of the subsidiary's assets and liabilities
that exist at the date of acquisition are recorded at their fair values
reflecting their condition at that date. All changes to those assets and
liabilities, and the resulting gains and losses, that arise after the group has
gained control of the subsidiary are charged to the post acquisition profit and
loss account.
TURNOVER
Turnover is the amount receivable for goods and services supplied to customers
excluding value added tax.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (7)
TANGIBLE FIXED ASSETS AND LOOSE TOOLS
Tangible fixed assets and loose tools are stated at cost or valuation, less
accumulated depreciation.
Tangible fixed assets acquired with Sheffield Forgemasters Limited and its
subsidiaries have been stated at the lower of open market value for existing use
in the case of land and buildings, depreciated current replacement cost in the
case of plant and machinery or net recoverable amounts. Depreciation is provided
on a straight line basis over the shorter of the asset life or the estimated
life of the activity.
In the case of internally constructed assets, works overheads are included in
cost. Commissioning costs are not capitalised.
Where the group disposes of tangible fixed assets in the normal course of
trading, the profit or loss arising is included in operating profit and
disclosed as an exceptional item, if material. The profit or loss represents the
difference between the net proceeds of sale and net carrying amount.
LEASED ASSETS
Tangible fixed assets financed by leasing arrangements which transfer to the
group substantially all the benefits and risks of ownership of an asset, are
treated as if they had been purchased outright and the capital element of the
leasing commitment is shown as an obligation.
The lease rentals are treated as consisting of capital and interest elements.
The capital element is applied to reduce the outstanding obligation and the
interest element is charged in the profit and loss account so as to produce a
constant periodic rate of charge on the remaining balance of the liability for
each accounting period.
Costs in respect of operating leases are written off as and when they are
incurred.
DEPRECIATION
Depreciation is provided so as to write off the cost or valuation of tangible
fixed assets on a straight line basis over their estimated useful lives. No
depreciation is charged in the year of purchase except for motor vehicles and
certain items of plant where, in the opinion of the directors, such depreciation
is appropriate. The estimated useful lives for the main categories of fixed
assets are:
<TABLE>
<CAPTION>
<S> <C>
Freehold land Not depreciated
Freehold buildings 50 years
Plant and machinery 15 to 25 years
Motor vehicles 4 years
Computer equipment 4 years
Loose tools Various, based on expected usage
</TABLE>
Leased assets are depreciated over their estimated useful lives, or over the
period of the lease if shorter.
Depreciation is accelerated on assets no longer in use, reducing such assets to
net realisable value.
GOODWILL
Goodwill arising on consolidation represents the difference between the fair
value of the consideration given over the fair value of the identifiable net
assets required. Goodwill arising on the acquisition of subsidiaries and
associates is written off immediately against reserves. Other purchased goodwill
is eliminated by amortisation through the profit and loss account over its
useful economic life.
FIXED ASSET INVESTMENTS
Investments in subsidiary undertakings are stated at the lower of cost to the
group and the directors' valuation of the investment.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (8)
STOCKS AND WORK IN PROGRESS
Stocks and work in progress are valued at the lower of cost and net realisable
value of the separate items of stock and work in progress or of groups of
similar items.
Cost of raw materials, spares and stores is determined at purchase price,
including delivery charges on a FIFO basis.
Cost of partly processed and finished products comprises cost of production,
including works overheads based on normal levels of activity, incurred in the
normal course of business in bringing the product to its present location and
condition.
Net realisable value is the value at which it is estimated that stock or work in
progress can be realised in the normal course of business after allowing for the
cost of conversion from its existing state to a finished condition and all costs
to be incurred in marketing, selling and distribution directly related to the
items in question.
Provisions are made, where necessary, to cover defective, slow moving and
obsolete items.
Stocks received on consignment and their related obligations are recognised in
current assets and creditors respectively on adoption of the consignment stock
when the risks and rewards of ownership pass to the company.
PROGRESS PAYMENTS
Progress payments received and receivable are deducted from the value of work in
progress. Any excess amounts are included in creditors.
TRANSLATION OF FOREIGN CURRENCY AMOUNTS
Assets and liabilities in foreign currencies are translated into sterling at the
rates of exchange ruling at the balance sheet date or at the future contracted
rate if committed forward.
Exchange differences arising in the ordinary course of business are taken into
account in determining the trading result.
RESEARCH AND DEVELOPMENT
Revenue expenditure on research and development is written off in the period in
which it is incurred.
TECHNICAL "KNOW HOW"
Income arising from the sale of technical "know how" to third parties is
credited to the profit and loss account when the assistance is rendered.
Where this income takes the form of a royalty, it is credited to the profit and
loss account in the period in which it is received.
DEFERRED TAXATION
Deferred taxation arises when items are recognised for tax purposes in periods
that differ from the period in which the items are recognised for accounting
purposes. Provision is made for deferred taxation to the extent that there is a
reasonable probability that such taxation would become payable in the
foreseeable future.
PENSIONS
Based on actuarial advice, contributions are made to pension schemes to provide
for retirement benefits related to projected final salaries for employees, and
for post retirement increases. In accordance with the provisions of Statement of
Standard Accounting Practice No 24 contributions are charged to the profit and
loss account so as to spread the cost of pensions over employees' working lives
with the group. Independent actuaries undertake valuations at intervals of not
more than three years.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES(9)
Grants that relate to specific capital expenditure are treated as deferred
income which is credited to the profit and loss account over the related
asset's useful life. Other grants are credited to the profit and loss account
when the expenditure to which they relate is incurred.
CUMULATIVE REDEEMABLE PREFERRED ORDINARY SHARES
In accordance with the provisions of Financial Reporting Standard No 4,
finance costs of non-equity shares are charged at a constant rate in the
profit and loss account as an appropriation of profit.
2. ANALYSIS BY GEOGRAPHICAL AREA
<TABLE>
<CAPTION>
TURNOVER 1998 1997
L'000 L'000
<S> <C> <C>
United Kingdom 30,694 35,246
Rest of Europe 35,545 41,779
North America 17,549 14,803
Other 12,649 11,335
------ -------
96,437 103,163
------ -------
------ -------
</TABLE>
Substantially all the turnover of the group originates from production
facilities in the United Kingdom.
<TABLE>
<CAPTION>
PROFIT BEFORE TAXATION 1998 1997
L'000 L'000
<S> <C> <C>
United Kingdom 4632 5,189
Rest of Europe (1,510) 2,541
North America (1,348) (86)
Other (588) 585
------ -------
1,186 8,229
------ -------
------ -------
</TABLE>
<TABLE>
<CAPTION>
NET ASSETS 1998 1997
L'000 L'000
<S> <C> <C>
United Kingdom 57,094 58,514
Rest of Europe 30 (32)
North America 6 10
------ -------
57,130 58,492
------ -------
------ -------
</TABLE>
Continuing operation turnover represents sales to external third parties.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES(10)
3 SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP)
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United
Kingdom (UK GAAP), which differ in certain material respects from generally
accepted accounting principles in the United States (US GAAP). Such
differences involve methods for measuring the amounts shown in the financial
statements, as well as additional disclosures required by US GAAP.
The following is a summary of the material adjustments to net income and
shareholders' equity which would have been required in applying the
significant differences between UK and US GAAP:
The principal differences between UK GAAP and US GAAP are disclosed below:
<TABLE>
<CAPTION>
L'000 L'000
NOTES 1998 1997
NET INCOME REPORTED UNDER UK GAAP 163 6,671
<S> <C> <C> <C>
US GAAP ADJUSTMENTS:
Business combinations a - (20,254)
Pensions b 752 1,477
Restructuring costs c 17 (407)
Other provisions f 1,451 (156)
Stock based compensation i (807) -
Revaluation of fixed assets - depreciation expense h 21 (127)
Deferred taxation; Application of full liability method e - -
Deferred taxation; Tax effect of US GAAP adjustments e - -
NET INCOME/(LOSS) UNDER US GAAP 1,597 (12,796)
BASIC EARNINGS PER SHARE j (0.02) 0.06
DILUTED EARNINGS PER SHARE j (0.02) 0.06
</TABLE>
RECONCILIATION OF EQUITY SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1998 1997
EQUITY UNDER UK GAAP 57,130 58,492
<S> <C> <C>
US GAAP ADJUSTMENTS:
Business combinations a 2,614 2,614
Pensions b (1,865) (2,617)
Restructuring costs c (390) (407)
Other provisions f 1,295 (156)
Preference shares d - (27,444)
Revaluation of fixed assets h (4,223) (4,958)
Revaluation of fixed assets - accumulated depreciation h 3,118 3,199
Deferred taxation; Application of full liability method e - -
Deferred taxation; Tax effect of US GAAP adjustments e - -
EQUITY UNDER US GAAP 57,679 28,723
</TABLE>
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES(11)
<TABLE>
<CAPTION>
MOVEMENT IN SHAREHOLDERS EQUITY IN ACCORDANCE WITH US GAAP 1998
L'000
<S> <C>
Balance at the beginning of the year 28,723
Net income 1,597
Dividend appropriation (1,525)
Pensions -
Preference shares 27,444
Stock based compensation 807
Revaluation of fixed assets 735
Revaluation of fixed assets - accumulated depreciation (102)
------
BALANCE AT END OF THE YEAR 57,679
------
------
</TABLE>
In preparing the summary of difference between UK and US GAAP, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and
liabilities, and the estimates of revenue and expenses. Accounting estimates
have been employed in these financial statements to determine reported
amounts, including realizability, useful lives of tangible and intangible
assets, income taxes and other areas. Actual results could differ from those
estimates.
A summary of the principle differences applicable to the Group are set out
below.
(a) BUSINESS COMBINATIONS
Under UK GAAP the acquisition of Sheffield Forgemasters Limited and its
subsidiaries on 2 May 1996 by Sheffield Forgemasters Group plc was accounted for
using acquisition accounting which requires purchase consideration to be
allocated to the net assets acquired based on their fair value on the date of
acquisition. The difference between the consideration and the fair value of the
identifiable net assets was recorded as goodwill and written off immediately
against reserves.
Under US GAAP the acquisition has been accounted for in accordance with the
provisions of Emerging Issues Task Force Consensus 88-16, BASIS IN LEVERAGED
BUYOUT TRANSACTIONS. In accordance with this standard, no change in control
occurred as a result of the buyout, and a change in accounting basis is
therefore not appropriate.
Under UK GAAP downward adjustments to fixed assets as a result of asset
impairments were included in the fair value of the assets and taken to
reserves as part of goodwill. To conform to US GAAP asset impairments have
been removed from reserves and recorded as a one time charge to the income
statement as part of the US GAAP reconciliation.
(b) PENSIONS
Under UK GAAP the cost of providing pension benefits is expensed over the
average expected service lives of eligible employees in accordance with the
provisions of SSAP 24. SSAP 24 aims to produce an estimate of cost based on
long-term actuarial assumptions. Variations from the regular pension cost
arising from, for example, experience deficiencies or surpluses, are charged or
credited to the profit and loss account over the expected average remaining
service lives of current employees in the schemes. Differences between the
actual experience of the schemes and the actuarial assumptions made are
recognized immediately.
Under US GAAP the annual pension cost comprises the estimated cost of
benefits accruing in the period as determined in accordance with SFAS 87,
which requires readjustment of the significant actuarial assumptions annually
to reflect current market and economic conditions. Under SFAS 87 a pension
liability or asset representing the difference between benefit obligations
and plan assets is recognized in the balance sheet. In addition, in cases
where the accumulated benefit obligation exceeds the unamortized prior
service cost, the company records the excess as a separate component of
shareholders' equity. Only those accumulated gains or losses arising in the
Scheme from a difference between the actual experience of the Scheme and the
actuarial assumptions made, falling outside ten percent of the greater of the
projected benefit obligation (PBO) or the market-related value of the assets
(the corridor), are amortized.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES(12)
(c) RESTRUCTURING COSTS
Under UK GAAP when a decision has been made to restructure part of the Group's
business, provisions are made for redundancy and other costs.
US GAAP requires a number of specific criteria to be met before such costs can
be recognized as an expense. Among these is the requirement that all the
significant actions arising from the restructuring and their expected completion
dates must be identified by the balance sheet date.
In addition, US GAAP is more prescriptive than UK GAAP with respect to the
nature of items which may be classified as restructuring or exit costs. Costs
which do not qualify are recognized as liabilities when an obligation exists to
pay cash or otherwise sacrifice assets and are classified as an operating
expense of the business.
(d) PREFERENCE SHARES
Under UK GAAP preference shares with mandatory redemption features are
classified as non-equity interests and are recorded as a component of total
shareholders' equity.
Under US GAAP such redeemable preference shares are classified outside of
shareholders' equity.
(e) DEFERRED TAXATION
Under UK GAAP a provision is recorded for deferred taxation under the liability
method to the extent that it is probable that taxation liabilities or benefits
will crystallize within the foreseeable future.
Under US GAAP deferred tax is provided for on a full liability method in
accordance with SFAS 109, whereby deferred tax assets or liabilities are
recognized for differences between the financial and tax basis of assets and
liabilities and for tax loss carry forwards at the statutory rate at each
reporting date. A valuation allowance is established when it is more likely
than not that some portion or all of the deferred tax assets will not be
realized.
In management's judgement no material differences would arise with respect to
recognition of additional assets under the full provision methodology nor the
tax effect of the US GAAP adjustments, because a full valuation allowance under
SFAS 109 is considered appropriate.
(f) OTHER PROVISIONS
Under UK GAAP, certain provisions for future expenditures are allowed. Certain
of these provisions do not meet the liability recognition requirements of SFAS 5
under US GAAP.
(g) CASH FLOW INFORMATION
Under UK GAAP the Consolidated Cash Flow Statements are presented in accordance
with UK Financial Reporting Standard No 1, as revised (FRS 1). The Statements
prepared under FRS 1 present substantially the same information as that required
under US GAAP as interpreted by SFAS 95.
Under UK GAAP cash flows are presented for operating activities; returns on
investments and servicing of finance; taxation; capital expenditure and
financial investment; acquisitions and disposals; equity dividends paid;
management of liquid resources and financing.
US GAAP requires the classification of cash flows as resulting from operating,
investing, and financing activities. Changes in the balances of overdrafts are
classified within financing activities.
Consolidated statement of cash flows is set out below in accordance with the
classification requirements and definition of cash under US GAAP.
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
<S> <C> <C>
Cash provided by (used in) operating activities 16,891 8,207
Cash provided by (used in) investing activities (2,999) (7,361)
Cash provided by (used in) financing activities (1,889) 9,972
------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12,003 10,818
Cash and cash equivalents at the beginning of the year 10,818 -
------ ------
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 22,821 10,818
------ ------
------ ------
</TABLE>
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES(13)
(h) REVALUATION OF FIXED ASSETS
Under UK GAAP certain fixed assets have been revalued to fair market value.
Under US GAAP all fixed assets are recorded at historical cost.
(i) STOCK BASED COMPENSATION
Under UK GAAP the Group does not recognise compensation expense for options
issued as compensation to employees.
Under US GAAP the compensation expense associated with options issued, in
consideration for services received, is recognized as the difference between the
market value of the stock, at the grant date, and the exercise price of the
option. Compensation costs, as determined above, are charged to expense over
the period in which the related service is provided.
(j) EARNINGS PER SHARE
Earnings per share is calculated in accordance with the provisions of SFAS 128
with Basic EPS calculated based on income available to common stockholders
divided by the weighted-average number of common shares outstanding during the
period and Diluted EPS considering all dilutive potential common shares. The
calculation was performed based on UK GAAP financial numbers using US GAAP
methodology.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES(14)
4 EXCEPTIONAL COST OF SALES
The exceptional cost of sales relates to the write down of the 25 tonne arc
furnace on the River Don Site.
5 NET OPERATING EXPENSES
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
<S> <C> <C>
Distribution costs 8,549 9,216
Administrative expenses 10,642 8,159
Exceptional administrative expenses 575 -
Net other operating income (690) (1,136)
------ ------
NET OPERATING EXPENSES 19,076 16,239
------ ------
------ ------
</TABLE>
Exceptional administrative expenses were incurred in respect of the sale of the
business to Atchison Casting UK Limited.
6 DIRECTORS' EMOLUMENTS
Staff costs include the following remuneration in respect of directors of
Sheffield Forgemasters Group Limited:
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
<S> <C> <C>
Aggregate emoluments and benefits 604 520
Company contributions to hybrid pension scheme 58 75
Compensation for loss of office 377 -
------ ------
1,039 595
------ ------
------ ------
</TABLE>
Aggregate emoluments include amounts paid to the highest paid director as
follows:
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
<S> <C> <C>
Aggregate emoluments and benefits 285 169
Company contributions to hybrid pension scheme 15 23
------ ------
300 192
------ ------
------ ------
</TABLE>
The highest paid director is a member of a hybrid pension scheme. On
retirement, he will benefit from the higher of the accrued pension calculated
on a money purchase basis or the accrued pension, calculated on a final
salary basis. The amount above represents the company contributions paid into
the scheme during the period. The company has taken advantage of the
transitional relief arrangements specified in SI 1998/570, not to disclose
comparative figures.
S M Wallis has been granted options over share capital in the company which
are variable in amount depending upon future events.
No other directors have been granted options over the share capital of the
company. Retirement benefits are accruing to four directors under a defined
benefit scheme.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES(15)
7 EMPLOYEE INFORMATION
The average weekly number of persons (including executive directors) employed by
the group during the year was:
<TABLE>
<CAPTION>
1998 1997
NUMBER Number
<S> <C> <C>
Full time 1,359 1,382
Part time 7 7
------- -------
1,366 1,389
------- -------
------- -------
</TABLE>
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
<S> <C> <C>
STAFF COSTS (FOR THE ABOVE PERSONS):
Wages and salaries 27,036 25,425
Social security costs 2,194 2,109
Other pension costs (see note 21) 2,433 1,455
------- -------
31,663 28,989
------- -------
------- -------
</TABLE>
8 INTEREST PAYABLE AND SIMILAR CHARGES (NET)
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
<S> <C> <C>
INTEREST RECEIVABLE
Interest receivable on bank deposits 1,858 745
Other interest receivable 500 500
------- -------
2,358 1,245
------- -------
INTEREST PAYABLE
On bank loans, overdrafts and other loans (19) (45)
On finance leases (107) (113)
------- -------
(126) (158)
------- -------
Net interest receivable 2,232 1,087
------- -------
------- -------
</TABLE>
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES(16)
9 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
<S> <C> <C>
Profit on ordinary activities before taxation is stated after crediting:
Amortisation of government grants (see note 20) 271 247
Profit on disposal of tangible fixed assets 213 9
Rent receivable (net of outgoings) 64 94
Exchange gain 153 -
---------- ----------
---------- ----------
AND AFTER CHARGING:
Depreciation on and amounts written off:
Tangible owned fixed assets 762 471
Tangible fixed assets held under finance leases 215 233
Loose tools 1,386 1,200
Operating lease rentals:
Hire of plant and machinery 181 122
Auditors' remuneration for:
Audit 115 110
Other services to the company and its UK subsidiaries 19 227
Loss on disposal of tangible fixed assets - 10
Exchange loss - 8
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
10 TAXATION
1998 1997
L'000 L'000
<S> <C> <C>
United Kingdom corporation tax based on profits for the
period at 31% (1997: 33%)
Current period 13 215
Deferred taxation (see note 19) 678 905
Overseas taxation (49) 16
---------- ----------
642 1,136
Advance corporation tax paid 381 422
---------- ----------
1,023 1,558
---------- ----------
---------- ----------
</TABLE>
The accounting profit for the current period is decreased for taxation
purposes by L7,933,000 in respect of the excess of tax allowances over
depreciation, losses and ACT brought forward and other timing differences,
and increased by L848,000 in respect of permanent differences.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES(17)
11 DIVIDENDS AND APPROPRIATIONS
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
<S> <C> <C>
DIVIDENDS ON NON-EQUITY SHARES:
CUMULATIVE REDEEMABLE PREFERRED ORDINARY SHARES
Appropriation of future dividends - 1,268
Release of appropriation made in 1997 (1,268) -
Final paid of 0.362 pence net per share 331
Interim paid of 1.304 pence net per share 1,194 -
DIVIDENDS ON EQUITY SHARES:
CUMULATIVE REDEEMABLE PREFERRED ORDINARY SHARES
Interim paid of 1.304 pence net per share - 15
------- -------
257 1,283
------- -------
------- -------
</TABLE>
12 TANGIBLE ASSETS
<TABLE>
<CAPTION>
PLANT AND
MACHINERY
PLANT AND MOTOR
FREEHOLD MACHINERY VEHICLES
LAND AND AND ON FINANCE
BUILDINGS VEHICLES LEASES TOTAL
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
COST
At 1 April 1997 15,326 7,983 1,534 24,843
Additions 2,420 3,326 186 5,932
Disposals (3,575) (335) (368) (4,278)
Exchange differences - (5) - (5)
-------------- -------------- -------------- --------------
AT 31 MARCH 1998 14,171 10,969 1,352 26,492
-------------- -------------- -------------- --------------
DEPRECIATION
At 1 April 1997 142 223 108 473
Charge for the period 153 609 215 977
Eliminated in respect of disposals (56) (242) (261) (559)
Exchange differences - (3) - (3)
Write off (see note 4 ) - 683 - 683
-------------- -------------- -------------- --------------
AT 31 MARCH 1998 239 1,270 62 1,571
-------------- -------------- -------------- --------------
NET BOOK VALUE
AT 31 MARCH 1998 13,932 9,699 1,290 24,921
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
Net book value
At 31 March 1997 15,184 7,760 1,426 24,370
-------------- -------------- -------------- --------------
-------------- -------------- -------------- --------------
</TABLE>
Cost disclosed above includes L2,633,000 (1997: L2,641,000) in respect of
assets in the course of construction.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES
13 LOOSE TOOLS
GROUP L'000
COST
At 1 April 1997 4,417
Additions 1,509
Disposals (35)
Write offs (1,200)
------------
AT 31 MARCH 1998 4,691
------------
DEPRECIATION
At 1 April 1997 336
Charge for the period 1,386
Eliminated in respect of disposals -
Write offs (1,079)
------------
AT 31 MARCH 1998 643
------------
NET BOOK VALUE
AT 31 MARCH 1998 4,048
------------
------------
Net book value
At 31 March 1997 4,081
------------
------------
14 SUBSIDIARIES
The Group holds 100% of the equity of the following companies:
TRADING COUNTRY OF
INCORPORATION
Sheffield Forgemasters Limited England
Forgemasters Steel & Engineering Limited England
River Don Castings Limited England
Forgealert Limited England
Forged Rolls (UK) Limited England
British Rollmakers Corporation Limited England
Euro SFM Edelstahl GmbH Germany
heffield Forgemasters (Canada) Limited Canada
Forgemasters Realisations (1998) Limited England
NON-TRADING
Commercial Testing Services Limited England
C Akrill Limited England
Firth Vickers Special Steels Limited England
Forgemasters Engineering Limited England
Gibson Engineering Company Limited England
Hadura Products Limited England
Johnson's Rolls Limited England
Midland Rollmakers Limited England
Miller & Company Limited Scotland
Offshore Castings Limited England
R B Tennent Limited Scotland
Sheffield Forgemasters Holdings Limited England
Sheffield Forgemasters Share Trustees Limited England
Sheffield Forgemasters Trustees Limited England
Thomas Perry Limited England
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES
Talos Group Limited England
Engineering Technologies Group Limited England
15 STOCKS AND WORK IN PROGRESS
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
<S> <C> <C>
STOCKS AND WORK IN PROGRESS
Raw materials, spares and stores 2,320 2,573
Work in progress 10,413 12,799
Finished goods 1,933 1,314
---------- ----------
14,666 16,686
---------- ----------
---------- ----------
</TABLE>
16 DEBTORS
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
<S> <C> <C>
AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Other debtors 154 137
---------- ----------
154 137
---------- ----------
---------- ----------
AMOUNTS FALLING DUE WITHIN ONE YEAR
Trade debtors 20,885 26,021
Other debtors 6,398 10,591
Prepayments and accrued income 1,351 2,802
---------- ----------
28,634 39,414
---------- ----------
---------- ----------
</TABLE>
17 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
<S> <C> <C>
Trade creditors 12,646 14,351
Bank overdrafts - 92
Obligations under finance leases (see note 18) 432 413
Progress payments 99 333
Bills of exchange - 96
UK corporation tax 103 203
Other taxation and social security payable 1,125 767
Other creditors 11,893 8,997
Accruals 4,273 3,729
---------- ----------
30,571 28,981
---------- ----------
---------- ----------
</TABLE>
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES
18 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
<S> <C> <C>
Overseas pension provision 133 124
Obligations under finance leases (see below) 873 1255
---------- ----------
1,006 1,379
---------- ----------
---------- ----------
</TABLE>
FINANCE LEASES
The net finance lease obligations to which the group is committed are:
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
<S> <C> <C>
In one year or less 432 413
Between one and two years 343 406
Between two and five years 517 828
Over five years 13 21
---------- ----------
1,305 1,668
---------- ----------
---------- ----------
</TABLE>
19 PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
PROVISION
FOR
RATIONALISATION
L'000
<S> <C>
At 1 April 1997 1,802
Created in year 2,117
Utilised in year (214)
Released in year (913)
----------
At 31 March 1998 2,792
----------
----------
</TABLE>
DEFERRED TAXATION
At 1 April 1997, a deferred tax asset had been recognised (and included
within debtors) arising from the acquisition of Sheffield Forgemasters
Limited.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES
<TABLE>
<CAPTION>
DEFERRED TAX
ASSET
L'000
<S> <C>
At 1 April 1997 678
Released in the year (678)
----------
AT 31 MARCH 1998 -
----------
----------
</TABLE>
No further deferred taxation has been provided in the financial statements.
The full potential (asset)/liability (calculated at 33%) is as follows:
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
<S> <C> <C>
TAX EFFECT OF TIMING
DIFFERENCES DUE TO:
Excess of net book value of qualifying 3,902 4890
assets over tax written down value
Other short term timing differences (4,489) (3,571)
Notional deferred tax on fair (6,192) (4,345)
value adjustments
---------- ----------
(6,779) (3,026)
---------- ----------
---------- ----------
</TABLE>
In addition to the losses noted above, there are taxation losses of
L29,113,000 (1997:L34,500,000) held in subsidiary companies available to set
off against future trading profits of those subsidiary companies, which have
not been recognised in arriving at the potential deferred tax asset.
No deferred taxation has been provided on the property revaluation due to the
availability of capital losses within the group.
20 ACCRUALS AND DEFERRED INCOME
<TABLE>
<CAPTION>
GRANTS
L'000
<S> <C>
At 1 April 1997 3,014
Funds repaid (2)
Amortisation (271)
------------
AT 31 MARCH 1998 2,741
------------
------------
L'000
The grants will be amortised as follows:
Within one year 251
In the second to fifth years inclusive 824
After five years 1,666
------------
2,741
------------
------------
</TABLE>
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES
21 PENSION AND SIMILAR OBLIGATIONS
The group's obligations to provide pensions to both retired and current
employees are covered by the Sheffield Forgemasters Pension Scheme and are
based on final pensionable earnings. The assets of the scheme are held
separately from those of the group and invested on behalf of the trustees.
Contributions to the scheme are charged to the profit and loss account so as
to spread the cost of pensions over employees' working lives within the
group. The pension cost is assessed with the advice of an independent
qualified actuary. The most recent valuation used the projected unit method
and was at 5 April 1997. For the purposes of assessing contributions under
Statement of Standard Accounting Practice No 24, the principal actuarial
assumptions used are based on investment returns exceeding pay growth and
pension increases by 2.25 per cent per annum and 4.5 per cent per annum
respectively.
The surplus is being amortised over the expected average remaining service
life of employees of 12 years 6 months, as a uniform percentage of payroll.
The most recent actuarial valuation showed that the market value of the
scheme's assets was L115,107,000 and that the actuarial value of those assets
represented 108 per cent of the benefits that had accrued to members, after
allowing for expected future increases in earnings and pensions. Full
allowance was made in the valuation for the changes made to pension scheme
taxation in the 1997 budget. Following discussions with the Trustee and the
company it was agreed that member and company contributions would recommence
at the combined level of 9 per cent of pensionable earnings with effect from
1 October 1997, increasing to a combined level of 18 per cent of pensionable
earnings with effect from 1 January 1998.
An amount of L903,000 (1997: L2,716,000) is included within debtors which
represents the fair value of the pension surplus attributable to the group at
acquisition, less the excess of the accumulated pension cost over payment of
contributions to the pension scheme.
22 CALLED-UP SHARE CAPITAL
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
<S> <C> <C>
AUTHORISED
95,000,000 ordinary shares of 1p each 950 950
137,000,000 cumulative redeemable preferred
ordinary shares of 30p each 41,100 41,100
5,000,000 preferred ordinary shares of 1p each 50 50
---------- ----------
42,100 42,100
---------- ----------
---------- ----------
ALLOTTED, CALLED-UP AND FULLY PAID
75,123,743 ordinary shares of 1p each 751 751
91,478,861 cumulative redeemable preferred
ordinary shares of 30p each - 27,444
---------- ----------
751 28,195
---------- ----------
---------- ----------
</TABLE>
23 SHARE PREMIUM ACCOUNT AND RESERVES
<TABLE>
<CAPTION>
SHARE
PREMIUM CAPITAL PROFIT AND
ACCOUNT RESERVES LOSS ACCOUNT
L'000 L'000 L'000
<S> <C> <C> <C>
GROUP
At 1 April 1997 2,098 21,544 6,655
Retained loss for the year - - (94)
Release of appropriation made in 1997 (1,268)
Capital reserve arising on
the redemption of share capital - 27,444 -
--------- ---------- --------
AT 31 MARCH 1998 2,098 48,988 5,293
--------- ---------- --------
--------- ---------- --------
</TABLE>
24 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
<S> <C> <C>
Opening shareholders' funds 58,492 -
Retained (loss)/profit for
the financial period (94) 5,388
Cumulative Redeemable Preferred Ordinary
Share appropriation - 1,267
Release of appropriation made in 1997 (1,268) -
Proceeds of share issue - 30,293
Negative goodwill arising on
purchase of subsidiary - 21,544
---------- ----------
CLOSING SHAREHOLDERS' FUNDS 57,130 58,492
---------- ----------
---------- ----------
</TABLE>
25 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN THE NET DEBT
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
<S> <C> <C>
Increase in cash in the period (12,094) (10,727)
Cash inflow from increase in debt (362) (194)
---------- ----------
Change in net debt resulting from cash flows (12,456) (10,921)
OTHER NON-CASH ITEMS:
New finance leases - 394
---------- ----------
MOVEMENT IN NET DEBT IN THE PERIOD (12,456) (10,527)
Net debt at 1 April 1997 (9,059) -
Net debt acquired - 1,468
---------- ----------
NET DEBT AT 31 MARCH 1998 (21,515) (9,059)
---------- ----------
</TABLE>
26 ANALYSIS OF NET DEBT
<TABLE>
<CAPTION>
AT 1 APRIL CASH AT 31 MARCH
1997 FLOW 1998
L'000 L'000 L'000
<S> <C> <C> <C>
Cash in hand, at bank (10,818) (12,003) (22,821)
Overdraft 91 (91) -
------- ------ ------
(10,727) (12,094) (22,821)
Finance lease 1,668 (362) 1,306
------- ------ ------
TOTAL (9,059) (12,456) (21,515)
------- ------ ------
------- ------ ------
</TABLE>
27 CAPITAL COMMITMENTS
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
<S> <C> <C>
GROUP
Capital expenditure that has been contracted
for but has not been provided for in the
financial statements 1,010 5,331
---------- ----------
---------- ----------
</TABLE>
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES
28 FINANCIAL COMMITMENTS
At 31 March 1997 annual commitments under non-cancellable operating leases
were as follows:
<TABLE>
<CAPTION>
1998 1997
L'000 L'000
<S> <C> <C>
Expiring within one year 9 37
Expiring between two and five years inclusive 106 39
Expiring in over five years - -
115 76
---------- ----------
---------- ----------
</TABLE>
29 RELATED PARTY DISCLOSURES
The company has taken advantage of the exemption not to disclose transactions
with other entities that fall within the group of companies owned 90% by the
ultimate parent company.
<PAGE>
REGISTERED NO: 3120721
Sheffield Forgemasters Group Limited
and subsidiaries
Report and financial statements
for the year ended 31 March 1997
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES
REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 MARCH 1997
PAGE
REPORT OF THE INDEPENDENT AUDITORS 1
CONSOLIDATED PROFIT AND LOSS ACCOUNT 2
CONSOLIDATED BALANCE SHEET 3
CONSOLIDATED CASH FLOW STATEMENT 4 - 5
NOTES TO THE FINANCIAL STATEMENTS 6 - 27
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (1)
REPORT OF THE INDEPENDENT AUDITORS
TO THE SHAREHOLDERS OF SHEFFIELD FORGEMASTERS GROUP LIMITED
We have audited the consolidated balance sheet of Sheffield Forgemasters
Group Limited and its subsidiary undertakings ("The Group") as at 31 March
1997 and the consolidated income statements and cash flow statements for the
two years ended 31 March 1997 which have been prepared on the basis of
preparation described in Note 1. These financial statements are the
responsibility of the Company's directors. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards in the United Kingdom, which are substantially the same as auditing
standards generally accepted in the United States. These standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statements presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Group at 31
March 1997, and the consolidated results of its operations and its cash flows
for each of the years in the two year period ended 31 March 1997 in
conformity with generally accepted accounting principles in the United
Kingdom on the basis of preparation described in Note 1.
Accounting principles generally accepted in the United Kingdom vary in
certain respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the determination
of net results, shareholders' equity and cash flows for the financial year
ended 31 March 1997 and 31 March 1996 to the extent summarized in Note 3 to
the consolidated financial statements.
Coopers & Lybrand
Chartered Accountants
Nottingham
England
17 June 1998
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (2)
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 31 MARCH 1997
<TABLE>
<CAPTION>
Notes 1997 1996
L'000 L'000
<S> <C> <C> <C>
TURNOVER - continuing operations 2 103,163 104,510
Cost of sales - continuing operations (79,791) (80,960)
------- -------
GROSS PROFIT 23,372 23,550
Net operating expenses - continuing operations 4 (16,239) (17,461)
------- -------
OPERATING PROFIT - continuing operations 7,133 6,089
Profit on disposal of properties 9 365
------- -------
PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST 7,142 6,454
Interest receivable and similar charges (net) 7 1,087 508
------- -------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 2, 8 8,229 6,962
Taxation 9 (1,558) (373)
------- -------
PROFIT FOR THE FINANCIAL PERIOD 6,671 6,589
Dividends and appropriations 10 (1,283) (74)
------- -------
RETAINED PROFIT TRANSFERRED TO RESERVES 23 5,388 6,515
------- -------
------- -------
</TABLE>
The group has no material recognised gains and losses other than the profits
above and therefore no separate statement of total recognised gains and
losses has been presented.
There is no difference between the profit on ordinary activities before
taxation and the retained profit for the period stated above, and their
historical cost equivalents.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (3)
CONSOLIDATED BALANCE SHEET
AT 31 MARCH 1997
<TABLE>
<CAPTION>
Notes 1997
L'000
<S> <C> <C>
FIXED ASSETS
Tangible assets 11 24,370
Loose tools 12 4,081
------
28,451
------
CURRENT ASSETS
Stocks and work in progress 14 16,686
Progress payments (1,838)
------
14,848
Debtors: amounts falling due after more than one year 15 137
Debtors: amounts falling due within one year 15 39,414
Cash 10,818
------
65,217
CREDITORS: amounts falling due within one year 16 (28,981)
------
NET CURRENT ASSETS 36,236
------
TOTAL ASSETS LESS CURRENT LIABILITIES 64,687
------
CREDITORS: amounts falling due after more
than one year (including loans) 17 (1,379)
PROVISIONS FOR LIABILITIES AND CHARGES 18 (1,802)
ACCRUALS AND DEFERRED INCOME 19 (3,014)
------
(6,195)
------
NET ASSETS 58,492
------
------
CAPITAL AND RESERVES
Called-up share capital 22 28,195
Share premium account 23 2,098
Capital reserve 23 21,544
Profit and loss account 23 6,655
EQUITY SHAREHOLDERS' FUNDS 29,766
NON-EQUITY SHAREHOLDERS' FUNDS 28,726
------
TOTAL SHAREHOLDERS' FUNDS 58,492
------
------
</TABLE>
The financial statements on pages 2 to 27 were approved by the board of
directors on 17 June 1998 and were signed on its behalf by:
D Fletcher }
} Directors
P S Barrett }
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (4)
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 MARCH 1997
<TABLE>
<CAPTION>
Notes 1997 1996
L'000 L'000
<S> <C> <C> <C>
NET CASH INFLOW FROM CONTINUING OPERATING ACTIVITIES
(reconciliation to operating profits on page 5) 7,992 8,769
------ ------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received 1,245 294
Interest paid (45) (226)
Interest paid on finance leases (113) (48)
------ ------
1,087 20
------ ------
TAXATION
UK corporation tax paid (741) (272)
Overseas tax paid (131) (15)
------- -------
(872) (287)
------- -------
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets (3,948) (6,443)
Purchase of loose tools (1,246) (1,895)
Sale of tangible fixed assets 240 771
Grants received 177 -
Grants repaid (257) -
------- -------
(5,034) (7,567)
------- -------
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary (5,745) -
Net cash acquired with subsidiary 3,338 -
------- -------
(2,407) 0
------- -------
EQUITY DIVIDENDS PAID (15) (74)
------- -------
CASH INFLOW BEFORE MANAGEMENT OF LIQUID RESOURCES AND FINANCING 751 861
------- -------
FINANCING
Issue of ordinary share capital 11,446 5
Repayment of loan - (237)
Inception of finance leases - 1,048
Repayment of principal under finance leases (194) (71)
------- -------
11,252 745
Expenses of refinancing and acquisition (1,276) -
------- -------
9,976 745
------- -------
------- -------
INCREASE IN CASH IN THE PERIOD 10,727 1,606
------- -------
------- -------
</TABLE>
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (5)
RECONCILIATION OF OPERATING PROFIT TO NET CASH FLOW FROM
OPERATING ACTIVITIES
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
CONTINUING ACTIVITIES
Operating profit 7,133 6,089
Depreciation on tangible fixed assets 704 2,238
Grant amortisation (408) (271)
Loss/(profit) on sale of tangible fixed assets 10 (122)
Depreciation on loose tools 1,201 1,627
Increase/(decrease) in progress payments 1,384 (834)
Decrease/(increase) in stocks 2,044 (3,948)
(Increase) in debtors (1,992) (1,561)
(Decrease)/increase in creditors (1,546) 4,961
(Decrease)/increase in provisions (538) 590
------- -------
NET CASH INFLOW FROM CONTINUING
OPERATING ACTIVITIES 7,992 8,769
------- -------
------- -------
</TABLE>
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (6)
NOTES TO THE FINANCIAL STATEMENTS
1 PRINCIPAL ACCOUNTING POLICIES
The financial statements have been prepared in accordance with applicable
Accounting Standards in the United Kingdom and are stated in (pound)
sterling. A summary of the more important group accounting policies is set
OUt below.
BASIS OF ACCOUNTING
The structure of the group has undergone two major changes during the three
years to 31 March 1998: - The Group was refinanced on 2 May 1996 by means of
acquisition by the current holding company. The consideration for the
predecessor group was satisfied by the issue of 52,359,132 ordinary 1 pence
shares (credited as fully paid at 5 pence each) and 79,026,516 cumulative
redeemable preferred ordinary shares of 30 pence each and cash amounting to
(pound)40, 745,000. The carrying value of the assets exceeded the purchase
price by (pound)16,237,000.
- The Aerospace division was sold on 6 February 1998 for a consideration of
(pound)65.6 million.
These UK GAAP financial statements have been prepared on the basis that the
business in existence at 31 March 1998 had been in existence for the whole of
the two years to 31 March 1997 in its current form. Consequently, the
following material adjustments have been made:
- The results of the Aerospace Division have been excluded throughout
the periods.
- The profit on disposal of the Aerospace Division has been excluded
- The extent of the refinancing at 2 May 1996 that related to the Aerospace
Division has been eliminated by removing debt attributable to the Aerospace
Division.
The interest expense has been adjusted to reflect the debt allocation to the
Aerospace Division.
All other costs directly related to the Aerospace Division have been
eliminated. Allocation of certain costs have been made on a pro rata basis
which management asserts is a reasonable allocation method. Transactions and
balances with the Aerospace division previously eliminated as inter-company
transactions have been reinstated as external transactions and balances.
The fair values attaching to the assets refinanced on 2 May 1996 have been
adopted as the carry forward basis.
The consolidated financial statements comprise the financial statements of
the company and its subsidiary undertakings made up to the Saturday closest
to 31 March in any period.
The results of subsidiary undertakings acquired during the period are
included in the profit and loss account from the effective date of
acquisition and the results of subsidiary undertakings disposed of during the
period are included in the profit and loss account up to the date of
disposal. Intra-group sales and profits are eliminated fully on consolidation.
The financial statements are prepared on the historical cost basis of
accounting, modified to include the revaluation of certain fixed assets.
On acquisition of a subsidiary, all of the subsidiary's assets and
liabilities that exist at the date of acquisition are recorded at their fair
values reflecting their condition at that date. All changes to those assets
and liabilities, and the resulting gains and losses, that arise after the
group has gained control of the subsidiary are charged to the post
acquisition profit and loss account.
TURNOVER
Turnover is the amount receivable for goods and services supplied to
customers excluding value added tax.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (7)
TANGIBLE FIXED ASSETS AND LOOSE TOOLS
Tangible fixed assets and loose tools are stated at cost or valuation, less
accumulated depreciation.
Tangible fixed assets acquired with Sheffield Forgemasters Limited and its
subsidiaries have been stated at the lower of open market value for existing
use in the case of land and buildings, depreciated current replacement cost
in the case of plant and machinery or net recoverable amounts. Depreciation
is provided on a straight line basis over the shorter of the asset life or
the estimated life of the activity.
In the case of internally constructed assets, works overheads are included in
cost. Commissioning costs are not capitalised.
Where the group disposes of tangible fixed assets in the normal course of
trading, the profit or loss arising is included in operating profit and
disclosed as an exceptional item, if material. The profit or loss represents
the difference between the net proceeds of sale and net carrying amount.
LEASED ASSETS
Tangible fixed assets financed by leasing arrangements which transfer to the
group substantially all the benefits and risks of ownership of an asset, are
treated as if they had been purchased outright and the capital element of the
leasing commitment is shown as an obligation.
The lease rentals are treated as consisting of capital and interest elements.
The capital element is applied to reduce the outstanding obligation and the
interest element is charged in the profit and loss account so as to produce a
constant periodic rate of charge on the remaining balance of the liability
for each accounting period.
Costs in respect of operating leases are written off as and when they are
incurred.
DEPRECIATION
Depreciation is provided so as to write off the cost or valuation of tangible
fixed assets on a straight line basis over their estimated useful lives. No
depreciation is charged in the year of purchase except for motor vehicles and
certain items of plant where, in the opinion of the directors, such
depreciation is appropriate. The estimated useful lives for the main
categories of fixed assets are:
Freehold land Not depreciated
Freehold buildings 50 years
Plant and machinery 15 to 25 years
Motor vehicles 4 years
Computer equipment 4 years
Loose tools Various, based on expected usage
Leased assets are depreciated over their estimated useful lives, or over the
period of the lease if shorter.
Depreciation is accelerated on assets no longer in use, reducing such assets
to net realisable value.
GOODWILL
Goodwill arising on consolidation represents the difference between the fair
value of the consideration given over the fair value of the identifiable net
assets required. Goodwill arising on the acquisition of subsidiaries and
associates is written off immediately against reserves. Other purchased
goodwill is eliminated by amortisation through the profit and loss account
over its useful economic life.
FIXED ASSET INVESTMENTS
Investments in subsidiary undertakings are stated at the lower of cost to the
group and the directors' valuation of the investment.
STOCKS AND WORK IN PROGRESS
Stocks and work in progress are valued at the lower of cost and net realisable
value of the separate items of stock and work in progress or of groups of
similar items.
Cost of raw materials, spares and stores is determined at purchase price,
including delivery charges on a FIFO basis.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (8)
Cost of partly processed and finished products comprises cost of production,
including works overheads based on normal levels of activity, incurred in the
normal course of business in bringing the product to its present location and
condition. Net realisable value is the value at which it is estimated that
stock or work in progress can be realised in the normal course of business
after allowing for the cost of conversion from its existing state to a
finished condition and all costs to be incurred in marketing, selling and
distribution directly related to the items in question.
Provisions are made, where necessary, to cover defective, slow moving and
obsolete items.
Stocks received on consignment and their related obligations are recognised
in current assets and creditors respectively on adoption of the consignment
stock when the risks and rewards of ownership pass to the company.
PROGRESS PAYMENTS
Progress payments received and receivable are deducted from the value of work
in progress. Any excess amounts are included in creditors.
TRANSLATION OF FOREIGN CURRENCY AMOUNTS
Assets and liabilities in foreign currencies are translated into sterling at
the rates of exchange ruling at the balance sheet date or at the future
contracted rate if committed forward.
Exchange differences arising in the ordinary course of business are taken
into account in determining the trading result.
RESEARCH AND DEVELOPMENT
Revenue expenditure on research and development is written off in the period
in which it is incurred.
TECHNICAL "KNOW HOW"
Income arising from the sale of technical "know how" to third parties is
credited to the profit and loss account when the assistance is rendered.
Where this income takes the form of a royalty, it is credited to the profit
and loss account in the period in which it is received.
DEFERRED TAXATION
Deferred taxation arises when items are recognised for tax purposes in
periods that differ from the period in which the items are recognised for
accounting purposes. Provision is made for deferred taxation to the extent
that there is a reasonable probability that such taxation would become
payable in the foreseeable future.
PENSIONS
Based on actuarial advice, contributions are made to pension schemes to
provide for retirement benefits related to projected final salaries for
employees, and for post retirement increases. In accordance with the
provisions of Statement of Standard Accounting Practice No 24 contributions
are charged to the profit and loss account so as to spread the cost of
pensions over employees' working lives with the group. Independent actuaries
undertake valuations at intervals of not more than three years.
GOVERNMENT AND OTHER GRANTS
Grants that relate to specific capital expenditure are treated as deferred
income which is credited to the profit and loss account over the related
asset's useful life. Other grants are credited to the profit and loss account
when the expenditure to which they relate is incurred.
CUMULATIVE REDEEMABLE PREFERRED ORDINARY SHARES
In accordance with the provisions of Financial Reporting Standard No 4,
finance costs of non-equity shares are charged at a constant rate in the
profit and loss account as an appropriation of profit.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (9)
2 ANALYSIS BY GEOGRAPHICAL AREA - CONTINUING OPERATIONS
<TABLE>
<CAPTION>
1997 1996
TURNOVER L'000 L'000
<S> <C> <C>
United Kingdom 35,246 37,742
Rest of Europe 41,779 40,248
North America 14,803 14,305
Other 11,335 12,215
------- -------
103,163 104,510
------- -------
------- -------
</TABLE>
Substantially all the turnover of the group originates from production
facilities in the United Kingdom.
<TABLE>
<CAPTION>
PROFIT BEFORE TAXATION L'000 L'000
<S> <C> <C>
United Kingdom 5,189 2,773
Rest of Europe 2,541 3,835
North America (86) 566
Other 585 (212)
------ ------
8,229 6,962
------ ------
------ ------
NET ASSETS L'000
United Kingdom 58,514
Rest of Europe (32)
North America 10
------
58,492
------
------
</TABLE>
All turnover, profit before taxation and net assets result from the
acquisition of Sheffield Forgemasters Limited and its subsidiaries and
related financing during the year.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (10)
3 SUMMARY OF DIFFERENCES BETWEEN UK AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP)
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United
Kingdom (UK GAAP), which differ in certain material respects from generally
accepted accounting principles in the United States (US GAAP). Such
differences involve methods for measuring the amounts shown in the financial
statements, as well as additional disclosures required by US GAAP.
The following is a summary of the material adjustments to net income and
shareholders' equity which would have been required in applying the
significant differences between UK and US GAAP:
The principal differences between UK GAAP and US GAAP are disclosed below:
<TABLE>
<CAPTION>
NOTES L'000
<S> <C> <C>
NET INCOME REPORTED UNDER UK GAAP 6,671
US GAAP ADJUSTMENTS:
Business combinations a (20,254)
Pensions b 1,477
Restructuring costs c (407)
Other provisions f (156)
Revaluation of fixed assets -
depreciation expense h (127)
Deferred taxation; Application of
full liability method e -
Deferred taxation; Tax effect of
US GAAP adjustments e -
---------
NET LOSS UNDER US GAAP (12,796)
---------
BASIC EARNINGS PER SHARE i 0.06
DILUTED EARNINGS PER SHARE i 0.06
RECONCILIATION OF EQUITY SHAREHOLDERS' FUNDS
EQUITY UNDER UK GAAP 58,492
US GAAP ADJUSTMENTS:
Business combinations a 2,614
Pensions b (2,617)
Restructuring c (407)
Other provisions f (156)
Preference shares d (27,444)
Revaluation of fixed assets h (4,958)
Revaluation of fixed assets -
accumulated depreciation h 3,199
Deferred taxation; Application of
full liability method e -
Deferred taxation; Tax effect of
US GAAP adjustments e -
---------
EQUITY UNDER US GAAP 28,723
---------
</TABLE>
In preparing the summary of difference between UK and US GAAP, management is
required to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and
liabilities, and the estimates of revenue and expenses. Accounting estimates
have been employed
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (11)
in these financial statements to determine reported amounts, including
realisability, useful lives of tangible and intangible assets, income taxes
and other areas. Actual results could differ from those estimates.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (12)
A summary of the principle differences applicable to the Group are set out
below.
(a) BUSINESS COMBINATIONS
Under UK GAAP the acquisition of Sheffield Forgemasters Limited and its
subsidiaries on 2 May 1996 by Sheffield Forgemasters Group plc was accounted for
using acquisition accounting which requires purchase consideration to be
allocated to the net assets acquired based on their fair value on the date of
acquisition. The difference between the consideration and the fair value of the
identifiable net assets was recorded as goodwill and written off immediately
against reserves.
Under US GAAP the acquisition has been accounted for in accordance with the
provisions of Emerging Issues Task Force Consensus 88-16, BASIS IN LEVERAGED
BUYOUT TRANSACTIONS. In accordance with this standard, no change in control
occurred as a result of the buyout, and a change in accounting basis is
therefore not appropriate.
Under UK GAAP downward adjustments to fixed assets as a result of asset
impairments were included in the fair value of the assets and taken to reserves
as part of goodwill. To conform with US GAAP, asset impairments have been
removed from reserves and recorded as a one time charge to the income statement
as part of the US GAAP reconciliation.
(b) PENSIONS
Under UK GAAP the cost of providing pension benefits is expensed over the
average expected service lives of eligible employees in accordance with the
provisions of SSAP 24. SSAP 24 aims to produce an estimate of cost based on
long-term actuarial assumptions. Variations from the regular pension cost
arising from, for example, experience deficiencies or surpluses, are charged or
credited to the profit and loss account over the expected average remaining
service lives of current employees in the schemes. Differences between the
actual experience of the schemes and the actuarial assumptions made are
recognized immediately.
Under US GAAP the annual pension cost comprises the estimated cost of benefits
accruing in the period as determined in accordance with SFAS 87, which requires
readjustment of the significant actuarial assumptions annually to reflect
current market and economic conditions. Under SFAS 87 a pension liability or
asset representing the difference between benefit obligations and plan assets is
recognized in the balance sheet. In addition, in cases where the accumulated
benefit obligation exceeds the unamortized prior service cost, the company
records the excess as a separate component of shareholders' equity. Only those
accumulated gains or losses arising in the Scheme from a difference between the
actual experience of the Scheme and the actuarial assumptions made, falling
outside ten percent of the greater of the projected benefit obligation (PBO) or
the market-related value of the assets (the corridor), are amortized.
(c) RESTRUCTURING COSTS
Under UK GAAP when a decision has been made to restructure part of the Group's
business, provisions are made for redundancy and other costs.
US GAAP requires a number of specific criteria to be met before such costs can
be recognized as an expense. Among these is the requirement that all the
significant actions arising from the restructuring and their expected completion
dates must be identified by the balance sheet date.
In addition, US GAAP is more prescriptive than UK GAAP with respect to the
nature of items which may be classified as restructuring or exit costs. Costs
which do not qualify are recognized as liabilities when an obligation exists to
pay cash or otherwise sacrifice assets and are classified as an operating
expense of the business.
(d) PREFERENCE SHARES
Under UK GAAP preference shares with mandatory redemption features are
classified as non-equity interests and are recorded as a component of total
shareholders' equity.
Under US GAAP such redeemable preference shares are classified outside of
shareholders' equity.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (13)
(e) DEFERRED TAXATION
Under UK GAAP a provision is recorded for deferred taxation under the liability
method to the extent that it is probable that taxation liabilities or benefits
will crystallize within the foreseeable future.
Under US GAAP deferred tax is provided for on a full liability method in
accordance with SFAS 109, whereby deferred tax assets or liabilities are
recognized for differences between the financial and tax basis of assets and
liabilities and for tax loss carry forwards at the statutory rate at each
reporting date. A valuation allowance is established when it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
In management's judgement no material differences would arise with respect to
recognition of additional assets under the full provision methodology nor the
tax effect of the US GAAP adjustments, because a full valuation allowance under
SFAS 109 is considered appropriate.
(f) OTHER PROVISIONS
Under UK GAAP, certain provisions for future expenditures are allowed. Certain
of these provisions do not meet the liability recognition requirements of SFAS 5
under US GAAP.
(g) CASH FLOW INFORMATION
Under UK GAAP the Consolidated Cash Flow Statements are presented in accordance
with UK Financial Reporting Standard No 1, as revised (FRS 1). The Statements
prepared under FRS 1 present substantially the same information as that required
under US GAAP as interpreted by SFAS 95.
Under UK GAAP cash flows are presented for operating activities; returns on
investments and servicing of finance; taxation; capital expenditure and
financial investment; acquisitions and disposals; equity dividends paid;
management of liquid resources and financing.
US GAAP requires the classification of cash flows as resulting from operating,
investing, and financing activities. Changes in the balances of overdrafts are
classified within financing activities.
Consolidated statement of cash flows is set out below in accordance with the
classification requirements and definition of cash under US GAAP.
<TABLE>
<CAPTION>
<S> <C>
L'000
Cash provided by (used in) operating activities 8,207
Cash provided by (used in) investing activities (7,361)
Cash provided by (used in) financing activities 9,972
----------------
Net increase (decrease) in cash and cash equivalents 10,818
Cash and cash equivalents at the beginning of the year -
----------------
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 10,818
----------------
----------------
</TABLE>
(h) REVALUATION OF FIXED ASSETS
Under UK GAAP certain fixed assets have been revalued to fair market value.
Under US GAAP all fixed assets are recorded at historical cost.
(i) EARNINGS PER SHARE
Earnings per share is calculated in accordance with the provisions of SFAS
128 with Basic EPS calculated based on income available to common
stockholders divided by the weighted-average number of common shares
outstanding during the period and Diluted EPS considering all dilutive
potential common shares. The calculation was performed based on UK GAAP
financial numbers using US GAAP methodology.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (14)
4 NET OPERATING EXPENSES - CONTINUING OPERATIONS
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Distribution costs 9,216 8,953
Administrative expenses 8,159 9,376
Net other operating income (1,136) (868)
------ ------
NET OPERATING EXPENSES 16,239 17,461
------ ------
------ ------
</TABLE>
5 DIRECTORS' EMOLUMENTS
Staff costs include the following remuneration in respect of directors of
Sheffield Forgemasters Group Limited :
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Aggregate emoluments and benefits 520 503
Company pension contributions to defined benefit scheme 75 63
---- ----
595 566
---- ----
---- ----
</TABLE>
Aggregate emoluments include amounts paid to the highest paid director as
follows:
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Aggregate emoluments and benefits 169 166
------ -----
------ -----
L'000
Company contributions to pension scheme 23
-----
-----
</TABLE>
The highest paid director is a member of a hybrid pension scheme. On retirement,
he will benefit from the higher of the accrued pension calculated on a money
purchase basis or the accrued pension, calculated on a final salary basis. The
amount above represents the company contributions paid into the scheme during
the period. The company has taken advantage of the transitional relief
arrangements specified in SI 1998/570, not to disclose comparative figures.
S M Wallis has been granted options over share capital in the company which are
variable in amount depending upon future events.
No other directors have been granted options over the share capital of the
company. Retirement benefits are accruing to four directors under a defined
benefit scheme.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (15)
6 EMPLOYEE INFORMATION
The average weekly number of persons (including executive directors) employed by
the group during the year was:
<TABLE>
<CAPTION>
1997 1996
NUMBER Number
<S> <C> <C>
Full time 1,382 1,372
Part time 7 12
------ ------
1,389 1,384
------- -------
------- -------
1997 1996
L'000 L'000
STAFF COSTS (FOR THE ABOVE PERSONS):
Wages and salaries 25,425 24,824
Social security costs 2,109 2,055
Other pension costs (see note 20) 1,455 1,351
------- -------
28,989 28,230
------- -------
------- -------
</TABLE>
7 INTEREST RECEIVABLE AND SIMILAR CHARGES (NET)
<TABLE>
<CAPTION>
1997 1996
L'000 L,020
<S> <C> <C>
INTEREST RECEIVABLE
Interest receivable on bank deposits 1,120 298
Other interest receivable 500 00
----- -----
1,245 798
----- -----
INTEREST PAYABLE
On bank loans, overdrafts and other loans:
Repayable within 5 years, not by instalments (45) (242)
On finance leases (113) (48)
------ -----
(158) (290)
------ -----
NET INTEREST RECEIVABLE 1,087 508
------ -----
------ -----
</TABLE>
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (16)
8 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
Profit on ordinary activities before taxation is stated after
crediting:
Amortisation of government grants (see note 19) 247 271
Profit on disposal of tangible fixed assets 9 487
Rent receivable (net of outgoings) 94 151
------- -------
------- -------
And after charging:
Depreciation on and amounts written off:
Tangible owned fixed assets 471 2,212
Tangible fixed assets held under finance leases 233 25
Loose tools 1,200 1,594
Operating lease rentals:
Hire of plant and machinery 122 326
Auditors' remuneration for:
Audit (company(pound)6,000) 110 124
Other services to the company and its UK subsidiaries 227 40
Loss on disposal of tangible fixed assets 10 -
Exchange loss 8 -
------- -------
------- -------
</TABLE>
9 TAXATION
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
United Kingdom corporation tax based on profits for the
period at 33% (1996: 33%)
Current period 215 269
Deferred taxation (see note 18) 905 -
Overseas taxation 16 85
----- -----
1,136 354
Advance corporation tax written off 422 19
----- -----
1,558 373
----- -----
----- -----
</TABLE>
The accounting profit for the current period is decreased for taxation purposes
by (pound)6,948,000 in respect of the excess of tax allowances over
depreciation, losses and ACT brought forward and other timing differences, and
increased by (pound)750,000 in respect of permanent differences.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (17)
10 DIVIDENDS AND APPROPRIATIONS
<TABLE>
<CAPTION>
1997 1996
L'000 L'000
<S> <C> <C>
DIVIDENDS ON NON-EQUITY SHARES:
CUMULATIVE REDEEMABLE PREFERRED ORDINARY SHARES
Appropriation of future dividends 1,268 -
------ -----
------ -----
DIVIDENDS ON EQUITY SHARES:
REDEEMABLE CUMULATIVE `A' PREFERENCE SHARES
Final proposed of Nil pence net per share
(1996: 2.5 pence) - 37
Interim paid of 1.027 pence net per share
(1996: 2.5 pence) 15 37
----- -----
15 74
------ -----
------ -----
1,283 74
------ -----
------ -----
</TABLE>
In accordance with the provisions of FRS 4, the company has appropriated through
the profit and loss account dividends for the period of L1,268,000 on the
company's cumulative redeemable preferred ordinary shares.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (18)
11 TANGIBLE ASSETS
<TABLE>
<CAPTION>
PLANT AND
MACHINERY
PLANT AND MOTOR
FREEHOLD MACHINERY VEHICLES
LAND AND AND ON FINANCE
BUILDINGS VEHICLES LEASES TOTAL
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
COST
Acquired in the period 15,099 5,285 861 21,245
Additions 237 3,335 803 4,375
Disposals (10) (625) (130) (765)
Exchange differences - (12) - (12)
------- ------- ------- -------
AT 31 MARCH 1997 15,326 7,983 1,534 24,843
------- ------- ------- -------
DEPRECIATION
Charge for the period 142 329 233 704
Eliminated in respect of disposals - (100) (125) (225)
Exchange differences - (6) - (6)
------- ------- ------- -------
AT 31 MARCH 1997 142 223 108 473
------- ------- ------- -------
NET BOOK VALUE
AT 31 MARCH 1997 15,184 7,760 1,426 24,370
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
Cost disclosed above includes L2,641,000 in respect of assets in the
course of construction.
On acquisition, the book values of the assets have been stated at the lower of
open market value for existing use in the case of land and buildings,
depreciated current replacement cost in the case of plant and machinery or net
recoverable amounts.
Open market value for existing use of land and buildings was determined in
accordance with an independent valuation as at 30 April 1996, undertaken by
Lambert Smith Hampton, consultant surveyors and valuers.
Depreciated current replacement cost of plant and machinery was determined in
accordance with an independent valuation as at 30 April 1996, undertaken by
Weatherall Green & Smith, chartered surveyors.
Net recoverable amount has been arrived at by estimating future cash flows, net
of all costs including capital expenditure and discounting these to their
present values. The discount rate used has been based on the weighted cost of
capital and taking into account appropriate risk. The methodology used to value
fixed assets on acquisition is in accordance with Financial Reporting Standard 7
and Technical Release 773 issued by the Institute of Chartered Accountants in
England and Wales.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (18)
12 LOOSE TOOLS
<TABLE>
<CAPTION>
L'000
<S> <C>
COST
Acquired in the period 4,059
Additions 1,246
Disposals (58)
Write offs (830)
------
AT 31 MARCH 1997 4,417
------
DEPRECIATION
Charge for the period 1,200
Eliminated in respect of disposals (34)
Write offs (830)
------
AT 31 MARCH 1997 336
------
NET BOOK VALUE
AT 31 MARCH 1997 4,081
------
------
</TABLE>
13 SUBSIDIARIES
The Group holds 100% of the equity of the following companies.
<TABLE>
<CAPTION>
TRADING COUNTRY OF
INCORPORATION
<S> <C>
Sheffield Forgemasters Limited England
Forgemasters Steel & Engineering Limited England
River Don Castings Limited England
Forgealert Limited England
Forged Rolls (UK) Limited England
British Rollmakers Corporation Limited England
Euro SFM Edelstahl GmbH Germany
Sheffield Forgemasters (Canada) Limited Canada
NON-TRADING
Commercial Testing Services Limited England
C Akrill Limited England
Engineering Technologies Group Limited England
Firth Vickers Special Steels Limited England
Forgemasters Engineering Limited England
Gibson Engineering Company Limited England
Hadura Products Limited England
Johnson's Rolls Limited England
Midland Rollmakers Limited England
Miller & Company Limited Scotland
Offshore Castings Limited England
R B Tennent Limited Scotland
Sheffield Forgemasters Holdings Limited England
Sheffield Forgemasters Share Trustees Limited England
Sheffield Forgemasters Trustees Limited England
Thomas Perry Limited England
</TABLE>
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (19)
14 STOCKS AND WORK IN PROGRESS
<TABLE>
<CAPTION>
1997
L'000
<S> <C>
STOCKS AND WORK IN PROGRESS
Raw materials, spares and stores 2,573
Work in progress 12,799
Finished goods 1,314
------
16,686
------
------
</TABLE>
15 DEBTORS
<TABLE>
<CAPTION>
1997
L'000
<S> <C>
AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
Other debtors 137
------
137
------
------
AMOUNTS FALLING DUE WITHIN ONE YEAR
Trade debtors 26,021
Other debtors 10,591
Prepayments and accrued income 2,802
------
39,414
------
------
</TABLE>
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (20)
16 CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR
<TABLE>
<CAPTION>
1997
L'000
<S> <C>
Trade creditors 14,351
Bank overdrafts 91
Obligations under finance leases (see note 17) 413
Progress payments 333
Bills of exchange 96
UK corporation tax 203
Other taxation and social security payable 767
Other creditors 8,998
Accruals 3,729
------
28,981
------
------
</TABLE>
17 CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR
<TABLE>
<CAPTION>
1997
L'000
<S> <C>
Overseas pension provision 124
Obligations under finance leases (see below) 1,255
------
1,379
------
------
</TABLE>
FINANCE LEASES
The net finance lease obligations to which the group is committed are as
follows:
<TABLE>
<CAPTION>
L'000
<S> <C>
In one year or less 413
Between one and two years 406
Between two and five years 828
Over five years 21
------
1,668
------
------
</TABLE>
18 PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
PROVISION
FOR
RATIONALISATION
L'000
<S> <C>
Acquired in the period 2,340
Created in period 398
Released/utilised in period (936)
-----
AT 31 MARCH 1,802
-----
-----
</TABLE>
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (21)
DEFERRED TAXATION
A deferred tax asset has been recognised (and included within other debtors)
arising from the acquisition of Sheffield Forgemasters Limited (see note 21).
<TABLE>
<CAPTION>
DEFERRED
TAX
ASSET
L'000
<S> <C>
Trading losses recognised 1,583
Utilised in the year (905)
-----
AT 31 MARCH 1997 678
-----
-----
</TABLE>
No further deferred taxation has been provided in the financial statements.
The full potential (asset)/liability (calculated at 33%) is as follows:
<TABLE>
<CAPTION>
L'000
<S> <C>
Tax effect of timing differences due to:
Excess of net book value of qualifying
assets over tax written down value 4,890
Other short term timing differences (3,571)
National deferred tax on fair value adjustments (4,345)
------
(3,026)
------
------
</TABLE>
In addition to the losses noted above, there are taxation losses of
L31,200,000 held in subsidiary companies available to set off against
future trading profits of those subsidiary companies, which have not been
recognised in arriving at the potential deferred tax asset, though a
proportion of these have been recognised as an adjustment in the fair value
table in note 21.
No deferred taxation has been provided on the property revaluation due to the
availability of capital losses within the group.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIE (22)
19 ACCRUALS AND DEFERRED INCOME
<TABLE>
<CAPTION>
DEFERRED GRANTS TOTAL
INCOME
L'000 L'000 L'000
<S> <C> <C> <C>
Acquired 419 3,084 3,503
Grants received - 177 177
Funds repaid (257) - (257)
Amortisation - (247) (247)
Funds credited to profit (162) - (162)
------ ------ ------
AT 31 MARCH 1997 0 3,014 3,014
------ ------ ------
------ ------ ------
</TABLE>
<TABLE>
<CAPTION>
L'000
1997
<S> <C>
The grants will be amortised as follows:
Within one year 281
In the second to fifth years inclusive 896
After five years 1,837
-------
3,014
-------
-------
</TABLE>
The group has received funds from the Sheffield Development Corporation as a
contribution to the cost of relocating the operating activities of a
subsidiary company from property which the Corporation wishes to develop.
This deferred income is being absorbed by the acquisition of tangible assets
and in defraying the economic costs associated with the transfer.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (23)
20 PENSION AND SIMILAR OBLIGATIONS
The group's obligations to provide pensions to both retired and current
employees are covered by the Sheffield Forgemasters Pension Scheme and are
based on final pensionable pay. The assets of the scheme are held separately
from those of the group and invested on behalf of the trustees. Contributions
to the scheme are charged to the profit and loss account so as to spread the
cost of pensions over employees' working lives with the group. The pension
cost is assessed with the advice of an independent qualified actuary. The
most recent valuation used the projected unit method and was at 5 April 1995.
For the purposes of assessing contributions under Statement of Standard
Accounting Practice No 24, the principal actuarial assumptions used are based
on investment returns exceeding pay growth and pension increases by 2 per
cent per annum and 4 1/2 per cent per annum respectively.
The surplus is being amortised over the expected average remaining service
life of employees of 12 years 6 months, as a uniform percentage of payroll.
For funding purposes, the surplus is being spread over a longer period.
The most recent actuarial valuation showed that the market value of the
scheme's assets was L93,494,000 and that the actuarial value of those
assets represented 120 per cent of the benefits that had accrued to members,
after allowing for expected future increases in earnings and pensions.
Following discussions with the Trustee and the company it was agreed that the
suspension of both company and employee contributions will be continued until
30 September 1997.
An amount of L2,124,000 is included within debtors which represents the
fair value of the pension surplus attributable to the group at acquisition, less
the excess of the accumulated pension cost over payment of contributions to the
pension scheme
21 ACQUISITION OF SHEFFIELD FORGEMASTERS LTD AND ITS SUBSIDIARIES
Whilst the financial statements have been prepared on the basis set out in
note 1, the following note gives details of the refinancing of the group as
adjusted for the exclusion of the Aerospace division.
On 2 May 1996 the company acquired Sheffield Forgemasters Limited and its
subsidiaries for a total consideration of L25,499,000. The
consideration was satisfied by the issue of 52,359,132 ordinary 1p shares
(credited as fully paid at 5p each) and 57,119,849 cumulative redeemable
preferred ordinary shares of 30p each and cash amounting to L5,745,000.
Acquisition and related financing expenses amounted to L1,276,000, of
which L370,000 has been capitalised as cost of investment and
L907,000 has been written off to the share premium account. The group
has accounted for the acquisition in accordance with the principles of
Financial Reporting Standard No 7.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (24)
The assets and liabilities of Sheffield Forgemasters Limited acquired are set
out below:
<TABLE>
<CAPTION>
ACCOUNTING
POLICY OTHER
BOOK VALUE REALIGNMENT ADJUSTMENTS FAIR VALUE
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
TANGIBLE FIXED ASSETS AND LOOSE TOOLS 47,700 472 (22,868) 25,304
CURRENT ASSETS
Stocks and work in progress 17,518 17,518
Debtors 24,882 24,882
Tax losses recognised - 1,583 1,583
Pension provision (1,387) 5,015 3,628
Cash at bank and in hand 4,952 4,952
------ ------ ------ ------
TOTAL ASSETS 93,665 472 (16,270) 77,867
LIABILITIES
Creditors (excluding bank overdraft (22,557) (439) (22,996)
and pension provision)
Bank overdraft (1,615) (1,615)
Provisions for liabilities and charges (2,340) (2,340)
Accruals and deferred income (3,503) (3,503)
------ ------ ------ ------
NET ASSETS 63,650 33 (16,270) 47,413
------ ------ ------
------ ------ ------
Discount on acquisition (21,544)
------
25,869
------
------
SATISFIED BY
Shares allotted 19,754
Cash 5,745
Acquisition expenses 370
------
25,869
------
------
</TABLE>
Other adjustments comprise the valuation of fixed assets at net recoverable
amounts as described in note 11, and the recognition of tax losses and
pension surplus at the date of acquisition.
IMPACT ON CASHFLOWS
The acquired company Sheffield Forgemasters Limited and subsidiaries have
contributed substantially all of the group's net operating and other
cashflows in the period.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (25)
22 CALLED-UP SHARE CAPITAL
<TABLE>
<CAPTION>
L'000
<S> <C>
95,000,000 (1996: 876,064) ordinary shares of 1p each 950
137,000,000 cumulative redeemable preferred 41,100
ordinary shares of 30p each
5,000,000 preferred ordinary shares of 1p each 50
------
42,100
------
------
ALLOTTED, CALLED-UP AND FULLY PAID
75,123,743 (1996: 834,514) ordinary shares of 1p each 751
91,478,861 cumulative redeemable preferred
ordinary shares of 30p each 27,444
------
28,195
------
------
</TABLE>
Subject to fulfilling conditions precedent relating to profitability
contained in the company's articles of association, the cumulative redeemable
preferred ordinary shares carry a dividend of 7.25% per annum (inclusive of
the imputed tax credit) for each of the two financial years commencing 1
April 1997. Thereafter the dividend is payable at the rate of 8.33% per annum.
The cumulative redeemable preferred ordinary shares may be redeemed as to one
third on 1 April in each of the years 2004, 2005 and 2006. The shares are
non-voting whilst the company is not in default of its obligations to redeem
these shares. The shares carry preferential rights as to dividends and to a
return of capital in the event of a winding up.
Details of the company's share issue to acquire Sheffield Forgemasters
Limited are set out in Note 21.
23 SHARE PREMIUM ACCOUNT AND RESERVES
<TABLE>
<CAPTION>
CAPITAL SHARE PROFIT
RESERVE PREMIUM AND LOSS
ACCOUNT ACCOUNT
L'000 L'000 L'000
<S> <C> <C> <C>
Issue of shares - 3,005 -
Issue costs - (907) -
Retained profit for the financial period - - 5,388
Cumulative redeemable preferred
ordinary shares appropriation - - 1,267
Discount arising on acquisition 21,544 - -
------- ------- -------
AT 31 MARCH 1997 21,544 2,098 6,655
------- ------- -------
------- ------- -------
</TABLE>
CAPITAL RESERVE
The capital reserve arises on the purchase of the issued share capital of
Sheffield Forgemasters Limited on 2 May 1996.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (26)
24 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
<TABLE>
<CAPTION>
1997
L'000
<S> <C>
Opening shareholders' funds -
Retained profit for the financial period 5,388
Cumulative redeemable preferred ordinary shares apropriation 1,267
Proceeds of share issue 30,293
Discount arising on purchase of subsidiary 21,544
-------
CLOSING SHAREHOLDERS' FUNDS 58,492
-------
-------
</TABLE>
25 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN THE NET DEBT
<TABLE>
<CAPTION>
L'000
<S> <C>
Increase in cash in the period (10,727)
Cash outflow from decrease in debt (194)
------
Change in net debt resulting from cash flows (10,921)
Other non-cash items:
New finance leases 394
------
MOVEMENT IN NET DEBT IN THE PERIOD (10,527)
Net debt acquired 1,468
------
NET DEBT AT 31 MARCH 1997 (9,059)
------
------
</TABLE>
26 ANALYSIS OF NET DEBT
<TABLE>
<CAPTION>
OTHER NON ACQUIRED AT
CASH CASH IN THE 31 MARCH
FLOW CHANGES PERIOD 1997
L'000 L'000 L'000 L'000
<S> <C> <C> <C> <C>
Cash in hand, at bank (5,866) (4,952) (10,818)
Overdraft (1,524) 1,615 91
------ ------ ------ ------
(7,390) 0 (3,337) (10,727)
Finance lease (194) 394 1,468 1,668
------ ------ ------ ------
TOTAL (7,584) 394 (1,869) (9,059)
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (27)
27 CAPITAL COMMITMENTS
<TABLE>
<CAPTION>
L'000
<S> <C>
Capital expenditure that has been contracted for but
has not been provided for in the financial statements 2,234
-----
-----
</TABLE>
28 FINANCIAL COMMITMENTS
At 31 March 1997 annual commitments under non-cancellable operating leases
were as follows:
<TABLE>
<CAPTION>
L'000
<S> <C>
Expiring within one year 15
Expiring between two and five years inclusive 15
Expiring in over five years -
-----
30
-----
-----
</TABLE>
29 RELATED PARTY DISCLOSURES
The company has taken advantage of the exemption not to disclose transactions
with other entities that fall within the group of companies owned 90% by the
ultimate parent company.
<PAGE>
SHEFFIELD FORGEMASTERS GROUP LIMITED AND SUBSIDIARIES (28)
<PAGE>
APPENDIX B
Pro Forma Consolidated
Financial Statements
<PAGE>
ATCHISON CASTING CORPORATION
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements are based
on the historical consolidated financial statements of Atchison Casting
Corporation ("Company"). These statements also show the unaudited pro forma
consolidated information to give effect to the acquisition of Sheffield
Forgemasters Group Limited ("Sheffield"), which was acquired as of April 6,
1998. This acquisition was accounted for as a purchase. The accompanying
unaudited pro forma consolidated balance sheet reflects this acquisition as
if it occurred at March 31, 1998 and the unaudited pro forma consolidated
statement of operations for the twelve-months ended March 31, 1998, the
nine-months ended March 31, 1998 and for the year ended June 30, 1997 reflect
the acquisition as if it occurred as of July 1, 1996. The unaudited pro
forma consolidated financial statements are not necessarily indicative of the
results of future operations.
<PAGE>
<TABLE>
<CAPTION>
ATCHISON CASTING CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(Unaudited)
(thousands)
Atchison Sheffield Pro Forma
ASSETS Historical (1) Historical (2) Adjustments Consolidated
-------------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $4,466 $38,031 ($27,897) (3) $14,600
Accounts receivable 56,030 47,975 3,085 (3) 107,090
Inventories 38,811 24,441 63,252
Deferred income taxes 5,663 5,663
Other current assets 3,518 6,746 10,264
--------- -------- -------- --------
Total current assets 108,488 117,193 (24,812) 200,869
Property, plant and equipment 116,102 38,472 (15,546) (4) 139,028
Intangible assets 26,485 26,485
Deferred income taxes 11,379 (5) 11,379
Deferred charges 397 400 (6) 797
Other assets 5,179 5,179
--------- -------- -------- --------
TOTAL $256,651 $155,665 ($28,579) $383,737
--------- -------- -------- --------
--------- -------- -------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $16,987 $21,075 $38,062
Accrued expenses 25,708 40,103 $7,822 (3) 73,633
Current maturities of long-term
obligations 3,842 3,842
--------- -------- -------- --------
Total current liabilities 46,537 61,178 7,822 115,537
Long-term obligations 45,214 55,495 (7) 100,709
Deferred income taxes 21,932 21,932
Other long-term obligations 1,806 1,676 3,482
Excess of fair value of acquired
net assets over cost, net 426 426
Postretirement obligation other than pension 7,596 7,596
Minority interest in subsidiary 2,010 915 (8) 2,925
Stockholders equity
Common stock 82 1,251 (1,251) (4) 82
Additional paid-in capital 80,811 85,135 (85,135) (4) 80,811
Retained earnings 50,568 6,425 (6,425) (4) 50,568
Accumulated foreign currency
translation adjustment (331) (331)
--------- -------- -------- --------
Total stockholders equity 131,130 92,811 (92,811) 131,130
--------- -------- -------- --------
TOTAL $256,651 $155,665 ($28,579) $383,737
--------- -------- -------- --------
--------- -------- -------- --------
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Balance Sheet
<PAGE>
ATCHISON CASTING CORPORATION
Notes to Unaudited Pro Forma Consolidated Balance Sheet
1. The "Atchison Historical" column reflects the consolidated balance sheet
of the Company as of March 31, 1998.
2. The "Sheffield Historical" column reflects the consolidated balance sheet
of Sheffield as of April 6, 1998, as reconciled from UK GAAP to US GAAP.
The Unaudited Pro Forma Consolidated Balance Sheet assumes an exchange rate
of $1.6665, representing the exchange rate of British Pounds to U.S. Dollars
at April 6, 1998.
3. To adjust respective balances to actual assets acquired or liabilities
assumed under the Deed of Warranty and Undertaking:
Cash ($27,897,000)
Accounts receivable (a) 3,085,000
Accrued expenses (b) 7,822,000
(a) Includes a receivable of $13,807,000 relating to a payment to be
collected by Atchison Casting UK Ltd ("ACUK") on behalf of
Sheffield's former shareholders as a result of the sale by
Sheffield of former subsidiaries.
(b) Includes an accrued expense of $13,807,000 due to former
shareholders of Sheffield as a result of the sale by Sheffield of
former subsidiaries.
4. To reflect the purchase of Sheffield by ACUK, a subsidiary of the Company.
The acquisition has been accounted for under the purchase method and,
accordingly, the purchase price has been allocated to the assets acquired
and the liabilities assumed based on their fair values.
<TABLE>
<CAPTION>
<S> <C>
Estimated value of net assets of
Sheffield as of April 6, 1998 $92,811,000
Adjustment to assets acquired or
liabilities assumed (see footnote 3) (32,634,000)
Adjustment to record deferred income
tax asset (see footnote 5) 11,379,000
Purchase price of approximately 95% interest
in ACUK (borrowings) (see footnote 7) (54,931,000)
Estimated acquisition costs (see footnote 7) (164,000)
Minority interest in ACUK as of April 6, 1998
(see footnote 8) (915,000)
-----------
Net reduction of long-term assets ($15,546,000)
-----------
-----------
</TABLE>
Management has made a preliminary allocation of the purchase price to the
assets and liabilities of Sheffield based on information currently
available. Management intends to
<PAGE>
obtain appraisals, including valuation reports on pension plans, and other
information which will be used to complete the ultimate allocation of the
purchase price. The final allocation of the purchase price may be
substantially different than the preliminary allocation.
5. Represents the recording of a deferred income tax asset resulting from
Sheffield's net operating loss carryforwards and the effect of the purchase
price allocation.
6. To record capitalized financing costs paid by the Company in connection
with the Company's Amended and Restated Credit Agreement dated April 3,
1998.
7. Represents borrowings of $55,495,000 under the Amended and Restated Credit
Agreement to finance the $54,931,000 Sheffield purchase price, $164,000 of
fees and expenses related to the acquisition and $400,000 of fees and
expenses related to the Amended and Restated Credit agreement. The exchange
rate paid by the Company for the purchase of British pounds sterling to
finance the acquisition of Sheffield was $1.6665
8. Represents the recording of minority interest to reflect the purchase, by
Sheffield management, of 1,040,000 ordinary shares of ACUK. The 1,040,000
ordinary shares represent approximately 5% of the outstanding stock of ACUK.
<PAGE>
ATCHISON CASTING CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Twelve Months ended March 31, 1998
(Unaudited)
(thousands)
<TABLE>
<CAPTION>
Atchison Sheffield Pro Forma
Historical (1) Historical (2) Adjustments Combined
-------------- -------------- ----------- --------
<S> <C> <C> <C> <C>
Net Sales $313,690 $158,822 $472,512
Cost of goods sold 264,040 125,719 ($908) (3) 388,851
-------- -------- ------ --------
Gross profit 49,650 33,103 908 83,661
-------- -------- ------ --------
Operating expenses:
Selling, general and administrative 25,185 32,464 57,649
Amortization of intangibles 766 766
-------- -------- ------ --------
Total operating expenses 25,951 32,464 58,415
-------- -------- ------ --------
Operating income 23,699 639 908 25,246
Interest expense (income), net 2,953 (3,676) 8,231 (4) 7,508
Minority interest in net income
of subsidiaries 417 (53) (5) 364
-------- -------- ------ --------
Income (loss) before taxes 20,329 4,315 (7,270) 17,374
Income taxes 8,647 1,685 (2,777) (6) 7,555
-------- -------- ------ --------
Net Income (loss) $11,682 $2,630 ($4,493) $9,819
-------- -------- ------ --------
-------- -------- ------ --------
Net income per common and
equivalent shares:
Basic $1.50 $1.26
-------- --------
-------- --------
Diluted $1.49 $1.26
-------- --------
-------- --------
Weighted average number of
common and equivalent
shares outstanding:
Basic 7,769,263 7,769,263
-------- --------
-------- --------
Diluted 7,819,240 7,819,240
-------- --------
-------- --------
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Operations
<PAGE>
ATCHISON CASTING CORPORATION
Notes to Unaudited Pro Forma Consolidated Statement of Operations
1. The "Atchison Historical" column reflects the consolidated results of
operations of the Company for the twelve months ended March 31, 1998.
2. The "Sheffield Historical" column reflects the consolidated results of
operations of Sheffield for the twelve months ended March 31, 1998, as
reconciled from UK GAAP to US GAAP. The Unaudited Pro Forma Consolidated
Statement of Operations assumes a exchange rate of $1.647, representing the
average monthly exchange rate of British Pounds to U.S. Dollars for the
twelve months ended March 31, 1998.
3. Represents an adjustment to depreciation expense to reflect the reduction
in the carrying value of Sheffield's long-term assets.
<TABLE>
<CAPTION>
<S> <C>
Depreciation expense recorded for the twelve months
ended March 31, 1998, based on a straight line basis
over their estimated useful lives, ranging from
4 years to 39 years. $1,611,000
Depreciation expense for a twelve month period on the
restated carrying value of Sheffield's long-term
assets, based on a straight line basis over their
estimated useful lives, ranging from 4 years to
39 years. 703,000
----------
Net reduction in depreciation expense $908,000
</TABLE>
4. Represents interest expense on net borrowings related to the Sheffield
acquisition:
<TABLE>
<CAPTION>
<S> <C>
Interest expense on borrowings of $40,000,000
at 8.32% (a) $3,328,000
Interest expense on borrowings of $15,495,000
at 7.4% (b) 1,147,000
Amortization of the $400,000 capitalized financing
costs over five years 80,000
----------
4,555,000
Interest income recorded by Sheffield for the
twelve months ended March 31, 1998 3,676,000
----------
Net adjustment to net interest expense $8,231,000
</TABLE>
(a) On April 6, 1998, the Company converted it's $40,000,000 U.S.
denominated term loan to Pounds at a 8.32% fixed rate of
interest.
<PAGE>
(b) 7.4% represents an average rate paid by the Company on its
revolving credit facility.
5. Represents minority interest in the net income of Sheffield. Sheffield
management owns 1,040,000, or approximately 5%, of the outstanding shares
of ACUK.
<TABLE>
<CAPTION>
<S> <C>
Operating income of Sheffield, as reported for
the twelve months ended March 31, 1998 $639,000
Pro forma adjustments to reported operating
income (see footnote 3) 908,000
----------
Adjusted pro forma operating income 1,547,000
Interest expense on intracompany borrowings by
ACUK ($37,678,000 at 8.32%) (a) 3,135,000
----------
Pro forma loss before tax (1,588,000)
Income tax benefit at 33% rate (524,000)
----------
Pro forma net loss ($1,064,000)
----------
----------
5% minority interest in pro forma net loss
of Sheffield ($53,000)
----------
----------
</TABLE>
(a) ACUK was capitalized by the Company with $18,332,000 of
intracompany equity and $37,678,000 of intracompany debt.
<PAGE>
6. To reflect tax effect on pro forma consolidated income before tax:
<TABLE>
<CAPTION>
Loss Tax Income
Before Tax Rate (c) Tax Benefit
----------- -------- -----------
<S> <C> <C> <C>
Sheffield (a) ($1,588,000) 33% ($524,000)
Atchison (b) (1,420,000) 40% ($568,000)
----------
Total tax effect ($1,092,000)
Income tax expense recorded by Sheffield for
the twelve months ended March 31, 1997 1,685,000
----------
Net adjustment to income tax expense ($2,777,000)
(a) See footnote 5
(b) Interest expense on net borrowings related to
Sheffield acquisition (see footnote 4) $4,555,000
Interest income from ACUK (see footnote 5) 3,135,000
----------
Net adjustment to interest expense at Atchison $1,420,000
(c) The 33% represents the UK statutory tax rate.
The 40% represents the combined U.S. federal,
state and local statutory rates.
</TABLE>
<PAGE>
ATCHISON CASTING CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended March 31, 1998
(Unaudited)
(thousands)
<TABLE>
<CAPTION>
Atchison Sheffield Pro Forma
Historical(1) Historical(2) Adjustments Consolidated
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Net Sales $244,854 $118,608 $363,462
Cost of goods sold 208,859 102,431 ($681) (3) 310,609
------------- ------------- ----------- ----------
Gross profit 35,995 16,177 681 52,853
------------- ------------- ----------- ----------
Operating expenses:
Selling, general and administrative 18,856 19,630 (1,162) (4) 37,324
Amortization of intangibles 637 637
------------- ------------- ----------- ----------
Total operating expenses 19,493 19,630 (1,162) 37,961
------------- ------------- ----------- ----------
Operating income (loss) 16,502 (3,453) 1,843 14,892
------------- ------------- ----------- ----------
Interest expense (income), net 2,126 (2,759) 6,175 (5) 5,542
Minority interest in net income
of subsidiaries 258 (133) (6) 125
------------- ------------- ----------- ----------
Income (loss) before taxes 14,118 (694) (4,199) 9,225
Income taxes 5,990 859 (2,592) (7) 4,257
------------- ------------- ----------- ----------
Net Income (loss) $8,128 ($1,553) ($1,607) $4,968
------------- ------------- ----------- ----------
------------- ------------- ----------- ----------
Net income per common and
equivalent shares:
Basic $1.00 $0.61
------------- ----------
------------- ----------
Diluted $0.99 $0.60
------------- ----------
------------- ----------
Weighted average number of
common and equivalent
shares outstanding:
Basic 8,161,647 8,161,647
------------- ----------
------------- ----------
Diluted 8,213,281 8,213,281
------------- ----------
------------- ----------
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Operations
<PAGE>
ATCHISON CASTING CORPORATION
Notes to Unaudited Pro Forma Consolidated Statement of Operations
1. The "Atchison Historical" column reflects the consolidated results of
operations of the Company for the nine months ended March 31, 1998.
2. The "Sheffield Historical" column reflects the consolidated results of
operations of Sheffield for the nine months ended March 31, 1998, as
reconciled from UK GAAP to US GAAP. The Unaudited Pro Forma Consolidated
Statement of Income assumes an exchange rate of $1.648, representing the
average monthly exchange rate of British Pounds to U.S. Dollars for the
nine months ended March 31, 1998.
3. Represents an adjustment to depreciation expense to reflect the reduction
in the carrying value of Sheffield's long-term assets.
<TABLE>
<CAPTION>
<S> <C>
Depreciation expense recorded for the nine months ended
March 31, 1998, based on a straight line basis over their
estimated useful lives, ranging from 4 years to 39 years. $1,208,000
Depreciation expense for a nine month period on the
restated carrying value of Sheffield's long-term assets,
based on a straight line basis over their estimated
useful lives, ranging from 4 years to 39 years. 527,000
----------
Net reduction in depreciation expense $ 681,000
</TABLE>
4. Represents the elimination of non-recurring charges related to the sale of
Sheffield to the Company:
<TABLE>
<CAPTION>
<S> <C>
Management bonuses for completing the sale
transaction $470,000
Professional fees paid relating to the transaction 692,000
----------
$1,162,000
</TABLE>
<PAGE>
5. Represents interest expense on net borrowings related to the Sheffield
acquisition:
<TABLE>
<CAPTION>
<S> <C>
Interest expense on borrowings of $40,000,000 at 8.32% (a) $2,496,000
Interest expense on borrowings of $15,495,000 at 7.4% (b) 860,000
Amortization of the $400,000 capitalized financing costs
over five years 60,000
----------
$3,416,000
Interest income recorded by Sheffield for the nine months
ended March 31, 1998 2,759,000
----------
Net adjustment to net interest expense $6,175,000
</TABLE>
(a) On April 6, 1998, the Company converted it's $40,000,000 U.S.
denominated term loan to Pounds Sterling at a 8.32% fixed rate
of interest.
(b) 7.4% represents an average rate paid by the Company on its
revolving credit facility.
6. Represents minority interest in the net income of Sheffield. Sheffield
management owns 1,040,000, or approximately 5%, of the outstanding shares
of ACUK.
<TABLE>
<CAPTION>
<S> <C>
Operating loss of Sheffield, as reported for the
nine months ended March 31, 1998 ($3,453,000)
Pro forma adjustments to reported operating loss
(see footnote 3 and 4) 1,843,000
------------
(1,610,000)
Adjusted pro forma operating loss
Interest expense on intracompany borrowings by
ACUK ($37,678,000 at 8.32% for nine months) (a)
2,351,000
------------
Pro forma loss before tax (3,961,000)
Income tax benefit at 33% rate 1,307,000
------------
Pro forma net loss (2,654,000)
------------
------------
5% minority interest in pro forma net loss of Sheffield ($133,000)
------------
------------
</TABLE>
<PAGE>
(a) ACUK was capitalized by the Company with $18,332,000 of
intracompany equity and $37,678,000 of intracompany debt.
7. To reflect tax effect on pro forma consolidated income before tax:
<TABLE>
<CAPTION>
Loss Tax Income
Before Tax Rate (c) Tax Benefit
----------- -------- ------------
<S> <C> <C> <C>
Sheffield (a) ($3,961,000) 33% ($1,307,000)
Atchison (b) (1,065,000) 40% ($426,000)
-----------
Total tax effect ($1,733,000)
Income tax expense recorded by Sheffield for
the nine months ended March 31, 1998
859,000
-----------
Net adjustment to income tax expense ($2,592,000)
(a) See footnote 6
(b) Interest expense on net borrowings related to
Sheffield acquisition (see footnote 5) $3,416,000
Interest income from ACUK (see footnote 6) 2,351,000
-----------
Net adjustment to interest expense at Atchison $1,065,000
(c) The 33% represents the UK statutory tax rate.
The 40% represents the combined U.S.
federal, state and local statutory rates.
</TABLE>
<PAGE>
ATCHISON CASTING CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended June 30, 1997
(Unaudited)
(thousands)
<TABLE>
<CAPTION>
Atchison Sheffield Pro Forma
Historical(1) Historical(2) Adjustments Combined
------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Net Sales $245,769 $164,669 $410,438
Cost of goods sold 203,386 133,781 ($773)(3) 336,394
Impairment loss for fixed assets 32,329 32,329
------------- ------------- ----------- ---------
Gross profit 42,383 (1,441) 773 41,715
------------- ------------- ----------- ---------
Operating expenses:
Selling, general and administrative 21,559 18,029 39,588
Amortization of intangibles 632 632
------------- ------------- ----------- ---------
Total operating expenses 22,191 18,029 40,220
------------- ------------- ----------- ---------
Operating income 20,192 (19,470) 773 1,495
Interest expense (income), net 3,227 (1,735) 6,290 (4) 7,782
Minority interest in net income
of subsidiaries 270 (731)(5) (461)
------------- ------------- ----------- ---------
Income (loss) before taxes 16,695 (17,735) (4,786) (5,826)
Income taxes 6,967 2,487 (10,260)(6) (806)
------------- ------------- ----------- ---------
Net Income (loss) $9,728 ($20,222) $5,474 ($5,020)
------------- ------------- ----------- ---------
------------- ------------- ----------- ---------
Net income (loss) per common and
equivalent shares:
Basic $1.68 ($0.87)
------------- ---------
------------- ---------
Diluted $1.67 ($0.86)
------------- ---------
------------- ---------
Weighted average number of
common and equivalent
shares outstanding:
Basic 5,796,281 5,796,281
------------- ---------
------------- ---------
Diluted 5,830,695 5,830,695
------------- ---------
------------- ---------
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statement of Operations
<PAGE>
ATCHISON CASTING CORPORATION
Notes to Unaudited Pro Forma Consolidated Statement of Operations
1. The "Atchison Historical" column reflects the consolidated results of
operations of the Company for the fiscal year ended June 30, 1997.
2. The "Sheffield Historical" column reflects the consolidated results of
operations of Sheffield for the twelve months ended March 31, 1997, as
reconciled from UK GAAP to US GAAP. The Unaudited Pro Forma Consolidated
Statement of Income assumes a exchange rate of $1.596, representing the
average monthly exchange rate of British Pounds to U.S. Dollars for the
twelve months ended March 31, 1997.
3. Represents an adjustment to depreciation expense to reflect the reduction
in the carrying value of Sheffield's long-term assets.
<TABLE>
<CAPTION>
<S> <C>
Depreciation expense recorded for the twelve
months ended March 31, 1997, based on a straight
line basis over their estimated useful
lives, ranging from 4 years to 39 years. $1,124,000
Depreciation expense for a twelve month period
on the restated carrying value of Sheffield's
long-term assets, based on a straight line
basis over their estimated useful lives, ranging
from 4 years to 39 years. 351,000
----------
Net reduction in depreciation expense $773,000
</TABLE>
4. Represents interest expense on net borrowings related to the Sheffield
acquisition:
<TABLE>
<CAPTION>
<S> <C>
Interest expense on borrowings of $40,000,000 at 8.32% (a) $3,328,000
Interest expense on borrowings of $15,495,000 at 7.4% (b) 1,147,000
Amortization of the $400,000 capitalized financing costs
over five years 80,000
----------
4,555,000
Interest income recorded by Sheffield for the twelve months
ended March 31, 1997 1,735,000
----------
Net adjustment to net interest expense $6,290,000
</TABLE>
(a) On April 6, 1998, the Company converted it's
$40,000,000 U.S. denominated term loan to British
pounds at a 8.32% fixed rate of interest.
<PAGE>
(b) 7.4% represents an average rate paid by the Company
on its revolving credit facility.
5. Represents minority interest in the net income of Sheffield. Sheffield
management owns 1,040,000, or approximately 5%, of the outstanding shares
of ACUK.
<TABLE>
<CAPTION>
<S> <C>
Operating loss of Sheffield, as reported for the
twelve months ended March 31, 1997 ($19,470,000)
Pro forma adjustments to reported operating loss
(see footnote 3) 773,000
------------
Adjusted pro forma operating loss (18,697,000)
Interest expense on intracompany borrowings by
ACUK ($37,678,000 at 8.32%) (a) 3,135,000
------------
Pro forma loss before tax (21,832,000)
Income tax benefit at 33% rate 7,205,000
------------
Pro forma net loss ($14,627,000)
------------
------------
5% minority interest in pro forma net loss of
Sheffield ($731,000)
------------
------------
</TABLE>
(a) ACUK was capitalized by the Company with $18,332,000 of
intracompany equity and $37,678,000 of intracompany debt.
<PAGE>
6. To reflect tax effect on pro forma consolidated loss before tax:
<TABLE>
<CAPTION>
Loss Tax Income
Before Tax Rate (c) Tax Benefit
------------ -------- -----------
<S> <C> <C> <C>
Sheffield (a) ($21,832,000) 33% ($7,205,000)
Atchison (b) (1,420,000) 40% ($568,000)
------------
Total tax effect ($7,773,000)
</TABLE>
Income tax expense recorded by Sheffield for
the twelve months ended March 31, 1997 2,487,000
------------
Net adjustment to tax expense ($10,260,000)
(a) See footnote 5
(b) Interest expense on net borrowings related
to Sheffield acquisition (see footnote 4) $4,555,000
Interest income from ACUK (see footnote 5) 3,135,000
------------
Net adjustment to interest expense at Atchison $1,420,000
(c) The 33% represents the UK statutory tax rate.
The 40% represents the combined U.S.
federal, state and local statutory rates.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
-------- -------
<S> <C>
2.1 The Offer from ACUK to the stockholders of Sheffield dated
April 6, 1998 (incorporated by reference to Exhibit 2.1
of the Company's Current Report on Form 8-K dated 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 the Company's Current Report on Form 8-K dated April 16,
1998).
4.1a The Amended and Restated Credit Agreement dated as of
April 3, 1998, among the registrant, the Banks party thereto
and Harris Trust and Savings Bank, as Agent (incorporated
by reference to Exhibit 4.1a of the Company's Current
Report on Form 8-K dated April 16, 1998).
4.1b Pledge and Security Agreement dated as of April 3, 1998,
between the registrant and Harris Trust and Savings Bank,
as Agent (incorporated by reference to Exhibit 4.1b of
the Company's Current Report on Form 8-K dated April 16,
1998).
4.2 Third Amendment dated as of April 3, 1998 to the Note
Purchase Agreement dated July 29, 1994 between the
registrant and Teachers Insurance and Annuity Association
of America (incorporated by reference to Exhibit 4.2 of
the Company's Current Report on Form 8-K dated 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 Atchison Casting
Corporation (incorporated by reference to Exhibit 10.1
of the Company's Current Report on Form 8-K dated April 16,
1998).
</TABLE>
