<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO THE SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
-------------------------
Commission File Number 1-12541
Atchison Casting Corporation
------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Kansas 48-1156578
- --------------------------------------- --------------------------------------
(State of other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 South Fourth Street, Atchison, Kansas 66002
- ------------------------------------------------------ ---------------------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) (913) 367-2121
Not Applicable
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if
changed since last report.)
----------------------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements from the past 90 days. Yes X . No .
There were 7,627,773 shares of common stock, $.01 par value per share,
outstanding on May 11, 1999
<PAGE>
PART I
ITEM 1. Financial Statements.
ATCHISON CASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $ 10,930 $ 9,336
Customer accounts receivable, net of allowance for 82,922 88,469
doubtful accounts of $470 and $508, respectively
Inventories 71,123 62,146
Deferred income taxes 2,657 3,186
Other current assets 13,368 9,615
-------- --------
Total current assets 181,000 172,752
PROPERTY, PLANT AND EQUIPMENT, Net 150,365 137,290
INTANGIBLE ASSETS, Net 32,953 25,424
DEFERRED FINANCING COSTS, Net 603 746
OTHER ASSETS 11,947 9,927
-------- --------
TOTAL $376,868 $346,139
-------- --------
-------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
ATCHISON CASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Cont'd)
(In Thousands)
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
------------------------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 41,845 $ 37,259
Accrued expenses 58,655 52,690
Current maturities of long-term obligations 8,886 6,021
--------- ---------
Total current liabilities 109,386 95,970
LONG-TERM OBLIGATIONS 100,047 87,272
DEFERRED INCOME TAXES 13,993 12,608
OTHER LONG-TERM OBLIGATIONS 3,906 3,670
EXCESS OF FAIR VALUE OF ACQUIRED NET ASSETS 3,730 349
OVER COST, Net
POSTRETIREMENT OBLIGATION OTHER THAN PENSION 8,045 7,596
MINORITY INTEREST IN SUBSIDIARIES 4,278 3,060
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 2,000,000 - -
authorized shares; no shares issued and outstanding
Common stock, $.01 par value, 19,300,000 83 82
authorized shares; 8,250,475 and 8,226,570
shares issued, respectively
Class A common stock (non-voting), $.01 par value, - -
700,000 authorized shares; no shares issued and
outstanding
Additional paid-in capital 81,149 80,957
Retained earnings 59,515 55,205
Accumulated foreign currency translation adjustment (1,216) (630)
--------- ---------
139,531 135,614
Less shares held in treasury:
Common stock, 622,702 and 36,002 shares, respectively, at cost (6,048) -
--------- ---------
Total stockholders' equity 133,483 135,614
--------- ---------
TOTAL $ 376,868 $ 346,139
--------- ---------
--------- ---------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
ATCHISON CASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share Data)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $ 119,533 $ 91,623 $ 359,064 $ 244,854
COST OF GOODS SOLD 101,998 77,503 308,861 208,859
---------- ---------- ---------- ----------
GROSS PROFIT 17,535 14,120 50,203 35,995
OPERATING EXPENSES:
Selling, general and administrative 12,711 6,251 35,299 18,856
Amortization of intangibles 234 231 803 637
---------- ---------- ---------- ----------
Total operating expenses 12,945 6,482 36,102 19,493
---------- ---------- ---------- ----------
OPERATING INCOME 4,590 7,638 14,101 16,502
INTEREST EXPENSE 2,162 841 6,284 2,126
MINORITY INTEREST IN NET INCOME 59 79 110 258
OF SUBSIDIARIES
---------- ---------- ---------- ----------
INCOME BEFORE TAXES 2,369 6,718 7,707 14,118
INCOME TAXES 1,104 2,805 3,397 5,990
---------- ---------- ---------- ----------
NET INCOME $ 1,265 $ 3,913 $ 4,310 $ 8,128
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
NET INCOME PER COMMON AND
EQUIVALENT SHARE:
BASIC $ 0.17 $ 0.48 $ 0.55 $ 1.00
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
DILUTED $ 0.17 $ 0.48 $ 0.55 $ 0.99
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
WEIGHTED AVERAGE NUMBER OF
COMMON AND EQUIVALENT
SHARES OUTSTANDING:
BASIC 7,619,587 8,175,612 7,844,987 8,161,647
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
DILUTED 7,619,587 8,207,116 7,844,987 8,213,281
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
ATCHISON CASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
NET INCOME $ 1,265 $ 3,913 $ 4,310 $ 8,128
OTHER COMPREHENSIVE INCOME,
BEFORE TAX:
Foreign currency translation adjustments (193) 40 (586) (199)
------- ------- ------- -------
OTHER COMPREHENSIVE INCOME,
BEFORE TAX $ 1,072 $ 3,953 $ 3,724 $ 7,929
INCOME TAX EXPENSE (BENEFIT)
RELATED TO ITEMS OF OTHER
COMPREHENSIVE INCOME (78) 16 (237) (80)
------- ------- ------- -------
OTHER COMPREHENSIVE INCOME,
NET OF TAX $ 1,150 $ 3,937 $ 3,961 $ 8,009
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
ATCHISON CASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1999 1998
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,310 $ 8,128
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 10,421 8,797
Minority interest in net income of subsidiaries 106 263
Loss (Gain) on disposal of capital assets (185) 18
Deferred income taxes 305 1,415
Changes in assets and liabilities (exclusive of effects of
acquired companies):
Receivables 7,396 (5,856)
Inventories (2,626) (1,638)
Other current assets (6,122) (1,147)
Accounts payable 2,734 (235)
Accrued expenses (2,792) (5,249)
Post retirement obligation other
than pension 449 467
Other 1,182 87
-------- --------
Cash provided by operating activities 15,178 5,050
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (16,903) (13,237)
Payment for purchase of net assets of subsidiaries,
net of cash acquired (7,396) (26,784)
Proceeds from sale of capital assets 1,662 861
Payment for investment in unconsolidated subsidiary (150) -
Advances under subordinated note receivable - (1,974)
-------- --------
Cash used in investing activities (22,787) (41,134)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of costs 193 470
Payment for repurchase of common stock (6,048) -
Payment for purchase of stock in subsidiaries (405) (11)
Payments on long-term obligations (4,510) (216)
Net borrowings under revolving loan note 20,150 20,484
-------- --------
Cash provided by financing activities 9,380 20,727
EFFECT OF EXCHANGE RATE ON CASH (177) 4
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,594 (15,353)
CASH AND CASH EQUIVALENTS, Beginning of period 9,336 19,819
-------- --------
CASH AND CASH EQUIVALENTS, End of period $ 10,930 $ 4,466
-------- --------
-------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
ATCHISON CASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies and Basis of Presentation
The unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements of the Company
for the year ended June 30, 1998, as included in the Company's 1998
Annual Report to Stockholders.
The accompanying unaudited consolidated financial statements include
all adjustments (consisting only of normal recurring accruals) which,
in the opinion of management, are necessary for a fair presentation of
financial position, results of operations and cash flows. Results of
operations for interim periods are not necessarily indicative of
results to be expected for a full year.
On July 1, 1998 the Company adopted Statement of Financial Accounting
Standards No. 130, "REPORTING COMPREHENSIVE INCOME". In accordance with
this statement the Company has presented a separate consolidated
statement of comprehensive income for the three-month and nine-month
periods ended March 31, 1999, and has restated the three-month and
nine-month periods ended March 31, 1998 for comparative purposes.
Certain March 31, 1998 amounts have been reclassified to conform with
March 31, 1999 classifications.
2. Inventories
<TABLE>
<CAPTION>
As of
-----------------------------------------
<S> <C> <C>
March 31, June 30,
1999 1998
(Thousands)
Raw materials $10,674 $ 11,152
Work-in-process 41,690 37,939
Finished goods 14,259 7,385
Deferred supplies 4,500 5,670
--------- ---------
$71,123 $ 62,146
--------- ---------
--------- ---------
</TABLE>
<PAGE>
3. Income Taxes
The provision for income taxes consisted of:
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1999 1998
---- ----
(Thousands)
<S> <C> <C>
Current:
Domestic $1,737 $ 3,977
Foreign 1,355 598
------- --------
$3,092 $ 4,575
Deferred:
Domestic $131 $ 1,415
Foreign 174 ---
------- --------
$305 $ 1,415
------- --------
Total $3,397 $ 5,990
------- --------
------- --------
</TABLE>
4. Acquisitions
Effective September 1, 1998, the Company purchased 90% of the
outstanding capital stock of London Precision Machine and Tool Ltd.
("London Precision") for U.S. $13.8 million in cash. London Precision,
located in London, Ontario, Canada, is an industrial machine shop which
serves the locomotive, mining and construction, pulp and paper markets,
among others. The Company financed this transaction with funds
available under its revolving credit facility. In connection with the
acquisition of London Precision, the Company recorded approximately
U.S. $8.4 million of goodwill, which is being amortized over 25 years.
The transaction has been treated as a purchase for financial reporting
purposes. The results of operations of London Precision have been
included in the Company's statement of operations from the date of
acquisition.
On February 25, 1999, Fonderie d'Autun ("Autun"), a subsidiary of
Atchison Casting UK Limited, a 95% owned subsidiary of the Company,
purchased the foundry division assets of Compagnie Internationale du
Chauffage ("CICH") located in Autun, France. The Company received U.S.
$5.8 million in cash and U.S. $5.5 million in inventory in exchange for
the assumption of potential environmental and employment liabilities if
the facility is ever closed. CICH is a subsidiary of Blue Circle
Industries plc, headquartered in London, England. Autun specializes in
the manufacture of cast iron radiators and boiler castings. In
connection with the acquisition of Autun, the Company recorded
approximately U.S. $3.7 million of negative goodwill, which is being
amortized over four years. The results of operations of Autun have been
included in the Company's statement of operations from the date of
acquisition.
<PAGE>
5. Additional Cash Flow Information
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
Cash paid during the period for:
Interest $6,677 $ 2,589
------- --------
------- --------
Income Taxes $5,074 $ 5,421
------- --------
------- --------
Supplemental schedule of noncash
investing and financing activities:
Unexpended bond funds $0 ($484)
------- --------
------- --------
</TABLE>
6. Earnings Per Share
In February 1997, the FASB issued SFAS No. 128, "EARNINGS PER SHARE."
This Statement established new standards for computing and presenting
earnings per share ("EPS") and applies to entities with publicly held
common stock or potential common stock. The Statement requires dual
presentation of basic and diluted EPS on the face of the income
statement for entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation.
The Company was required to adopt SFAS No. 128 effective for the
quarter ended March 31, 1997. EPS for prior periods have been restated
according to the new standard. Following is a reconciliation of basic
and diluted EPS for the three-month and nine-month periods ended March
31, 1999 and 1998, respectively.
<PAGE>
<TABLE>
<CAPTION>
For the three months ended March 31, 1999
Weighted
Net Average Earnings
Income Shares Per Share
------------ -------------- -----------
<S> <C> <C> <C>
Basic EPS
Income available to
common stockholders $1,265,000 7,619,587 $0.17
Effect of Dilutive Securities
Options --
------------ -------------- -----------
Diluted EPS $1,265,000 7,619,587 $0.17
------------ -------------- -----------
------------ -------------- -----------
</TABLE>
<TABLE>
<CAPTION>
For the three months ended March 31, 1998
Weighted
Net Average Earnings
Income Shares Per Share
------------ -------------- -----------
<S> <C> <C> <C>
Basic EPS
Income available to
common stockholders $3,913,000 8,175,612 $0.48
Effect of Dilutive Securities
Options 31,504
------------ -------------- -----------
Diluted EPS $3,913,000 8,207,116 $0.48
------------ -------------- -----------
------------ -------------- -----------
</TABLE>
<TABLE>
<CAPTION>
For the nine months ended March 31, 1999
Weighted
Net Average Earnings
Income Shares Per Share
------------ -------------- -----------
<S> <C> <C> <C>
Basic EPS
Income available to
common stockholders $4,310,000 7,844,987 $0.55
Effect of Dilutive Securities
Options --
------------ -------------- -----------
Diluted EPS $4,310,000 7,844,987 $0.55
------------ -------------- -----------
------------ -------------- -----------
</TABLE>
<TABLE>
<CAPTION>
For the nine months ended March 31, 1998
Weighted
Net Average Earnings
Income Shares Per Share
------------ -------------- -----------
<S> <C> <C> <C>
Basic EPS
Income available to
common stockholders $8,128,000 8,161,647 $1.00
Effect of Dilutive Securities
Options 51,634 (0.01)
------------ -------------- -----------
Diluted EPS $8,128,000 8,213,281 $0.99
------------ -------------- -----------
------------ -------------- -----------
</TABLE>
<PAGE>
7. Jahn Foundry Corp. Industrial Accident
An accident, involving an explosion and fire, occurred on February 25,
1999 at Jahn Foundry, a wholly-owned subsidiary of the Company located
in Springfield, Massachusetts. Nine employees were injured and there
have been three fatalities. The damage was confined to the shell
molding area and boiler and other areas of the foundry are operational.
Molds are currently being produced at other foundries until repairs are
made. Although no lawsuits have been filed, a number of attorneys
representing the injured employees have contacted Jahn Foundry
regarding possible litigation. In addition, the Occupational Safety and
Health Administration ("OSHA") has six months from the date of the
accident to issue any citations, sanctions or fines. Such fines and
sanctions, if any, could be material to the Company. The Company
believes Jahn Foundry was operating in compliance with OSHA rules and
regulations. Should OSHA issue any citations in connection with this
accident, Jahn Foundry would vigorously defend itself.
An investigation continues as to the cause of the explosion by OSHA,
the State Fire Marshall and the State Police. The Company and others
are conducting their own investigations at the same time. The Company
carries insurance for property and casualty damages, business
interruption, general liability and workers' compensation. The Company
recorded a charge of $450,000 ($750,000 before tax) during the third
quarter of fiscal 1999, primarily reflecting the deductibles under the
Company's various insurance policies. At this time there can be no
assurance that the Company's ultimate costs and expenses resulting from
the accident will not exceed available insurance coverage by an amount
which could be material to its financial condition or results of
operations.
8. Second Amendment to the Amended and Restated Credit Agreement
As of April 23, 1999, the Company and its lenders entered into the
Second Amendment to the Amended and Restated Credit Agreement (the
"Credit Agreement"). The Credit Agreement consists of a $40 million
term loan and a $70 million revolving credit facility. This amendment
provides that the Company maintain a ratio of earnings before interest,
taxes and amortization to fixed charges ("Fixed Charge Coverage Ratio")
of at least 1.10, increasing to 1.50 on June 30, 1999, if the Company
completes a subordinated debt offering of at least $60 million by June
30, 1999. If the Company does not complete such an offering by June
30, 1999, the amendment provides that the Company maintain a Fixed
Charge Coverage Ratio of at least 1.10, increasing to 1.25 on March
31, 2000 and 1.50 on March 31, 2001. The amendment also provides
that the Company must maintain a ratio of total senior debt to
earnings before interest, taxes, amortization and depreciation of
not more than 3.2 prior to the issuance by the Company of any
subordinated debt, and not more than 3.0 after the issuance of any
subordinated debt. In addition, this amendment provides that the
Company may not make acquisitions prior to May 1, 2000 and, from and
after May 1, 2000, the Company may not make acquisitions unless the
Fixed Charge Coverage Ratio is at least 1.50, among other existing
restrictions. Loans under this revolving credit facility will bear
interest at fluctuating rates of either: (i) the agent bank's
corporate base rate or (ii) LIBOR plus 1.85% subject, in the case of
the LIBOR rate option, to a reduction of up to 0.50% (50 basis
points) if certain financial ratios are met. Loans under this
revolving credit facility may be used for general corporate
purposes, permitted acquisitions and approved investments.
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
Net sales for the third quarter of fiscal 1999 were $119.5 million, representing
an increase of $27.9 million, or 30.5%, over net sales of $91.6 million in the
third quarter of fiscal 1998. The operations acquired by the Company since
April 6, 1998 generated net sales in the third quarter of fiscal 1999
as follows:
<TABLE>
<CAPTION>
FY98 3rd Qtr FY99 3rd Qtr
Operation Date Acquired Net Sales Net Sales
--------- ------------- ------------ --------------
<S> <C> <C> <C>
Sheffield Forgemasters Group Limited 04/06/ 98 -- $31.0 million
Claremont Foundry, Inc. 05/01/ 98 -- 2.0 million
London Precision Machine & Tool Ltd. 09/01/ 98 -- 6.4 million
Fonderie d'Autun 02/25/ 99 -- 1.2 million
</TABLE>
Excluding net sales generated by the operations acquired since April 6, 1998,
net sales for the third quarter of fiscal 1999 were $78.9 million, representing
a decrease of $12.7 million, or 13.9%, from net sales of $91.6 million in the
third quarter of fiscal 1998. This 13.9% decrease in net sales was due primarily
to decreases in net sales to the offshore oil and gas, mining, power generation,
agricultural and petrochemical markets, partially offset by an increase in net
sales to the rail market.
Net sales for the first nine months of fiscal 1999 were $359.1 million,
representing an increase of $114.2 million, or 46.6%, over net sales of $244.9
million in the first nine months of fiscal 1998. The operations acquired by the
Company since October 6, 1997 generated net sales of $27.5 million and $160.2
million in the first nine months of fiscal 1998 and fiscal 1999, respectively,
as follows:
<TABLE>
<CAPTION>
FY98 First Nine FY99 First Nine
Months Months
Operation Date Acquired Net Sales Net Sales
--------- ------------- --------- ---------
<S> <C> <C> <C>
Inverness Castings Group, Inc. 10/06/97 $27.5 million $ 36.2 million
Sheffield Forgemasters Group Limited 04/06/98 -- 101.8 Million
Claremont Foundry, Inc. 05/01/98 -- 5.5 Million
London Precision Machine & Tool Ltd. 09/01/98 -- 15.5 Million
Fonderie d'Autun 02/25/99 -- 1.2 Million
</TABLE>
Excluding net sales generated by the operations acquired since October 6, 1997,
net sales for the first nine months of fiscal 1999 were $198.9 million,
representing a decrease of $18.5 million, or 9.1%, from net sales of $217.4
million in the first nine months of fiscal 1998. This 8.5%
<PAGE>
decrease in net sales was due primarily to decreases in net sales to the
offshore oil and gas, steel, mining, power generation, agricultural and
petrochemical markets, partially offset by an increase in net sales to the
rail market.
Gross profit for the third quarter of fiscal 1999 increased by $3.4 million,
or 24.2%, to $17.5 million, or 14.7% of net sales, compared to $14.1 million,
or 15.4% of net sales, for the third quarter of fiscal 1998. Gross profit for
the first nine months of fiscal 1999 increased by $14.2 million, or 39.5%, to
$50.2 million, or 14.0% of net sales, compared to $36.0 million, or 14.7% of
net sales, for the first nine months of fiscal 1998. The increase in gross
profit for both periods was primarily due to increased sales volume levels
resulting from the acquisitions of Sheffield Forgemasters Group Limited
("Sheffield") and London Precision Machine and Tool Ltd. ("London
Precision"). The contribution from London Precision and improved results at
the Company's Amite facility due to increased sales volume levels, improved
productivity and reduced employee turnover and training positively impacted
gross profit as a percentage of net sales in both periods. Offsetting these
factors were: (i) decreased absorption of overhead resulting from lower net
sales to the offshore oil and gas, mining, steel, power generation,
petrochemical and agricultural markets, (ii) delays in the scheduled delivery
of orders by customers in the mining, construction and rail markets, (iii)
continued productivity and scrap problems at Inverness Castings Group, Inc.
("Inverness") and Claremont Foundry, Inc. ("Claremont"), (iv) increased
warranty costs at Canada Alloy Castings, Ltd. and (v) increased training
costs, higher employee turnover and increased overtime due to the generally
tight labor markets. In addition, gross profit as a percentage of net sales
for the first nine months was impacted by (i) reduced productivity and
excessive overtime due to power curtailments under the Company's
interruptible electricity contracts resulting from the extreme heat during
the first quarter and (ii) higher plant maintenance shutdown costs at
Atchison/St. Joe and Prospect Foundry, Inc. ("Prospect").
Selling, general and administrative expense ("SG&A") for the third quarter of
fiscal 1999 was $12.7 million, or 10.6% of net sales, compared to $6.3
million, or 6.8% of net sales, in the third quarter of fiscal 1998. For the
first nine months of fiscal 1999, SG&A was $35.3 million, or 9.8% of net
sales, compared to $18.9 million, or 7.7% of net sales, for the first nine
months of fiscal 1998. The increase in SG&A was primarily attributable to
expenses associated with the operations acquired by the Company in fiscal
1998 and fiscal 1999. The increase in SG&A as a percentage of net sales for
both periods was primarily due to higher average SG&A as a percentage of net
sales at Sheffield. Also included in SG&A in both periods was a charge of
$750,000 ($450,000 after tax) related to an industrial accident at the
Company's subsidiary, Jahn Foundry Corp. ("Jahn") (see Liquidity and Capital
Resources).
Amortization of certain intangibles for the third quarter of fiscal 1999 was
$234,000 or 0.2% of net sales, as compared to $231,000 or 0.3% of net sales,
in the third quarter of fiscal 1998. Amortization of certain intangibles for
the first nine months of fiscal 1999 was $803,000 or 0.2% of net sales, as
compared to $637,000, or 0.3% of net sales, for the first nine months of
fiscal 1998. The intangible assets consist of goodwill recorded in connection
with certain of the Company's acquisitions. In connection with the
acquisition of London Precision, the Company recorded approximately $8.4
million of goodwill, which is being amortized over 25 years. Partially
offsetting the expense relating to the amortization of these assets is the
amortization of
<PAGE>
the excess acquired net assets over cost (negative goodwill) recorded by the
Company in connection with the acquisitions of Canadian Steel Foundries, Ltd.
and Founderie d'Autun ("Autun").
Interest expense for the third quarter of fiscal 1999 increased to $2.2
million or 1.8% of net sales, from $841,000, or 0.9% of net sales, in the
third quarter of fiscal 1998. For the first nine months of fiscal 1999,
interest expense increased to $6.3 million, or 1.8% of net sales, from $2.1
million, or 0.9% of net sales, in the first nine months of fiscal 1998. The
increase in interest expense reflects an increase in the average amount of
outstanding indebtedness primarily incurred to finance the Company's
acquisitions.
Income tax expense for the third quarter of fiscal 1999 reflected the
combined federal, state and provincial statutory rate of approximately 45.5%,
which is higher than the combined federal, state and provincial statutory
rate because of the provision for tax benefits at lower effective rates on
losses at certain subsidiaries. Income tax expense for the first nine months
of fiscal 1999 reflected the combined federal, state and provincial statutory
rate of approximately 43.5%. Income tax expense for the third quarter and
first nine months of fiscal 1998 reflected the combined federal, state and
provincial statutory rate of approximately 41.5%. The Company's combined
effective tax rate reflects the different federal, state and provincial
statutory rates of the various jurisdictions in which the Company operates,
and the proportion of taxable income earned in each of those tax
jurisdictions.
As a result of the foregoing, net income for the third quarter of fiscal 1999
was $1.3 million, compared to net income of $3.9 million for the third
quarter of fiscal 1998. Net income for the first nine months of fiscal 1999
was $4.3 million, compared to net income of $8.1 million for the first nine
months of fiscal 1998. Excluding the charge related to the industrial
accident at Jahn, net income for the third quarter and the first nine months
would have been $1.7 million and $4.8 million, respectively.
LIQUIDITY AND CAPITAL RESOURCES:
Cash provided by operating activities for the first nine months of fiscal
1999 was $15.2 million, an increase of $10.1 million from the first nine
months of fiscal 1998. This increase was primarily attributable to decreased
working capital requirements primarily relating to accounts receivable
balances.
Working capital was $71.6 million at March 31, 1999, as compared to $76.8
million at June 30, 1998. The decrease primarily resulted from decreased
accounts receivable balances and a $2.9 million increase in the current
maturities of the Company's existing outstanding indebtedness, partially
offset by net additional working capital of $1.5 million associated with the
acquisitions of London Precision and Autun.
During the first nine months of fiscal 1999, the Company made capital
expenditures of $16.9 million, as compared to $13.2 million for the first
nine months of fiscal 1998. Included in the first nine months of fiscal 1999
were capital expenditures of $2.1 million on upgrading the 1,500 ton forging
press to 2,500 tons at Sheffield. Included in the first nine months of fiscal
1998 were
<PAGE>
capital expenditures of $1.6 million on a new sand reclamation system at the
Atchison/St. Joe Division and $2.7 million on a new mold line at Prospect.
The balance of capital expenditures in both periods was used for routine
projects at each of the Company's facilities. The Company expects to reduce
its capital expenditures in fiscal 1999 from its budget of $25.0 million to
approximately $21.0 million.
On August 12, 1998, the Company announced that its Board of Directors had
authorized a stock repurchase program of up to 1.2 million common shares of
its then outstanding 8.2 million common shares. The stock repurchases may be
made from time to time at prevailing prices in the open market or in
privately negotiated transactions, depending on market conditions, the price
of Company's common stock and other factors. The Company will make such stock
repurchases using internally generated funds and borrowings under its credit
facility. The Company's Note Purchase Agreement allows repurchases of up to
nearly $6.2 million of Company common stock during fiscal 1999. Any share
repurchases will be added to the Company's treasury shares and will be
available for reissuance in connection with the Company's acquisitions,
employee benefit plans or for other corporate purposes. Through March 31,
1999, the Company had repurchased 586,700 shares at a cost of $6.0 million.
On October 7, 1998, the Company and its bank entered into the First Amendment
to the Amended and Restated Credit Agreement ("the Credit Agreement"). The
Credit Agreement consists of a $40 million term loan and a $70 million
revolving credit facility. This amendment permits the Company to repurchase
up to $24 million of its common stock, subject to a limitation of $10 million
in any fiscal year unless certain financial ratios are met, and provides for
an option to increase the revolving portion of the credit facility to $100
million if the Company issues senior subordinated notes. Proceeds from the
issuance of any senior subordinated notes must be used to permanently pre-pay
the $40 million term loan portion of the credit facility.
As of April 23, 1999, the Company and its lenders entered into the Second
Amendment to the Credit Agreement. This amendment provides that the Company
maintain a ratio of earnings before interest, taxes and amortization to fixed
charges ("Fixed Charge Coverage Ratio") of at least 1.10, increasing to 1.50
on June 30, 1999, if the Company completes a subordinated debt offering of at
least $60 million by June 30, 1999. If the Company does not complete such an
offering by June 30, 1999, the amendment provides that the Company maintain a
Fixed Charge Coverage Ratio of at least 1.10, increasing to 1.25 on March 31,
2000 and 1.50 on March 31, 2001. The amendment also provides that the Company
must maintain a ratio of total senior debt to earnings before interest,
taxes, amortization and depreciation of not more than 3.2 prior to the
issuance by the Company of any subordinated debt, and not more than 3.0 after
the issuance of any subordinated debt. In addition, this amendment provides
that the Company may not make acquisitions prior to May 1, 2000 and, from and
after May 1, 2000, the Company may not make acquisitions unless the Fixed
Charge Coverage Ratio is at least 1.50, among other existing restrictions.
Loans under this revolving credit facility will bear interest at fluctuating
rates of either: (i) the agent bank's corporate base rate or (ii) LIBOR plus
1.85% subject, in the case of the LIBOR rate option, to a reduction of up to
0.50% (50 basis points) if certain financial ratios are met. Loans under this
revolving credit facility may be used for general corporate purposes,
permitted acquisitions and approved investments.
<PAGE>
The Company previously announced that it was contemplating the issue of up to
$100 million of senior subordinated notes through a private placement under
Rule 144A, with the expectation that, if completed, the Company would
subsequently register substantially similar notes to be offered in exchange
for the initial notes by means of a prospectus. Due to market conditions, the
Company has decided not to issue such senior subordinated notes.
The Company is currently contemplating the issue of $60 million aggregate
principal amount of unsecured, senior subordinated notes through a private
placement, subject to market conditions. If consummated, the Company would
use the net proceeds of the offering to retire its bank term loan and to
reduce outstanding borrowings under its revolving credit facility.
Total indebtedness of the Company at March 31, 1999 was $108.9 million, as
compared to $93.3 million at June 30, 1998. This increase of $15.6 million
primarily reflects indebtedness incurred of $13.8 million to finance the
acquisition of London Precision and $6.0 million to repurchase 586,700 shares
of the Company's common stock. At March 31, 1999, $14.9 million was available
for borrowing under the Company's revolving credit facility.
Effective September 1, 1998, the Company purchased 90% of the outstanding
capital stock of London Precision for U.S. $13.8 million cash. London
Precision, located in London, Ontario, Canada, is an industrial machine shop
which serves the locomotive, mining and construction, pulp and paper markets,
among others. The Company financed this transaction with funds available
under its revolving credit facility.
On February 25, 1999, Autun, a subsidiary of Atchison Casting UK Limited, a
95% owned subsidiary of the Company, purchased the foundry division assets of
Compagnie Internationale du Chauffage ("CICH") located in Autun, France. The
Company received U.S. $5.8 million in cash and U.S. $5.5 in inventory in
exchange for the assumption of potential environmental and employment
liabilities if the facility is ever closed. CICH is a subsidiary of Blue
Circle Industries plc, headquartered in London, England. Autun specializes in
the manufacture of cast iron radiators and boiler castings.
An accident, involving an explosion and fire, occurred on February 25, 1999
at Jahn, a wholly-owned subsidiary of the Company located in Springfield,
Massachusetts. Nine employees were injured and there have been three
fatalities. The damage was confined to the shell molding area and boiler and
other areas of the foundry are operational. Molds are currently being
produced at other foundries until repairs are made. Although no lawsuits have
been filed, a number of attorneys representing the injured employees have
contacted Jahn regarding possible litigation. In addition, the Occupational
Safety and Health Administration ("OSHA") has six months from the date of the
accident to issue any citations, sanctions or fines. Such fines and
sanctions, if any, could be material to the Company. The Company believes
Jahn was operating in compliance with OSHA rules and regulations. Should OSHA
issue any citations in connection with this accident, Jahn would vigorously
defend itself.
An investigation continues as to the cause of the explosion by OSHA, the
State Fire Marshall and the State Police. The Company and others are
conducting their own investigations at the same time. The Company carries
insurance for property and casualty damages, business
<PAGE>
interruption, general liability and workers' compensation. The Company
recorded a charge of $450,000 ($750,000 before tax) during the third quarter
of fiscal 1999, primarily reflecting the deductibles under the Company's
various insurance policies. At this time there can be no assurance that the
Company's ultimate costs and expenses resulting from the accident will not
exceed available insurance coverage by an amount which could be material to
its financial condition or results of operations.
The Company believes that its operating cash flow and amounts available for
borrowing under its revolving credit facility will be adequate to fund its
capital expenditure, working capital requirements and repurchases of the
Company's common stock for the next two years. However, the level of capital
expenditure and working capital requirements may be greater than currently
anticipated as a result of the size and timing of future acquisitions, or as
a result of unforeseen expenditures relating to compliance with environmental
laws.
YEAR 2000 COMPUTER ISSUES
The Company has conducted a comprehensive review of its hardware and software
systems to identify those systems that could be affected by the "Year 2000"
issue and has developed an implementation plan to resolve the identified
issues. The Company believes that, with replacement or modification of its
existing computer systems, updates by vendors and conversion to new software,
the Year 2000 issue will not pose significant operational problems for the
Company's computer systems. The Company expects to complete implementation of
computer systems that are Year 2000 compliant in fiscal 1999, although
testing may continue in the first two quarters of fiscal 2000. Based on its
review of non-information technology systems to date, the Company does not
anticipate the need to develop an extensive contingency plan for such systems
or to incur material costs in that regard.
The Company relies on a number of customers and suppliers, including banks,
telecommunication providers, utilities, and other providers of goods and
services. The inability of these third parties to conduct their business for
a significant period of time due to the Year 2000 issue could have a material
adverse impact on the Company's operations. The Company is currently
assessing the Year 2000 compliance of its significant customers and
suppliers. To date, the Company has been advised by over two-thirds of its
significant customers that they expect to be Year 2000 compliant by the end
of calendar 1999. There can be no assurance that the systems of other
companies that interact with the Company will be sufficiently Year 2000
compliant. The Company's reliance on single source suppliers, however, is
minimal, and the Company seeks to limit sole source supply relationships. The
Company, however, has entered into national service agreements for the supply
of certain raw materials and freight service from single sources. If the
Company does not identify or fix all Year 2000 problems in critical
operations, or if a major supplier or customer is unable to supply raw
materials or receive the Company's product, the Company's results of
operations or financial condition could be materially impacted.
Year 2000 project expenditures to date total approximately $1.7 million. The
Company expects to incur an additional $850,000 of costs. The Company
presently anticipates that it will complete its Year 2000 assessment and
remediation by June 30, 1999. However, there can be no assurance that the
Company will be successful in implementing its Year 2000 implementation plan
<PAGE>
according to the anticipated schedule due to the potential lack of
availability of trained personnel and their ability to identify relevant
computer codes, among other uncertainties.
FORWARD-LOOKING STATEMENTS
The sections entitled "Liquidity and Capital Resources" and "Year 2000
Computer Issues" contain forward-looking statements that involve a number of
risks and uncertainties. Forward-looking statements such as "expects,"
"intends," "contemplating" and statements pertaining to the adequacy of
funding for capital expenditure and working capital requirements for the next
two years are not historical in nature. Among the factors that could cause
actual results to differ materially from such forward-looking statements
include: the size and timing of future acquisitions, business conditions and
the state of the general economy, particularly the capital goods industry,
the strength of the U.S. dollar, British pound and the Euro, interest rates,
the availability of labor, the successful conclusion of various union
contract negotiations, the results of the OSHA investigation at Jahn, the
competitive environment in the casting industry and changes in laws and
regulations that govern the Company's business, particularly environmental
regulations.
<PAGE>
ITEM 3.
DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative information about market risk was addressed in
Item 7A of the Company's Form 10-K for the fiscal year ended June 30, 1998.
There has been no material change to that information required to be
disclosed in this Form 10-Q filing.
<PAGE>
PART II
ITEM 1 - Legal Proceedings
While under prior ownership, Kramer International, Inc. ("Kramer") was
identified as a potentially responsible party ("PRP") with respect to
cleanup of a waste disposal site located in Franklin, Wisconsin, which
was used by one of Kramer's former subcontractors. The $6 million
cleanup of this site has been completed. The PRP who performed the
necessary cleanup sued a group of non-performing PRPs, including
Kramer, for contribution in Acme Printing Ink Company v. Menard, et
al., Case No. 89C834 (E.D. Wis). This case was settled with no cash
being paid by Kramer.
ITEM 2 - Changes in Securities and Use of Proceeds
Unregistered Securities Transactions
In lieu of cash compensation for services rendered in his capacity as a
Director of the Company, Mr. David Belluck was provided at his election
805 shares of common stock on February 25, 1999, with a then-current
market value of $9.94 per share. The transaction is exempt from
registration under the Securities Act of 1933, as amended (the "Act"),
pursuant to Section 4(2) of the Act.
ITEM 3 - Defaults Upon Senior Securities
NOT APPLICABLE
ITEM 4 - Submission of Matters to a Vote of Security Holders
NOT APPLICABLE
ITEM 5 - Other Information
NOT APPLICABLE
<PAGE>
ITEM 6 - Exhibits and Reports of Form 8-K
(A) Exhibits
4 Second Amendment to Amended and Restated Credit
Agreement dated as of April 23, 1999, among the
Company, the Banks party thereto, and Harris Trust and
Savings Bank, as Agent.
27 Financial Data Schedule
(B) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended March 31, 1999.
<PAGE>
* * * * * * * * * * * * * * * *
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Atchison Casting Corporation
----------------------------
(Registrant)
DATE: May 11, 1999 /s/ HUGH H. AIKEN
-------------------------------
Hugh H. Aiken, Chairman of the
Board, President and Chief
Executive Officer
DATE: May 11, 1999 /s/ KEVIN T. MCDERMED
----------------------------------
Kevin T. McDermed, Vice President,
Chief Financial Officer, Treasurer
and Secretary
<PAGE>
SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This Second Amendment to Amended and Restated Credit Agreement (the
"AMENDMENT") dated as of April 23, 1999 among Atchison Casting Corporation
(the "BORROWER"), the Banks, and Harris Trust and Savings Bank, as Agent;
W I T N E S S E T H:
WHEREAS, the Borrower, Guarantors, Banks and Harris Trust and Savings
Bank, as Agent, have heretofore executed and delivered an Amended and
Restated Credit Agreement dated as of April 3, 1998 (as amended by the First
Amendment thereto dated October 7, 1998, the "CREDIT AGREEMENT"); and
WHEREAS, the parties hereto desire to amend the Credit Agreement as
provided herein;
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree that
the Credit Agreement shall be and hereby is amended as follows:
1. The definition of "EUROCURRENCY MARGIN" appearing in Section 1.3(b)
of the Credit Agreement is hereby amended in its entirety and as so amended
shall read as follows:
"EUROCURRENCY MARGIN" means (A) 1.35% per annum for any
Pricing Period for which Level I Status exists, (B) 1.60%
per annum for any Pricing Period for which Level II Status
exists, and (C) 1.85% per annum for any Pricing Period for
which Level III Status exists.
2. Section 5.12(b) of the Credit Agreement is hereby amended in its
entirety and as so amended shall read as follows:
(b) To the best of the Borrower's knowledge, except as
disclosed on Schedule 5.12 hereto, the business and
operations of the Borrower and each Subsidiary comply in all
respects with all Environmental Laws and Environmental
Permits received thereunder, except where the failure to
comply would not (individually or in the aggregate) have a
Material Adverse Effect.
3. Section 7.15(e) of the Credit Agreement is hereby amended in its
entirety and as so amended shall read as follows:
(e) FIXED CHARGE COVERAGE RATIO. (i) If the Borrower
issues at least $60,000,000 of Subordinated Debt on or prior
to June 30, 1999, the Borrower will not, as of the last day
of each fiscal quarter of the Borrower ending during each of
the periods
<PAGE>
specified below permit the Fixed Charge Coverage Ratio to be
less than :
<TABLE>
<CAPTION>
FROM AND TO AND FIXED CHARGE
INCLUDING INCLUDING COVERAGE RATIO SHALL
NOT BE LESS THAN:
<S> <C> <C>
March 31, 1999 June 29, 1999 1.10
June 30, 1999 Thereafter 1.50
</TABLE>
(ii) If the Borrower issues less than $60,000,000 of
Subordinated Debt on or prior to June 30, 1999, the Borrower
will not, as of the last day of each fiscal quarter of the
Borrower ending during each of the periods specified below
permit the Fixed Charge Coverage Ratio to be less than :
<TABLE>
<CAPTION>
FROM AND TO AND FIXED CHARGE
INCLUDING INCLUDING COVERAGE RATIO SHALL
NOT BE LESS THAN:
<S> <C> <C>
March 31, 1999 March 30, 2000 1.10
March 31, 2000 March 30, 2001 1.25
March 31, 2001 Thereafter 1.50
</TABLE>
4. Section 7.15(f) of the Credit Agreement is hereby amended in its
entirety and as so amended shall read as follows:
(f) CASH FLOW LEVERAGE RATIO. The Borrower will not
on any date permit (i)(A) prior to the date of the issuance
of any Subordinated Debt, the ratio of Consolidated Total
Senior Debt to EBITDA for the four fiscal quarters of the
Borrower then ended to be greater than 3.2 to 1.0, or
(B) from and after the date of the issuance of any
Subordinated Debt, the ratio of Consolidated Total Senior
Debt to EBITDA for the four fiscal quarters of the Borrower
then ended to be greater than 3.0 to 1.0, or (ii) the ratio
of Consolidated Total Debt to EBITDA for the four fiscal
quarters of the Borrower then ended to be greater than 3.5
to 1.0.
5. Section 7.18(d) of the Credit Agreement is hereby amended in its
entirety and as so amended shall be as follows:
(d) the Borrower and its Subsidiaries may make and own
Investments in any Subsidiary of the Borrower or, from and after
May 1, 2000 make and own or enter into any agreement to make or own
Investments, in any Person which simultaneously therewith becomes a
Subsidiary provided that such Person is engaged primarily in the
foundry business or in businesses reasonably related thereto and
(A) concurrently with or before
-2-
<PAGE>
consummation of such acquisition, the Borrower delivers to the
Agent a certificate of the Chief Financial Officer, Controller or
Treasurer of the Borrower certifying that immediately upon and
following the consummation of such acquisition, the Borrower, on a
PRO FORMA basis (assuming such acquisition had been consummated on
the first day of the most recently ended period of four fiscal
quarters for which financial statements have been or are required
to have been delivered pursuant to Section 7.6), the Borrower would
have a Fixed Charge Coverage Ratio of at least 1.50 to 1.00 and (B)
either (i) at the time of such acquisition and after giving effect
thereto the Borrower's ratio of Consolidated Total Debt to Total
Capitalization does not exceed 40% (the "40% THRESHOLD") or (ii)
once the 40% Threshold has been exceeded in that fiscal year, the
total aggregate principal amount expended for all acquisitions
thereafter in such fiscal year does not exceed 25% of the
Stockholder's Equity of the Borrower as of the last day of the
immediately preceding fiscal year of the Borrower PLUS 25% of the
net proceeds (net proceeds for such purposes to mean gross proceeds
less reasonable underwriting discounts and commissions and other
reasonable costs directly incurred and payable as a result thereof)
received by the Borrower from the issuance of additional equity or
Subordinated Debt during the fiscal year of the proposed
acquisition; and
6. Schedule 5.6(a) to the Credit Agreement is hereby amended in its
entirety to read as Schedule 5.6(a) attached to this Amendment.
7. A new Schedule 5.12 to the Credit Agreement is hereby added to the
Credit Agreement immediately following Schedule 5.6(a) in the form of
Schedule 5.12 to this Amendment.
8. The Borrower represents and warrants to each Bank and the Agent that
(a) each of the representations and warranties set forth in Section 5 of the
Credit Agreement is true and correct on and as of the date of this Amendment as
if made on and as of the date hereof and as if each reference therein to the
Credit Agreement referred to the Credit Agreement as amended hereby; (b) no
Default and no Event of Default has occurred and is continuing; and (c) without
limiting the effect of the foregoing, the Borrower's execution, delivery and
performance of this Amendment have been duly authorized, and this Amendment has
been executed and delivered by duly authorized officers of the Borrower.
9. This Amendment shall become effective upon satisfaction of the
following conditions precedent:
(i) the Borrower, the Banks, and the Agent shall have executed and
delivered this Amendment and the Guarantors shall have executed the consent
attached hereto;
-3-
<PAGE>
(ii) receipt by the Agent of the favorable written opinion of
Blackwell Sanders Peper Martin LLP, legal counsel to the Borrower, in form
and substance satisfactory to the Agent; and
(iii) the Administrative Agent shall have received for each Bank an
amendment fee in the amount of 0.10 % of each such Bank's Commitment.
The revisions to the Eurocurrency Margin shall take effect with respect to
any Loan outstanding on June 30, 1999 and on each day thereafter, but any
payment of interest due on or after June 30, 1999 with respect to any Loans
outstanding prior thereto shall be computed on the basis of the Eurocurrency
Margin in effect prior to such effectiveness.
This Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterpart signature pages, each of which
when so executed shall be an original but all of which shall constitute one and
the same instrument. Except as specifically amended and modified hereby, all of
the terms and conditions of the Credit Agreement and the other Credit Documents
shall remain unchanged and in full force and effect. All references to the
Credit Agreement in any document shall be deemed to be references to the Credit
Agreement as amended hereby. All capitalized terms used herein without
definition shall have the same meaning herein as they have in the Credit
Agreement. This Amendment shall be construed and governed by and in accordance
with the internal laws of the State of Illinois.
-4-
<PAGE>
Dated as of the date first above written.
ATCHISON CASTING CORPORATION
By: /s/ Kevin T. McDermed
---------------------------------
Title: V.P. & Treasurer
------------------------------
HARRIS TRUST AND SAVINGS BANK, in its
individual capacity as a Bank and
as Agent
By: /s/ Len Myer
---------------------------------
Title: Vice President
------------------------------
COMMERCE BANK, N.A.
By: /s/ Jeffrey R. Gray
---------------------------------
Title: Vice President
------------------------------
MERCANTILE BANK
By: /s/ Barry Sullivan
---------------------------------
Title: Vice President
------------------------------
KEY BANK NATIONAL ASSOCIATION
By: /s/ Sharon F. Weinstein
---------------------------------
Title: Vice President
------------------------------
-5-
<PAGE>
COMERICA BANK
By: /s/ Jeff Peck
---------------------------------
Title: Vice President
------------------------------
HIBERNIA NATIONAL BANK
By: /s/ Troy J. Villafarra
---------------------------------
Title: Senior Vice President
------------------------------
NATIONAL WESTMINSTER BANK PLC
Nassau Branch
By: /s/ Martin Kelly
---------------------------------
Title: Senior Corporate Manager
------------------------------
New York Branch
By: /s/ Martin Kelly
---------------------------------
Title: Senior Corporate Manager
------------------------------
NORWEST BANK MINNESOTA, N.A.
By: /s/ R. Duncan Sinclair
---------------------------------
Title: V.P.
------------------------------
-6-
<PAGE>
SCHEDULE 5.6(a)
LITIGATION
An accident, involving an explosion and fire, occurred on February 25, 1999
at Jahn Foundry, a wholly-owned subsidiary of the Borrower located in
Springfield, Massachusetts. Nine employees were injured and there have been
three fatalitites. The damage was confined to the shell molding area and boiler
and other areas of the foundry are operational. Molds are currently being
produced at other foundries until repairs are made. Although no lawsuits have
been filed, a number of attorneys representing the injured employees have
contacted Jahn Foundry regarding possible litigation. In addition, the
Occupational Safety and Health Administration ("OSHA") has six months from the
date of the accident to issue any citations, sanctions or fines. Such fines and
sanctions, if any, could be material to the Borrower. The Borrower believes
Jahn Foundry was operating in compliance with OSHA rules and regulations.
Should OSHA issue any citations in connection with this accident, Jahn Foundry
would vigorously defend itself.
An investigation continues as to the cause of the explosion by OSHA, the
State Fire Marshall and the State Police. The Borrower and others are
conducting their own investigations at the same time. The Borrower carries
insurance for property and casualty damages, business interruption, general
liability and workers' compensation. The Borrower recorded a charge of $450,000
($750,000 before tax) during the third quarter of fiscal 1999, primarily
reflecting the deductibles under the Borrower's various insurance policies. At
this time there can be no assurance that the Borrower's ultimate costs and
expenses resulting from the accident will not exceed available insurance
coverage by an amount which could be material to its financial condition or
results of operations.
<PAGE>
SCHEDULE 5.12
COMPLIANCE WITH LAWS
Jahn Foundry Corp. is under investigation for the incident described in
Schedule 5.6(a). The results of the investigation, when known, may conclude
that one or more Environmental Laws were violated in connection with the
incident.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 10,930
<SECURITIES> 0
<RECEIVABLES> 83,392
<ALLOWANCES> 470
<INVENTORY> 71,123
<CURRENT-ASSETS> 13,368
<PP&E> 194,748
<DEPRECIATION> 44,383
<TOTAL-ASSETS> 376,868
<CURRENT-LIABILITIES> 109,386
<BONDS> 0
0
0
<COMMON> 83
<OTHER-SE> 139,448
<TOTAL-LIABILITY-AND-EQUITY> 376,868
<SALES> 359,064
<TOTAL-REVENUES> 359,064
<CGS> 308,861
<TOTAL-COSTS> 36,102
<OTHER-EXPENSES> 110
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,284
<INCOME-PRETAX> 7,707
<INCOME-TAX> 3,397
<INCOME-CONTINUING> 4,310
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,310
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
