<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 December 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 7,651,637 shares of common stock, $.01 par value per share,
outstanding on February 11, 2000
<PAGE>
PART I
ITEM 1 - Financial Statements
ATCHISON CASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
------ -------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash and cash equivalents $3,909 $4,222
Customer accounts receivable, net of allowance for 84,969 83,235
doubtful accounts of $793 and $591, respectively
Inventories 64,116 68,777
Deferred income taxes 2,267 1,988
Other current assets 27,026 18,829
-------- --------
Total current assets 182,287 177,051
PROPERTY, PLANT AND EQUIPMENT, Net 151,729 150,056
INTANGIBLE ASSETS, Net 32,151 32,846
DEFERRED FINANCING COSTS, Net 1,000 660
OTHER ASSETS 13,617 15,153
-------- --------
TOTAL $380,784 $375,766
-------- --------
-------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
ATCHISON CASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONT'D)
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
------ -------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS EQUITY
-----------------------------------
CURRENT LIABILITIES:
Accounts payable $ 38,240 $ 39,452
Accrued expenses 49,048 43,130
Current maturities of long-term obligations 6,627 8,833
-------- --------
Total current liabilities 93,915 91,415
LONG-TERM OBLIGATIONS 108,794 104,607
DEFERRED INCOME TAXES 17,770 17,334
OTHER LONG-TERM OBLIGATIONS 2,359 3,969
EXCESS OF FAIR VALUE OF ACQUIRED NET ASSETS 6,047 6,889
OVER COST, Net of accumulated amortization of
$1,525 and $1,776, respectively
POSTRETIREMENT OBLIGATION OTHER THAN PENSION 8,589 8,278
MINORITY INTEREST IN SUBSIDIARIES 1,779 4,205
-------- --------
Total liabilities 239,253 236,697
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 83
authorized shares; 8,274,339 and 8,259,603
shares issued and outstanding, respectively
Class A common stock (non-voting), $.01 par value, - -
700,000 authorized shares; no shares issued
and outstanding
Additional paid-in capital 81,338 81,216
Retained earnings 66,767 65,011
Accumulated foreign currency translation (609) (1,193)
adjustment
-------- --------
147,579 145,117
Less shares held in treasury:
Common stock, 622,702 and 822,702 shares,
respectively, at cost (6,048) (6,048)
-------- --------
Total stockholders' equity 141,531 139,069
-------- --------
TOTAL $380,784 $375,766
-------- --------
-------- --------
</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 Six Months Ended
December 31, December 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET SALES $115,711 $122,955 $225,404 $239,531
COST OF GOODS SOLD 100,680 104,208 197,660 206,863
----------- ----------- ----------- -----------
GROSS PROFIT 15,031 18,747 27,744 32,668
OPERATING EXPENSES:
Selling, general and administrative 11,189 11,625 20,957 22,588
Amortization of intangibles (135) 312 (292) 569
Other income (681) - (681) -
----------- ----------- ----------- -----------
Total operating expenses 10,373 11,937 19,984 23,157
----------- ----------- ----------- -----------
OPERATING INCOME 4,658 6,810 7,760 9,511
INTEREST EXPENSE 2,277 2,150 4,511 4,122
MINORITY INTEREST IN NET INCOME 73 59 64 51
OF SUBSIDIARIES
----------- ----------- ----------- -----------
INCOME BEFORE TAXES 2,308 4,601 3,185 5,338
INCOME TAXES 1,164 1,893 1,429 2,293
----------- ----------- ----------- -----------
NET INCOME $1,144 $2,708 $1,756 $3,045
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
NET INCOME PER COMMON AND
EQUIVALENT SHARE:
BASIC $0.15 $0.35 $0.23 $0.36
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
DILUTED $0.15 $0.35 $0.23 $0.36
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
WEIGHTED AVERAGE NUMBER OF
COMMON AND EQUIVALENT
SHARES OUTSTANDING:
BASIC 7,644,282 7,771,336 7,640,617 7,955,241
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
DILUTED 7,651,486 7,771,336 7,646,243 7,955,241
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
ATCHISON CASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET INCOME $1,144 $2,708 $1,756 $3,045
OTHER COMPREHENSIVE INCOME,
BEFORE TAX:
Foreign currency translation (292) (360) 584 (393)
adjustments
----------- ----------- ----------- -----------
OTHER COMPREHENSIVE INCOME,
BEFORE TAX $852 $2,348 $2,340 $2,652
INCOME TAX EXPENSE (BENEFIT)
RELATED TO ITEMS OF OTHER
COMPREHENSIVE INCOME - - - -
----------- ----------- ----------- -----------
OTHER COMPREHENSIVE INCOME,
NET OF TAX $852 $2,348 $2,340 $2,652
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
ATCHISON CASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1999 1998
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $1,756 $3,045
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation and amortization 6,980 6,845
Minority interest in net income of subsidiaries 66 47
(Gain) Loss on disposal of capital assets 65 (71)
Gain on termination of interest rate swap agreement (681) -
Deferred income taxes 287 289
Changes in assets and liabilities (exclusive of
effects of acquired companies):
Receivables 1,020 3,003
Inventories 5,509 (2,717)
Other current assets (8,041) (332)
Accounts payable (2,435) (4,033)
Accrued expenses 4,729 (7,238)
Post retirement obligations other
than pension 311 323
Other (1,262) 302
------------- --------------
Cash provided by (used in) operating activities 8,304 (537)
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (8,378) (13,372)
Payment for purchase of net assets of subsidiaries,
net of cash acquired (673) (13,133)
Proceeds from sale of capital assets 97 1,003
Payment for investments in unconsolidated subsidiary - (150)
------------- --------------
Cash used in investing activities (8,954) (25,652)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of costs 122 129
Payments for repurchase of common stock - (5,900)
Payments for purchase of stock in subsidiaries (2,557) (393)
Proceeds from issuance of long-term obligations 35,000 -
Payments on long-term obligations (40,129) (2,999)
Capitalized financing costs paid (450) -
Termination of interest rate swap agreement 1,238
Net borrowings under revolving loan note 7,110 27,400
------------- --------------
Cash provided by financing activities 334 18,237
------------- --------------
EFFECT OF EXCHANGE RATE ON CASH 3 (20)
------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS ($313) ($7,972)
CASH AND CASH EQUIVALENTS, Beginning of period 4,222 9,336
------------- --------------
CASH AND CASH EQUIVALENTS, End of period $3,909 $1,364
------------- --------------
------------- --------------
</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, 1999, as included in the
Company's 1999 Annual Report to Stockholders.
The accompanying unaudited consolidated financial statements include
all adjustments (consisting only of normal recurring accruals)
which, in the opinion of management, are necessary for a fair
presentation of financial position, results of operations and cash
flows. Results of operations for interim periods are not necessarily
indicative of results to be expected for a full year.
Certain December 31, 1998 amounts have been reclassified to conform
with December 31, 1999 classifications.
2. Inventories
<TABLE>
<CAPTION>
As of
---------------------------------
December 31, June 30,
1999 1999
---- ----
(Thousands)
<S> <C> <C>
Raw materials $ 9,206 $ 10,414
Work-in-process 39,377 41,431
Finished goods 11,237 12,736
Deferred supplies 4,296 4,196
----------- -----------
$ 64,116 $ 68,777
----------- -----------
----------- -----------
</TABLE>
<PAGE>
3. Income Taxes
The provision for income taxes consisted of:
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1999 1998
---- ----
(Thousands)
<S> <C> <C>
Current:
Domestic $ 392 $ 1,245
Foreign 750 759
----------- -----------
$ 1,142 $ 2,004
Deferred:
Domestic $ 211 $ 94
Foreign 76 195
----------- -----------
$ 287 $ 289
----------- -----------
Total $ 1,429 $ 2,293
----------- -----------
----------- -----------
</TABLE>
4. Additional Cash Flow Information
<TABLE>
<CAPTION>
Six Months Ended
December 31,
1999 1998
---- ----
(Thousands)
<S> <C> <C>
Cash paid during the period for:
Interest $ 4,519 $ 4,163
---------- ----------
---------- ----------
Income Taxes $ 1,438 $ 4,227
---------- ----------
---------- ----------
</TABLE>
5. Earnings Per Share
Following is a reconciliation of basic and diluted EPS for the
three-month and six-month periods ended December 31, 1999 and 1998,
respectively. <PAGE>
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Weighted
Average Earnings
Net Income Shares Per Share
---------- ------- ---------
<S> <C> <C> <C>
Basic EPS
Income available to
common stockholders $ 1,144,000 7,644,262 $ 0.15
Effect of Dilutive Securities
Options 7,226
----------- --------- ---------
Diluted EPS $ 1,144,000 7,651,488 $ 0.15
----------- --------- ---------
----------- --------- ---------
</TABLE>
FOR THE THREE MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Weighted
Average Earnings
Net Income Shares Per Share
---------- ------- ---------
<S> <C> <C> <C>
Basic EPS
Income available to
common stockholders $ 2,708,000 7,771,336 $ 0.35
Effect of Dilutive Securities
Options -
----------- --------- ---------
Diluted EPS $ 2,708,000 7,771,336 $ 0.35
----------- --------- ---------
----------- --------- ---------
</TABLE>
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Weighted
Average Earnings
Net Income Shares Per Share
---------- ------- ---------
<S> <C> <C> <C>
Basic EPS
Income available to
common stockholders $ 1,756,000 7,640,617 $ 0.23
Effect of Dilutive Securities
Options 5,626
----------- --------- ---------
Diluted EPS $ 1,756,000 7,646,243 $ 0.23
----------- --------- ---------
----------- --------- ---------
</TABLE>
FOR THE SIX MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Weighted
Average Earnings
Net Income Shares Per Share
---------- ------- ---------
<S> <C> <C> <C>
Basic EPS
Income available to
common stockholders $ 3,045,000 7,955,241 $ 0.38
Effect of Dilutive Securities
Options -
----------- --------- ---------
Diluted EPS $ 3,045,000 7,955,241 $ 0.38
----------- --------- ---------
----------- --------- ---------
</TABLE>
<PAGE>
6. Jahn Foundry Corp. Industrial Accident
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 seriously injured and there have been three
fatalities. The damage was confined to the shell molding
area and boiler room. The other areas of the foundry are
operational. Molds are currently being produced at other
foundries as well as Jahn while the repairs are made.
The Company carries insurance for property and casualty
damages (over $475 million of coverage), business
interruption (approximately $115 million of coverage),
general liability ($51 million of coverage) and workers'
compensation (up to full statutory liability) for itself
and its subsidiaries. The Company recorded charges 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.
A civil action has been commenced in Massachusetts state
court on behalf of the estates of deceased workers, their
families, injured workers and their families, against the
supplier of a chemical compound used in Jahn's
manufacturing process. Counsel for the plaintiffs
informally have indicated a desire to explore whether any
facts would support adding the Company to that litigation
as a jointly and severally liable defendant. The Company's
comprehensive general liability insurance carrier has
retained counsel on behalf of Jahn and the Company and is
monitoring the situation. It is too early to assess the
potential liability for such a claim, which in any event
the Company would aggressively defend. Plaintiff's counsel
has informally raised the possibility of seeking to make a
double recovery under the workers' compensation policy in
force for Jahn, contending that there was willful
misconduct on Jahn's part leading to the accident. Such
recovery, if pursued and made, would be of a material
nature. It is too early to assess the potential liability
for such a claim, which in any event Jahn would
aggressively defend. The supplier of the chemical compound,
Borden Chemical, Inc., has filed a Third Party Complaint
against Jahn in Massachusetts State Court attempting to
enforce an alleged Indemnity Agreement. It is too early to
assess the potential liability for such
<PAGE>
a claim, which Jahn would aggressively defend.
The Company, its property insurance carrier and its
insurance broker dispute the amount of property insurance
available for property damages suffered in this accident.
It is too early in the process of calculating the loss to
estimate the amount in dispute. Management believes that
the probability of any loss resulting from the disputed
property insurance coverage is remote. The Company
currently believes this dispute will be resolved during
fiscal 2001. If this dispute cannot be resolved amicably,
the Company would vigorously pursue its remedies against
both parties.
Following the accident, OSHA conducted an investigation of
the accident. On August 24, 1999, OSHA issued a citation
describing violations of the Occupational Safety and Health
Act of 1970, which primarily related to housekeeping,
maintenance and other specific, miscellaneous items.
Neither of the two violations specifically addressing
conditions related to the explosion and fire were
classified as serious or willful. Without admitting any
wrongdoing, Jahn entered into a settlement with OSHA that
addresses the alleged work place safety issues and agreed
to pay $148,500 in fines.
7. Fifth Amendment to the Credit Agreement
On December 21, 1999, the Company and its lenders entered
into the Fifth Amendment (The "Fifth Amendment") to the
Amended and Restated Credit Agreement. The Fifth Amendment
provides that the Company may incur up to $35 million of
indebtedness from General Electric Capital Corporation or
its assignees (the "GE Financing"). In addition, the Fifth
Amendment provides that (1) the bank revolving credit
facility will be increased from $70.0 million to $80.0
million through April 30, 2000, (2) the fixed charges used
in calculating the Fixed Charge Coverage Ratio will not
include 15% of the aggregate principal amount outstanding
under the revolving credit facility through June 30, 2000
and (3) the Company will grant the lenders under the Credit
Agreement liens in certain of the Company's assets.
8. Fifth Amendment to the Note Purchase Agreement
On December 21, 1999, the Company and the insurance company
holding the Company's $20 million aggregate principal
amount of unsecured, senior notes entered into the Fifth
Amendment to the Note Purchase Agreement. This amendment
provides that the Company may incur indebtedness through
the GE Financing. This amendment further provides that (1)
the
<PAGE>
Company must maintain a ratio of consolidated total debt to
total capitalization of not more than 55%, (2) the Company
maintain a Fixed Charge Coverage Ratio of at least 1.10 on
December 31, 1999, increasing to 1.25 on March 31, 2000 and
1.50 on March 31, 2001 and (3) the fixed charges used in
calculating the Fixed Charge Coverage Ratio will not
include 15% of the aggregate principal amount outstanding
under the revolving credit facility through June 30, 2000.
9. General Electric Capital Corporation Master Security Agreement
On December 29, 1999, the Company entered into a Master
Security Agreement with General Electric Capital
Corporation ("GECC") and its assigns providing for a term
loan of $35.0 million. The term loan is secured by certain
of the Company's fixed assets, real estate, equipment,
furniture and fixtures located in Atchison, Kansas and St.
Joseph, Missouri, matures in December 2004, and bears
interest at a fixed rate of 9.05%. On December 29, 1999 the
proceeds of the term loan, together with borrowings under
the Company's revolving credit facility, were used to
retire the $35.7 million of outstanding indebtedness under
the Company's term loan under its bank credit facility.
10. Termination of Interest Rate Swap Agreements
At June 30, 1999, the Company had two interest rate swap
agreements outstanding with a combined notional amount of
$52.1 million under which the Company paid fixed rates of
interest and received floating rates of interest over the
term of the interest rate swap agreements, without the
exchange of the underlying notional amounts. The interest
rate swap agreements effectively convert a portion of the
Company's outstanding indebtedness from a floating rate
obligation to a fixed rate obligation. The fair value of
the $52.1 million of interest rate swap agreements
outstanding at June 30, 1999 was $897,000. The fair value
of the interest rate swap agreements was not recognized in
the Consolidated Financial Statements at that time since
the agreements were accounted for as hedges.
Additionally, as of June 30, 1999, the Company had $696,000
of deferred loss included in other assets. This amount
related to the termination of the Company's combined
interest currency swap (CIRCUS). The CIRCUS, which was
terminated in September 1998, was originally designated as
a hedge of interest rates on the Company's term loan under
its bank credit facility. The loss deferred in September
1998 was being amortized over the remaining term of the
Company's term loan
<PAGE>
under it bank credit facility. Amortization expense
recorded in fiscal 1999 and for the six-months ended
December 31, 1999 was $204,000 and $139,000, respectively.
Amortization recorded in the second quarter of fiscal 2000
was $68,000. Amortization of the deferred loss was recorded
as additional interest expense.
On December 29, 1999, when the Company retired the term
loan under its bank credit facility, it also terminated an
interest rate swap agreement with a notional amount of
$35.7 million. This termination and the retirement of the
term loan resulted in a gain of $1.2 million, which was
recorded as other income. Additionally, the retirement of
the term loan triggered the recognition of $557,000 of loss,
which represents the remaining unamortized loss on the
CIRCUS. This loss was recorded as a reduction of other
income.
At December 31, 1999, the Company has one interest rate
swap agreement outstanding with a notional amount of $15
million, under which the Company pays a fixed rate of
interest and receives a floating rate of interest over the
remaining term of the agreement. This agreement is
designated as a hedge of the Company's revolving credit
facility.
11. New Accounting Pronouncements
In September 1999, the Emerging Issue Task Force (EITF) of
the American Institute of Certified Public Accountants
issued EITF 99-5, "Accounting for Pre-Production Costs
Related to Long-Term Supply Arrangements". The guidance in
EITF 99-5 is effective for design and development costs
incurred after December 31, 1999. The Company has evaluated
the guidance in EITF 99-5 and has determined that the
adoption of EITF 99-5 will not have a material effect on
the Company's financial position, results of operations or
cash flows.
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS:
Net sales for the second quarter of fiscal 2000 were $115.7 million,
representing a decrease of $7.3 million, or 5.9%, from net sales of $123.0
million in the second quarter of fiscal 1999. The Company's Fonderie d'Autun
("Autun") operation, acquired by the Company on February 25, 1999, generated
net sales of $6.2 million in the second quarter of fiscal 2000.
Excluding net sales generated by Autun, net sales for the second quarter of
fiscal 2000 were $109.5 million, representing a decrease of $13.5 million, or
11.0%, from net sales of $123.0 million in the second quarter of fiscal 1999.
This 11.0% decrease in net sales was due primarily to decreases in net sales
to the offshore oil and gas, mining, rail, agricultural and petrochemical
markets.
Net sales for the first six months of fiscal 2000 were $225.4 million,
representing a decrease of $14.1 million, or 5.9%, from net sales of $239.5
million in the first six months of fiscal 1999. The operations acquired by
the Company in fiscal 1999 generated net sales of $9.0 million and $20.5
million in the first six months of fiscal 1999 and fiscal 2000, respectively,
as follows:
<TABLE>
<CAPTION>
FY 99 FIRST SIX FY 00 FIRST SIX
MONTHS MONTHS
OPERATION DATE ACQUIRED NET SALES NET SALES
- --------- ------------- --------- ---------
<S> <C> <C> <C>
London Precision Machine & Tool Ltd. 09 / 01 / 98 $9.0 million $10.5 million
Fonderie d'Autun 02 / 25 / 99 -- 10.0 million
</TABLE>
Excluding net sales generated by the operations acquired in fiscal 1999, net
sales for the first six months of fiscal 2000 were $204.9 million,
representing a decrease of $25.6 million, or 11.1%, from net sales of $230.5
million in the first six months of fiscal 1999. This 11.1% decrease in net
sales was due primarily to decreases in net sales to the offshore oil and
gas, mining, power generation, agricultural and steel markets, partially
offset by increases in net sales to the rail and military markets.
Gross profit for the second quarter of fiscal 2000 decreased by $3.7 million,
or 19.8%, to $15.0 million, or 13.0% of net sales, compared to $18.7 million,
or 15.2% of net sales, for the second quarter of fiscal 1999. Gross profit
for the first six months of fiscal 2000 decreased by $5.0 million, or 15.3%,
to $27.7 million, or 12.3% of net sales, compared to $32.7 million, or 13.6%
of net sales, for the first six months of fiscal 1999. The decrease in gross
profit and gross profit as a percentage of net sales was primarily due to
lower net sales and reduced absorption of overhead at the Company's
subsidiaries which primarily serve the mining, offshore oil and gas, power
generation, steel and agricultural markets.
<PAGE>
Selling, general and administrative expense ("SG&A") for the second quarter
of fiscal 2000 was $11.2 million, or 9.7% of net sales, compared to $11.6
million, or 9.5% of net sales, in the second quarter of fiscal 1999. For the
first six months of fiscal 2000, SG&A was $21.0 million, or 9.3% of net
sales, compared to $22.6 million, or 9.4% of net sales, for the first six
months of fiscal 1999. The decrease in SG&A expense is primarily due to the
consolidation of four operating units into two at the Company's Sheffield
Forgemasters Group Ltd. subsidiary.
Other income for the second quarter and first six months of fiscal 2000 was
$681,000 ($406,000 after tax). This $681,000 reflects a net gain on the
termination of interest rate swap agreements. The net gain was triggered by
the Company's early retirement of a term loan (see Footnote 10 of Notes to
Consolidated Financial Statements).
The Company has recorded intangible assets, consisting of goodwill, in
connection with certain of the Company's acquisitions. Amortization of these
assets for the second quarter of fiscal 2000 was expense of $371,000, or 0.3%
of net sales, as compared to $487,000, or 0.4% of net sales, in the second
quarter of fiscal 1999. Amortization of these assets for the first six months
of fiscal 2000 was expense of $745,000, or 0.3% of net sales, as compared to
$903,000, or 0.4% of net sales, in the first six months of fiscal 1999. The
Company has also recorded a liability, consisting of the excess of acquired
net assets over cost ("negative goodwill"), in connection with the
acquisitions of Canadian Steel Foundries Ltd. ("Canadian Steel") and Autun.
The amortization of negative goodwill was a credit to income in the second
quarter of fiscal 2000 of $506,000, or 0.4% net sales, as compared to
$175,000, or 0.1% of net sales, in the second quarter of fiscal 1999.
Amortization of negative goodwill was a credit to income in the first six
months of fiscal 2000 of $1.0 million, or 0.5% net sales, as compared to
$334,000, or 0.1% of net sales, in the first six months of fiscal 1999.
Interest expense for the second quarter of fiscal 2000 increased to $2.3
million, or 2.0% of net sales, from $2.2 million or 1.7% of net sales, in the
first quarter of fiscal 1999. For the first six months of fiscal 2000,
interest expense increased to $4.5 million, or 2.0% of net sales, from $4.1
million, or 1.7% of net sales, in the first six months of fiscal 1999. The
increase in interest expense primarily reflects an increase in the average
amount of outstanding indebtedness primarily incurred to finance the
Company's acquisition of London Precision Machine & Tool Ltd. ("London
Precision").
<PAGE>
Income tax expense for the second quarter and six months of fiscal 2000
reflected an effective of approximately 49.0% and 44.0% respectively, which
are 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 second quarter of fiscal
1999 reflected an effective rate of approximately 41.0%. Income tax expense
for the first six months of fiscal 1999 reflected an effective rate of
approximately 43.0% The Company's combined effective tax rate reflects the
different federal, state and provincial statutory rates of the various
jurisdictions in which the Company operates, and the proportion of taxable
income earned in each of those tax jurisdictions.
As a result of the foregoing, net income for the second quarter of fiscal
2000 was $1.1 million compared to net income of $2.7 million for the second
quarter of fiscal 1999. Net income for the first six months of fiscal 2000
was $1.8 million compared to net income of $3.0 million for the first six
months of fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES:
Cash provided by operating activities for the first six months of fiscal 2000
was $8.3 million, an increase of $8.8 million from the first six months of
fiscal 1999. This increase was primarily attributable to decreased working
capital requirements primarily relating to reduced inventory balances.
Working capital was $88.4 million at December 31, 1999, as compared to $85.6
million at June 30, 1999. The increase primarily resulted from a reduction in
the current maturities of long-term obligations.
During the first six months of fiscal 2000, the Company made capital
expenditures of $8.4 million, as compared to $13.4 million for the first six
months of fiscal 1999. Capital expenditures in both periods were used for
routine projects at each of the Company's facilities.
On August 12, 1998, the Company announced that its Board of Directors had
authorized a stock repurchase program of up to 1.2 million common shares of
its then outstanding 8.2 million common shares. The stock repurchases may be
made from time to time at prevailing prices in the open market or in
privately negotiated transactions, depending on market conditions, the price
of Company's common stock and other factors. The Company will make such stock
repurchases using internally generated funds and borrowings under its credit
facility. The Company's Note Purchase Agreement allows repurchases of up to
nearly $2.5 million of Company common stock during fiscal 2000. 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.
The Company has not repurchased any additional shares since this date.
Total indebtedness of the Company at December 31, 1999 was $115.4 million, as
compared to $113.4 million at June 30, 1999. This increase of $2.0 million
primarily
<PAGE>
reflects borrowings of $1.8 million to purchase the remaining 10% of London
Precision's outstanding capital stock. At December 31, 1999, $13.3 million
was available for borrowing under the Company's revolving credit facility.
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 seriously injured and there have been
three fatalities. The damage was confined to the shell molding area and
boiler room. The other areas of the foundry are operational. Molds are
currently being produced at other foundries as well as Jahn while the repairs
are made.
The Company carries insurance for property and casualty damages (over $475
million of coverage), business interruption (approximately $115 million of
coverage), general liability ($51 million of coverage) and workers'
compensation (up to full statutory liability) for itself and its
subsidiaries. The Company recorded charges 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.
A civil action has been commenced in Massachusetts state court on behalf of
the estates of deceased workers, their families, injured workers and their
families, against the supplier of a chemical compound used in Jahn's
manufacturing process. Counsel for the plaintiffs informally have indicated a
desire to explore whether any facts would support adding the Company to that
litigation as a jointly and severally liable defendant. The Company's
comprehensive general liability insurance carrier has retained counsel on
behalf of Jahn and the Company and is monitoring the situation. It is too
early to assess the potential liability for such a claim, which in any event
the Company would aggressively defend. Plaintiff's counsel has informally
raised the possibility of seeking to make a double recovery under the
workers' compensation policy in force for Jahn, contending that there was
willful misconduct on Jahn's part leading to the accident. Such recovery, if
pursued and made, would be of a material nature. It is too early to assess
the potential liability for such a claim, which in any event Jahn would
aggressively defend. The supplier of the chemical compound, Borden Chemical,
Inc., has filed a Third Party Compliant against Jahn in Massachusetts State
Court attempting to enforce an alleged Indemnity Agreement. It is too early
to assess the potential liability for such a claim, which Jahn would
aggressively defend.
The Company, its property insurance carrier and its insurance broker dispute
the amount of property insurance available for property damages suffered in
this accident. It is too early in the process of calculating the loss to
estimate the amount in dispute. Management believes that the probability of
any loss resulting from the disputed property insurance coverage is remote.
The Company currently believes this dispute will be resolved during fiscal
2001. If this dispute cannot be resolved amicably, the Company would
vigorously pursue its remedies against both parties.
Following the accident, OSHA conducted an investigation of the accident. On
<PAGE>
August 24, 1999, OSHA issued a citation describing violations of the
Occupational Safety and Health Act of 1970, which primarily related to
housekeeping, maintenance and other specific, miscellaneous items. Neither of
the two violations specifically addressing conditions related to the
explosion and fire were classified as serious or willful. Without admitting
any wrongdoing, Jahn entered into a settlement with OSHA that addresses the
alleged work place safety issues and agreed to pay $148,500 in fines.
On August 20, 1999, the Company and its lenders entered into the Third
Amendment to the Amended and Restated Credit Agreement (the "Credit
Agreement"). This amendment provides that the Company's subsidiary, Autun, is
not subject to the provisions governing subsidiary indebtedness. It further
provides that the Company and its subsidiaries may not make any investment in
Autun and the Company must exclude Autun's results in the calculation of
various financial covenants.
On October 20, 1999, the Company and the insurance company holding the
Company's $20 million aggregate principal amount of unsecured, senior notes
entered into the Fourth Amendment to the Note Purchase Agreement. This
amendment provides that the Company's subsidiary, Autun, is not subject to
the provisions governing subsidiary indebtedness. It further provides that
the Company and its subsidiaries may not make any investment in Autun and the
Company must exclude Autun's results in the calculation of various financial
covenants.
On November 5, 1999, the Company and its lenders entered into the Fourth
Amendment and Waiver (the "Fourth Amendment") to the Credit Agreement. The
Fourth Amendment provided, among other things, 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 on December 31, 1999,
increasing to 1.25 on July 1, 2000, if the Company incurs at least $20
million of subordinated debt by January 31, 2000. If the Company did not
obtain a commitment for the private placement of at least $20 million of
subordinated debt by December 15, 1999, the Fourth Amendment provided that
(1) the Company maintain a Fixed Charge Coverage Ratio of at least 1.10 on
December 31, 1999, increasing to 1.25 on March 31, 2000 and 1.50 on March 31,
2001, (2) the fixed charges used in calculating the Fixed Charge Coverage
Ratio will include 15% of the aggregate principal amount outstanding under
the revolving credit facility after October 1, 1999 rather than after July 1,
2000, and (3) the Company will grant the lenders under the Credit Agreement
liens in the Company's assets by February 14, 2000. The Company was unable to
obtain such a commitment by December 15, 1999. The Fourth Amendment also
provided that the Company must maintain a ratio of consolidated total debt to
total capitalization of not more than 55%. Absent the Waiver, the Company
would not have been in compliance with the Fixed Charge Coverage Ratio.
On December 21, 1999, the Company and its lenders entered into the Fifth
Amendment (The "Fifth Amendment") to the Credit Agreement. The Fifth
Amendment provides that the Company may incur up to $35 million of
indebtedness from General Electric Capital Corporation or its assignees (the
"GE Financing"). In addition, the Fifth Amendment provides that (1) the bank
revolving credit facility will be increased from $70.0 million to $80.0
million through April 30, 2000, (2) the fixed charges used in calculating the
Fixed Charge Coverage Ratio will not include 15% of the aggregate principal
amount
<PAGE>
outstanding under the revolving credit facility through June 30, 2000 and (3)
the Company will grant the lenders under the Credit Agreement liens in
certain of the Company's assets.
On December 21, 1999, the Company and the insurance company holding the
Company's $20 million aggregate principal amount of unsecured, senior notes
entered into the Fifth Amendment to the Note Purchase Agreement. This
amendment provides that the Company may incur indebtedness through the GE
Financing. This amendment further provides that (1) the Company must maintain
a ratio of consolidated total debt to total capitalization of not more than
55%, (2) the Company maintain a Fixed Charge Coverage Ratio of at least 1.10
on December 31, 1999, increasing to 1.25 on March 31, 2000 and 1.50 on March
31, 2001 and (3) the fixed charges used in calculating the Fixed Charge
Coverage Ratio will not include 15% of the aggregate principal amount
outstanding under the revolving credit facility through June 30, 2000.
On December 29, 1999, the Company entered into a Master Security Agreement
with General Electric Capital Corporation ("GECC") and its assigns providing
for a term loan of $35.0 million. The term loan is secured by certain of the
Company's fixed assets, real estate, equipment, furniture and fixtures
located in Atchison, Kansas and St. Joseph, Missouri, matures in December
2004, and bears interest at a fixed rate of 9.05%. On December 29, 1999 the
proceeds of the term loan, together with borrowings under the Company's
revolving credit facility, were used to retire the $35.7 million of
outstanding indebtedness under the Company's term loan under its bank credit
facility.
The Company believes that its operating cash flow and amounts available for
borrowing under its revolving credit facility will be adequate to fund its
capital expenditure and working capital requirements for the next two years.
However, the level of capital expenditure and working capital requirements
may be greater than currently anticipated as a result of the size and timing
of future acquisitions, or as a result of unforeseen expenditures relating to
compliance with environmental laws.
YEAR 2000 COMPUTER ISSUES
Prior to December 31, 1999, management of the Company completed its review of
hardware and software systems to identify those systems that could be
affected by the "Year 2000" issue, as well as surveys of key vendors and
service providers for Year 2000 risks. As of the date of this filing, the
Company has experienced no disruptions or other significant problems related
to Year 2000 issues. Additionally, to date, there have been no Year 2000
related failures in the respect of supplies or services from vendors and
service providers.
However, if Year 2000 issues develop subsequent to the date of this filing
which impact the ability of vendors or service providers to adequately supply
the Company, there could be a material adverse impact on the Company's
operations.
The Company incurred approximately $2.4 million in costs related to Year 2000
issues and does not expect to incur material Year 2000 transition costs in
the future.
<PAGE>
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 and
the markets served by the Company, the strength of the U.S. dollar, Canadian
dollar, British pound and the Euro, interest rates, inflation, the
availability of labor, the successful conclusion of various union contract
negotiations, the results of any litigation arising out of the accident 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, 1999.
The Company's primary interest rate exposures relate to its cash and
short-term investments, fixed and variable rate debt and interest rate swaps,
which are mainly exposed to changes in short-term interest rates (e.g. USD
LIBOR). The potential loss in fair values is based on an immediate change in
the net present values of the Company's interest rate-sensitive exposures
resulting from a 10% change in interest rates. The potential loss in cash
flows and earnings is based on the change in the net interest income/expense
over a one-year period due to an immediate 10% change in rates. A
hypothetical 10% change in interest rates would have a material impact on the
Company's earnings of approximately $200,000 and $660,000 in fiscal 1999
and the first half of fiscal 2000, respectively.
The Company's exposure to fluctuations in currency rates against the pound
sterling and Canadian dollar result from the Company's holdings in cash and
short-term investments and its utilization of foreign currency forward
exchange contracts to hedge customer receivables and firm commitments. The
potential loss in fair values is based on an immediate change in the U.S.
dollar equivalent balances of the Company's currency exposures due to a 10%
shift in exchange rates versus the pound sterling and Canadian dollar. The
potential loss in cash flows and earnings is based on the change in cash flow
and earnings over a one-year period resulting from an immediate 10% change in
currency exchange rates versus the pound sterling and Canadian dollar. Based
on the Company's holdings of financial instruments at June 30, 1999 and
December 31, 1999, a hypothetical 10% depreciation in the pound sterling and
the Canadian dollar versus all other currencies would have a material impact
on the Company's earnings of approximately $2.7 million and $5.6 million in
fiscal 1999 and the first half of fiscal 2000, respectively. The Company's
analysis does not include the offsetting impact from its underlying hedged
exposures (customer receivables and firm commitments). If the Company
included these underlying hedged exposures in its sensitivity analysis, these
exposures would substantially offset the financial impact of its foreign
currency forward exchange contracts due to changes in currency rates.
<PAGE>
PART II
ITEM 1 - Legal Proceedings
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 seriously injured and there have been three
fatalities. The damage was confined to the shell molding
area and boiler room. The other areas of the foundry are
operational. Molds are currently being produced at other
foundries as well as Jahn while the repairs are made.
The Company carries insurance for property and casualty
damages (over $475 million of coverage), business
interruption (approximately $115 million of coverage),
general liability ($51 million of coverage) and workers'
compensation (up to full statutory liability) for itself
and its subsidiaries. The Company recorded charges 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.
A civil action has been commenced in Massachusetts state
court on behalf of the estates of deceased workers, their
families, injured workers and their families, against the
supplier of a chemical compound used in Jahn's
manufacturing process. Counsel for the plaintiffs
informally have indicated a desire to explore whether any
facts would support adding the Company to that litigation
as a jointly and severally liable defendant. The Company's
comprehensive general liability insurance carrier has
retained counsel on behalf of Jahn and the Company and is
monitoring the situation. It is too early to assess the
potential liability for such a claim, which in any event
the Company would aggressively defend. Plaintiff's counsel
has informally raised the possibility of seeking to make a
double recovery under the workers' compensation policy in
force for Jahn, contending that there was willful
misconduct on Jahn's part leading to the accident. Such
recovery, if pursued and made, would be of a material
nature. It is too early to assess the potential liability
for such a claim, which in any event Jahn would
aggressively defend. The supplier of the chemical compound,
Borden Chemical, Inc., has filed a Third Party Complaint
against Jahn in Massachusetts State Court on February 2,
2000 attempting to enforce an alleged Indemnity Agreement.
It is too early to assess the potential liability for such
a claim, which Jahn would aggressively defend.
<PAGE>
ITEM 2 - Changes in Securities and Use of Proceeds
Unregistered Securities Transactions
In lieu of cash compensation for services rendered in their
capacity as Directors of the Company, Mr. David Belluck, Mr. Ray
Witt, Mr. John Whitney and Mr. Stuart Uram were each provided at
their election 2,314 shares of common stock on August 3, 1999,
with a then-current market value of $9.91 per share. Such
transactions were exempt from registration under the Securities
Act of 1933, as amended (the "Act"), pursuant to Section 4(2) of
the Act.
ITEM 3 - Defaults Upon Senior Securities
NOT APPLICABLE
ITEM 4 - Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on November 19, 1999
Stockholders owning 7,420,926 shares voted in favor of Ray H. Witt
as a Class III director. There were 53,945 shares withheld.
Stockholders owning 7,398,546 shares voted in favor of Stuart Z.
Uram as a Class III director. There were 76,405 shares withheld.
Accordingly, Mr. Witt and Dr. Uram were elected as Class III
directors for a term of three years. Previously elected and
continuing to serve their terms are Hugh H. Aiken, David L. Belluck
and John O. Whitney.
ITEM 5 - Other Information
On January 4, 2000 the Company's Board of Directors elected David
Colburn to the Board, as a Class I Director, with a term expiring in
November 2000. Mr. Colburn, age 41, is a private investor based in
Northbrook, Illinois. Mr. Colburn is President of the general
partner of Lincolnshire Associates, a member of the investment
committee of the Employees' Retirement Plan of Consolidated
Electrical Distributors, Inc., and affiliated with Edmundson
International, Inc. Edmundson International and its affiliates
constitute the Company's largest shareholder.
ITEM 6 - Exhibits and Reports of Form 8-K
(A) Exhibits
4.0 Long-term debt instruments of the Company in amounts
not exceeding 10% of the total assets of the Company
and its subsidiaries on a consolidated basis will be
furnished to the Commission upon request
<PAGE>
4.1 Fifth Amendment dated as of December 21, 1999 to the
Note Purchase Agreement dated July 29, 1994, between
the Company and Teachers Insurance and Annuity
Association of America
4.2 Fifth Amendment to the Amended and Restated Credit
Agreement dated as of December 21, 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 December 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.
<TABLE>
<S> <C>
ATCHISON CASTING CORPORATION
----------------------------------------------
(Registrant)
DATE: February 11, 2000 /s/ HUGH H. AIKEN
----------------------------------------------
Hugh H. Aiken, Chairman of the
Board, President and Chief
Executive Officer
DATE: February 11, 2000 /s/ KEVIN T. MCDERMED
----------------------------------------------
Kevin T. McDermed, Vice President, Chief
Financial Officer, Treasurer and Secretary
</TABLE>
<PAGE>
EXHIBIT 4.1
<PAGE>
FIFTH AMENDMENT TO THE NOTE PURCHASE AGREEMENT
This Fifth Amendment to the Note Purchase Agreement (this
"Fifth Amendment") dated as of December 21, 1999 between ATCHISON CASTING
CORPORATION (the "Company") and TEACHERS INSURANCE AND ANNUITY ASSOCIATION OF
AMERICA (the "Holder");
W I T N E S S E T H:
WHEREAS, the Company and the Holder have heretofore executed
and delivered a Note Purchase Agreement dated as of July 29, 1994 (as amended by
the First Amendment, the Second Amendment, the Third Amendment, the Letter
Agreement and the Fourth Amendment described below, the "Note Purchase
Agreement") pursuant to which the Holder purchased $20,000,000 in aggregate
principal amount of the Company's 8.44% Senior Notes due July 29, 2004 (the
"Notes"); and
WHEREAS, the Company and the Holder have heretofore executed
and delivered a First Amendment to the Note Purchase Agreement dated as of March
8, 1996 (the "First Amendment"); and
WHEREAS, the Company and the Holder have heretofore executed
and delivered a Second Amendment to the Note Purchase Agreement dated as of May
24, 1996 (the "Second Amendment"); and
WHEREAS, the Company and the Holder have heretofore executed
and delivered a Third Amendment to the Note Purchase Agreement dated as of April
3, 1998 (the "Third Amendment"); and
WHEREAS, the Company and the Holder have heretofore executed
and delivered a Letter Agreement to the Note Purchase Agreement dated as of
October 12, 1998 (the "Letter Agreement"); and
WHEREAS, the Company and the Holder have heretofore executed
and delivered a Fourth Amendment to the Note Purchase Agreement dated as of
October 20, 1999 (the "Fourth Amendment"); and
WHEREAS, the parties hereto desire to further amend the Note
Purchase Agreement to enable the Company to issue up to $35,000,000 of Debt to
General Electric Capital Corporation or its assignees ("GE Capital Corporation")
pursuant to documentation acceptable to the Holder (the "GE Financing") and to
make certain other amendments to the Note Purchase Agreement as provided herein;
-1-
<PAGE>
NOW, THEREFORE, for good and valuable consideration the
receipt of which is hereby acknowledged, the parties hereto agree that the Note
Purchase Agreement shall be and hereby is amended as follows:
A. 1. SECTION 6.1 of the Note Purchase Agreement is hereby
amended : (i) by deleting subsection (c) in its entirety and substituting in
lieu thereof:
"RATIO OF CONSOLIDATED TOTAL DEBT TO TOTAL CAPITALIZATION. The
Company will not on any date permit Consolidated Total Debt to exceed 55% of
Total Capitalization."
(ii) by deleting subsection (d) in its entirety; and
(iii) by deleting subsection (e) in its entirety and replacing in lieu thereof:
"FIXED CHARGE COVERAGE RATIO. The Company will not, as of the
last day of any fiscal quarter of the Company, permit the Fixed Charge Coverage
Ratio:
(i) for the period from and including December 31, 1999 to and
including March 30, 2000, to be less than 1.10;
(ii) for the period from and including March 31, 2000 to and
including March 30, 2001, to be less than 1.25; and
(iii) for the period from and including March 31, 2001 and
thereafter, to be less than 1.50."
2. SECTION 6.4 of the Note Purchase Agreement is hereby
amended by: (i) (x)deleting the word "and" at the end of subsection (g); (y)
replacing the "." at the end of subsection (h)(iv) with "; and"; and (z)
inserting after subsection (h) the following subsection (i):
(i) Liens upon certain assets and real estate of the Company
as approved by the Holder located in Atchison, Kansas and St. Joseph,
Missouri securing the GE Financing.
and (ii) by replacing the "(h)" in the third line of the last paragraph
with "(i)".
3. The definition of "FIXED CHARGES" appearing in SECTION 9.1
of the Note Purchase Agreement is hereby amended in its entirety and as so
amended shall read as follows:
-2-
<PAGE>
"FIXED CHARGES: as applied to any Person for any period, the
sum of (a) Interest Expense of such Person for such period, PLUS (b) the
aggregate amount of Current Maturities, PLUS (c) 15% of the aggregate principal
amount of revolving loans issued pursuant to the Credit Agreement outstanding on
the last day of such period; PROVIDED that if the Company obtains a commitment
from GE Capital Corporation in form and substance acceptable to the Holder by no
later than December 22, 1999 to extend to the Company the GE Financing on or
prior to January 31, 2000, clause (c) shall only be effective from and after
July 1, 2000; PROVIDED FURTHER that if GE Capital Corporation does not advance
the GE Financing on or prior to January 31, 2000, clause (c) above shall be
effective for all calculations at all times after October 1, 1999. "
B. The Company hereby represents and warrants to the Holder that the
representations and warranties with respect to the Company contained in the Note
Purchase Agreement as updated hereby by Schedules 7.19, II, III, IV, V and VI
attached hereto are true and correct in all material respects and the Holder
shall be entitled to rely on such representations and warranties as if they were
made to the Holder in this Amendment as of the date hereof.
C. This Fifth Amendment shall become effective upon execution and
delivery of this Fifth Amendment.
This Fifth Amendment may be executed in any number of counterparts and
by each party 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 Note Purchase Agreement shall remain unchanged and
in full force and effect. All references to the Note Purchase Agreement in any
document shall be deemed to be references to the Note Purchase Agreement as
amended hereby. All capitalized terms used herein without definition shall have
the same meaning herein as they have in the Note Purchase Agreement.
This Fifth Amendment shall be construed and governed by and in
accordance with the laws of the State of New York.
Dated as of the date first above written.
-3-
<PAGE>
ATCHISON CASTING CORPORATION
By /s/ Kevin T. McDermed
---------------------------------
Name: Kevin T. McDermed
Title: V.P. & Treasurer
TEACHERS INSURANCE AND ANNUITY
ASSOCIATION OF AMERICA
By /s/ Loren S. Archibald
---------------------------------
Name: Loren S. Archibald
Title: Managing Director Private Placements
-4-
<PAGE>
EXHIBIT 4.2
<PAGE>
FIFTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This Fifth Amendment to Amended and Restated Credit Agreement (the
"AMENDMENT") dated as of December 21, 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 through the Fourth
Amendment thereto dated November 5, 1999, 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 "FIXED CHARGES" appearing in Section 4.1 of the
Credit Agreement is hereby amended in its entirety and as so amended shall read
as follows:
"FIXED CHARGES" means, as applied to any Person for
any period, the sum of (a) Interest Expense of such Person for
such period, PLUS (b) the aggregate amount of Current
Maturities required to be made by the Borrower and its
Subsidiaries PLUS (c) 15% of the aggregate principal amount of
Revolving Loans outstanding on the last day of such period;
provided that if the Borrower obtains a commitment from
General Electric Capital Corporation in form and substance
acceptable to the Required Banks by no later than December 22,
1999 to extend to the Borrower the GE Financing (as
hereinafter defined) on or prior to January 31, 2000, clause
(c) shall only be effective from and after July 1, 2000;
PROVIDED FURTHER that if GE Capital Corporation does not
advance the GE Financing on or prior to January 31, 2000,
clause (c) above shall be effective for all calculations at
all times after October 1, 1999.
2. Section 1.14 to the Credit Agreement is hereby amended in its
entirety to read as follows:
SECTION 1.14. INCREASE IN COMMITMENTS. On or prior to
January 31, 2000, the Borrower shall have the right to
increase the Commitments up to an additional $10,000,000 (in a
minimum amount of $5,000,000 and integral multiples of
$1,000,000 in excess thereof) on a percentage basis for each
of the Banks in
<PAGE>
accordance with the amount of their Temporary Commitment
Percentage upon three Business Days' prior written notice to
the Agent PROVIDED THAT: (i) the Borrower may exercise its
rights to increase the Commitments pursuant to this Section
1.14 only one time, (ii) no Default or Event of Default shall
have occurred and be continuing on the date of such increase
or would result from such increase, (iii) on the date of such
increase the Borrower shall have repaid in full the
outstanding Term Loans from the proceeds of the GE Financing
and other funds available to the Borrower, and (iv) the
increase in Commitments to become effective on such date shall
be in an aggregate amount not to exceed $10,000,000. Upon the
satisfaction of the foregoing provisions, the Commitments
shall, without any further action on the part of the Borrower
or any Bank, be deemed amended to reflect the increase as
provided in this Section 1.14. Any increase in the Commitments
pursuant to this Section 1.14 shall, notwithstanding anything
in the Credit Agreement to the contrary, automatically
terminate on April 30, 2000. Notwithstanding the provisions of
Section 3.1 hereof or any other provision of the Credit
Agreement to the contrary, if and so long as no Event of
Default under Section 8.1(a) has occurred and is continuing
and the aggregate principal amount oustanding under the Credit
Agreement exceeds $70,000,000, each payment of the principal
amount of any Loan or unreimbursed drawing on a Letter of
Credit shall first be applied to repay the Banks that have
increased their Commitments pursuant to this Section 1.14
ratably that portion (if any) of the outstanding Loans and
unpaid reimbursement obligations on Letters of Credit that
exceeds $70,000,000. Otherwise, all payments shall be applied
PRO RATA in accordance with the provisions of Section 3.1. As
used in this Section 1.14 "TEMPORARY COMMITMENT PERCENTAGE"
for each Bank shall mean the percentage set forth opposite
such Bank's name below:
<TABLE>
<S> <C>
Harris Trust and Savings Bank 38.63636364%
Commerce Bank, N.A. 13. 63636364%
Mercantile Bank 13. 63636364%
KeyBank National Association 0.00%
Comerica Bank 9.09090909%
Hibernia National Bank 9.09090909%
National Westminster Bank Plc 9.09090909%
Norwest Bank Minnesota, N.A. 6.81818181%
</TABLE>
3. Section 7.16 of the Credit Agreement is hereby amended by: (i)
re-lettering subclause (c) as new subclause "(d)" and (ii) adding new subclause
(c) as follows:
(c) indebtedness for borrowed money of the Borrower
in an aggregate principal amount anytime outstanding not
exceeding $35,000,000 advanced by General Electric Capital
-2-
<PAGE>
Corporation or its assignees pursuant to documentation
acceptable to the Required Banks (the "GE FINANCING").
4. Section 7.9 of the Credit Agreement is hereby amended by: (a)
re-lettering subclause (g) thereof as new subclause "(h)" and (ii) inserting new
subclause (g) as follows:
(g) Liens upon certain fixed assets, real estate,
equipment, furniture and fixtures of the Borrower as approved
by the Required Banks located in Atchison, Kansas and St.
Joseph, Missouri securing the GE Financing.
5. 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.
6. Notwithstanding paragraph 8 of the Fourth Amendment to the Credit
Agreement, the Banks agree that: (i) the Borrower need only deliver as
collateral non-real estate assets located in the United States or Canada, (ii)
the Banks will not take as collateral certain fixed assets, real estate,
equipment, furniture and fixtures (to be approved by the Required Banks) of the
Borrower located in Atchison, Kansas and St. Joseph, Missouri to the extent such
assets are pledged to secure the GE Financing and the Term Loans have been
repaid with the proceeds of the GE Financing and other funds available to the
Borrower, and (iii) the Borrower will deliver security interests in such real
estate of the Borrower and its Subsidiaries located in the United States or
Canada as the Required Banks may request from time to time other than the real
estate of the Borrower located in Atchison, Kansas and St. Joseph, Missouri
commonly known as the Atchison Foundry and St. Joseph Machine Shop. All other
assets of the Borrower and any Subsidiary of the Borrower would remain subject
to the negative pledge contained in Section 7.16 of the Credit Agreement.
7. The Borrower represents and warrants to each Bank and the Agent
that (a) each of the representations and warranties set forth in Section 5 of
the Credit Agreement (as updated pursuant to this Amendment) 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) after giving effect to this Amendment, no
Default and no Event of Default has occurred and is continuing; and (c) without
limiting the effect of the foregoing, the Borrower's execution, delivery and
performance of this Amendment have been duly authorized, and this Amendment has
been executed and delivered by duly authorized officers of the Borrower.
8. This Amendment shall become effective when the Borrower, the
Required Banks, and the Agent shall have executed and delivered this Amendment
and the Guarantors shall have executed the consent attached hereto.
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
-3-
<PAGE>
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. McDeremd
-------------------------------------------
Title: V.P. & Treasurer
----------------------------------------
HARRIS TRUST AND SAVINGS BANK, in its individual
capacity as a Bank and as Agent
By: /s/ Len E. Meyer
-------------------------------------------
Title: Vice President
----------------------------------------
COMMERCE BANK, N.A.
By: /s/ Dennis R. Block
-------------------------------------------
Title: Senior Vice President
----------------------------------------
MERCANTILE BANK
By: /s/ Barry P. Sullivan
-------------------------------------------
Title: Vice President
----------------------------------------
KEY BANK NATIONAL ASSOCIATION
By: /s/ Lawrence A. Mack
-------------------------------------------
Title: Senior Vice President
----------------------------------------
-5-
<PAGE>
COMERICA BANK
By: /s/ Jeffrey E. Peck
-------------------------------------------
Title: Vice President
----------------------------------------
HIBERNIA NATIONAL BANK
By: /s/ Troy J. Villafarro
-------------------------------------------
Title: Senior Vice President
----------------------------------------
NATIONAL WESTMINSTER BANK PLC
Nassau Branch
By: /s/ C. A. Parsons
-------------------------------------------
Title: Corporate Director
----------------------------------------
New York Branch
By: /s/ C. A. Parsons
-------------------------------------------
Title: Corporate Director
----------------------------------------
NORWEST BANK MINNESOTA, N.A.
By: /s/ R. Duncan Sinclair
-------------------------------------------
Title: Vice President
----------------------------------------
-6-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 3,909
<SECURITIES> 0
<RECEIVABLES> 85,762
<ALLOWANCES> 793
<INVENTORY> 64,116
<CURRENT-ASSETS> 182,287
<PP&E> 206,019
<DEPRECIATION> 54,290
<TOTAL-ASSETS> 380,784
<CURRENT-LIABILITIES> 93,915
<BONDS> 0
0
0
<COMMON> 83
<OTHER-SE> 141,448
<TOTAL-LIABILITY-AND-EQUITY> 380,784
<SALES> 225,404
<TOTAL-REVENUES> 225,404
<CGS> 197,660
<TOTAL-COSTS> 19,984
<OTHER-EXPENSES> 64
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,511
<INCOME-PRETAX> 3,185
<INCOME-TAX> 1,429
<INCOME-CONTINUING> 1,756
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,756
<EPS-BASIC> 0.23
<EPS-DILUTED> 0.23
</TABLE>
