<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 30, 1997
--------------
or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
------------ ------------
Commission File No. 0-24492
-------
CITATION CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 63-0828225
(STATE OF INCORPORATION) (IRS EMPLOYER I.D. NO.)
2 Office Park Circle, Suite 204
Birmingham, Alabama 35223
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(205) 871-5731
(REGISTRANT'S TELEPHONE NUMBER)
----------------------------------------
Indicate by check mark whether the registrant has (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of the registrant's class of
common stock, as of the latest practicable date.
Class Outstanding at May 8, 1997
- ------------------------------ -----------------------------------
Common Stock, $.01 Par Value 17,733,040
<PAGE>
INDEX
Page No.
--------
PART I: FINANCIAL INFORMATION
ITEM 1: Financial Statements. . . . . . . . . . . . . . . . . . . . . .1
Interim Condensed Consolidated Balance Sheets. . . . . . .2
Interim Condensed Consolidated Statements of Income. . . .3
Interim Condensed Consolidated Statements of Cash Flows. .4
Notes to Interim Condensed Consolidated
Financial Statements . . . . . . . . . . . . . . . . . . .5
ITEM 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . 9
PART II: OTHER INFORMATION
ITEM 4: Submission of Matters to a Vote of Security Holders . . . . . .13
ITEM 6: Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . .14
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
<PAGE>
PART I: FINANCIAL INFORMATION
ITEM I: FINANCIAL STATEMENTS
The financial statements listed below are included on the following pages
of this Report on Form 10-Q:
Interim Condensed Consolidated Balance Sheets at September 29, 1996
and March 30, 1997 (unaudited).
Interim Condensed Consolidated Statements of Income (unaudited) for
the three months and six months ended March 31, 1996 and March 30,
1997.
Interim Condensed Consolidated Statements of Cash Flows (unaudited)
for the six months ended March 31, 1996 and March 30, 1997.
Notes to Interim Condensed Consolidated Financial Statements.
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1
<PAGE>
CITATION CORPORATION AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands of dollars, except share data)
<TABLE>
<CAPTION>
September 29, 1996 March 30, 1997
------------------ --------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,267 $ 3,421
Accounts receivable, net 77,931 94,292
Inventories 39,478 48,120
Deferred income taxes, prepaid expenses and
other assets 15,683 10,706
---------- ----------
Total current assets 135,359 156,539
Property, plant and equipment, net 199,367 265,443
Other assets 48,831 51,325
---------- ----------
$ 383,557 $ 473,307
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft $ 8,328 $ 3,877
Current portion of other long-term debt 2,654 3,069
Accounts payable 33,668 38,426
Accrued expenses 28,205 38,080
---------- ----------
Total current liabilities 72,855 83,452
Long-term debt, net of current portion 140,946 193,805
Deferred income taxes and other deferred liabilities 20,437 36,796
---------- ----------
Total liabilities 234,238 314,053
---------- ----------
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000
shares authorized, none issued and outstanding -- --
Common stock, $0.01 par value; 30,000,000
shares authorized, 17,715,540 shares issued
and outstanding at September 29, 1996, and
17,727,040 at March 30, 1997 177 177
Additional paid-in capital 107,087 107,159
Retained earnings 42,055 51,918
---------- ----------
Total stockholders' equity 149,319 159,254
---------- ----------
$ 383,557 $ 473,307
---------- ----------
---------- ----------
</TABLE>
See notes to interim condensed consolidated financial statements.
2
<PAGE>
CITATION CORPORATION AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars, except share and per share data)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
March 31, 1996 March 30, 1997 March 31, 1996 March 30, 1997
-------------- -------------- -------------- --------------
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 120,955 $ 170,435 $ 212,716 $ 310,921
Costs of sales 98,610 140,853 174,511 259,213
---------- ---------- ---------- ----------
Gross profit 22,345 29,582 38,205 51,708
Selling, general and administrative expenses 11,776 15,290 21,732 28,095
---------- ---------- ---------- ----------
Operating income 10,569 14,292 16,473 23,613
Other (income) expenses:
Interest expense, net 1,862 3,836 2,651 7,353
Other, net (119) (18) (218) 91
---------- ---------- ---------- ----------
1,743 3,818 2,433 7,444
---------- ---------- ---------- ----------
Income before provision for income taxes 8,826 10,474 14,040 16,169
Provision for income taxes 3,530 4,085 5,616 6,306
---------- ---------- ---------- ----------
Net income $ 5,296 $ 6,389 $ 8,424 $ 9,863
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per share $ 0.30 $ 0.36 $ 0.48 $ 0.56
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average shares outstanding 17,675,540 17,725,056 17,675,540 17,721,743
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See notes to interim condensed consolidated financial statements.
3
<PAGE>
CITATION CORPORATION AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
<TABLE>
<CAPTION>
For the Six Months Ended
March 31, 1996 March 30, 1997
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES: (unaudited) (unaudited)
<S> <C> <C>
Net income $ 8,424 $ 9,863
---------- ----------
Adjustments to reconcile net income to net
cash flows from operating activities:
Provision for losses on receivables 65 38
Depreciation and amortization 8,367 14,582
Changes in operating assets and liabilities,
net:
Accounts receivable (2,258) (4,462)
Inventories (4,023) (342)
Prepaid expenses and other assets (2,792) 6,646
Accounts payable (1,431) (1,002)
Accrued expenses and other liabilities (278) 5,329
---------- ----------
Total adjustments (2,350) 20,789
---------- ----------
Net cash provided by operating activities 6,074 30,652
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property, plant and equipment expenditures, net (14,797) (17,189)
Other nonoperating assets (2,399) --
Proceeds from sale of Penn Steel -- 9,006
Cash paid for acquisitions (28,200) (47,780)
---------- ----------
Net cash used in investing activities (45,396) (55,963)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash overdraft -- (4,224)
Repayments of acquired debt -- (16,340)
Change in long-term debt, note payable and
other financing arrangements, net borrowings 33,781 46,957
Other, net (122) 72
---------- ----------
Net cash provided by financing activities 33,659 26,465
---------- ----------
Net (decrease) increase in cash and cash
equivalents (5,663) 1,154
Cash and cash equivalents, beginning of period 9,812 2,267
---------- ----------
Cash and cash equivalents, end of period $ 4,149 $ 3,421
---------- ----------
---------- ----------
</TABLE>
See notes to interim condensed consolidated financial statements.
4
<PAGE>
CITATION CORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars, except share and per share data)
1. The interim condensed consolidated balance sheet at September 29, 1996, has
been derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles (GAAP).
The interim condensed consolidated financial statements at March 30, 1997
and for the three months and the six months ended March 31, 1996 and March
30, 1997 are unaudited; however, in the opinion of management, all
adjustments, consisting only of normal recurring accruals necessary for a
fair presentation, have been included. These financial statements should
be read in conjunction with the 1996 annual report on SEC Form 10-K.
Recently Issued Accounting Standards. In October 1995, the Financial
Accounting Standards Board (FASB) issued SFAS No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION. The Company is required to adopt this statement
no later than fiscal year 1997. The Company anticipates continuing to
account for its stock-based compensation plans in accordance with APB
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, as permitted by
SFAS No. 123. When this statement becomes applicable, the Company intends
to provide the appropriate pro forma net income and net income per share
disclosures required by SFAS No. 123.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(SFAS 128). SFAS 128 supersedes existing generally accepted accounting
principles relative to the calculation of earnings per share, is effective
for years ending after December 15, 1997 and requires restatement of all
prior period earnings per share information upon adoption. Generally, SFAS
128 requires a calculation of basic earnings per share, which takes into
consideration income (loss) available to common shareholders and the
weighted average of common shares outstanding. SFAS 128 also requires the
calculation of a diluted earnings per share, which takes into effect the
impact of all additional common shares that would have been outstanding if
all dilutive potential common shares relating to options, warrants, and
convertible securities had been issued, as long as their effect is
dilutive, with a related adjustment of income available for common
shareholders, as appropriate. SFAS 128 requires dual presentation of basic
and diluted earnings per share on the face of the statement of operations
and requires a reconciliation of the numerator and denominator of the basic
earnings per share computation. The Company does not expect the effect of
its adoption of SFAS 128 to be material.
5
<PAGE>
2. A summary of inventories is as follows:
September 29, March 30,
1996 1997
------------- ---------
Raw materials $ 8,872 $ 10,239
Supplies and containers 9,817 10,874
Finished goods 20,789 27,007
--------- ---------
$ 39,478 $ 48,120
--------- ---------
--------- ---------
3. Balances of major classes of property, plant and equipment and accumulated
depreciation are as follows:
September 29, March 30,
1996 1997
------------- ---------
Land and improvements $ 7,166 $ 10,491
Buildings 37,316 48,783
Plant and equipment 195,370 246,954
Office equipment 9,230 11,723
Transportation equipment 8,788 10,063
Construction in progress 8,403 16,255
--------- ---------
266,273 344,269
Less accumulated depreciation (66,906) (78,826)
--------- ---------
$ 199,367 $ 265,443
--------- ---------
--------- ---------
4. The Company's other assets consist of the following:
September 29, March 30,
1996 1997
------------- ---------
Goodwill $ 45,704 $ 47,379
Consulting and non-competition
agreements 1,893 1,570
Other 1,234 2,376
--------- ---------
$ 48,831 $ 51,325
--------- ---------
--------- ---------
6
<PAGE>
5. Long-term debt consists of the following:
September 29, March 30,
1996 1997
------------- ---------
Note payable $ 133,055 $ 182,000
Industrial development bonds 1,085 985
Other financing arrangements 9,460 13,889
--------- ---------
143,600 196,874
Less current portion of
long-term debt 2,654 3,069
--------- ---------
$ 140,946 $ 193,805
--------- ---------
--------- ---------
6. The following unaudited pro forma summary for the six months ended March
31, 1996 combines the results of operations of the Company with the
acquisitions of Texas Steel Company ("Texas Steel"), Hi-Tech Corporation
("Hi-Tech"), Southern Aluminum Castings Company ("Southern Aluminum"), Bohn
Aluminum Corporation ("Bohn"), Interstate Forging Industries, Inc.
("Interstate"), the sale of Pennsylvania Steel Foundry & Machine Company
("Penn Steel"), and the idling of the steel division operations at Texas
Foundries as if the acquisitions, sale and idling had occurred at the
beginning of the 1996 fiscal year. For the six months ended March 30,
1997, the pro forma summary presents the results of operations of the
Company as if the acquisition of Interstate and the sale of Penn Steel had
occurred at the beginning of the 1997 fiscal year. Certain adjustments,
including additional depreciation expense, interest expense on the
acquisition debt, amortization of intangible assets and income tax effects,
have been made to reflect the impact of the purchase transactions. These
pro forma results have been prepared for comparative purposes only and do
not purport to be indicative of what would have occurred had the
acquisitions, sale and idling been made at the beginning of either fiscal
years 1996 or 1997, or of results which may occur in the future.
Pro forma interim condensed consolidated statements of income are as
follows:
For the Six Months Ended
March 31, March 30,
1996 1997
--------- ---------
Sales $ 286,074 $ 320,068
Operating income 23,806 24,590
Income before provision for
income taxes 17,002 16,693
Pro forma net income 10,201 10,183
Pro forma earnings per common share 0.58 0.58
Pro forma earnings per share for the six months ending March 31, 1996 and
March 30, 1997 is calculated by dividing pro forma net income by the
weighted average shares
7
<PAGE>
outstanding of 17,675,540 and 17,721,743, respectively.
7. On October 31, 1996, the Company completed the sale of Penn Steel. The
sales price was based on the book value of Penn Steel at October 31, 1996
less $600. The Company recorded a one-time pre-tax loss of $1,807 in the
consolidated statement of income for the year ended September 29, 1996
based on its estimate of the October 31, 1996 book value of Penn Steel.
The actual book value for purposes of this calculation is subject to
negotiation by both parties to the agreement. The agreement states that if
the parties do not agree on the book value of Penn Steel, the disagreement
will be resolved through negotiation between the chief executive officers
of the purchaser and the Company.
8. Effective October 29, 1996 the Company completed the purchase of the stock
of Interstate Forging Industries, Inc. ("Interstate") of Milwaukee,
Wisconsin and Navasota, Texas for $47.8 million plus the assumption of
approximately $22.7 million of Interstate's debt. In addition, the
agreement includes contingent payments equal to five (5) times the amount
by which the average annual net earnings of Interstate before interest,
income taxes and franchise taxes during the three year period from January
1, 1996 through December 31, 1998 exceeds $10 million computed in
accordance with GAAP on a pre-merger basis. This acquisition has been
accounted for under the purchase method of accounting and, accordingly, the
purchase price has been allocated to the assets and liabilities of
Interstate based on their estimated fair values at the date of acquisition.
Operating results of Interstate since October 29, 1996 are included in the
Company's condensed consolidated financial statements. Interstate, which
produces custom closed die forgings of carbon, alloy, and stainless steel,
has approximately 500 employees and had annual sales for the years ended
December 31, 1995 and December 29, 1996 of approximately $83.4 million and
$103.7 million, respectively. The estimated fair values of assets acquired
and liabilities assumed are as follows:
Accounts receivable $ 15,161
Inventories 12,946
Property, plant and equipment 70,369
Other assets 3,014
Accounts payable and accrued expenses (16,878)
Deferred income taxes (14,175)
Long-term debt (22,657)
----------
Purchase Price $ 47,780
---------
---------
----------------------------------------
8
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is management's discussion and analysis of certain
significant factors that have affected the Company's financial condition and
earnings during the periods included in the accompanying interim condensed
consolidated balance sheets and statements of income.
FORWARD LOOKING STATEMENTS. The statements in this Form 10-Q that are not
historical fact are forward looking statements. Such statements are subject to
certain risks and uncertainties which could cause actual results to differ
materially from those projected. Readers are cautioned not to place undue
reliance on these forward looking statements which speak only as of the date
hereof. Readers are also urged to carefully review and consider the various
disclosures made by the Company which attempt to advise interested parties of
the factors which affect the Company's business, including the disclosures made
in other periodic reports on Forms 10-K, 10-Q and 8-K filed with the Securities
and Exchange Commission.
QUARTER ENDED MARCH 30, 1997 COMPARED TO THE QUARTER ENDED MARCH 31, 1996
SALES. Sales increased 40.9%, or $49.4 million, to $170.4 million for the three
months ended March 30, 1997 from $121.0 million in the comparable prior year
period. The increase was attributable to fiscal year 1996 and 1997 acquisitions.
Sales at Hi-Tech, Southern Aluminum, Bohn Aluminum, and Interstate
(collectively the "Acquisitions") in the fiscal 1997 second quarter were
approximately $54.4 million. Sales from the Company's existing foundry
operations in the 1997 second quarter increased approximately 3.7% or $4.2
million as compared to the same quarter last year. Sales from the Acquisitions
were partially offset by the sale of Penn Steel during the first quarter of
fiscal 1997 and the idling of the Texas Foundries steel division ("TF Steel")
during the last quarter of fiscal 1996. The total sales of Penn Steel and TF
Steel that were included in the second fiscal quarter of 1996 were
approximately $9.0 million. Tons shipped increased 14.7% or 8,900 tons, to
69,300 tons for the three months ended March 30, 1997 from 60,400 tons in the
comparable prior year period.
GROSS PROFIT. Gross profit increased 32.4%, or $7.3 million, to $29.6 million
in the 1997 second quarter from $22.3 million in the comparable 1996 period.
Gross margin decreased to 17.4% in the 1997 second quarter from 18.5% in the
1996 second quarter. The overall decrease was due primarily to the integration
of the Acquisitions. The gross margin for the Acquisitions included in the
second quarter of fiscal 1997 was approximately 14.8%. The gross margin from
existing units decreased to 18.6% in the 1997 second quarter from 19.0% in the
comparable prior year period. Penn Steel and TF Steel had a combined gross
margin of 11.2% in the second fiscal quarter of 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses ("SG&A") increased 29.9%, or $3.5 million, to $15.3
million in the 1997 second quarter from $11.8 million in the 1996 second
quarter. SG&A costs attributable to the Acquisitions were $5.1
9
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million. SG&A costs at existing Company operations decreased approximately $635
thousand. SG&A costs included in the second fiscal quarter of 1996 related to
Penn Steel and TF Steel were approximately $920 thousand. As a percentage of
sales, SG&A expenses decreased to 9.0% in the 1997 second quarter from 9.7% in
the 1996 second quarter.
OPERATING INCOME. Operating income increased 35.2%, or $3.7 million, to $14.3
million for the 1997 second quarter from $10.6 million for the comparable 1996
quarter. Operating margin decreased to 8.4% in the 1997 second quarter from
8.7% in the 1996 second quarter.
INTEREST EXPENSE. Interest expense increased to $3.8 million in the 1997 second
quarter from $1.9 million in the 1996 second quarter. This increase is
primarily attributable to higher average outstanding debt balances as a result
of completing five acquisitions during the second and third quarters of 1996 and
the first quarter of 1997. The purchase price plus assumed debt of the
Acquisitions totalled approximately $142.3 million. Capitalized interest for
the second fiscal quarters of 1997 and 1996 was approximately $26 thousand and
$73 thousand, respectively.
SIX MONTHS ENDED MARCH 30, 1997 COMPARED TO THE SIX MONTHS ENDED MARCH 31, 1996
SALES. Sales increased 46.2%, or $98.2 million, to $310.9 million for the six
months ended March 30, 1997 from $212.7 million in the comparable prior year
period. The increase was attributable to fiscal year 1996 and 1997 acquisitions.
Sales at Texas Steel, Hi Tech, Southern Aluminum, Bohn Aluminum and Interstate
Forging (collectively the "Acquisitions") in the first six months of fiscal 1997
were approximately $111.4 million. Sales from the Company's existing foundry
operations in the first six months of 1997 were up approximately $2.8 million as
compared to the same period last year. Sales from the Acquisitions were
partially offset by the sale of Penn Steel during the first quarter of fiscal
1997 and the idling of TF Steel during the last quarter of fiscal 1996. The
total sales of Penn Steel and TF Steel that were included in the first six
months of 1996 were approximately $16.0 million.
GROSS PROFIT. Gross profit increased 35.3%, or $13.5 million, to $51.7 million
for the six months ended March 30, 1997 from $38.2 million in the comparable
1996 period. Gross margin decreased to 16.6% in the first half of fiscal 1997
from 18.0% in the comparable 1996 period. This decrease was due primarily to the
integration of the Acquisitions. The gross margin for the Acquisitions included
in the first half of fiscal 1997 was approximately 13.3%. The gross margin from
existing units decreased to 18.5% in the first half of fiscal 1997 from 19.0% in
the comparable prior year period. Penn Steel and TF Steel had a combined gross
margin of 5.6% in the first half of fiscal 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses ("SG&A") increased 29.3%, or $6.4 million, to $28.1
million for the six months ended March 30, 1997 from $21.7 million in the first
six months of 1996. SG&A costs attributable to the Acquisitions were $8.9
million. SG&A costs at existing Company operations were down approximately $830
thousand. SG&A costs included in the first six months of fiscal 1996 related
10
<PAGE>
to Penn Steel and TF Steel were approximately $1.7 million. As a percentage of
sales, SG&A expenses decreased to 9.0% in the first six months of 1997 from
10.2% in the comparable 1996 period.
OPERATING INCOME. Operating income increased 43.3%, or $7.1 million, to $23.6
million for the first six months of fiscal 1997 from $16.5 million in the
comparable 1996 period. Operating margin decreased to 7.6% in the first six
months of fiscal 1997 from 7.7% in the comparable 1996 period.
INTEREST EXPENSE. Interest expense increased to $7.4 million in the first six
months of fiscal 1997 from $2.7 million in the comparable 1996 period. This
increase is primarily attributable to higher average outstanding debt balances
as a result of completing five acquisitions during the second and third quarters
of 1996 and the first quarter of 1997. The purchase price plus assumed debt of
the Acquisitions totalled approximately $142.3 million. Capitalized interest
for the six months ended March 30, 1997 and March 30, 1996 was approximately $26
thousand and $453 thousand, respectively.
LIQUIDITY AND CAPITAL RESOURCES
On July 1, 1996, the Company executed a new primary credit facility with a
consortium of banks, led by the National Bank of Detroit (NBD), to borrow up to
$230 million to be used for working capital purposes and to fund future
acquisitions. The facility expires on July 31, 1998 and is collateralized by
substantially all of the assets of the Company as well as the stock of its
subsidiaries. The facility consists of a swing line of credit bearing interest
at prime and revolving credit borrowings which bear interest at LIBOR plus a
margin based on the Company's leverage ratio, as defined in the credit agreement
as amended, at the time of the borrowing. The facility calls for a commitment
fee payable quarterly, in arrears, of 0.25% based on the daily unused portion.
The total balance outstanding under this credit facility was $133.1 and $182
million at September 29, 1996 and March 30, 1997, respectively.
As of September 29, 1996, the Company had $3.1 million outstanding under the
swing line of credit at the prime rate of 8.25%. There were no outstanding
borrowings under the swing line of credit at March 30, 1997. The $182 million
outstanding at March 30, 1997 under this facility related to seven revolving
loans. The Company had $5, $52, $25, and $20 million outstanding under these
loans at interest rates of 6.94%, 7.06%, 7.10% and 7.19% which reprice on April
3, 1997, May 5, 1997, July 2, 1997 and August 4, 1997, respectively. The
Company has entered into two $20 million and one $40 million five-year interest
rate swap agreements establishing fixed interest rates for the remaining $80
million of debt outstanding under the credit facility. These agreements are
repriced every 90 days and expire in August 2001 and February 2002. These
agreements have fixed interest rates plus a margin of 1.0% to 2.0%, based on the
Company's leverage ratio on the dates the agreements are priced. The Company's
fixed interest rates were 8.59% and 8.41% on the two $20 million swap agreements
and 8.35% on the $40 million swap agreement at March 30, 1997. The Company is
exposed to credit risk in the event of
11
<PAGE>
nonperformance by the counterparty to the interest rate swap agreements. The
Company mitigates credit risk by dealing with financially sound U.S. banks.
Accordingly, the Company does not anticipate loss for nonperformance by these
counterparties.
The Company's primary sources of working capital are cash flows from operating
activities, equity offerings and borrowings under the above mentioned credit
facility. Primary uses of working capital are the funding of operations,
capital expenditures and acquisitions.
ACQUISITIONS
Notes 7 and 8 of the interim condensed consolidated financial statements
included elsewhere in this report describes the recent acquisition of Interstate
Forging and the sale of Penn Steel.
----------------------------------------
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12
<PAGE>
PART II: OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Registrant's regular Annual Meeting of Shareholders was held
on February 18, 1997. Proxies for the annual meeting were
solicitated pursuant to Regulation 14 under the Act.
(b) There was no solicitation in opposition to management's nominees
for directors as listed in the proxy statement, and all such
nominees were elected.
(c) At the annual meeting, the matters considered and voted upon
(other than procedural matters and ratification of auditors) and
the number of votes cast are as follows:
(i) Election of directors:
Name For Against
T. Morris Hackney 14,381,863 53,633
Frederick F. Sommer 14,379,171 56,325
R. Conner Warren 14,380,771 54,725
Hugh G. Weeks 14,381,071 54,425
A. Derrill Crowe 14,381,091 54,405
Franklyn Esenberg 14,382,491 53,005
William W. Featheringill 14,382,491 53,005
Frank B. Kelso, II 14,381,791 53,705
Van L. Richey 14,381,791 53,705
(ii) Proposal to authorize additional shares for issuance under
the Company's Incentive Award Plan.
For Against Abstentions
13,100,578 830,639 41,343
13
<PAGE>
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.2(u) Amendment to Credit Agreement and Other Loan
Documents dated as of April 2, 1997
Exhibit 27 Financial Data Schedule, submitted to the
Securities and Exchange Commission in electronic
format
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the quarter ended
March 30, 1997.
----------------------------------------
14
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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.
DATE: CITATION CORPORATION
May 8, 1997 /s/ T. Morris Hackney
---------------------------------------------
T. MORRIS HACKNEY
Chief Executive Officer and Chairman of the
Board (Principal Executive Officer)
May 8, 1997 /s/ Frederick F. Sommer
---------------------------------------------
FREDERICK F. SOMMER
President and Chief Operating Officer
May 8, 1997 /s/ R. Conner Warren
---------------------------------------------
R. CONNER WARREN
Executive Vice President of Finance and
Administration and Treasurer
(Principal Financial Officer)
May 8, 1997 /s/ Thomas W. Burleson
---------------------------------------------
THOMAS W. BURLESON
Vice President-Controller and Assistant
Secretary (Principal Accounting Officer)
15
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
EXHIBIT 10.2(u)
FORM 10-Q
CITATION CORPORATION
For the second quarter ended March 30, 1997 Commission File no. 0-24492
16
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AMENDMENT TO CREDIT AGREEMENT
AND OTHER LOAN DOCUMENTS
THIS AMENDMENT TO CREDIT AGREEMENT AND OTHER LOAN DOCUMENTS, dated as of
April 2, 1997 (this "Amendment"), is by and among CITATION CORPORATION, a
Delaware corporation ("Citation"), CITATION AUTOMOTIVE SALES CORP., a Michigan
corporation, MANSFIELD FOUNDRY CORPORATION, an Ohio corporation formerly named
MFC Acquisition Corporation, IROQUOIS FOUNDRY CORPORATION, a Wisconsin
corporation formerly named Iroquois Acquisition Corporation, OBERDORFER
INDUSTRIES CORP., a New York corporation formerly named OBI Acquisition Corp.,
BERLIN FOUNDRY CORPORATION, a Wisconsin corporation, CASTWELL PRODUCTS, INC., an
Illinois corporation, TEXAS STEEL CORPORATION, a Texas corporation formerly
named TSC Acquisition Corporation, HI-TECH, INC., an Indiana corporation
formerly named HTC Acquisition Corporation, SOUTHERN ALUMINUM CASTINGS COMPANY,
an Alabama corporation, BOHN ALUMINUM, INC., an Indiana corporation formerly
named BAC Acquisition Corporation, TSC TEXAS CORPORATION, a Delaware
corporation, TEXAS FOUNDRIES, LTD., a Texas limited partnership, MABRY FOUNDRY
COMPANY, LTD., a Texas limited partnership, CITATION CASTINGS, INC., an Alabama
corporation, INTERSTATE FORGING INDUSTRIES, INC., a Wisconsin corporation,
INTERSTATE SOUTHWEST, LTD, a Texas limited partnership, and ISW TEXAS
CORPORATION, a Delaware corporation (together with Citation, collectively the
"Borrowers" and individually a "Borrower"), the BANKS (other than First Chicago)
identified on the signature pages hereof (collectively the "Original Banks" and
individually an "Original Bank"), SOUTHTRUST BANK OF ALABAMA, NATIONAL
ASSOCIATION, a national banking association, as collateral agent (in such
capacity, the "Collateral Agent"), NBD BANK, a Michigan banking corporation
("NBD"), as the exiting Bank and exiting Swing Line Bank and the resigning
Administrative Agent, and THE FIRST NATIONAL BANK OF CHICAGO, a national banking
association ("First Chicago"), as the new Bank and new Swing Line Bank and the
new Administrative Agent for the Banks.
WITNESSETH:
WHEREAS, the Borrowers, the Original Banks, the Collateral Agent and NBD,
as Administrative Agent, are parties to that certain Credit Agreement, dated as
of July 1, 1996, as amended (as so amended, the "Agreement");
WHEREAS, NBD desires to assign to First Chicago, and to be released from,
all of its rights and obligations as a Bank and as the Swing Line Bank under the
Agreement and all other documents executed and delivered in connection with the
Agreement (collectively, the "Loan Documents");
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WHEREAS, NBD further desires to resign as Administrative Agent under the
Agreement and all other Loan Documents and First Chicago desires to replace NBD
as Administrative Agent thereunder; and
WHEREAS, the parties hereto desire to amend the Agreement and all other
Loan Documents in certain other respects as hereinafter set forth so as to take
account of the foregoing;
NOW, THEREFORE, in consideration of the premises herein contained, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
1. DEFINED TERMS. Capitalized terms used herein and not otherwise
defined herein shall have the meanings attributed to such terms in the
Agreement.
2. AMENDMENTS TO THE AGREEMENT AND THE OTHER LOAN DOCUMENTS.
2.1 Effective as of the Amendment Effective Date (as hereinafter
defined), NBD shall hereby sell and assign to First Chicago, and First Chicago
shall hereby purchase and assume from NBD, all of NBD's rights and obligations
under the Agreement and the other Loan Documents, whereupon (i) NBD shall cease
to be a Bank or the Swing Line Bank under the Agreement and all other Loan
Documents and shall, except as provided in Section 2.12 of this Amendment,
relinquish its rights and shall be released from its obligations under the
Agreement and the other Loan Documents, and (ii) First Chicago shall for all
purposes be a Bank and the Swing Line Bank party to the Agreement and each other
Loan Document executed by the Original Banks and shall have all of the rights
and obligations of a Bank and the Swing Line Bank under the Agreement and the
other Loan Documents. This Amendment shall be deemed to satisfy all the
requirements of Section 9.6 of the Agreement with respect to such assignment
from NBD to First Chicago.
2.2 Effective as of the Amendment Effective Date, (i) NBD shall resign as
Administrative Agent under the Agreement and the other Loan Documents and First
Chicago shall replace NBD as Administrative Agent under the Agreement and the
other Loan Documents, and (ii) except as contemplated by Section 7.9 of the
Agreement and provided in Section 2.12 of this Amendment, NBD shall have no
further rights or obligations as Administrative Agent under the Agreement or any
other Loan Document. In furtherance of the foregoing, for all purposes of
Section 7.9 of the Agreement, effective as of the Amendment Effective Date, NBD
shall be deemed to have resigned as Administrative Agent and First Chicago shall
be deemed to be the successor Administrative Agent appointed by all the Original
Banks, and this Amendment shall constitute (i) the notice of such resignation to
be provided by NBD as Administrative Agent to the Original Banks and the
Borrowers, (ii) the instrument by which the Original Banks appoint First Chicago
as the successor Agent, and (iii) the instrument by which First Chicago accepts
such appointment.
2.3 The definition of "Business Day" set forth in Article I of the
Agreement is hereby amended to read in its entirety as follows:
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"BUSINESS DAY" means a day other than a Saturday, Sunday or other
day on which the Administrative Agent is not open to the public for
carrying on substantially all of its banking functions in Chicago,
Illinois.
2.4 The definition of "Commitment" set forth in Article I of the
Agreement is hereby amended to read in its entirety as follows:
"COMMITMENT" means, with respect to each Bank, the commitment of
each such Bank to make Loans and to participate in Letter of Credit
Advances made through the Administrative Agent pursuant to Section
2.1, in amounts not exceeding in aggregate principal amount
outstanding at any time the respective commitment amounts for each
such Bank set forth next to the name of each such Bank on the
signature pages hereof (or, in the case of First Chicago, on the
signature page of the Amendment dated as of April 2, 1997 to this
Agreement) or otherwise pursuant to Section 9.6, as such amounts may
be reduced form time to time pursuant to Section 2.2.
2.5 The definition of "Prime Rate" set forth in Article I of the
Agreement is hereby deleted in its entirety, and all references to "Prime Rate"
set forth in the Agreement or any other Loan Document shall be amended to read
"Corporate Base Rate".
2.6 Article I of the Agreement is hereby amended by inserting, in the
proper alphabetical order, the following definitions:
"Corporate Base Rate" shall mean a rate per annum equal to the
corporate base rate of interest announced by First Chicago from time
to time, changing when and as said corporate base rate changes.
"First Chicago" means The First National Bank of Chicago in its
individual capacity, and its successors.
2.7 All references to the "Administrative Agent" in the Agreement and the
other Loan Documents shall be deemed to refer to The First National Bank of
Chicago in its capacity as Administrative Agent.
2.8 All references to the "Swing Line Bank" in the Agreement and the
other Loan Documents shall be deemed to refer to The First National Bank of
Chicago in its capacity as the Swing Line Bank.
2.9 All references to "NBD" or "NBD Bank", whether as a Bank, as Swing
Line Bank or as Administrative Agent, in the Agreement and the other Loan
Documents (except the
19
<PAGE>
references in Section 2.3 of the Agreement) shall be amended to read "First
Chicago" or "The First National Bank of Chicago" as appropriate.
2.10 All references in the Agreement and the other Loan Documents to any
address for notices to NBD, NBD Bank, the Swing Line Bank or the Administrative
Agent shall be amended to read: "The First National Bank of Chicago, One First
National Plaza, Chicago, Illinois 60670, Attn: David T. McNeela, Facsimile No:
(312) 732-2991, Facsimile Confirmation No.: (312) 732-5730."
2.11 The parties agree that the Borrowers shall pay to First Chicago as
Administrative Agent, rather than to NBD, all fees provided for in Section
2.3(d) of the Agreement that have not yet been paid. NBD and First Chicago
shall make such adjustments between themselves as they deem appropriate with
respect to fees under Section 2.3(d) of the Agreement.
2.12 Notwithstanding anything in this Amendment to the contrary, the
Letters of Credit issued by NBD Bank as Administrative Agent under the Agreement
that are outstanding as of the Amendment Effective Date (collectively the "NBD
Letters of Credit" and individually an "NBD Letter of Credit") shall for all
purposes on and after the Amendment Effective Date continue to be Letters of
Credit under the Agreement in which each Bank shall have acquired a pro rata
risk participation pursuant to Section 2.4(d), and constitute usage of the
Commitments of the Banks, all as if such NBD Letters of Credit were issued by
First Chicago as Administrative Agent under the Agreement, PROVIDED that: (a)
in each instance in the Agreement and the other Loan Documents where there is a
reference to the Administrative Agent as issuer of the Letters of Credit, such
reference shall, with respect to the NBD Letters of Credit, continue to be
deemed a reference to NBD Bank, which shall continue to have all the benefits of
the Agreement with respect to the NBD Letters of Credit as if it were still the
Administrative Agent thereunder; and (b) no NBD Letter of Credit shall be
extended or renewed except pursuant to a Letter of Credit issued by First
Chicago as the new Administrative Agent under the Agreement.
3. CONDITIONS PRECEDENT. This Amendment shall become effective as of
the date first above written (the "Amendment Effective Date") upon the receipt
by First Chicago, as the new Administrative Agent, of the following items, and
completion of the following matters:
(i) Counterparts of this Amendment duly executed by the Borrowers and the
Required Banks (determined immediately prior to the occurrence of the
Amendment Effective Date).
(ii) NBD shall have endorsed its Revolving Credit Note and the Swing Line
Note to First Chicago, or, if requested by First Chicago, the
Borrowers shall have executed and delivered to First Chicago a
Revolving Credit Note payable to the order of First Chicago in the
amount of $36,000,000 and a Swing Line Note payable to the order of
First Chicago in the amount of $15,000,000 (collectively the "New
Notes"). Immediately upon receipt by First Chicago of the New Notes,
NBD's Revolving Credit Note and Swing Line Note shall be deemed
canceled; PROVIDED
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<PAGE>
that all accrued but unpaid interest thereon shall be deemed accrued
and unpaid on the New Notes.
(iii) Payment by First Chicago to NBD of the consideration for the
assignment under Section 2.1 of this Amendment.
(iv) Such other documents as the Agents or any Bank shall reasonably
request.
4. REPRESENTATIONS AND WARRANTIES. In order to induce the Banks and the
Agents to enter into this Amendment, each Borrower represents and warrants that:
4.1. The execution, delivery and performance by such Borrower of this
Amendment and the New Notes are within its corporate or partnership, as the case
may be, powers, have been duly authorized by all necessary corporate or
partnership, as the case may be, action and are not in contravention of any law,
rule or regulation, or any judgment, decree, writ, injunction, order or award of
any arbitrator, court or governmental authority, or of the terms of such
Borrower's charter or by-laws or partnership agreement, or of any contract or
undertaking to which such Borrower is a party or by which such Borrower or its
property is or may be bound or affected.
4.2. This Amendment is, and the New Notes if and when issued will be,
legal, valid and binding obligations of such Borrower, enforceable against such
Borrower in accordance with their respective terms.
4.3. No consent, approval or authorization of or declaration, registration
or filing with any governmental authority or any nongovernmental person or
entity, including, without limitation, any creditor, stockholder or partner of
such Borrower, is required on the part of such Borrower in connection with the
execution, delivery and performance of this Amendment or the New Notes or the
transactions contemplated hereby or thereby or as a condition to the legality,
validity or enforceability of this Amendment or the New Notes.
4.4. After giving effect to the amendments contained in this Amendment,
the representations and warranties contained in Article IV of the Agreement are
true on and as of the date hereof with the same force and effect as if made on
and as of the date hereof.
5. RATIFICATION. Each of the Agreement and the other Loan Documents, as
respectively amended hereby, shall remain in full fore and effect and is hereby
ratified, approved and confirmed in all respects.
6. REFERENCE TO AGREEMENT AND LOAN DOCUMENTS. From and after the
Amendment Effective Date, each reference in the Agreement or any other Loan
Document to "this Agreement", "herein", "hereof", or "hereunder" or words of
like import, and all references to the Agreement or any other Loan Documents in
any and all agreements, instruments, documents, notes, certificates and other
writings of every kind and nature shall be deemed to mean the Agreement or such
other Loan Document, as the case may be, as respectively amended by this
Amendment.
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7. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
8. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Michigan.
[The rest of this page intentionally left blank.]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the date first above written.
CITATION CORPORATION, CITATION AUTO-
MOTIVE SALES CORP., MANSFIELD
FOUNDRY CORPORATION, IROQUOIS
FOUNDRY CORPORATION, OBERDORFER
INDUSTRIES CORP., BERLIN FOUNDRY
CORPORATION, CASTWELL PRODUCTS, INC.,
TEXAS STEEL CORPORATION, HI-TECH, INC.,
SOUTHERN ALUMINUM CASTINGS
COMPANY, BOHN ALUMINUM, INC., TEXAS
FOUNDRIES, LTD. by Texas Steel Corporation its
General Partner, MABRY FOUNDRY COMPANY,
LTD. by Texas Steel Corporation its General
Partner, CITATION CASTINGS, INC., INTERSTATE
FORGING INDUSTRIES, INC., and INTERSTATE
SOUTHWEST, LTD. by Texas Steel Corporation
its General Partner
By /s/ R. Conner Warren
--------------------------------------------
R. Conner Warren, signing on behalf of each
of them as Vice President of each of them
TSC TEXAS CORPORATION
By /s/ Stanley B. Atkins
-------------------------------------------
Stanley B. Atkins
Its President
ISW TEXAS CORPORATION
By /s/ Stanley B. Atkins
------------------------------------------
Stanley B. Atkins
Its President
23
<PAGE>
SOUTHTRUST BANK OF ALABAMA,
NATIONAL ASSOCIATION, as a Bank
and as the Collateral Agent
By /s/ Alan T. Drennen, III
------------------------------------------
Its Vice President
AMSOUTH BANK
By /s/ Harry Waugh, III
------------------------------------------
Its Vice President
BRANCH BANKING AND TRUST COMPANY
By /s/ Thatcher L. Townsend III
------------------------------------------
Its Vice President
NATIONAL CITY BANK, KENTUCKY
By /s/ C.C. Tate
------------------------------------------
Its Vice President
SUNTRUST BANK, ATLANTA
By /s/ John R. Frazer
------------------------------------------
Its Vice President
------------------------------------
and By /s/ Jeffrey A. Howard
--------------------------------------
Its Assistant Vice President
------------------------------------
24
<PAGE>
NATIONAL BANK OF CANADA
By /s/ William L. Benning
------------------------------------------
Its Vice President
and By
--------------------------------------
Its Vice President
MERCANTILE BANK OF ST. LOUIS
NATIONAL ASSOCIATION
By /s/ Timothy W. Hassler
--------------------------------------------
Its AVP
------------------------------------
DEPOSIT GUARANTY NATIONAL BANK
By /s/ David L. Castilaw, Senior Vice President
---------------------------------------------
Its Vice President
Commitment Amount: THE FIRST NATIONAL BANK OF
$36,000,000 CHICAGO, individually as a Bank and as
Percentage of Total Administrative Agent
Commitments:
15.6521739%
By /s/ David L. McNeela
------------------------------------------
Its Authorized Agent
NBD BANK,
as exiting Bank and former Administrative
Agent
By: /s/ David L. McNeela
-----------------------------------------
Its Authorized Agent
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM INTERIM
CONDENSED CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME
FOUND ON PAGES 2 AND 3 OF THE COMPANY'S FORM 10-Q FOR THE SIX MONTHS ENDED MARCH
30, 1997 AND IS QUALIFED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-28-1997
<PERIOD-START> SEP-30-1996
<PERIOD-END> MAR-30-1997
<CASH> 3,421
<SECURITIES> 0
<RECEIVABLES> 96,332
<ALLOWANCES> (2,040)
<INVENTORY> 48,120
<CURRENT-ASSETS> 156,539
<PP&E> 344,269
<DEPRECIATION> (78,826)
<TOTAL-ASSETS> 473,307
<CURRENT-LIABILITIES> 83,452
<BONDS> 0
0
0
<COMMON> 177
<OTHER-SE> 159,077
<TOTAL-LIABILITY-AND-EQUITY> 473,307
<SALES> 310,921
<TOTAL-REVENUES> 310,921
<CGS> 259,213
<TOTAL-COSTS> 287,308
<OTHER-EXPENSES> 91
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,353
<INCOME-PRETAX> 16,169
<INCOME-TAX> 6,306
<INCOME-CONTINUING> 9,863
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,863
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
