<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 3, 1999
CITATION CORPORATION
(Exact name of registrant as specified in its Charter)
Delaware 0-24492 63-0828225
(State of Incorporation) (Commission File Number) (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)
<PAGE>
ITEM 5. OTHER EVENTS.
On September 3, 1999, Citation Corporation (the "Registrant") and RSJ
Acquisition Co. entered into Amendment No. 1 to the Agreement and Plan of Merger
and Recapitalization dated as of June 24, 1999, between RSJ Acquisition Co. and
the Registrant (the "Merger Agreement"). On September 9, 1999, the Registrant
issued a press release announcing the execution of Amendment No. 1 to the Merger
Agreement. The Registrant also announced that the Registrant's definitive proxy
statement/prospectus regarding its proposed merger with RSJ Acquisition Co. had
been filed with the Securities and Exchange Commission and was being mailed to
all stockholders of record as of August 27, 1999, the record date for the
special meeting of stockholders to be held on October 7, 1999. A copy of
Amendment No. 1 to the Merger Agreement and the related press release are
attached as Exhibits 2.1 and 99.1, respectively, to this Form 8-K and are
incorporated herein by reference.
In connection with its offering of Senior Subordinated Notes as part of the
financing for the merger and recapitalization transactions, the Registrant has
provided certain pro forma unaudited financial information for the twelve-month
period ended August 29, 1999. Sales for such period were $821.8 million and pro
forma earnings before interest, taxes, depreciation and amortization (EBITDA)
were $96.99 million. Such information, which is subject to further review and
potential material adjustment, gives effect to the acquisitions by the
Registrant during such period of its Custom Products and Citation Marion
divisions, the disposition of its Oberdorfer division and the recapitalization
and merger and the related financings as if they had occurred on the first day
of the period presented. The unaudited pro forma consolidated financial
information, a copy of which is attached as Exhibit 99.2 to this Form 8-K,
differs somewhat from unaudited pro forma consolidated financial information
provided in the proxy statement/prospectus described above, because of recent
revisions to estimated interest rates.
The Senior Subordinated Notes referred to above are being offered in a
private placement pursuant to Rule 144A under the Securities Act of 1933, as
amended, and, if issued, may not be offered or sold in the United States absent
registration or an applicable exemption from registration requirements.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
The following are filed as exhibits to this Current Report on Form 8-K:
Exhibit No. Description
----------- --------------------
2.1 Amendment No. 1 to Agreement and Plan of Merger and
Recapitalization, dated as of September 3, 1999.
<PAGE>
99.1 Press release dated September 9, 1999 issued by the Registrant.
99.2 Certain unaudited pro forma financial information.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: September 17, 1999 /s/ Stanley B. Atkins
-------------------------------------
STANLEY B. ATKINS
Vice President and Secretary
<PAGE>
EXHIBIT 2.1
AMENDMENT NO. 1 TO THE
AGREEMENT AND PLAN OF MERGER AND RECAPITALIZATION
-------------------------------------------------
Amendment No. 1, dated as of September 3, 1999 (the "Amendment"), to
the Agreement and Plan of Merger and Recapitalization, dated as of June 24, 1999
(as amended hereby, the "Merger Agreement"), among RSJ Acquisition Co., a
Delaware corporation ("Merger Co.") and Citation Corporation, a Delaware
corporation (the "Company").
WHEREAS, Merger Co. and the Company have heretofore entered in the
Merger Agreement; and
WHEREAS, Merger Co. and the Company have agreed to amend certain
provisions of the Merger Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Merger Co. and the Company do
hereby agree as follows:
1. Definitions. Unless otherwise defined herein, capitalized terms
-----------
that are defined in the Merger Agreement and used herein shall have the meanings
set forth in the Merger Agreement.
2. Amendment to Section 2.02(a). Section 2.02(a) of the Merger
----------------------------
Agreement is hereby amended and restated to read in its entirety as follows:
"(a) Each person who, on or prior to the Election Date (as defined
below), is a record holder of shares of Company Common Stock shall be
entitled, with respect to all or any portion of such person's shares, to
make an unconditional election ("Non-Cash Election") on or prior to such
Election Date to retain shares of Common Stock of the Surviving Corporation
in the Merger ("Non-Cash Election Shares"), on the basis hereinafter set
forth, provided that, notwithstanding anything in this Agreement to the
--------
contrary, the minimum number of shares of Company Common Stock as to which
a Non-Cash Election may be made by any record holder is 10,000 and any
record holder who seeks to make a Non-Cash Election with respect to fewer
than 10,000 shares of Company Common Stock shall be deemed to have not made
a Non-Cash Election for all purposes of this Agreement."
3. Amendment of Section 2.02(c). Section 2.02(c) of the Merger
----------------------------
Agreement is hereby amended by adding the following proviso at the end of the
last sentence thereof:
"; provided, further, that to be effective, any such Form of Election must
relate to at least 10,000 shares of Company Common Stock and if any such
Form of Election relates to fewer
<PAGE>
than 10,000 shares of Company Common Stock, such Form of Election shall be
deemed to be not properly completed and shall be null and void for all
purposes of this Agreement."
4. Amendment to Section 2.03(a). Section 2.03(a) of the Merger
----------------------------
Agreement is hereby amended and restated to read in its entirety as follows:
"(a) Notwithstanding anything in this Agreement to the contrary, the
aggregate number of shares of Company Common Stock to be converted into the
right to retain Non-Cash Election Shares at the Effective Time (the "Non-
Cash Election Number") shall be 790,115."
5. Amendment to Section 3.01(h). Section 3.01(h) of the Merger
----------------------------
Agreement is hereby amended by adding the following language as a new second
sentence thereof:
"Notwithstanding the foregoing, for purposes of this paragraph (h), any
suit, action, proceeding judgment, decree, injunction, rule or order
arising after June 24, 1999 shall not be deemed to have a material adverse
effect on the Company if and to the extent such suit, action, proceeding,
judgment, decree, injunction, rule or order (or any relevant part thereof)
is based on this Agreement, or the transactions contemplated hereby."
6. Amendment to Section 5.01(b). Section 5.01(b) of the Merger
----------------------------
Agreement is hereby amended and restated to read in its entirety as follows:
"(b) The Company (i) shall duly call, give notice of, convene and
-
hold a meeting of its stockholders (the "Company Stockholders Meeting") for
the purpose of obtaining the Company Stockholder Approval and (ii) shall,
--
through its Board of Directors, recommend to its stockholders (X) the
-
adoption of this Agreement and (Y) that such stockholders do not make a
-
Non-Cash Election with respect to any share of Company Common Stock, unless
in the cases of clauses (i) or (ii), the Board of Directors of the Company
shall have withdrawn or modified its approval or recommendation of this
Agreement or the Merger and terminated this Agreement in accordance with
Section 4.04(b)."
7. Amendment to Section 5.04. Section 5.04 of the Merger Agreement
-------------------------
is hereby amended and restated to read in its entirety as follows:
"(a) Each Company Stock Option to purchase shares of the Company
Common Stock granted under the Company Stock Plans (including, without
limitation, any additional shares subject thereto by reason of the
consummation of the "change of control" resulting from the Merger) that is
outstanding and not yet vested or exercisable immediately prior to the
Effective Time, including the Rollover Options (as defined below), shall
become fully vested and exercisable upon the Effective Time. At or prior
to the Effective Time, the Board of Directors of the Company (or, if
appropriate, any committee administering the Company Stock Plans) shall
adopt such resolutions or take such other actions as may be necessary to
cause each such Company Stock Option to vest as a consequence of the
Merger.
<PAGE>
(b) At the Effective Time, each holder of a then outstanding Company
Stock Option whether or not then exercisable, other than the Rollover
Options, shall be entitled to receive for each share of Company Common
Stock subject to such Company Stock Option, in settlement and cancellation
thereof, an amount (subject to any applicable withholding tax) in cash
equal to the difference between the Merger Consideration and the per share
exercise price of such Company Stock Option, to the extent such difference
is a positive number (such amount being hereinafter referred to as the
"Option Consideration"). Upon the Effective Time, the Surviving
Corporation shall pay to each holder of a Company Stock Option (other than
a Rollover Option) the Option Consideration in respect thereof. No
interest shall be paid or accrued on the Option Consideration. Until
settled in accordance with this Section 5.04(b), each Company Stock Option
(other than a Rollover Option) shall be deemed at any time after the
Effective Time to represent for all purposes only the right to receive the
Option Consideration.
(c) Notwithstanding anything contained in this Section 5.04, with
respect to any person subject to Section 16(a) of the Exchange Act, the
Option Consideration shall not be payable until the first day payment can
be made without liability to such person under Section 16(b) of the
Exchange Act, but shall be paid as soon as practicable thereafter.
(d) The surrender of a Company Stock Option to the Company in exchange
for the Option Consideration shall be deemed a release of any and all
rights the holder thereof had or may have had in respect of such Company
Stock Option. Prior to the Effective Time, the Company shall take all
action necessary (including causing the Board of Directors of the Company
(or any committees thereof) to take such actions as are allowed by the
Company Stock Option Plans) to ensure that, following the Effective Time,
no participant in any Company Stock Plan (other than holders of Rollover
Options with respect to such Rollover Options) shall have any right
thereunder to acquire equity securities of the Company, the Surviving
Corporation or any subsidiary thereof.
(e) Each holder of a Rollover Option shall thereafter continue to hold
an option to purchase such number of shares of common stock of the
Surviving Corporation, at such exercise prices and having such other terms
and conditions, as such holder enjoyed with respect to Company Common Stock
under such holder's Rollover Options, except as may be amended by agreement
between Merger Co. or the Surviving Corporation and such holder. "Rollover
Options" means the Company Stock Options (i) as to which Merger Co. and the
holder of such Company Stock Option have agreed will remain outstanding
after the Effective Time and (ii) which shall have been identified to the
Company no less than 10 days prior to the Closing Date, such identification
to be in the form of a written notice signed by the holder in question and
Merger Co.
(f) Upon the Effective Time, each share of Company Common Stock
subscribed to under the Stock Purchase Plan (other than such shares for
which a valid Non-Cash Election shall have been made) shall (without
duplication for any amounts that are paid with respect to such shares
pursuant to Section 2.01(c)) be canceled and shall thereafter represent the
right to receive in the Merger the difference between the Merger
Consideration and the unpaid portion, if any, of the per share subscription
price for such share.
<PAGE>
(g) At or prior to the Effective Time, the Board of Directors of the
Company (or, if appropriate, any committee administering the Company Stock
Plans) shall adopt such resolutions or take such other actions as may be
necessary to implement the provisions of this Section 5.04."
8. Amendment to Section 5.16. Section 5.16 of the Merger Agreement
-------------------------
is hereby amended and restated to read in its entirety as follows:
"SECTION 5.16. [Intentionally Omitted]"
9. Amendment to Section 5.17. Section 5.17 of the Merger Agreement
-------------------------
is hereby amended and restated to read in its entirety as follows:
"SECTION 5.17. [Intentionally Omitted]"
10. Amendment to Section 6.02(d). Section 6.02(d) of the Merger
----------------------------
Agreement is hereby amended and restated to read in its entirety as follows:
"(d) [Intentionally Omitted]"
11. References. Each reference in the Merger Agreement to "this
----------
Agreement", "hereof", "hereunder" or words of like import referring to the
Merger Agreement shall mean and be a reference to the Merger Agreement as
amended by this Amendment. This Amendment shall not constitute an amendment or
waiver of any provision of the Merger Agreement not expressly referred to herein
and shall not be construed as an amendment, waiver or consent to any action that
would require an amendment, waiver or consent except as expressly stated herein.
The Merger Agreement, as amended by this Amendment, is and shall continue to be
in full force and effect and is in all respects ratified and confirmed hereby.
12. Counterparts. This Amendment may be executed in any number of
------------
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same Amendment.
13. Governing Law. This Amendment shall be governed by, and
-------------
construed in accordance with the laws of the State of Delaware, without regard
to laws that might otherwise govern under applicable principles of conflicts of
law.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed as of the day and year first above written.
CITATION CORPORATION
By: /s/ Thomas W. Burleson
------------------------------
Name: Thomas W. Burleson
Title: Vice President and Chief Financial
Officer
RSJ ACQUISITION CO.
By: /s/ James J. Connors, II
----------------------------------
Name: James J. Connors, II
Title: Vice President
<PAGE>
EXHIBIT 99.1
BIRMINGHAM, Ala.--(BUSINESS WIRE)--Sept. 9, 1999--Citation Corporation
(Nasdaq:CAST - news) today announced that it has filed with the Securities and
---- ----
Exchange Commission its definitive proxy statement/prospectus regarding its
proposed merger with RSJ Acquisition Co., an affiliate of Kelso & Company. The
proxy statement/prospectus is being mailed today to all stockholders of record
on August 27, 1999, each of whom will be entitled to vote on the proposed merger
at a special meeting of stockholders to be held on October 7, 1999.
Under the merger agreement first announced on June 24, 1999, RSJ
Acquisition Co. agreed to purchase approximately 95.6% of the outstanding shares
of Citation for $18.10 per share, with the remaining approximately 4.4% of the
outstanding shares to be retained by existing stockholders (either at their
election or on a pro rata basis). At the insistence of Kelso & Company, certain
existing stockholders, including the company's founder and chairman, T. Morris
Hackney, and other executive officers, have agreed to elect to retain the 4.4%
``stub.'' As a result of these elections, all stockholders electing to receive
cash for their shares are assured of receiving all cash at closing, while
stockholders may elect to retain stock (subject to proration and a 10,000 share
minimum election discussed below) if they desire to do so. Citation's Board of
Directors recommends that stockholders elect to receive cash in the proposed
merger.
The Company also announced that the merger agreement has been amended to
allow stockholders to retain shares (in lieu of cash) only if they elect to
retain at least 10,000 shares and to eliminate the requirement that such shares
be listed for trading on Nasdaq. The merger agreement, as amended, also provides
that certain Citation employees may continue to hold their options to acquire
Citation common stock after the proposed merger (as opposed to the cancellation
of those options for cash at closing). The proxy statement/prospectus being
mailed to stockholders today discusses these and other amendments to the merger
agreement in greater detail. Citation's Board of Directors recommends that
stockholders vote to adopt the merger agreement, as amended.
Citation Corporation is a metal components supplier to capital and durable
goods industries. The company currently operates 20 manufacturing divisions in
10 states and employs more than 7,000 employees. Its sales for fiscal 1999,
ending at the end of September, are expected to exceed $800 million.
Note: This press release contains certain forward-looking statements, which
Citation Corporation is making in reliance on the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Investors are cautioned that
all forward-looking statements involve risks and uncertainties. Actual results
could differ materially from those anticipated in the forward-looking statements
as a result of a number of factors, including, but not limited to, the
successful closing of the proposed transaction and risks associated with
acquisitions generally. Certain of these risks and uncertainties are described
in the Company's filings with the Securities and Exchange Commission.
<PAGE>
Any offering of securities in connection with the merger will be made only
by means of a prospectus.
Contact:
Citation Corp., Birmingham
Stanley B. Atkins, 205/871-5731
or
John W. McCullough, 205/226-3479
<PAGE>
EXHIBIT 99.2
CITATION CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of June 27, 1999
<TABLE>
<CAPTION>
June 27, Recapitalization June 27,
1999 and Offering 1999
Historical Adjustments (a) As Adjusted
(dollars in thousands)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 2,080 $ (2,080) $ --
Accounts receivable, net............. 117,989 -- 117,989
Inventories.......................... 58,781 -- 58,781
Deferred income taxes, prepaid
expenses and other current assets... 33,719 -- 33,719
-------- --------- ---------
Total current assets............... 212,569 (2,080) 210,489
Property, plant and equipment, net... 339,872 -- 339,872
Intangible assets, net............... 109,593 -- 109,593
Other assets......................... 16,696 15,548 32,244
-------- --------- ---------
Total assets....................... $678,730 $ 13,468 $ 692,198
======== ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and
capital leases...................... $ 3,936 $ (1,384) $ 2,552
Accounts payable..................... 57,876 -- 57,876
Accrued expenses and other current
liabilities......................... 51,513 (5,342) 46,171
-------- --------- ---------
Total current liabilities.......... 113,325 (6,726) 106,599
Long-term liabilities:
Revolving credit facility............ -- 6,238 6,238
Long-term debt and capital leases.... 315,415 (309,800) 5,615
Senior term loan A................... -- 50,000 50,000
Senior term loan B................... -- 210,000 210,000
Senior subordinated notes............ -- 200,000 200,000
Deferred income taxes and other long-
term liabilities.................... 50,086 -- 50,086
-------- --------- ---------
Total liabilities.................. 478,826 149,712 628,538
Stockholders' equity:
Common stock......................... 179 (66) 113
Additional paid-in capital........... 107,304 72,733 180,037
Retained earnings (accumulated
deficit)............................ 92,421 (208,911) (116,490)
-------- --------- ---------
Total stockholders' equity........... 199,904 (136,244) 63,660
-------- --------- ---------
Total liabilities and stockholders'
equity............................ $678,730 $ 13,468 $ 692,198
======== ========= =========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Balance Sheet
<PAGE>
CITATION CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(dollars in thousands)
The pro forma financial data have been derived by the application of pro
forma adjustments to Citation's historical financial statements as of the date
noted. The merger will be accounted for as a recapitalization which will have
no impact on the historical basis of Citation's assets and liabilities. The pro
forma financial data assume that no stockholders assert appraisal rights in
connection with the merger.
(a) Pro forma adjustments to the Unaudited Pro Forma Consolidated Balance
Sheet are summarized in the following table and are described in the notes that
follow:
<TABLE>
<CAPTION>
Purchase Transaction
Price of Compensation Fees and Repayment of Total Net
Financing (1) Equity (2) Expense (3) Expenses (4) Existing Debt (5) Adjustment
<S> <C> <C> <C> <C> <C> <C>
Cash and cash
equivalents............ $656,238 $(309,286) $(4,941) $(30,800) $(313,291) $ (2,080)
Other assets............ 16,200 (652) 15,548
Current portion of long-
term debt and capital
leases................. (1,384) (1,384)
Accrued expenses and
other current
liabilities............ (2,974) (2,368) (5,342)
Revolving credit
facility............... 6,238 6,238
Long-term debt and
capital leases......... (309,800) (309,800)
Senior term loan A...... 50,000 50,000
Senior term loan B...... 210,000 210,000
Senior subordinated
notes.................. 200,000 200,000
Common stock............ 105 (171) (66)
Additional paid-in
capital................ 189,895 (102,562) (14,600) 72,733
Retained earnings....... (206,553) (1,967) (391) (208,911)
</TABLE>
- ---------------------
(1) Sources and uses of cash for the recapitalization are as follows:
<TABLE>
<S> <C>
Sources:
Existing cash....................................................... $ 2,080
Senior secured revolving facility................................... 6,238
Tranche A term loan................................................. 50,000
Tranche B term loan................................................. 210,000
Senior subordinated notes........................................... 200,000
Equity contribution................................................. 190,000
--------
Total............................................................. $658,318
========
Uses:
Payment of merger consideration..................................... $309,286
Cancellation of outstanding options and payment of deferred
compensation....................................................... 4,941
Repayment of outstanding indebtedness............................... 311,184
Payment of accrued interest......................................... 2,107
Estimated fees and expenses......................................... 30,800
--------
Total............................................................. $658,318
========
</TABLE>
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET--(Continued)
- ---------------------
(2) The adjustments represent the payment of the cash portion of the merger
consideration to existing stockholders. Subsequent to the merger, existing
stockholders will own 790,115 shares, or approximately 7.0%, of the
outstanding common stock of Citation as the surviving corporation.
(3) Compensation expense of $3,278 ($1,967 after related tax effect) relates to
the cancellation of all outstanding stock options at the difference between
$18.10 per share and the exercise price of the options and $1,663 relates
to the payment of accrued benefits under Citation's non-qualified deferred
compensation plan.
(4) The adjustment represents the estimated transaction fees and expenses of
$30,800. The portion of estimated transaction fees and expenses
attributable to the debt financing is $16,200, which will be recorded as
debt issuance costs and therefore amortized over the expected life of the
debt to be issued. Such estimated debt issuance costs include estimated
fees and expenses payable to banks and related advisors. The remaining
estimated transaction fees and expenses of $14,600 represent costs
associated with the payment of the cash portion of the merger consideration
to existing stockholders.
(5) This adjustment represents the repayment of existing indebtedness, except
for capital leases, related accrued interest and the write-off of
unamortized debt issuance costs related to the existing debt. The
unamortized debt issuance costs of $652 ($391 after related tax effect)
will be written off as an extraordinary charge upon repayment of the
existing indebtedness.
<PAGE>
CITATION CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Twelve Months Ended August 1, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
Citation Recapitalization
Citation Acquisitions Combination Disposition Pro Forma Pre- and Offering Citation
Historical Actual (a) Adjustments (b) Actual (c) Recapitalization Adjustments Pro Forma
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.............. $ 792,447 $ 36,777 $ -- $ (11,278) $ 817,946 $ -- $ 817,946
Cost of sales.......... 678,524 33,239 (1,231) (12,144) 698,388 -- 698,388
--------- -------- ------- --------- --------- -------- ---------
Gross profit.......... 113,923 3,538 1,231 866 119,558 -- 119,558
Selling, general, and
administrative
expenses ............. 68,510 3,768 381 (2,560) 70,099 60 (d) 70,159
Impairment charge...... 10,000 -- -- (10,000) -- -- --
--------- -------- ------- --------- --------- -------- ---------
Operating income....... 35,413 (230) 850 13,426 49,459 (60) 49,399
Other expenses (income)
Interest expense...... 20,722 1,529 1,085 -- 23,336 29,192 (e) 52,528
Other, net............ 4,010 (7) -- (1,826) 2,177 -- 2,177
--------- -------- ------- --------- --------- -------- ---------
24,732 1,522 1,085 (1,826) 25,513 29,192 54,705
--------- -------- ------- --------- --------- -------- ---------
Income before provision
for income taxes...... 10,681 (1,752) (235) 15,252 23,946 (29,252) (5,306)
Income tax provision... 4,415 (210) (582) 5,981 9,604 (11,659)(f) (2,055)
--------- -------- ------- --------- --------- -------- ---------
Net income............. 6,266 (1,542) 347 9,271 14,342 (17,593) (3,251)
========= ======== ======= ========= ========= ======== =========
EBITDA:
Operating income....... 35,413 (230) 850 13,426 49,459 (60) 49,399
Depreciation and
amortization.......... 44,098 3,145 (850) (126) 46,267 -- 46,267
Impairment charge...... 10,000 -- -- (10,000) -- -- --
--------- -------- ------- --------- --------- -------- ---------
EBITDA (g)............. $ 89,511 $ 2,915 $ -- $ 3,300 $ 95,726 $ (60) $ 95,666
========= ======== ======= ========= ========= ======== =========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statements of Income
<PAGE>
CITATION CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Fiscal Year Ended September 27, 1998
(dollars in thousands)
<TABLE>
<CAPTION>
Citation Recapitalization
Citation Acquisitions Combination Disposition Pro Forma Pre- and Offering Citation
Historical Actual (a) Adjustments (b) Actual (c) Recapitalization Adjustments Pro Forma
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.............. $724,017 $127,850 $ -- $(13,008) $838,859 $ -- $838,859
Cost of sales.......... 612,035 112,130 (2,940) (17,081) 704,144 -- 704,144
-------- -------- ------- -------- -------- -------- --------
Gross profit.......... 111,982 15,720 2,940 4,073 134,715 -- 134,715
Selling, general, and
administrative
expenses ............. 63,603 12,780 1,853 (2,448) 75,788 (119)(d) 75,669
Impairment charge...... 10,000 -- -- (10,000) -- -- --
-------- -------- ------- -------- -------- -------- --------
Operating income....... 38,379 2,940 1,087 16,521 58,927 119 59,046
Other expenses (income)
Interest expense...... 15,254 3,450 4,949 -- 23,653 27,890 (e) 51,543
Other, net............ 2,155 (6) -- (11) 2,138 -- 2,138
-------- -------- ------- -------- -------- -------- --------
17,409 3,444 4,949 (11) 25,791 27,890 53,681
-------- -------- ------- -------- -------- -------- --------
Income before provision
for income taxes...... 20,970 (504) (3,862) 16,532 33,136 (27,771) 5,365
Income tax provision... 8,178 1,100 (2,803) 6,447 12,922 (10,831)(f) 2,091
-------- -------- ------- -------- -------- -------- --------
Net income............. $ 12,792 $ (1,604) $(1,059) $ 10,085 $ 20,214 $(16,940) $ 3,274
======== ======== ======= ======== ======== ======== ========
EBITDA:
Operating income....... $ 38,379 $ 2,940 $ 1,087 $ 16,521 $ 58,927 $ 119 $ 59,046
Depreciation and
amortization.......... 36,275 9,553 (1,087) (709) 44,032 -- 44,032
Impairment charge...... 10,000 -- -- (10,000) -- -- --
-------- -------- ------- -------- -------- -------- --------
EBITDA (g)............. $ 84,654 $ 12,493 $ -- $ 5,812 $102,959 $ 119 $103,078
======== ======== ======= ======== ======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statements of Income
<PAGE>
CITATION CORPORATION
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
For the Nine Months Ended June 27, 1999
(dollars in thousands)
<TABLE>
<CAPTION>
Citation Recapitalization
Citation Acquisitions Combination Disposition Pro Forma Pre- and Offering Citation
Historical Actual (a) Adjustments (b) Actual (c) Recapitalization Adjustments Pro Forma
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.............. $613,446 $18,129 $-- $(8,913) $622,662 $ -- $622,662
Cost of sales.......... 518,111 16,715 (745) (8,906) 525,175 -- 525,175
-------- ------- ---- ------- -------- -------- --------
Gross profit.......... 95,335 1,414 745 (7) 97,487 -- 97,487
Selling, general, and
administrative
expenses ............. 52,974 2,240 163 (2,062) 53,315 19 (d) 53,334
Impairment charge...... -- -- -- -- -- -- --
-------- ------- ---- ------- -------- -------- --------
Operating income....... 42,361 (826) 582 2,055 44,172 (19) 44,153
Other expenses (income)
Interest expense...... 15,752 901 541 -- 17,194 22,099 (e) 39,293
Other, net............ 1,815 -- -- (1,815) -- -- --
-------- ------- ---- ------- -------- -------- --------
17,567 901 541 (1,815) 17,194 22,099 39,293
-------- ------- ---- ------- -------- -------- --------
Income before provision
for income taxes...... 24,794 (1,727) 41 3,870 26,978 (22,118) 4,860
Income tax provision... 9,918 (257) (417) 1,548 10,792 (8,847)(f) 1,945
-------- ------- ---- ------- -------- -------- --------
Net income............. $ 14,876 $(1,470) $458 $ 2,322 $ 16,186 $(13,271) $ 2,915
======== ======= ==== ======= ======== ======== ========
EBITDA:
Operating income....... $ 42,361 $ (826) $582 $ 2,055 $ 44,172 $ (19) $ 44,153
Depreciation and
amortization.......... 33,318 1,607 (582) -- 34,343 -- 34,343
Impairment charge...... -- -- -- -- -- -- --
-------- ------- ---- ------- -------- -------- --------
EBITDA (g)............. $ 75,679 $ 781 $-- $ 2,055 $ 78,515 $ (19) $ 78,496
======== ======= ==== ======= ======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Consolidated Statements of Income
<PAGE>
CITATION CORPORATION
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands)
The unaudited pro forma consolidated financial data have been derived by the
application of pro forma adjustments to Citation's historical financial
statements for the periods indicated. The merger has been accounted for as a
recapitalization, which will have no impact on the historical basis of
Citation's assets and liabilities. The pro forma financial data assume that no
stockholders assert appraisal rights in connection with the merger.
The pro forma adjustments to the statements of income exclude $3,278 ($1,967
after related tax effect) of employee compensation expense relating to the
cancellation of the existing stock options and $652 ($391 after related tax
effect) related to the write-off of existing unamortized debt issuance costs.
These amounts represent non-recurring expenses which Citation anticipates will
be recorded in its consolidated statement of income concurrent with the
effective date of the merger.
(a) The following acquisitions, both individually and in the aggregate, did not
constitute acquisitions of "significant subsidiaries," within the meaning
of SEC rules regarding financial reporting. The unaudited pro forma
statement of income for the fiscal year ended September 27, 1998 gives
effect to the acquisitions of Camden Casting Center ("Camden"), which
occurred on December 1, 1997, Dycast, Inc. ("Dycast"), which occurred on
January 8, 1998, Amcast Precision Products, Inc. ("Citation Precision"),
which occurred on March 30, 1998, Custom Products Corporation ("Custom"),
which occurred on November 17, 1998, and CT South Inc. ("Citation Marion"),
which occurred on December 28, 1998, as if each such acquisition had
occurred at the beginning of the fiscal year. The unaudited pro forma
statements of income for the nine months ended June 27, 1999 and the twelve
months ended August 1, 1999 give effect to the acquisitions of Custom and
Citation Marion as if they had occurred at the beginning of the periods
presented.
(b) For the fiscal year ended September 27, 1998, the nine month period ended
June 27, 1999 and the twelve months ended August 1, 1999, the adjustments
represent the (i) reduced depreciation expense, reflected in cost of sales,
related to the net write down of fixed assets in purchase accounting of
($13,567) amortized primarily over a 12-year life; (ii) additional goodwill
amortization, reflected in selling, general and administrative expenses,
based on the fair values of the net assets acquired of $51,734 amortized
over a 20-year life; (iii) additional interest expense on the increased
borrowings of $98,234 at weighted average interest rates of 7.28%, 7.00%
and 7.00%, respectively; and (iv) the pro forma tax effect of the above
adjustments.
(c) Represents an adjustment for the historical operating results of the
Oberdorfer Industries facility, which was sold on June 16, 1999. The sale
of the Oberdorfer Industries facility did not constitute a disposition of a
"significant subsidiary," within the meaning of SEC rules regarding
financial reporting.
(d) Represents (i) an annual monitoring fee of $848 that will be paid by
Citation to Kelso & Company; (ii) reduced compensation expense of $755,
$351, and $464 for the fiscal year ended September 27, 1998; the nine month
period ended June 27, 1999 and the twelve months ended August 1, 1999 for
executives whose employment with Citation will not continue after the
merger; and (iii) reduced costs associated with certain public company
related expenses of $212, $266 and $324 for the fiscal year ended September
27, 1998; the nine month period ended June 27, 1999 and the twelve months
ended August 1, 1999 that will not continue after the merger.
<PAGE>
(e) The recapitalization and offering adjustments to interest expense reflect
the following:
<TABLE>
<CAPTION>
Nine Twelve
Months Months
Year Ended Ended Ended
------------- -------- ---------
September 27, June 27, August 1,
1998 1999 1999
<S> <C> <C> <C>
Revolving credit facility (1)............... $ 546 $ 410 $ 546
Senior term loan A (2)...................... 4,375 3,281 4,375
Senior term loan B (3)...................... 19,950 14,963 19,950
Senior subordinated notes (4)............... 23,500 17,625 23,500
Commitment fee (5).......................... 469 352 469
Interest expense related to existing
interest rate swap agreements.............. 993 1,086 1,363
Interest on existing debt not repaid........ 826 722 1,229
-------- -------- -------
Cash interest expense..................... 50,659 38,439 51,432
Amortization of debt issuance costs (6)..... 2,032 1,524 2,032
Historical capitalized interest............. (1,148) (670) (936)
-------- -------- -------
Interest expense--as adjusted............... 51,543 39,293 52,528
Less: pro forma interest expense (7)........ (23,095) (17,004) (22,964)
Less: pro forma amortization of debt
issuance costs (8)......................... (558) (190) (372)
-------- -------- -------
Total adjustment............................ $ 27,890 $ 22,099 $29,192
======== ======== =======
</TABLE>
- ---------------------
(1) Represents interest on the revolving credit facility using an assumed
interest rate of 8.75% and assuming borrowings of $6,238 at closing. The
total amount available under the revolving credit facility is $100 million.
(2) Represents interest on $50,000 of senior term loan A using an assumed rate
of 8.75%.
(3) Represents interest on $210,000 of senior term loan B using an assumed rate
of 9.50%.
(4) Represents interest on $200,000 of senior subordinated notes using an
assumed rate of 11.75%.
(5) Represents a 0.5% commitment fee on the unused portions of the revolving
credit facility.
(6) Represents amortization of debt issuance costs of $16,200 over the term of
the related debt.
(7) Represents the elimination of pro forma interest expense paid or payable in
cash.
(8) Represents the elimination of pro forma amortization of debt issuance fees.
A 0.125% increase or decrease in the assumed weighted average interest rate
applicable to the revolving credit facility, senior term loan A and senior term
loan B would change the pro forma interest expense and income before taxes as
follows:
<TABLE>
<CAPTION>
Nine Twelve
Months Months
Year Ended Ended Ended
------------- -------- ---------
September 27, June 27, August 1,
1998 1999 1999
<S> <C> <C> <C>
Revolving credit facility...................... $ 8 $ 6 $ 8
Senior term loan A............................. 63 47 63
Senior term loan B............................. 263 197 263
---- ---- ----
Total........................................ $334 $250 $334
==== ==== ====
</TABLE>
(f) Represents the tax effect of the recapitalization and offering adjustments.
(g) EBITDA is defined, for any period, as income before interest expense,
provision for income taxes, depreciation and amortization, other expenses
(income) and impairment charge. EBITDA is presented because it is a widely
accepted financial indicator of a company's ability to service and/or incur
indebtedness. EBITDA should not be considered an alternative to net income
as a measure of Citation's operating results or to cash flow as a measure
of liquidity. In addition, although the EBITDA measure of performance is
not recognized under generally accepted accounting principles, it is widely
used by various companies as a general measure of a company's performance
because it assists in comparing performance on a relatively consistent
basis across companies without regard to depreciation and amortization,
which can vary significantly depending on accounting methods (particularly
where acquisitions are involved) or non-operating factors such as
historical costs bases. Because EBITDA is not calculated identically by all
companies, the presentation herein may not be strictly comparable to other
similarly titled measures of other companies.
(h) For purposes of computing this ratio, earnings are defined as operating
income. Fixed charges consist of (i) interest, whether expensed or
capitalized; (ii) amortization of debt issuance costs; and (iii) that
portion of rental expense considered to represent an appropriate interest
factor.
