-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, K+mPZ7eZNQxsYrQlwfXBsZolpmT86F/4NU3E4h0zKIm6NQnkwGBB612JHIf+Orwv U47JpKxKPywmGgsmwzfsLg== 0001047469-99-003522.txt : 19990208 0001047469-99-003522.hdr.sgml : 19990208 ACCESSION NUMBER: 0001047469-99-003522 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990205 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATCHISON CASTING CORP CENTRAL INDEX KEY: 0000911115 STANDARD INDUSTRIAL CLASSIFICATION: IRON & STEEL FOUNDRIES [3320] IRS NUMBER: 481156578 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12541 FILM NUMBER: 99522282 BUSINESS ADDRESS: STREET 1: 400 S 4TH ST CITY: ATCHISON STATE: KS ZIP: 66002 BUSINESS PHONE: 9133672121 MAIL ADDRESS: STREET 1: 400 SOUTH 4TH STREET CITY: ATCHISON STATE: KS ZIP: 66002 10-Q 1 10-Q 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, 1998 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 7,618,959 shares of common stock, $.01 par value per share, outstanding on February 5, 1999 PART I ITEM 1. Financial Statements. ATCHISON CASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands)
December 31, June 30, 1998 1998 ------------ --------- (Unaudited) ASSETS --------- CURRENT ASSETS: Cash and cash equivalents $ 1,364 $ 9,336 Customer accounts receivable, net of allowance for 88,072 88,469 doubtful accounts of $421 and $508, respectively Inventories 66,220 62,146 Deferred income taxes 2,817 3,186 Other current assets 9,573 9,615 -------- -------- Total current assets 168,046 172,752 PROPERTY, PLANT AND EQUIPMENT, Net 150,969 137,290 INTANGIBLE ASSETS, Net 33,167 25,424 DEFERRED FINANCING COSTS, Net 648 746 OTHER ASSETS 10,362 9,927 -------- -------- TOTAL $363,192 $346,139 ======== ========
See Notes to Consolidated Financial Statements. ATCHISON CASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Cont'd) (In Thousands)
December 31, June 30, 1998 1998 --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) CURRENT LIABILITIES: Accounts payable $ 35,543 $ 37,259 Accrued expenses 46,617 52,690 Current maturities of long-term obligations 8,889 6,021 --------- --------- Total current liabilities 91,049 95,970 LONG-TERM OBLIGATIONS 108,805 87,272 DEFERRED INCOME TAXES 13,939 12,608 OTHER LONG-TERM OBLIGATIONS 4,539 3,670 EXCESS OF FAIR VALUE OF ACQUIRED NET ASSETS 217 349 OVER COST, Net POSTRETIREMENT OBLIGATION OTHER THAN PENSION 7,919 7,596 MINORITY INTEREST IN SUBSIDIARIES 4,229 3,060 STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value, 2,000,000 -- -- authorized shares; no shares issued and outstanding Common stock, $.01 par value, 19,300,000 82 82 authorized shares; 8,241,661 and 8,226,570 shares issued, respectively Class A common stock (non-voting), $.01 par value, -- -- 700,000 authorized shares; no shares issued and outstanding Additional paid-in capital 81,086 80,957 Retained earnings 58,250 55,205 Accumulated foreign currency translation adjustment (1,023) (630) --------- --------- 138,395 135,614 Less shares held in treasury: Common stock, 606,602 and 36,002 shares, respectively, at cost (5,900) -- --------- --------- Total stockholders' equity 132,495 135,614 --------- --------- TOTAL $ 363,192 $ 346,139 ========= =========
See Notes to Consolidated Financial Statements. ATCHISON CASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Share Data)
Three Months Ended Six Months Ended December 31, December 31, 1998 1997 1998 1997 ---------- ----------- ---------- ----------- NET SALES $ 122,955 $ 84,435 $ 239,531 $ 153,231 COST OF GOODS SOLD 104,208 71,772 206,863 131,356 ---------- ---------- ---------- ---------- GROSS PROFIT 18,747 12,663 32,668 21,875 OPERATING EXPENSES: Selling, general and administrative 11,625 7,256 22,588 12,605 Amortization of intangibles 312 231 569 406 ---------- ---------- ---------- ---------- Total operating expenses 11,937 7,487 23,157 13,011 ---------- ---------- ---------- ---------- OPERATING INCOME 6,810 5,176 9,511 8,864 INTEREST EXPENSE 2,150 823 4,122 1,285 MINORITY INTEREST IN NET INCOME 59 116 51 179 OF SUBSIDIARIES ---------- ---------- ---------- ---------- INCOME BEFORE TAXES 4,601 4,237 5,338 7,400 INCOME TAXES 1,893 1,847 2,293 3,185 ---------- ---------- ---------- ---------- NET INCOME $ 2,708 $ 2,390 $ 3,045 $ 4,215 ========== ========== ========== ========== NET INCOME PER COMMON AND EQUIVALENT SHARE: BASIC $ 0.35 $ 0.29 $ 0.38 $ 0.52 ========== ========== ========== ========== DILUTED $ 0.35 $ 0.29 $ 0.38 $ 0.51 ========== ========== ========== ========== WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING: BASIC 7,771,336 8,161,661 7,955,241 8,154,812 ========== ========== ========== ========== DILUTED 7,771,336 8,220,053 7,955,241 8,215,597 ========== ========== ========== ==========
See Notes to Consolidated Financial Statements. ATCHISON CASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands)
Three Months Ended Six Months Ended December 31, December 31, 1998 1997 1998 1997 -------- ------- ------- -------- NET INCOME $ 2,708 $ 2,390 $ 3,045 $ 4,215 OTHER COMPREHENSIVE INCOME, BEFORE TAX: Foreign currency translation adjustments (33) (244) (33) (239) ------- ------- ------- ------- OTHER COMPREHENSIVE INCOME, BEFORE TAX $ 2,675 $ 2,146 $ 3,012 $ 3,976 INCOME TAX EXPENSE (BENEFIT) RELATED TO ITEMS OF OTHER COMPREHENSIVE INCOME (13) (105) (13) (103) ------- ------- ------- ------- OTHER COMPREHENSIVE INCOME, NET OF TAX $ 2,688 $ 2,251 $ 3,025 $ 4,079 ======= ======= ======= =======
See Notes to Consolidated Financial Statements. ATCHISON CASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (In Thousands)
Six Months Ended December 31, 1998 1997 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 3,045 $ 4,215 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 6,845 5,839 Minority interest in net income of subsidiaries 47 184 (Gain) Loss on disposal of capital assets (71) 13 Deferred income taxes 289 713 Changes in assets and liabilities (exclusive of effects of acquired companies): Receivables 3,003 3,834 Inventories (2,717) (2,903) Other current assets (332) (315) Accounts payable (4,033) (1,945) Accrued expenses (7,238) (5,974) Post retirement obligation other than pension 323 323 Other 302 100 -------- -------- Cash provided by (used in) operating activities (537) 4,084 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (13,372) (8,229) Payment for purchase of net assets of subsidiaries, net of cash acquired (13,133) (26,725) Proceeds from sale of capital assets 1,003 781 Payment for investments in unconsolidated subsidiaries (150) -- Advances under subordinated note receivable -- (1,484) -------- -------- Cash used in investing activities (25,652) (35,657) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, net of costs 129 397 Payment for repurchase of common stock (5,900) -- Payment for purchase of stock in subsidiaries (393) (11) Payments on long-term obligations (2,999) (140) Net borrowings under revolving loan note 27,400 15,487 -------- -------- Cash provided by financing activities 18,237 15,733 -------- -------- EFFECT OF EXCHANGE RATE ON CASH (20) 3 -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS ($ 7,972) ($15,837) CASH AND CASH EQUIVALENTS, Beginning of period 9,336 19,819 -------- -------- CASH AND CASH EQUIVALENTS, End of period $ 1,364 $ 3,982 ======== ========
See Notes to Consolidated Financial Statements ATCHISON CASTING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Accounting Policies and Basis of Presentation The unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company for the year ended June 30, 1998, as included in the Company's 1998 Annual Report to Stockholders. The accompanying unaudited consolidated financial statements include all adjustments (consisting only of normal recurring accruals) which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and cash flows. Results of operations for interim periods are not necessarily indicative of results to be expected for a full year. On July 1, 1998 the Company adopted Statement of Financial Accounting Standards No. 130, "REPORTING COMPREHENSIVE INCOME". In accordance with this statement the Company has presented a separate consolidated statement of comprehensive income for the three-month and six-month periods ended December 31, 1998, and has presented the three-month and six-month periods ended December 31, 1997 for comparative purposes. Certain December 31, 1997 amounts have been reclassified to conform with December 31, 1998 classifications. 2. Inventories
As of ------------------------- December 31, June 30, 1998 1998 ---- ---- (Thousands) Raw materials $11,171 $11,152 Work-in-process 41,309 37,939 Finished goods 7,859 7,385 Deferred supplies 5,881 5,670 ======= ======= $66,220 $62,146 ======= =======
3. Income Taxes The provision for income taxes consisted of:
Six Months Ended December 31, 1998 1997 ---- ---- (Thousands) Current: Domestic $1,245 $ 2,004 Foreign 759 468 ------ ------- $2,004 $ 2,472 Deferred: Domestic $ 94 $ 713 Foreign 195 --- ------ ------- $ 289 $ 713 ------ ------- Total $2,293 $ 3,185 ====== =======
4. Acquisitions Effective September 1, 1998, the Company purchased 90% of the outstanding capital stock of London Precision Machine and Tool Ltd. ("London Precision") for U.S. $13.8 million in cash. London Precision, located in London, Ontario, Canada, is an industrial machine shop which serves the locomotive, mining and construction, pulp and paper markets, among others. The Company financed this transaction with funds available under its revolving credit facility. In connection with the acquisition of London Precision, the Company recorded approximately $8.4 million of goodwill, which is being amortized over 25 years. The transaction has been treated as a purchase for financial reporting purposes. The results of operations of London Precision have been included in the Company's statement of operations from the date of acquisition. 5. Additional Cash Flow Information
Six Months Ended December 31, 1998 1997 ------ ------- Cash paid during the period for: Interest $4,163 $1,335 ====== ====== Income Taxes $4,227 $4,024 ====== ====== Supplemental schedule of noncash investing and financing activities: Unexpended bond funds $0 ($487) ====== =======
6. Earnings Per Share In February 1997, the FASB issued SFAS No. 128, "EARNINGS PER SHARE." This Statement established new standards for computing and presenting earnings per share ("EPS") and applies to entities with publicly held common stock or potential common stock. The Statement requires dual presentation of basic and diluted EPS on the face of the income statement for entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. The Company adopted SFAS No. 128 effective for the quarter ended December 31, 1997. Following is a reconciliation of basic and diluted EPS for the three-month and six-month periods ended December 31, 1998 and 1997, respectively.
For the three months ended December 31, 1998 - -------------------------------------------- Weighted Net Average Earnings Income Shares Per Share ---------- --------- ---------- 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 ========== ========= ========== For the three months ended December 31, 1997 - -------------------------------------------- Weighted Net Average Earnings Income Shares Per Share ---------- --------- ---------- Basic EPS Income available to common stockholders $2,390,000 8,161,661 $ 0.29 Effect of Dilutive Securities Options 58,392 ---------- --------- ---------- Diluted EPS $2,390,000 8,220,053 $ 0.29 ========== ========= ========== For the six months ended December 31, 1998 - ------------------------------------------ Weighted Net Average Earnings Income Shares Per Share ---------- --------- ---------- 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 ========== ========= ========== For the six months ended December 31, 1997 - ------------------------------------------ Weighted Net Average Earnings Income Shares Per Share ---------- --------- ---------- Basic EPS Income available to common stockholders $4,215,000 8,154,812 $ 0.52 Effect of Dilutive Securities Options 60,785 (0.01) ---------- --------- ---------- Diluted EPS $4,215,000 8,215,597 $ 0.51 ========== ========= ==========
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 1999 were $123.0 million, representing an increase of $38.6 million, or 45.6%, over net sales of $84.4 million in the second quarter of fiscal 1998. The operations acquired by the Company since October 6, 1997 generated net sales of $12.5 million and $56.3 million in the second quarter of fiscal 1998 and fiscal 1999, respectively, as follows:
FY98 2nd Qtr FY99 2nd Qtr Operation Date Acquired Net Sales Net Sales --------- ------------- ------------ ------------ Inverness Castings Group, Inc. 10 / 06 / 97 $12.5 million $12.1 million Sheffield Forgemasters Group Limited 04 / 06 / 98 -- 35.5 million Claremont Foundry, Inc. 05 / 01 / 98 -- 2.0 million London Precision Machine & Tool Ltd. 09 / 01 / 98 -- 6.7 million
Excluding net sales generated by the operations acquired since October 6, 1997, net sales for the second quarter of fiscal 1999 were $66.7 million, representing a decrease of $5.2 million, or 7.2%, from net sales of $71.9 million in the second quarter of fiscal 1998. This 7.2% decrease in net sales was due primarily to decreases in net sales to the mining, power generation, agricultural and petrochemical markets, partially offset by an increase in net sales to the rail market. Net sales for the first six months of fiscal 1999 were $239.5 million, representing an increase of $86.3 million, or 56.3%, over net sales of $153.2 million in the first six months of fiscal 1998. The operations acquired by the Company since October 6, 1997 generated net sales of $12.5 million and $106.9 million in the first six months of fiscal 1998 and fiscal 1999, respectively, as follows:
FY98 2nd Qtr FY99 2nd Qtr Operation Date Acquired Net Sales Net Sales --------- ------------- ------------ ------------ Inverness Castings Group, Inc. 10 / 06 / 97 $12.5 million $23.5 million Sheffield Forgemasters Group Limited 04 / 06 / 98 -- 70.8 million Claremont Foundry, Inc. 05 / 01 / 98 -- 3.6 million London Precision Machine & Tool Ltd. 09 / 01 / 98 -- 9.0 million
Excluding net sales generated by the operations acquired since October 6, 1997, net sales for the first six months of fiscal 1999 were $132.6 million, representing a decrease of $8.1 million, or 5.8%, over net sales of $140.7 million in the first six months of fiscal 1998. This 5.8% decrease in net sales was due primarily to decreases in net sales to the mining, power generation, agricultural and petrochemical markets, partially offset by an increase in net sales to the rail market. Gross profit for the second quarter of fiscal 1999 increased by $6.0 million, or 48.0%, to $18.7 million, or 15.2% of net sales, compared to $12.7 million, or 15.0% of net sales, for the second quarter of fiscal 1998. Gross profit for the first six months of fiscal 1999 increased by $10.8 million, or 49.3 %, to $32.7 million, or 13.6% of net sales, compared to $21.9 million, or 14.3% of net sales, for the first six months of fiscal 1998. The increase in gross profit for both periods was primarily due to increased sales volume levels resulting from the acquisitions of Sheffield Forgemasters Group Limited ("Sheffield") and London Precision Machine and Tool Ltd. ("London Precision"). The contribution from London Precision and improved results at the Company's Amite facility due to increased sales volume levels, improved productivity and reduced employee turnover and training positively impacted gross profit as a percentage of net sales in both periods. Offsetting these factors were: (i) decreased absorption of overhead resulting from lower net sales to the offshore oil and gas, mining, power generation, petrochemical and agricultural markets, (ii) continued productivity and scrap problems at Inverness Castings Group, Inc. ("Inverness"), (iii) increased warranty costs at Canada Alloy Castings, Ltd. and (iv) increased training costs, higher employee turnover and increased overtime due to the generally tight labor markets. In addition, gross profit as a percentage of net sales for the first six months was impacted by (i) reduced productivity and excessive overtime due to power curtailments under the Company's interruptible electricity contracts resulting from the extreme heat during the first quarter and (ii) higher plant maintenance shutdown costs at Atchison/St. Joe and Prospect Foundry, Inc. ("Prospect"). Selling, general and administrative expense ("SG&A") for the second quarter of fiscal 1999 was $11.6 million, or 9.5% of net sales, compared to $7.3 million, or 8.6% of net sales, in the second quarter of fiscal 1998. For the first six months of fiscal 1999, SG&A was $22.6 million, or 9.4% of net sales, compared to $12.6 million, or 8.2% of net sales, for the first six months of fiscal 1998. The increase in SG&A was primarily attributable to expenses associated with the operations acquired by the Company in fiscal 1998 and fiscal 1999. The increase in SG&A as a percentage of net sales for both periods was primarily due to higher average SG&A as a percentage of net sales at Sheffield. Amortization of certain intangibles for the second quarter of fiscal 1999 was $312,000 or 0.3% of net sales, as compared to $231,000 or 0.3% of net sales, in the second quarter of fiscal 1998. Amortization of certain intangibles for the first six months of fiscal 1999 was $569,000 or 0.2% of net sales, as compared to $406,000, or 0.3% of net sales, for the first six months of fiscal 1998. The intangible assets consist of goodwill recorded in connection with certain of the Company's acquisitions. In connection with the acquisition of London Precision, the Company recorded approximately $8.4 million of goodwill, which is being amortized over 25 years. Partially offsetting the expense relating to the amortization of these assets is the amortization of the excess of acquired net assets over cost (negative goodwill) recorded by the Company in connection with the acquisition of Canadian Steel Foundries, Ltd. Interest expense for the second quarter of fiscal 1999 increased to $2.2 million or 1.7% of net sales, from $823,000, or 1.0% of net sales, in the second quarter of fiscal 1998. For the first six months of fiscal 1999, interest expense increased to $4.1 million, or 1.7% of net sales, from $1.3 million, or 0.8% of net sales, in the first six months of fiscal 1998. The increase in interest expense reflects an increase in the average amount of outstanding indebtedness primarily incurred to finance the Company's acquisitions. Income tax expense for the second quarter of fiscal 1999 reflected the combined federal, state and provincial statutory rate of approximately 41.0%. Income tax expense for the first six months of fiscal 1999 reflected the combined federal, state and provincial statutory rate of approximately 43.0%. Income tax expense for the second quarter and first six months of fiscal 1998 reflected the combined federal, state and provincial statutory 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 1999 was $2.7 million, compared to net income of $2.4 million for the second quarter of fiscal 1998. Net income for the first six months of fiscal 1999 was $3.0 million, compared to net income of $4.2 million for the first six months of fiscal 1998. LIQUIDITY AND CAPITAL RESOURCES: Cash used in operating activities for the first six months of fiscal 1999 was $537,000, compared to cash provided by operating activities of $4.1 million for the first six months of fiscal 1998. This change was primarily attributable to increased working capital requirements primarily relating to accounts payable and accrued expenses balances. Working capital was $77.0 million at December 31, 1998, as compared to $76.8 million at June 30, 1998. The increase primarily resulted from decreased accounts payable and accrued expenses balances and net additional working capital of $849,000 associated with the acquisition of London Precision, offset by a $2.9 million increase in the current maturities of the Company's existing outstanding indebtedness. During the first six months of fiscal 1999, the Company made capital expenditures of $13.4 million, as compared to $8.2 million for the first six months of fiscal 1998. Included in the first six months of fiscal 1999 were capital expenditures of $1.9 million on upgrading the 1,500 ton forging press to 2,500 tons at Sheffield. Included in the first six months of fiscal 1998 were capital expenditures of $1.4 million on a new sand reclamation system at the Atchison/St. Joe Division and $1.3 million on a new mold line at Prospect. The balance of capital expenditures in both periods was used for routine projects at each of the Company's facilities. 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 currently allows repurchases of up to nearly $6.2 million of Company common stock. 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 December 31, 1998, the Company had repurchased 570,600 shares at a cost of $5.9 million. On October 7, 1998, the Company and its bank entered into the First Amendment to the Amended and Restated Credit Agreement ("the Credit Agreement"). The Credit Agreement consists of a $40 million term loan and a $70 million revolving credit facility. This amendment permits the Company to repurchase up to $24 million of its common stock, subject to a limitation of $10 million in any fiscal year unless certain financial ratios are met, and provides for an option to increase the revolving portion of the credit facility to $100 million if the Company issues senior subordinated notes. Proceeds from the issuance of any senior subordinated notes must be used to permanently pre-pay the $40 million term loan portion of the credit facility. Loans under the credit facility may be used for general corporate purposes, acquisitions and approved investments. On October 12, 1998, the insurance company holding the Company's unsecured senior notes granted a limited waiver increasing the permitted repurchases of the Company's common stock from $3.2 million to $6.2 million. Total indebtedness of the Company at December 31, 1998 was $117.7 million, as compared to $93.3 million at June 30, 1998. This increase of $24.4 million primarily reflects indebtedness incurred of $13.8 million to finance the acquisition of London Precision and $5.9 million to repurchase 570,600 shares of the Company's common stock. At December 31, 1998, $7.2 million was available for borrowing under the Company's revolving credit facility. Effective September 1, 1998, the Company purchased 90% of the outstanding capital stock of London Precision for U.S. $13.8 million cash. London Precision, located in London, Ontario, Canada, is an industrial machine shop which serves the locomotive, mining and construction, pulp and paper markets, among others. The Company financed this transaction with funds available under its revolving credit facility. The Company believes that its operating cash flow and amounts available for borrowing under its revolving credit facility will be adequate to fund its capital expenditure, working capital requirements and repurchases of the Company's common stock for the next two years. However, the level of capital expenditure and working capital requirements may be greater than currently anticipated as a result of the size and timing of future acquisitions, or as a result of unforeseen expenditures relating to compliance with environmental laws. YEAR 2000 COMPUTER ISSUES The Company has conducted a comprehensive review of its hardware and software systems to identify those systems that could be affected by the "Year 2000" issue and has developed an implementation plan to resolve the identified issues. The Company believes that, with replacement or modification of its existing computer systems, updates by vendors and conversion to new software, the Year 2000 issue will not pose significant operational problems for the Company's computer systems. The Company expects to complete implementation of computer systems that are Year 2000 compliant in fiscal 1999, although testing may continue in the first two quarters of fiscal 2000. Based on its review of non-information technology systems to date, the Company does not anticipate the need to develop an extensive contingency plan for such systems or to incur material costs in that regard. The Company relies on a number of customers and suppliers, including banks, telecommunication providers, utilities, and other providers of goods and services. The inability of these third parties to conduct their business for a significant period of time due to the Year 2000 issue could have a material adverse impact on the Company's operations. The Company is currently assessing the Year 2000 compliance of its significant customers and suppliers. To date, the Company has been advised by two thirds of its significant customers that they expect to be Year 2000 compliant by the end of calendar 1999. There can be no assurance that the systems of other companies that interact with the Company will be sufficiently Year 2000 compliant. The Company's reliance on single source suppliers, however, is minimal, and the Company seeks to limit sole source supply relationships. The Company, however, has entered into national service agreements for the supply of certain raw materials and freight service from single sources. If the Company does not identify or fix all Year 2000 problems in critical operations, or if a major supplier or customer is unable to supply raw materials or receive the Company's product, the Company's results of operations or financial condition could be materially impacted. Year 2000 project expenditures to date total $770,000. The Company expects to incur an additional $1.3 million of costs. The Company presently anticipates that it will complete its Year 2000 assessment and remediation by June 30, 1999. However, there can be no assurance that the Company will be successful in implementing its Year 2000 implementation plan according to the anticipated schedule due to the potential lack of availability of trained personnel and their ability to identify relevant computer codes, among other uncertainties. The Company does not anticipate the need for an extensive contingency plan for problems arising with its customers and suppliers. Should problems arise, appropriate resources will be utilized to address problems. FORWARD-LOOKING STATEMENTS The sections entitled "Liquidity and Capital Resources" and "Year 2000 Computer Issues" contain forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements such as "expects," "intends," contemplating" and statements pertaining to the adequacy of funding for capital expenditure and working capital requirements for the next two years are not historical in nature. Among the factors that could cause actual results to differ materially from such forward-looking statements include: the size and timing of future acquisitions, business conditions and the state of the general economy, particularly the capital goods industry, the strength of the U.S. dollar and British pound, interest rates, the availability of labor, the competitive environment in the casting industry and changes in laws and regulations that govern the Company's business, particularly environmental regulations. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Quantitative and qualitative information about market risk was addressed in Item 7A of the Company's Form 10-K for the fiscal year ended June 30, 1998. There has been no material change to that information required to be disclosed in this Form 10-Q filing. PART II ITEM 1 - Legal Proceedings NOT APPLICABLE 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 1,240, 620, 1,240 and 620 shares, respectively, of common stock on December 7, 1998, with a then-current market value of $9.69 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 20, 1998. Stockholders owning 7,823,578 shares voted in favor of David L. Belluck as a Class II director. There were 125,281 shares withheld. Stockholders owning 7,823,644 shares voted in favor of John O. Whitney as a Class II director. There were 125,215 shares withheld. Accordingly, Mr. Belluck and Mr. Whitney were elected as Class II directors for a term of three years. Previously elected and continuing to serve their terms are Hugh H. Aiken, Ray H. Witt and Stuart Z. Uram. ITEM 5 - Other Information NOT APPLICABLE ITEM 6 - Exhibits and Reports of Form 8-K (A) Exhibits 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, 1998. * * * * * * * * * * * * * * * * SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Atchison Casting Corporation (Registrant) DATE: February 5, 1999 /s/ HUGH H. AIKEN -------------------------------------------- Hugh H. Aiken, Chairman of the Board, President and Chief Executive Officer DATE: February 5, 1999 /s/ KEVIN T. MCDERMED -------------------------------------------- Kevin T. McDermed, Vice President, Chief Financial Officer, Treasurer and Secretary EX-27 2 EX-27
5 0000911115 ATCHISON CASTING CORPORATION 1,000 6-MOS JUN-30-1999 JUL-01-1998 DEC-31-1998 1,364 0 88,493 421 66,220 168,046 192,157 41,188 363,192 91,049 0 0 0 82 132,413 363,192 239,531 239,531 206,863 23,157 51 0 4,122 5,338 2,293 3,045 0 0 0 3,045 0.38 0.38
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