-----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, Db5dvXzAn7l6BmaMo+dk36f2B3cqzMtBahCAF3rXjTG0ro6pm+IML3Q5Hu5jxOUC OqlY/SW24ZTNpx4hOMjllQ== 0001047469-99-019416.txt : 19990512 0001047469-99-019416.hdr.sgml : 19990512 ACCESSION NUMBER: 0001047469-99-019416 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990511 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: 99617449 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 FORM 10Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO THE SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ ------------------------- Commission File Number 1-12541 Atchison Casting Corporation ------------------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Kansas 48-1156578 - --------------------------------------- -------------------------------------- (State of other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 400 South Fourth Street, Atchison, Kansas 66002 - ------------------------------------------------------ --------------------- (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (913) 367-2121 Not Applicable - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report.) ---------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements from the past 90 days. Yes X . No . There were 7,627,773 shares of common stock, $.01 par value per share, outstanding on May 11, 1999 PART I ITEM 1. Financial Statements. ATCHISON CASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands)
March 31, June 30, 1999 1998 -------- -------- (Unaudited) ASSETS ------ CURRENT ASSETS: Cash and cash equivalents $ 10,930 $ 9,336 Customer accounts receivable, net of allowance for 82,922 88,469 doubtful accounts of $470 and $508, respectively Inventories 71,123 62,146 Deferred income taxes 2,657 3,186 Other current assets 13,368 9,615 -------- -------- Total current assets 181,000 172,752 PROPERTY, PLANT AND EQUIPMENT, Net 150,365 137,290 INTANGIBLE ASSETS, Net 32,953 25,424 DEFERRED FINANCING COSTS, Net 603 746 OTHER ASSETS 11,947 9,927 -------- -------- TOTAL $376,868 $346,139 -------- -------- -------- --------
See Notes to Consolidated Financial Statements. ATCHISON CASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Cont'd) (In Thousands)
March 31, June 30, 1999 1998 --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) ------------------------------------ CURRENT LIABILITIES: Accounts payable $ 41,845 $ 37,259 Accrued expenses 58,655 52,690 Current maturities of long-term obligations 8,886 6,021 --------- --------- Total current liabilities 109,386 95,970 LONG-TERM OBLIGATIONS 100,047 87,272 DEFERRED INCOME TAXES 13,993 12,608 OTHER LONG-TERM OBLIGATIONS 3,906 3,670 EXCESS OF FAIR VALUE OF ACQUIRED NET ASSETS 3,730 349 OVER COST, Net POSTRETIREMENT OBLIGATION OTHER THAN PENSION 8,045 7,596 MINORITY INTEREST IN SUBSIDIARIES 4,278 3,060 STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value, 2,000,000 - - authorized shares; no shares issued and outstanding Common stock, $.01 par value, 19,300,000 83 82 authorized shares; 8,250,475 and 8,226,570 shares issued, respectively Class A common stock (non-voting), $.01 par value, - - 700,000 authorized shares; no shares issued and outstanding Additional paid-in capital 81,149 80,957 Retained earnings 59,515 55,205 Accumulated foreign currency translation adjustment (1,216) (630) --------- --------- 139,531 135,614 Less shares held in treasury: Common stock, 622,702 and 36,002 shares, respectively, at cost (6,048) - --------- --------- Total stockholders' equity 133,483 135,614 --------- --------- TOTAL $ 376,868 $ 346,139 --------- --------- --------- ---------
See Notes to Consolidated Financial Statements. ATCHISON CASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Share Data) (UNAUDITED)
Three Months Ended Nine Months Ended March 31, March 31, 1999 1998 1999 1998 ---------- ---------- ---------- ---------- NET SALES $ 119,533 $ 91,623 $ 359,064 $ 244,854 COST OF GOODS SOLD 101,998 77,503 308,861 208,859 ---------- ---------- ---------- ---------- GROSS PROFIT 17,535 14,120 50,203 35,995 OPERATING EXPENSES: Selling, general and administrative 12,711 6,251 35,299 18,856 Amortization of intangibles 234 231 803 637 ---------- ---------- ---------- ---------- Total operating expenses 12,945 6,482 36,102 19,493 ---------- ---------- ---------- ---------- OPERATING INCOME 4,590 7,638 14,101 16,502 INTEREST EXPENSE 2,162 841 6,284 2,126 MINORITY INTEREST IN NET INCOME 59 79 110 258 OF SUBSIDIARIES ---------- ---------- ---------- ---------- INCOME BEFORE TAXES 2,369 6,718 7,707 14,118 INCOME TAXES 1,104 2,805 3,397 5,990 ---------- ---------- ---------- ---------- NET INCOME $ 1,265 $ 3,913 $ 4,310 $ 8,128 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- NET INCOME PER COMMON AND EQUIVALENT SHARE: BASIC $ 0.17 $ 0.48 $ 0.55 $ 1.00 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- DILUTED $ 0.17 $ 0.48 $ 0.55 $ 0.99 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- WEIGHTED AVERAGE NUMBER OF COMMON AND EQUIVALENT SHARES OUTSTANDING: BASIC 7,619,587 8,175,612 7,844,987 8,161,647 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- DILUTED 7,619,587 8,207,116 7,844,987 8,213,281 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
See Notes to Consolidated Financial Statements. ATCHISON CASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands)
Three Months Ended Nine Months Ended March 31, March 31, 1999 1998 1999 1998 ------- ------- ------- ------- NET INCOME $ 1,265 $ 3,913 $ 4,310 $ 8,128 OTHER COMPREHENSIVE INCOME, BEFORE TAX: Foreign currency translation adjustments (193) 40 (586) (199) ------- ------- ------- ------- OTHER COMPREHENSIVE INCOME, BEFORE TAX $ 1,072 $ 3,953 $ 3,724 $ 7,929 INCOME TAX EXPENSE (BENEFIT) RELATED TO ITEMS OF OTHER COMPREHENSIVE INCOME (78) 16 (237) (80) ------- ------- ------- ------- OTHER COMPREHENSIVE INCOME, NET OF TAX $ 1,150 $ 3,937 $ 3,961 $ 8,009 ------- ------- ------- ------- ------- ------- ------- -------
See Notes to Consolidated Financial Statements. ATCHISON CASTING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW (In Thousands) (Unaudited)
Nine Months Ended March 31, 1999 1998 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 4,310 $ 8,128 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 10,421 8,797 Minority interest in net income of subsidiaries 106 263 Loss (Gain) on disposal of capital assets (185) 18 Deferred income taxes 305 1,415 Changes in assets and liabilities (exclusive of effects of acquired companies): Receivables 7,396 (5,856) Inventories (2,626) (1,638) Other current assets (6,122) (1,147) Accounts payable 2,734 (235) Accrued expenses (2,792) (5,249) Post retirement obligation other than pension 449 467 Other 1,182 87 -------- -------- Cash provided by operating activities 15,178 5,050 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (16,903) (13,237) Payment for purchase of net assets of subsidiaries, net of cash acquired (7,396) (26,784) Proceeds from sale of capital assets 1,662 861 Payment for investment in unconsolidated subsidiary (150) - Advances under subordinated note receivable - (1,974) -------- -------- Cash used in investing activities (22,787) (41,134) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock, net of costs 193 470 Payment for repurchase of common stock (6,048) - Payment for purchase of stock in subsidiaries (405) (11) Payments on long-term obligations (4,510) (216) Net borrowings under revolving loan note 20,150 20,484 -------- -------- Cash provided by financing activities 9,380 20,727 EFFECT OF EXCHANGE RATE ON CASH (177) 4 -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,594 (15,353) CASH AND CASH EQUIVALENTS, Beginning of period 9,336 19,819 -------- -------- CASH AND CASH EQUIVALENTS, End of period $ 10,930 $ 4,466 -------- -------- -------- --------
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 nine-month periods ended March 31, 1999, and has restated the three-month and nine-month periods ended March 31, 1998 for comparative purposes. Certain March 31, 1998 amounts have been reclassified to conform with March 31, 1999 classifications. 2. Inventories
As of ----------------------------------------- March 31, June 30, 1999 1998 (Thousands) Raw materials $10,674 $ 11,152 Work-in-process 41,690 37,939 Finished goods 14,259 7,385 Deferred supplies 4,500 5,670 --------- --------- $71,123 $ 62,146 --------- --------- --------- ---------
3. Income Taxes The provision for income taxes consisted of:
Nine Months Ended March 31, 1999 1998 ---- ---- (Thousands) Current: Domestic $1,737 $ 3,977 Foreign 1,355 598 ------- -------- $3,092 $ 4,575 Deferred: Domestic $131 $ 1,415 Foreign 174 --- ------- -------- $305 $ 1,415 ------- -------- Total $3,397 $ 5,990 ------- -------- ------- --------
4. Acquisitions Effective September 1, 1998, the Company purchased 90% of the outstanding capital stock of London Precision Machine and Tool Ltd. ("London Precision") for U.S. $13.8 million in cash. London Precision, located in London, Ontario, Canada, is an industrial machine shop which serves the locomotive, mining and construction, pulp and paper markets, among others. The Company financed this transaction with funds available under its revolving credit facility. In connection with the acquisition of London Precision, the Company recorded approximately U.S. $8.4 million of goodwill, which is being amortized over 25 years. The transaction has been treated as a purchase for financial reporting purposes. The results of operations of London Precision have been included in the Company's statement of operations from the date of acquisition. On February 25, 1999, Fonderie d'Autun ("Autun"), a subsidiary of Atchison Casting UK Limited, a 95% owned subsidiary of the Company, purchased the foundry division assets of Compagnie Internationale du Chauffage ("CICH") located in Autun, France. The Company received U.S. $5.8 million in cash and U.S. $5.5 million in inventory in exchange for the assumption of potential environmental and employment liabilities if the facility is ever closed. CICH is a subsidiary of Blue Circle Industries plc, headquartered in London, England. Autun specializes in the manufacture of cast iron radiators and boiler castings. In connection with the acquisition of Autun, the Company recorded approximately U.S. $3.7 million of negative goodwill, which is being amortized over four years. The results of operations of Autun have been included in the Company's statement of operations from the date of acquisition. 5. Additional Cash Flow Information
Nine Months Ended March 31, 1999 1998 ---- ---- Cash paid during the period for: Interest $6,677 $ 2,589 ------- -------- ------- -------- Income Taxes $5,074 $ 5,421 ------- -------- ------- -------- Supplemental schedule of noncash investing and financing activities: Unexpended bond funds $0 ($484) ------- -------- ------- --------
6. Earnings Per Share In February 1997, the FASB issued SFAS No. 128, "EARNINGS PER SHARE." This Statement established new standards for computing and presenting earnings per share ("EPS") and applies to entities with publicly held common stock or potential common stock. The Statement requires dual presentation of basic and diluted EPS on the face of the income statement for entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation. The Company was required to adopt SFAS No. 128 effective for the quarter ended March 31, 1997. EPS for prior periods have been restated according to the new standard. Following is a reconciliation of basic and diluted EPS for the three-month and nine-month periods ended March 31, 1999 and 1998, respectively.
For the three months ended March 31, 1999 Weighted Net Average Earnings Income Shares Per Share ------------ -------------- ----------- Basic EPS Income available to common stockholders $1,265,000 7,619,587 $0.17 Effect of Dilutive Securities Options -- ------------ -------------- ----------- Diluted EPS $1,265,000 7,619,587 $0.17 ------------ -------------- ----------- ------------ -------------- -----------
For the three months ended March 31, 1998 Weighted Net Average Earnings Income Shares Per Share ------------ -------------- ----------- Basic EPS Income available to common stockholders $3,913,000 8,175,612 $0.48 Effect of Dilutive Securities Options 31,504 ------------ -------------- ----------- Diluted EPS $3,913,000 8,207,116 $0.48 ------------ -------------- ----------- ------------ -------------- -----------
For the nine months ended March 31, 1999 Weighted Net Average Earnings Income Shares Per Share ------------ -------------- ----------- Basic EPS Income available to common stockholders $4,310,000 7,844,987 $0.55 Effect of Dilutive Securities Options -- ------------ -------------- ----------- Diluted EPS $4,310,000 7,844,987 $0.55 ------------ -------------- ----------- ------------ -------------- -----------
For the nine months ended March 31, 1998 Weighted Net Average Earnings Income Shares Per Share ------------ -------------- ----------- Basic EPS Income available to common stockholders $8,128,000 8,161,647 $1.00 Effect of Dilutive Securities Options 51,634 (0.01) ------------ -------------- ----------- Diluted EPS $8,128,000 8,213,281 $0.99 ------------ -------------- ----------- ------------ -------------- -----------
7. Jahn Foundry Corp. Industrial Accident An accident, involving an explosion and fire, occurred on February 25, 1999 at Jahn Foundry, a wholly-owned subsidiary of the Company located in Springfield, Massachusetts. Nine employees were injured and there have been three fatalities. The damage was confined to the shell molding area and boiler and other areas of the foundry are operational. Molds are currently being produced at other foundries until repairs are made. Although no lawsuits have been filed, a number of attorneys representing the injured employees have contacted Jahn Foundry regarding possible litigation. In addition, the Occupational Safety and Health Administration ("OSHA") has six months from the date of the accident to issue any citations, sanctions or fines. Such fines and sanctions, if any, could be material to the Company. The Company believes Jahn Foundry was operating in compliance with OSHA rules and regulations. Should OSHA issue any citations in connection with this accident, Jahn Foundry would vigorously defend itself. An investigation continues as to the cause of the explosion by OSHA, the State Fire Marshall and the State Police. The Company and others are conducting their own investigations at the same time. The Company carries insurance for property and casualty damages, business interruption, general liability and workers' compensation. The Company recorded a charge of $450,000 ($750,000 before tax) during the third quarter of fiscal 1999, primarily reflecting the deductibles under the Company's various insurance policies. At this time there can be no assurance that the Company's ultimate costs and expenses resulting from the accident will not exceed available insurance coverage by an amount which could be material to its financial condition or results of operations. 8. Second Amendment to the Amended and Restated Credit Agreement As of April 23, 1999, the Company and its lenders entered into the Second Amendment to the Amended and Restated Credit Agreement (the "Credit Agreement"). The Credit Agreement consists of a $40 million term loan and a $70 million revolving credit facility. This amendment provides that the Company maintain a ratio of earnings before interest, taxes and amortization to fixed charges ("Fixed Charge Coverage Ratio") of at least 1.10, increasing to 1.50 on June 30, 1999, if the Company completes a subordinated debt offering of at least $60 million by June 30, 1999. If the Company does not complete such an offering by June 30, 1999, the amendment provides that the Company maintain a Fixed Charge Coverage Ratio of at least 1.10, increasing to 1.25 on March 31, 2000 and 1.50 on March 31, 2001. The amendment also provides that the Company must maintain a ratio of total senior debt to earnings before interest, taxes, amortization and depreciation of not more than 3.2 prior to the issuance by the Company of any subordinated debt, and not more than 3.0 after the issuance of any subordinated debt. In addition, this amendment provides that the Company may not make acquisitions prior to May 1, 2000 and, from and after May 1, 2000, the Company may not make acquisitions unless the Fixed Charge Coverage Ratio is at least 1.50, among other existing restrictions. Loans under this revolving credit facility will bear interest at fluctuating rates of either: (i) the agent bank's corporate base rate or (ii) LIBOR plus 1.85% subject, in the case of the LIBOR rate option, to a reduction of up to 0.50% (50 basis points) if certain financial ratios are met. Loans under this revolving credit facility may be used for general corporate purposes, permitted acquisitions and approved investments. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS: Net sales for the third quarter of fiscal 1999 were $119.5 million, representing an increase of $27.9 million, or 30.5%, over net sales of $91.6 million in the third quarter of fiscal 1998. The operations acquired by the Company since April 6, 1998 generated net sales in the third quarter of fiscal 1999 as follows:
FY98 3rd Qtr FY99 3rd Qtr Operation Date Acquired Net Sales Net Sales --------- ------------- ------------ -------------- Sheffield Forgemasters Group Limited 04/06/ 98 -- $31.0 million Claremont Foundry, Inc. 05/01/ 98 -- 2.0 million London Precision Machine & Tool Ltd. 09/01/ 98 -- 6.4 million Fonderie d'Autun 02/25/ 99 -- 1.2 million
Excluding net sales generated by the operations acquired since April 6, 1998, net sales for the third quarter of fiscal 1999 were $78.9 million, representing a decrease of $12.7 million, or 13.9%, from net sales of $91.6 million in the third quarter of fiscal 1998. This 13.9% decrease in net sales was due primarily to decreases in net sales to the offshore oil and gas, mining, power generation, agricultural and petrochemical markets, partially offset by an increase in net sales to the rail market. Net sales for the first nine months of fiscal 1999 were $359.1 million, representing an increase of $114.2 million, or 46.6%, over net sales of $244.9 million in the first nine months of fiscal 1998. The operations acquired by the Company since October 6, 1997 generated net sales of $27.5 million and $160.2 million in the first nine months of fiscal 1998 and fiscal 1999, respectively, as follows:
FY98 First Nine FY99 First Nine Months Months Operation Date Acquired Net Sales Net Sales --------- ------------- --------- --------- Inverness Castings Group, Inc. 10/06/97 $27.5 million $ 36.2 million Sheffield Forgemasters Group Limited 04/06/98 -- 101.8 Million Claremont Foundry, Inc. 05/01/98 -- 5.5 Million London Precision Machine & Tool Ltd. 09/01/98 -- 15.5 Million Fonderie d'Autun 02/25/99 -- 1.2 Million
Excluding net sales generated by the operations acquired since October 6, 1997, net sales for the first nine months of fiscal 1999 were $198.9 million, representing a decrease of $18.5 million, or 9.1%, from net sales of $217.4 million in the first nine months of fiscal 1998. This 8.5% decrease in net sales was due primarily to decreases in net sales to the offshore oil and gas, steel, mining, power generation, agricultural and petrochemical markets, partially offset by an increase in net sales to the rail market. Gross profit for the third quarter of fiscal 1999 increased by $3.4 million, or 24.2%, to $17.5 million, or 14.7% of net sales, compared to $14.1 million, or 15.4% of net sales, for the third quarter of fiscal 1998. Gross profit for the first nine months of fiscal 1999 increased by $14.2 million, or 39.5%, to $50.2 million, or 14.0% of net sales, compared to $36.0 million, or 14.7% of net sales, for the first nine months of fiscal 1998. The increase in gross profit for both periods was primarily due to increased sales volume levels resulting from the acquisitions of Sheffield Forgemasters Group Limited ("Sheffield") and London Precision Machine and Tool Ltd. ("London Precision"). The contribution from London Precision and improved results at the Company's Amite facility due to increased sales volume levels, improved productivity and reduced employee turnover and training positively impacted gross profit as a percentage of net sales in both periods. Offsetting these factors were: (i) decreased absorption of overhead resulting from lower net sales to the offshore oil and gas, mining, steel, power generation, petrochemical and agricultural markets, (ii) delays in the scheduled delivery of orders by customers in the mining, construction and rail markets, (iii) continued productivity and scrap problems at Inverness Castings Group, Inc. ("Inverness") and Claremont Foundry, Inc. ("Claremont"), (iv) increased warranty costs at Canada Alloy Castings, Ltd. and (v) increased training costs, higher employee turnover and increased overtime due to the generally tight labor markets. In addition, gross profit as a percentage of net sales for the first nine months was impacted by (i) reduced productivity and excessive overtime due to power curtailments under the Company's interruptible electricity contracts resulting from the extreme heat during the first quarter and (ii) higher plant maintenance shutdown costs at Atchison/St. Joe and Prospect Foundry, Inc. ("Prospect"). Selling, general and administrative expense ("SG&A") for the third quarter of fiscal 1999 was $12.7 million, or 10.6% of net sales, compared to $6.3 million, or 6.8% of net sales, in the third quarter of fiscal 1998. For the first nine months of fiscal 1999, SG&A was $35.3 million, or 9.8% of net sales, compared to $18.9 million, or 7.7% of net sales, for the first nine months of fiscal 1998. The increase in SG&A was primarily attributable to expenses associated with the operations acquired by the Company in fiscal 1998 and fiscal 1999. The increase in SG&A as a percentage of net sales for both periods was primarily due to higher average SG&A as a percentage of net sales at Sheffield. Also included in SG&A in both periods was a charge of $750,000 ($450,000 after tax) related to an industrial accident at the Company's subsidiary, Jahn Foundry Corp. ("Jahn") (see Liquidity and Capital Resources). Amortization of certain intangibles for the third quarter of fiscal 1999 was $234,000 or 0.2% of net sales, as compared to $231,000 or 0.3% of net sales, in the third quarter of fiscal 1998. Amortization of certain intangibles for the first nine months of fiscal 1999 was $803,000 or 0.2% of net sales, as compared to $637,000, or 0.3% of net sales, for the first nine months of fiscal 1998. The intangible assets consist of goodwill recorded in connection with certain of the Company's acquisitions. In connection with the acquisition of London Precision, the Company recorded approximately $8.4 million of goodwill, which is being amortized over 25 years. Partially offsetting the expense relating to the amortization of these assets is the amortization of the excess acquired net assets over cost (negative goodwill) recorded by the Company in connection with the acquisitions of Canadian Steel Foundries, Ltd. and Founderie d'Autun ("Autun"). Interest expense for the third quarter of fiscal 1999 increased to $2.2 million or 1.8% of net sales, from $841,000, or 0.9% of net sales, in the third quarter of fiscal 1998. For the first nine months of fiscal 1999, interest expense increased to $6.3 million, or 1.8% of net sales, from $2.1 million, or 0.9% of net sales, in the first nine months of fiscal 1998. The increase in interest expense reflects an increase in the average amount of outstanding indebtedness primarily incurred to finance the Company's acquisitions. Income tax expense for the third quarter of fiscal 1999 reflected the combined federal, state and provincial statutory rate of approximately 45.5%, which is higher than the combined federal, state and provincial statutory rate because of the provision for tax benefits at lower effective rates on losses at certain subsidiaries. Income tax expense for the first nine months of fiscal 1999 reflected the combined federal, state and provincial statutory rate of approximately 43.5%. Income tax expense for the third quarter and first nine months of fiscal 1998 reflected the combined federal, state and provincial statutory rate of approximately 41.5%. The Company's combined effective tax rate reflects the different federal, state and provincial statutory rates of the various jurisdictions in which the Company operates, and the proportion of taxable income earned in each of those tax jurisdictions. As a result of the foregoing, net income for the third quarter of fiscal 1999 was $1.3 million, compared to net income of $3.9 million for the third quarter of fiscal 1998. Net income for the first nine months of fiscal 1999 was $4.3 million, compared to net income of $8.1 million for the first nine months of fiscal 1998. Excluding the charge related to the industrial accident at Jahn, net income for the third quarter and the first nine months would have been $1.7 million and $4.8 million, respectively. LIQUIDITY AND CAPITAL RESOURCES: Cash provided by operating activities for the first nine months of fiscal 1999 was $15.2 million, an increase of $10.1 million from the first nine months of fiscal 1998. This increase was primarily attributable to decreased working capital requirements primarily relating to accounts receivable balances. Working capital was $71.6 million at March 31, 1999, as compared to $76.8 million at June 30, 1998. The decrease primarily resulted from decreased accounts receivable balances and a $2.9 million increase in the current maturities of the Company's existing outstanding indebtedness, partially offset by net additional working capital of $1.5 million associated with the acquisitions of London Precision and Autun. During the first nine months of fiscal 1999, the Company made capital expenditures of $16.9 million, as compared to $13.2 million for the first nine months of fiscal 1998. Included in the first nine months of fiscal 1999 were capital expenditures of $2.1 million on upgrading the 1,500 ton forging press to 2,500 tons at Sheffield. Included in the first nine months of fiscal 1998 were capital expenditures of $1.6 million on a new sand reclamation system at the Atchison/St. Joe Division and $2.7 million on a new mold line at Prospect. The balance of capital expenditures in both periods was used for routine projects at each of the Company's facilities. The Company expects to reduce its capital expenditures in fiscal 1999 from its budget of $25.0 million to approximately $21.0 million. On August 12, 1998, the Company announced that its Board of Directors had authorized a stock repurchase program of up to 1.2 million common shares of its then outstanding 8.2 million common shares. The stock repurchases may be made from time to time at prevailing prices in the open market or in privately negotiated transactions, depending on market conditions, the price of Company's common stock and other factors. The Company will make such stock repurchases using internally generated funds and borrowings under its credit facility. The Company's Note Purchase Agreement allows repurchases of up to nearly $6.2 million of Company common stock during fiscal 1999. Any share repurchases will be added to the Company's treasury shares and will be available for reissuance in connection with the Company's acquisitions, employee benefit plans or for other corporate purposes. Through March 31, 1999, the Company had repurchased 586,700 shares at a cost of $6.0 million. On October 7, 1998, the Company and its bank entered into the First Amendment to the Amended and Restated Credit Agreement ("the Credit Agreement"). The Credit Agreement consists of a $40 million term loan and a $70 million revolving credit facility. This amendment permits the Company to repurchase up to $24 million of its common stock, subject to a limitation of $10 million in any fiscal year unless certain financial ratios are met, and provides for an option to increase the revolving portion of the credit facility to $100 million if the Company issues senior subordinated notes. Proceeds from the issuance of any senior subordinated notes must be used to permanently pre-pay the $40 million term loan portion of the credit facility. As of April 23, 1999, the Company and its lenders entered into the Second Amendment to the Credit Agreement. This amendment provides that the Company maintain a ratio of earnings before interest, taxes and amortization to fixed charges ("Fixed Charge Coverage Ratio") of at least 1.10, increasing to 1.50 on June 30, 1999, if the Company completes a subordinated debt offering of at least $60 million by June 30, 1999. If the Company does not complete such an offering by June 30, 1999, the amendment provides that the Company maintain a Fixed Charge Coverage Ratio of at least 1.10, increasing to 1.25 on March 31, 2000 and 1.50 on March 31, 2001. The amendment also provides that the Company must maintain a ratio of total senior debt to earnings before interest, taxes, amortization and depreciation of not more than 3.2 prior to the issuance by the Company of any subordinated debt, and not more than 3.0 after the issuance of any subordinated debt. In addition, this amendment provides that the Company may not make acquisitions prior to May 1, 2000 and, from and after May 1, 2000, the Company may not make acquisitions unless the Fixed Charge Coverage Ratio is at least 1.50, among other existing restrictions. Loans under this revolving credit facility will bear interest at fluctuating rates of either: (i) the agent bank's corporate base rate or (ii) LIBOR plus 1.85% subject, in the case of the LIBOR rate option, to a reduction of up to 0.50% (50 basis points) if certain financial ratios are met. Loans under this revolving credit facility may be used for general corporate purposes, permitted acquisitions and approved investments. The Company previously announced that it was contemplating the issue of up to $100 million of senior subordinated notes through a private placement under Rule 144A, with the expectation that, if completed, the Company would subsequently register substantially similar notes to be offered in exchange for the initial notes by means of a prospectus. Due to market conditions, the Company has decided not to issue such senior subordinated notes. The Company is currently contemplating the issue of $60 million aggregate principal amount of unsecured, senior subordinated notes through a private placement, subject to market conditions. If consummated, the Company would use the net proceeds of the offering to retire its bank term loan and to reduce outstanding borrowings under its revolving credit facility. Total indebtedness of the Company at March 31, 1999 was $108.9 million, as compared to $93.3 million at June 30, 1998. This increase of $15.6 million primarily reflects indebtedness incurred of $13.8 million to finance the acquisition of London Precision and $6.0 million to repurchase 586,700 shares of the Company's common stock. At March 31, 1999, $14.9 million was available for borrowing under the Company's revolving credit facility. Effective September 1, 1998, the Company purchased 90% of the outstanding capital stock of London Precision for U.S. $13.8 million cash. London Precision, located in London, Ontario, Canada, is an industrial machine shop which serves the locomotive, mining and construction, pulp and paper markets, among others. The Company financed this transaction with funds available under its revolving credit facility. On February 25, 1999, Autun, a subsidiary of Atchison Casting UK Limited, a 95% owned subsidiary of the Company, purchased the foundry division assets of Compagnie Internationale du Chauffage ("CICH") located in Autun, France. The Company received U.S. $5.8 million in cash and U.S. $5.5 in inventory in exchange for the assumption of potential environmental and employment liabilities if the facility is ever closed. CICH is a subsidiary of Blue Circle Industries plc, headquartered in London, England. Autun specializes in the manufacture of cast iron radiators and boiler castings. An accident, involving an explosion and fire, occurred on February 25, 1999 at Jahn, a wholly-owned subsidiary of the Company located in Springfield, Massachusetts. Nine employees were injured and there have been three fatalities. The damage was confined to the shell molding area and boiler and other areas of the foundry are operational. Molds are currently being produced at other foundries until repairs are made. Although no lawsuits have been filed, a number of attorneys representing the injured employees have contacted Jahn regarding possible litigation. In addition, the Occupational Safety and Health Administration ("OSHA") has six months from the date of the accident to issue any citations, sanctions or fines. Such fines and sanctions, if any, could be material to the Company. The Company believes Jahn was operating in compliance with OSHA rules and regulations. Should OSHA issue any citations in connection with this accident, Jahn would vigorously defend itself. An investigation continues as to the cause of the explosion by OSHA, the State Fire Marshall and the State Police. The Company and others are conducting their own investigations at the same time. The Company carries insurance for property and casualty damages, business interruption, general liability and workers' compensation. The Company recorded a charge of $450,000 ($750,000 before tax) during the third quarter of fiscal 1999, primarily reflecting the deductibles under the Company's various insurance policies. At this time there can be no assurance that the Company's ultimate costs and expenses resulting from the accident will not exceed available insurance coverage by an amount which could be material to its financial condition or results of operations. The Company believes that its operating cash flow and amounts available for borrowing under its revolving credit facility will be adequate to fund its capital expenditure, working capital requirements and repurchases of the Company's common stock for the next two years. However, the level of capital expenditure and working capital requirements may be greater than currently anticipated as a result of the size and timing of future acquisitions, or as a result of unforeseen expenditures relating to compliance with environmental laws. YEAR 2000 COMPUTER ISSUES The Company has conducted a comprehensive review of its hardware and software systems to identify those systems that could be affected by the "Year 2000" issue and has developed an implementation plan to resolve the identified issues. The Company believes that, with replacement or modification of its existing computer systems, updates by vendors and conversion to new software, the Year 2000 issue will not pose significant operational problems for the Company's computer systems. The Company expects to complete implementation of computer systems that are Year 2000 compliant in fiscal 1999, although testing may continue in the first two quarters of fiscal 2000. Based on its review of non-information technology systems to date, the Company does not anticipate the need to develop an extensive contingency plan for such systems or to incur material costs in that regard. The Company relies on a number of customers and suppliers, including banks, telecommunication providers, utilities, and other providers of goods and services. The inability of these third parties to conduct their business for a significant period of time due to the Year 2000 issue could have a material adverse impact on the Company's operations. The Company is currently assessing the Year 2000 compliance of its significant customers and suppliers. To date, the Company has been advised by over two-thirds of its significant customers that they expect to be Year 2000 compliant by the end of calendar 1999. There can be no assurance that the systems of other companies that interact with the Company will be sufficiently Year 2000 compliant. The Company's reliance on single source suppliers, however, is minimal, and the Company seeks to limit sole source supply relationships. The Company, however, has entered into national service agreements for the supply of certain raw materials and freight service from single sources. If the Company does not identify or fix all Year 2000 problems in critical operations, or if a major supplier or customer is unable to supply raw materials or receive the Company's product, the Company's results of operations or financial condition could be materially impacted. Year 2000 project expenditures to date total approximately $1.7 million. The Company expects to incur an additional $850,000 of costs. The Company presently anticipates that it will complete its Year 2000 assessment and remediation by June 30, 1999. However, there can be no assurance that the Company will be successful in implementing its Year 2000 implementation plan according to the anticipated schedule due to the potential lack of availability of trained personnel and their ability to identify relevant computer codes, among other uncertainties. FORWARD-LOOKING STATEMENTS The sections entitled "Liquidity and Capital Resources" and "Year 2000 Computer Issues" contain forward-looking statements that involve a number of risks and uncertainties. Forward-looking statements such as "expects," "intends," "contemplating" and statements pertaining to the adequacy of funding for capital expenditure and working capital requirements for the next two years are not historical in nature. Among the factors that could cause actual results to differ materially from such forward-looking statements include: the size and timing of future acquisitions, business conditions and the state of the general economy, particularly the capital goods industry, the strength of the U.S. dollar, British pound and the Euro, interest rates, the availability of labor, the successful conclusion of various union contract negotiations, the results of the OSHA investigation at Jahn, the competitive environment in the casting industry and changes in laws and regulations that govern the Company's business, particularly environmental regulations. ITEM 3. DISCLOSURES ABOUT MARKET RISK Quantitative and qualitative information about market risk was addressed in Item 7A of the Company's Form 10-K for the fiscal year ended June 30, 1998. There has been no material change to that information required to be disclosed in this Form 10-Q filing. PART II ITEM 1 - Legal Proceedings While under prior ownership, Kramer International, Inc. ("Kramer") was identified as a potentially responsible party ("PRP") with respect to cleanup of a waste disposal site located in Franklin, Wisconsin, which was used by one of Kramer's former subcontractors. The $6 million cleanup of this site has been completed. The PRP who performed the necessary cleanup sued a group of non-performing PRPs, including Kramer, for contribution in Acme Printing Ink Company v. Menard, et al., Case No. 89C834 (E.D. Wis). This case was settled with no cash being paid by Kramer. ITEM 2 - Changes in Securities and Use of Proceeds Unregistered Securities Transactions In lieu of cash compensation for services rendered in his capacity as a Director of the Company, Mr. David Belluck was provided at his election 805 shares of common stock on February 25, 1999, with a then-current market value of $9.94 per share. The transaction is exempt from registration under the Securities Act of 1933, as amended (the "Act"), pursuant to Section 4(2) of the Act. ITEM 3 - Defaults Upon Senior Securities NOT APPLICABLE ITEM 4 - Submission of Matters to a Vote of Security Holders NOT APPLICABLE ITEM 5 - Other Information NOT APPLICABLE ITEM 6 - Exhibits and Reports of Form 8-K (A) Exhibits 4 Second Amendment to Amended and Restated Credit Agreement dated as of April 23, 1999, among the Company, the Banks party thereto, and Harris Trust and Savings Bank, as Agent. 27 Financial Data Schedule (B) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the quarter ended March 31, 1999. * * * * * * * * * * * * * * * * SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Atchison Casting Corporation ---------------------------- (Registrant) DATE: May 11, 1999 /s/ HUGH H. AIKEN ------------------------------- Hugh H. Aiken, Chairman of the Board, President and Chief Executive Officer DATE: May 11, 1999 /s/ KEVIN T. MCDERMED ---------------------------------- Kevin T. McDermed, Vice President, Chief Financial Officer, Treasurer and Secretary EX-4 2 EXHIBIT 4 SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT This Second Amendment to Amended and Restated Credit Agreement (the "AMENDMENT") dated as of April 23, 1999 among Atchison Casting Corporation (the "BORROWER"), the Banks, and Harris Trust and Savings Bank, as Agent; W I T N E S S E T H: WHEREAS, the Borrower, Guarantors, Banks and Harris Trust and Savings Bank, as Agent, have heretofore executed and delivered an Amended and Restated Credit Agreement dated as of April 3, 1998 (as amended by the First Amendment thereto dated October 7, 1998, the "CREDIT AGREEMENT"); and WHEREAS, the parties hereto desire to amend the Credit Agreement as provided herein; NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree that the Credit Agreement shall be and hereby is amended as follows: 1. The definition of "EUROCURRENCY MARGIN" appearing in Section 1.3(b) of the Credit Agreement is hereby amended in its entirety and as so amended shall read as follows: "EUROCURRENCY MARGIN" means (A) 1.35% per annum for any Pricing Period for which Level I Status exists, (B) 1.60% per annum for any Pricing Period for which Level II Status exists, and (C) 1.85% per annum for any Pricing Period for which Level III Status exists. 2. Section 5.12(b) of the Credit Agreement is hereby amended in its entirety and as so amended shall read as follows: (b) To the best of the Borrower's knowledge, except as disclosed on Schedule 5.12 hereto, the business and operations of the Borrower and each Subsidiary comply in all respects with all Environmental Laws and Environmental Permits received thereunder, except where the failure to comply would not (individually or in the aggregate) have a Material Adverse Effect. 3. Section 7.15(e) of the Credit Agreement is hereby amended in its entirety and as so amended shall read as follows: (e) FIXED CHARGE COVERAGE RATIO. (i) If the Borrower issues at least $60,000,000 of Subordinated Debt on or prior to June 30, 1999, the Borrower will not, as of the last day of each fiscal quarter of the Borrower ending during each of the periods specified below permit the Fixed Charge Coverage Ratio to be less than :
FROM AND TO AND FIXED CHARGE INCLUDING INCLUDING COVERAGE RATIO SHALL NOT BE LESS THAN: March 31, 1999 June 29, 1999 1.10 June 30, 1999 Thereafter 1.50
(ii) If the Borrower issues less than $60,000,000 of Subordinated Debt on or prior to June 30, 1999, the Borrower will not, as of the last day of each fiscal quarter of the Borrower ending during each of the periods specified below permit the Fixed Charge Coverage Ratio to be less than :
FROM AND TO AND FIXED CHARGE INCLUDING INCLUDING COVERAGE RATIO SHALL NOT BE LESS THAN: March 31, 1999 March 30, 2000 1.10 March 31, 2000 March 30, 2001 1.25 March 31, 2001 Thereafter 1.50
4. Section 7.15(f) of the Credit Agreement is hereby amended in its entirety and as so amended shall read as follows: (f) CASH FLOW LEVERAGE RATIO. The Borrower will not on any date permit (i)(A) prior to the date of the issuance of any Subordinated Debt, the ratio of Consolidated Total Senior Debt to EBITDA for the four fiscal quarters of the Borrower then ended to be greater than 3.2 to 1.0, or (B) from and after the date of the issuance of any Subordinated Debt, the ratio of Consolidated Total Senior Debt to EBITDA for the four fiscal quarters of the Borrower then ended to be greater than 3.0 to 1.0, or (ii) the ratio of Consolidated Total Debt to EBITDA for the four fiscal quarters of the Borrower then ended to be greater than 3.5 to 1.0. 5. Section 7.18(d) of the Credit Agreement is hereby amended in its entirety and as so amended shall be as follows: (d) the Borrower and its Subsidiaries may make and own Investments in any Subsidiary of the Borrower or, from and after May 1, 2000 make and own or enter into any agreement to make or own Investments, in any Person which simultaneously therewith becomes a Subsidiary provided that such Person is engaged primarily in the foundry business or in businesses reasonably related thereto and (A) concurrently with or before -2- consummation of such acquisition, the Borrower delivers to the Agent a certificate of the Chief Financial Officer, Controller or Treasurer of the Borrower certifying that immediately upon and following the consummation of such acquisition, the Borrower, on a PRO FORMA basis (assuming such acquisition had been consummated on the first day of the most recently ended period of four fiscal quarters for which financial statements have been or are required to have been delivered pursuant to Section 7.6), the Borrower would have a Fixed Charge Coverage Ratio of at least 1.50 to 1.00 and (B) either (i) at the time of such acquisition and after giving effect thereto the Borrower's ratio of Consolidated Total Debt to Total Capitalization does not exceed 40% (the "40% THRESHOLD") or (ii) once the 40% Threshold has been exceeded in that fiscal year, the total aggregate principal amount expended for all acquisitions thereafter in such fiscal year does not exceed 25% of the Stockholder's Equity of the Borrower as of the last day of the immediately preceding fiscal year of the Borrower PLUS 25% of the net proceeds (net proceeds for such purposes to mean gross proceeds less reasonable underwriting discounts and commissions and other reasonable costs directly incurred and payable as a result thereof) received by the Borrower from the issuance of additional equity or Subordinated Debt during the fiscal year of the proposed acquisition; and 6. Schedule 5.6(a) to the Credit Agreement is hereby amended in its entirety to read as Schedule 5.6(a) attached to this Amendment. 7. A new Schedule 5.12 to the Credit Agreement is hereby added to the Credit Agreement immediately following Schedule 5.6(a) in the form of Schedule 5.12 to this Amendment. 8. The Borrower represents and warrants to each Bank and the Agent that (a) each of the representations and warranties set forth in Section 5 of the Credit Agreement is true and correct on and as of the date of this Amendment as if made on and as of the date hereof and as if each reference therein to the Credit Agreement referred to the Credit Agreement as amended hereby; (b) no Default and no Event of Default has occurred and is continuing; and (c) without limiting the effect of the foregoing, the Borrower's execution, delivery and performance of this Amendment have been duly authorized, and this Amendment has been executed and delivered by duly authorized officers of the Borrower. 9. This Amendment shall become effective upon satisfaction of the following conditions precedent: (i) the Borrower, the Banks, and the Agent shall have executed and delivered this Amendment and the Guarantors shall have executed the consent attached hereto; -3- (ii) receipt by the Agent of the favorable written opinion of Blackwell Sanders Peper Martin LLP, legal counsel to the Borrower, in form and substance satisfactory to the Agent; and (iii) the Administrative Agent shall have received for each Bank an amendment fee in the amount of 0.10 % of each such Bank's Commitment. The revisions to the Eurocurrency Margin shall take effect with respect to any Loan outstanding on June 30, 1999 and on each day thereafter, but any payment of interest due on or after June 30, 1999 with respect to any Loans outstanding prior thereto shall be computed on the basis of the Eurocurrency Margin in effect prior to such effectiveness. This Amendment may be executed in any number of counterparts and by different parties hereto on separate counterpart signature pages, each of which when so executed shall be an original but all of which shall constitute one and the same instrument. Except as specifically amended and modified hereby, all of the terms and conditions of the Credit Agreement and the other Credit Documents shall remain unchanged and in full force and effect. All references to the Credit Agreement in any document shall be deemed to be references to the Credit Agreement as amended hereby. All capitalized terms used herein without definition shall have the same meaning herein as they have in the Credit Agreement. This Amendment shall be construed and governed by and in accordance with the internal laws of the State of Illinois. -4- Dated as of the date first above written. ATCHISON CASTING CORPORATION By: /s/ Kevin T. McDermed --------------------------------- Title: V.P. & Treasurer ------------------------------ HARRIS TRUST AND SAVINGS BANK, in its individual capacity as a Bank and as Agent By: /s/ Len Myer --------------------------------- Title: Vice President ------------------------------ COMMERCE BANK, N.A. By: /s/ Jeffrey R. Gray --------------------------------- Title: Vice President ------------------------------ MERCANTILE BANK By: /s/ Barry Sullivan --------------------------------- Title: Vice President ------------------------------ KEY BANK NATIONAL ASSOCIATION By: /s/ Sharon F. Weinstein --------------------------------- Title: Vice President ------------------------------ -5- COMERICA BANK By: /s/ Jeff Peck --------------------------------- Title: Vice President ------------------------------ HIBERNIA NATIONAL BANK By: /s/ Troy J. Villafarra --------------------------------- Title: Senior Vice President ------------------------------ NATIONAL WESTMINSTER BANK PLC Nassau Branch By: /s/ Martin Kelly --------------------------------- Title: Senior Corporate Manager ------------------------------ New York Branch By: /s/ Martin Kelly --------------------------------- Title: Senior Corporate Manager ------------------------------ NORWEST BANK MINNESOTA, N.A. By: /s/ R. Duncan Sinclair --------------------------------- Title: V.P. ------------------------------ -6- SCHEDULE 5.6(a) LITIGATION An accident, involving an explosion and fire, occurred on February 25, 1999 at Jahn Foundry, a wholly-owned subsidiary of the Borrower located in Springfield, Massachusetts. Nine employees were injured and there have been three fatalitites. The damage was confined to the shell molding area and boiler and other areas of the foundry are operational. Molds are currently being produced at other foundries until repairs are made. Although no lawsuits have been filed, a number of attorneys representing the injured employees have contacted Jahn Foundry regarding possible litigation. In addition, the Occupational Safety and Health Administration ("OSHA") has six months from the date of the accident to issue any citations, sanctions or fines. Such fines and sanctions, if any, could be material to the Borrower. The Borrower believes Jahn Foundry was operating in compliance with OSHA rules and regulations. Should OSHA issue any citations in connection with this accident, Jahn Foundry would vigorously defend itself. An investigation continues as to the cause of the explosion by OSHA, the State Fire Marshall and the State Police. The Borrower and others are conducting their own investigations at the same time. The Borrower carries insurance for property and casualty damages, business interruption, general liability and workers' compensation. The Borrower recorded a charge of $450,000 ($750,000 before tax) during the third quarter of fiscal 1999, primarily reflecting the deductibles under the Borrower's various insurance policies. At this time there can be no assurance that the Borrower's ultimate costs and expenses resulting from the accident will not exceed available insurance coverage by an amount which could be material to its financial condition or results of operations. SCHEDULE 5.12 COMPLIANCE WITH LAWS Jahn Foundry Corp. is under investigation for the incident described in Schedule 5.6(a). The results of the investigation, when known, may conclude that one or more Environmental Laws were violated in connection with the incident. EX-27 3 EXHIBIT 27
5 1,000 9-MOS JUN-30-1999 JUL-01-1998 MAR-31-1999 10,930 0 83,392 470 71,123 13,368 194,748 44,383 376,868 109,386 0 0 0 83 139,448 376,868 359,064 359,064 308,861 36,102 110 0 6,284 7,707 3,397 4,310 0 0 0 4,310 .55 .55
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