-----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, IlWDXqODoVuUgngBRLiDOFmfMLahVD2UxSi30XYEDktWNm/hHs1Z0Ixa4p5VcuKS SYPsgkZ4n5lcez7LZGL49A== 0001104659-03-002489.txt : 20030214 0001104659-03-002489.hdr.sgml : 20030214 20030214144019 ACCESSION NUMBER: 0001104659-03-002489 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030214 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: KS FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12541 FILM NUMBER: 03566470 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 j7632_10q.htm 10-Q

 

FORM 10-Q

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

(Mark One)

 

 

 

ý

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended December 31, 2002

 

 

 

OR

 

 

 

o

 

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 incorporation
or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

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 o No ý

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the exchange act).

Yes o No ý

 

There were 7,723,031 shares of common stock, $.01 par value per share, outstanding on February 14, 2003

 

 



 

PART I

 

ITEM 1.  Financial Statements.

 

ATCHISON CASTING CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

 

 

December 31,
2002

 

June 30,
2002

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

1,466

 

$

1,583

 

Customer accounts receivable, net of allowance for doubtful accounts of $664 and $1,248, respectively

 

53,361

 

64,943

 

Income tax refund receivable

 

 

1,604

 

Inventories

 

48,355

 

48,885

 

Deferred income taxes

 

2,479

 

2,250

 

Other current assets

 

10,214

 

10,182

 

Current assets of discontinued operations

 

3,280

 

5,193

 

 

 

 

 

 

 

Total current assets

 

119,155

 

134,640

 

 

 

 

 

 

 

 

 

 

 

 

 

PROPERTY, PLANT AND EQUIPMENT, Net

 

84,588

 

91,670

 

 

 

 

 

 

 

GOODWILL, Net

 

1,400

 

19,107

 

 

 

 

 

 

 

DEFERRED FINANCING COSTS, Net

 

974

 

1,209

 

 

 

 

 

 

 

OTHER ASSETS

 

16,599

 

17,086

 

 

 

 

 

 

 

NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS

 

3,861

 

5,735

 

 

 

 

 

 

 

TOTAL  ASSETS

 

$

226,577

 

$

269,447

 

 

See Notes to Consolidated Financial Statements.

 

2



 

 

 

December 31,
2002

 

June 30,
2002

 

 

 

(Unaudited)

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable

 

$

44,159

 

$

42,082

 

Accrued expenses

 

34,192

 

41,978

 

Current maturities of long-term debt

 

115,042

 

97,958

 

Current liabilities of discontinued operations

 

3,300

 

4,501

 

 

 

 

 

 

 

Total current liabilities

 

196,693

 

186,519

 

 

 

 

 

 

 

LONG-TERM DEBT

 

1,222

 

20,662

 

 

 

 

 

 

 

DEFERRED INCOME TAXES

 

3,142

 

3,443

 

 

 

 

 

 

 

OTHER LONG-TERM OBLIGATIONS

 

1,313

 

264

 

 

 

 

 

 

 

POSTRETIREMENT OBLIGATIONS OTHER THAN PENSION

 

11,761

 

11,183

 

 

 

 

 

 

 

MINORITY INTEREST IN SUBSIDIARIES

 

366

 

516

 

 

 

 

 

 

 

Total liabilities

 

214,497

 

222,587

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

 

 

 

Preferred stock, $.01 par value, 2,000,000 authorized shares; no shares issued

 

 

 

 

 

 

 

 

 

Common stock, $.01 par value, 19,300,000 authorized shares; 8,312,049 shares issued

 

83

 

83

 

 

 

 

 

 

 

Class A common stock (non-voting), $.01 par value, 700,000 authorized shares; no shares issued

 

 

 

 

 

 

 

 

 

Additional paid-in capital

 

81,613

 

81,613

 

 

 

 

 

 

 

Accumulated deficit

 

(58,885

)

(22,217

)

 

 

 

 

 

 

Accumulated other comprehensive loss

 

(4,683

)

(6,571

)

 

 

 

 

 

 

Less shares held in treasury:

 

 

 

 

 

Common stock, 589,018 shares, at cost

 

(6,048

)

(6,048

)

 

 

 

 

 

 

Total stockholders’ equity

 

12,080

 

46,860

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

226,577

 

$

269,447

 

 

See Notes to Consolidated Financial Statements.

 

3



 

ATCHISON CASTING CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except share data)

 

 

 

Three Months Ended
December 31,

 

Six Months Ended
December 31,

 

 

 

2002

 

2001

 

2002

 

2001

 

 

 

 

 

 

 

 

 

 

 

NET SALES

 

$

77,209

 

$

93,721

 

$

153,333

 

$

186,510

 

 

 

 

 

 

 

 

 

 

 

COST OF GOODS SOLD

 

70,759

 

85,489

 

141,411

 

171,442

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

6,450

 

8,232

 

11,922

 

15,068

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

8,470

 

10,334

 

16,816

 

18,961

 

 

 

 

 

 

 

 

 

 

 

Impairment and restructuring charges

 

4,427

 

 

5,938

 

 

 

 

 

 

 

 

 

 

 

 

Amortization of intangibles

 

 

(140

)

 

(280

)

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

12,897

 

10,194

 

22,754

 

18,681

 

 

 

 

 

 

 

 

 

 

 

OPERATING LOSS

 

(6,447

)

(1,962

)

(10,832

)

(3,613

)

 

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE

 

2,462

 

2,887

 

4,951

 

5,549

 

 

 

 

 

 

 

 

 

 

 

MINORITY INTEREST IN NET LOSS OF SUBSIDIARIES

 

(21

)

(10

)

(54

)

(38

)

 

 

 

 

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE

 

(8,888

)

(4,839

)

(15,729

)

(9,124

)

 

 

 

 

 

 

 

 

 

 

INCOME TAX EXPENSE

 

3

 

175

 

32

 

356

 

 

 

 

 

 

 

 

 

 

 

CUMULATIVE EFFECT OF ACCOUNTING CHANGE

 

 

 

(17,441

)

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS

 

$

(8,891

)

$

(5,014

)

$

(33,202

)

$

(9,480

)

 

 

 

 

 

 

 

 

 

 

LOSS FROM DISCONTINUED OPERATIONS, NET OF TAX

 

(1,470

)

(678

)

(3,466

)

(695

)

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

$

(10,361

)

$

(5,692

)

$

(36,668

)

$

(10,175

)

 

 

 

 

 

 

 

 

 

 

NET LOSS PER SHARE - BASIC AND DILUTED

 

 

 

 

 

 

 

 

 

CONTINUING OPERATIONS BEFORE ACCOUNTING CHANGE

 

$

(1.15

)

$

(0.63

)

$

(2.04

)

$

(1.18

)

CUMULATIVE EFFECT OF ACCOUNTING CHANGE

 

$

0.00

 

$

0.00

 

$

(2.26

)

$

0.00

 

DISCONTINUED OPERATIONS

 

$

(0.19

)

$

(0.09

)

$

(0.45

)

$

(0.09

)

NET LOSS PER SHARE - BASIC AND DILUTED

 

$

(1.34

)

$

(0.74

)

$

(4.75

)

$

(1.32

)

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE NUMBER OF SHARES USED IN CALCULATION - BASIC AND DILUTED

 

7,723,031

 

7,723,031

 

7,723,031

 

7,710,032

 

 

See Notes to Consolidated Financial Statements.

 

4



 

ATCHISON CASTING CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited)

(In thousands)

 

 

 

Three Months Ended
December 31,

 

Six Months Ended
December 31,

 

 

 

2002

 

2001

 

2002

 

2001

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

$

(10,361

)

$

(5,692

)

$

(36,668

)

$

(10,175

)

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

1,452

 

(1,209

)

1,888

 

188

 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE LOSS

 

$

(8,909

)

$

(6,901

)

$

(34,780

)

$

(9,987

)

 

See Notes to Consolidated Financial Statements.

 

5



 

ATCHISON CASTING CORPORATION AND SUBSIDIARIES

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Six Months Ended
December 31,

 

 

 

2002

 

2001

 

 

 

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net loss

 

$

(36,668

)

$

(10,175

)

 

 

 

 

 

 

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation and amortization

 

5,363

 

5,281

 

Cumulative effect of accounting change

 

17,441

 

 

Minority interest in net loss of subsidiaries

 

(54

)

(38

)

Impairment and restructuring charges

 

5,938

 

 

Gain on disposal of capital assets

 

(3

)

(113

)

Deferred income tax expense (benefit)

 

3

 

(20

)

Changes in assets and liabilities:

 

 

 

 

 

Customer accounts receivable

 

12,524

 

11,475

 

Income tax refund receivable

 

1,604

 

 

Inventories

 

1,274

 

(3,046

)

Other current assets

 

31

 

1,458

 

Accounts payable

 

999

 

(6,299

)

Accrued expenses

 

(8,359

)

(1,800

)

Postretirement obligations other than pension

 

578

 

579

 

Other

 

420

 

(1,151

)

Operating activities of discontined operations

 

3,123

 

762

 

Cash provided by (used in) operating activities

 

4,214

 

(3,087

)

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

(1,863

)

(1,910

)

Proceeds from sale of capital assets

 

15

 

180

 

Proceeds from sale of net assets of a subsidiary operation

 

 

293

 

Payments for purchase of stock in subsidiaries

 

(94

)

(42

)

Captial expenditures of discontinued operations

 

(18

)

(114

)

Cash used in investing activities

 

(1,960

)

(1,593

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

Payments on long-term debt

 

(452

)

(4,982

)

Capitalized financing costs paid

 

(47

)

(1,341

)

Net (repayments) borrowings under revolving credit facilities

 

(2,785

)

11,624

 

Advances to parent from discontinued operations

 

881

 

47

 

Cash (used in) provided by financing activities

 

(2,403

)

5,348

 

 

 

 

 

 

 

EFFECT OF EXCHANGE RATE ON CASH

 

32

 

25

 

 

 

 

 

 

 

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

 

(117

)

693

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, Beginning of period

 

$

1,583

 

$

1,329

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, End of period

 

$

1,466

 

$

2,022

 

 

See Notes to Consolidated Financial Statements.

 

6



 

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 Atchison Casting Corporation and subsidiaries (the “Company”) for the year ended June 30, 2002, as included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2002.

 

The accompanying unaudited consolidated financial statements include all adjustments (consisting only of normal recurring accruals), which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and cash flows.  Results of operations for interim periods are not necessarily indicative of results to be expected for a full year.

 

Certain December 31, 2001 amounts have been reclassified to conform with December 31, 2002 classifications.  In addition, the financial statements have been reclassified to present the Company’s Kramer International, Inc. (“Kramer”) and LaGrange Foundry Inc. (“LaGrange Foundry”) subsidiaries as discontinued operations for all periods presented, as described in footnote 6.

 

2.                                     Inventories

 

 

 

As of

 

 

 

Dec. 31,
2002

 

June 30,
2002

 

 

 

(Thousands)

 

 

 

 

 

 

 

Raw materials

 

$

5,683

 

$

6,403

 

Work-in-process

 

33,769

 

31,572

 

Finished goods

 

8,382

 

10,758

 

Supplies

 

1,692

 

1,982

 

 

 

$

49,526

 

$

50,715

 

 

The above amounts include inventories related to discontinued operations of $ 1.2 million and $1.8 million as of December 31, 2002 and June 30, 2002, respectively.

 

7



 

3.             Income Taxes

 

Income tax expense (benefit) consisted of:

 

 

 

Six Months Ended
December 31,

 

 

 

2002

 

2001

 

 

 

(Thousands)

 

 

 

 

 

 

 

Current:

 

 

 

 

 

Domestic

 

$

 

$

 

Foreign

 

29

 

376

 

 

 

29

 

376

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred:

 

 

 

 

 

Domestic

 

 

 

Foreign

 

3

 

(20

)

 

 

3

 

(20

)

 

 

 

 

 

 

Total

 

$

32

 

$

356

 

 

4.             Supplemental Cash Flow Information

 

 

 

Six Months Ended
December 31,

 

 

 

2002

 

2001

 

 

 

(Thousands)

 

 

 

 

 

 

 

Cash paid (received) during the period for:

 

 

 

 

 

Interest

 

$

4,772

 

$

6,051

 

Income Taxes

 

$

(1,836

)

$

(2,247

)

 

8



 

5.             New Accounting Standards

 

As previously disclosed, the Company adopted Statement of Financial Accounting Standard (“SFAS”) No. 142 and No. 144 effective July 1, 2002. SFAS No. 142 requires that, upon adoption, amortization of goodwill ceases and, instead be evaluated annually for impairment. SFAS No. 144 superceded SFAS No. 121 and established accounting standards for long-lived assets. In addition, SFAS No. 144 requires that reporting units and asset groups disposed of or, in certain instances, to be disposed of be presented as discontinued operations. The adoption of these two accounting standards has materially impacted the Company’s financial statements for the three and six-month periods ended December 31, 2002 and 2001 as follows:

 

                    The Company’s closure of the La Grange Foundry facility and the sale of the Kramer facility (see footnote 6) has, pursuant to the provisions of SFAS No. 144, resulted in the presentation of their assets, liabilities and results of operations as discontinued operations in the accompanying consolidated financial statements.

 

                    Based upon the Company’s analysis of the carrying values of long-lived assets pursuant to the provisions of SFAS No. 144, property, plant and equipment of The G&C Foundry Company (“G & C”) and Canada Alloy Casting, Ltd. (“Canada Alloy”) have been reduced. The significant factors considered in determining the appropriate carrying value of these assets included the Company’s current intent, as described in footnote 7, to sell those businesses.

 

                    As required by SFAS No. 142, the Company has completed the first phase of its goodwill impairment analysis. That analysis indicated that the goodwill associated with certain of its subsidiaries is impaired. Although the second phase of the analysis to determine the amount of the impairment as required by SFAS No. 142 is not yet complete, the Company has reduced the carrying value of such goodwill by approximately $19.0 million as follows:

 

9



 

Subsidiary

 

Before

 

After

 

G & C

 

$

3.6 million

 

 

Inverness Castings Group, Inc.

 

3.9 million

 

 

Prospect Foundry, Inc.

 

4.6 million

 

 

London Precision Machine & Tool

 

6.7 million

 

$

1.4 million

 

Subtotal

 

$

18.8 million

 

$

1.4 million

 

Kramer International, Inc.

 

3.2 million

 

1.6 million

 

Total

 

$

22.0 million

 

$

3.0 million

 

 

The reduction of the carrying value of Kramer’s goodwill of $1.6 million is included in discontinued operations. The reduction of the carrying values of the other subsidiaries’ goodwill aggregating $17.4 million has been recorded as a cumulative effect of a change in accounting principles. The Company will complete the second phase of its analysis prior to June 30, 2003. Further adjustment of the remaining balance of goodwill may be needed after the analysis is complete.

 

The Company also adopted SFAS No. 143 and No. 145 effective July 1, 2002 and SFAS No. 146 effective January 1, 2003. The adoption of these new standards is not expected to significantly affect the Company’s financial statements.

 

6.                                       Discontinued Operations

 

Kramer

 

On January 3, 2003, the Company completed the sale of substantially all of the net assets, excluding the land and buildings, of Kramer.  Prior to post-closing adjustments, the Company received approximately $3.9 million in cash in exchange for assets and the assumption of liabilities by the buyer.  $450,000 of the proceeds are subject to an escrow agreement.  Substantially all of the remaining cash was used to make required payments to creditors (see footnote 9).  Contemporaneous with the sale transaction, the Company entered into an agreement to lease the land and buildings to the buyer for a period of up to two years, subject to cancellation by the buyer at any time.

 

In the first quarter of fiscal 2003, the Company recognized an impairment charge of $1.6 million to write-down the carrying amount of goodwill at Kramer to the Company’s estimate of fair value, which is presented in the Company’s consolidated financial statements as a portion of the cumulative effect of the change in accounting principle.  The Company considered its decision to realign its operations, resulting in its intent to dispose of Kramer as the primary indicator of impairment.  Prior to the impairment charge, the goodwill had a carrying value of $3.2 million.  For the second quarter of fiscal years 2002 and 2003, Kramer recorded net sales of

 

10



 

$2.6 million and $2.2 million, respectively, and net income (loss) of $293,000 and $(136,000), respectively.  For the first half of fiscal years 2002 and 2003, Kramer recorded net sales of $5.4 million and $4.4 million, respectively, and net income (loss) of $618,000 and $(3,000), respectively, excluding the impairment charge discussed above.

 

As of December 31, 2002, Kramer had total assets of approximately $5.8 million, consisting of approximately $1.6 million of accounts receivable; approximately $835,000 of inventory; approximately $1.7 million of property, plant and equipment, net; and approximately $1.6 million of goodwill; and total liabilities of approximately $1.3 million, consisting of approximately $926,000 of accounts payable and approximately $399,000 of accrued expenses.

 

As a result of the sale, Kramer was considered as discontinued operations in accordance with SFAS No. 144.

 

LaGrange Foundry

 

Following losses in fiscal 2002, the Company’s Board of Directors committed to a plan to downsize La Grange Foundry to a pattern repair, maintenance and storage operation.  During the second quarter of fiscal 2003, the Company’s Board of Directors committed to a plan for the complete closure of La Grange Foundry that was completed during the second quarter of fiscal 2003.  In connection with the closure of LaGrange Foundry, the Company recorded a restructuring charge, in the second quarter of fiscal 2003, of approximately $520,000 relating to the guarantee of LaGrange Foundry’s obligations under certain equipment leases.

 

For the second quarter of fiscal years 2002 and 2003, La Grange recorded net sales of $3.7 million and $1.0 million, respectively, and net losses of $1.0 million and $814,000, respectively.  For the first six months of fiscal years 2002 and 2003, La Grange Foundry recorded net sales of $7.8 million and $3.3 million, respectively, and net losses of $1.3 million and $1.3 million, respectively, excluding the restructuring charge discussed above in the fiscal 2003 periods.

 

The Company will recognize certain other exit costs associated with the closure of La Grange Foundry in fiscal 2003 related to employee termination costs.  The Company terminated approximately 135 employees and will recognize a charge for severance benefits of approximately $73,000 during fiscal 2003.

 

As a result of the closure, LaGrange was considered as discontinued operations in accordance with SFAS No. 144.

 

11



 

The results of Kramer and LaGrange have been reported in discontinued operations for the three-month and six-month periods ended December 31, 2002 and 2001 in the Consolidated Statement of Operations.  The Current Assets of Discontinued Operations at December 31, 2002 were made up of Customer Accounts Receivable of approximately $1.9 million and Inventories of approximately $1.2 million and Other Current Assets of approximately $200,000.  The Non-Current Assets of Discontinued Operations at December 31, 2002 were made up of property, plant and equipment, net, of approximately $2.3 million and goodwill of approximately $1.6 million.  The Current Liabilities of Discontinued Operations at December 31, 2002 were made of Accounts Payable of approximately $1.8 million and Accrued Expenses of approximately $1.5 million.

 

Unaudited operating results of LaGrange and Kramer for the three-month and six-month periods ended December 31, 2002 and 2001, which are presented as discontinued operations in the accompanying consolidated statements of operations for all periods presented were as follows:

 

 

 

Three Months Ended
December 31,

 

Six Months Ended
December 31,

 

 

 

2002

 

2001

 

2002

 

2001

 

Sales

 

$

3,172

 

$

6,350

 

$

7,630

 

$

13,175

 

Cost of Sales

 

3,755

 

6,417

 

8,204

 

12,653

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

(583

)

(67

)

(574

)

522

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

367

 

566

 

772

 

1,126

 

Impairment and restructuring charges

 

520

 

 

520

 

 

Amortization of intangibles

 

 

45

 

 

91

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

887

 

611

 

1,292

 

1,217

 

 

 

 

 

 

 

 

 

 

 

Loss before interest and taxes

 

(1,470

)

(678

)

(1,866

)

(695

)

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before taxes

 

(1,470

)

(678

)

(1,866

)

(695

)

 

 

 

 

 

 

 

 

 

 

Cumulative effect of accounting change

 

 

 

(1,600

)

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations

 

$

(1,470

)

$

(678

)

$

(3,466

)

$

(695

)

 

7.                                       Potential Sale of Canada Alloy Castings and The G & C Foundry Co.

 

The Company is negotiating the sale of substantially all of the net assets of Canada Alloy and G & C to a single buyer.  There can be no assurance that a definitive agreement will ultimately be

 

12



 

executed.  If executed and consummated, it is anticipated that this transaction will close during the second half of fiscal 2003.  Pursuant to the provisions of SFAS No. 144, the assets, liabilities and operations of G & C and Canada Alloy are not presented as discontinued operations in the accompanying consolidated financial statements.  If the transaction is completed during fiscal 2003, the results of these operations will be reclassified into discontinued operations.

 

In the second quarter of fiscal 2003, the Company recognized an impairment charge of $8.0 million, consisting of $4.4 million to write-down the property, plant and equipment of Canada Alloy and G & C and $3.6 million to write-down the carrying amount of the goodwill at G & C to the Company’s estimate of fair value.  The $3.6 million write-down of Goodwill is presented in the Company’s consolidated financial statements as a portion of the cumulative effect of a change in accounting principle.  The Company considered its decision to realign its operations, resulting in its intent to dispose of Canada Alloy and G & C in its estimate of future cash flows for purposes of assessing impairment of these long-lived assets.  Prior to the impairment charge, the property, plant and equipment had a carrying value of $7.4 million and the goodwill had a carrying value of $3.6 million.  For the second quarter of fiscal years 2002 and 2003, Canada Alloy recorded net sales of $3.2 million and $2.5 million, respectively, and a net loss of $112,000 and $160,000, respectively.  For the first six months of fiscal years 2002 and 2003, Canada Alloy recorded net sales of $6.6 million and $5.5 million, respectively, and a net loss of $247,000 and $184,000, respectively.  For the second quarter of fiscal years 2002 and 2003, G & C recorded net sales of $3.3 million and $3.0 million, respectively, and a net loss of $291,000 and $213,000, respectively.  For the first six months of fiscal years 2002 and 2003, G & C recorded net sales of $6.7 million and $6.5 million, respectively, and a net loss of $891,000 and $318,000, respectively.

 

As of December 31, 2002, Canada Alloy and G & C had total assets of approximately $8.8 million, consisting of approximately $2.7 million of accounts receivable, approximately $2.6 million of inventory, approximately $300,000 of other current assets, approximately $2.9 million of property, plant and equipment, net, and approximately $300,000 of other assets; and total liabilities of approximately $5.3 million, consisting of approximately $2.8 million of accounts payable, approximately $1.3 million of accrued expenses, and approximately $1.2 million in long-term debt.

 

The assets, liabilities, and operations are included in continuing operations at December 31, 2002 pursuant to the conditions set forth in SFAS No. 144.  If the disposition process for these net

 

13



 

assets continue such that the conditions set forth in SFAS No. 144 for presentation as discontinued operations is met, the related assets, liabilities, and operating results for these foundries will be reclassified as discontinued operations for all periods.

 

8.                                       Sales, Closure or Liquidation of other subsidiaries

 

Prior to fiscal 2003, the Company closed, sold or liquidated several other subsidiaries.  Results of operations of those subsidiaries prior to such actions are included in continuing operations in the accompanying consolidated financial statements pursuant to SFAS No. 144.

 

LA Die Casting

 

On February 20, 2002, the Company completed the sale of substantially all of the net assets of LA Die Casting, Inc. (“LA Die Casting”). For the second quarter of fiscal year 2002, LA Die Casting recorded net income of $16,000 on net sales of $1.7 million.  For the first six months of fiscal 2002, LA Die Casting recorded a net loss of $26,000 on net sales of $3.6 million.

 

Jahn Foundry

 

On December 20, 2001, the Company completed the sale of substantially all of the net assets of Jahn Foundry Corp. (“Jahn Foundry”). After post-closing adjustments, the Company received approximately $300,000 in cash, a minority ownership position in the buyer, New England Iron LLC (“New England Iron”), valued at $325,000 and a note (bearing interest at 6.0% per year) for the principal amount of $475,000 amortizing over 10 years (the “New England Iron Note”) in exchange for assets and the assumption of liabilities by the buyer.  The Company recognized a loss on the sale of approximately $40,000.

 

For the second quarter of fiscal year 2002, Jahn Foundry recorded a net loss of $734,000 on net sales of $1.3 million.  For the first six months of fiscal 2002, Jahn Foundry recorded a net loss of $1.4 million on net sales of $2.9 million.

 

In October 2002, the majority owner of New England Iron notified the Company that it planned to liquidate New England Iron. In the first quarter of fiscal 2003, the Company recorded additional impairment and restructuring charges of approximately $1.5 million in connection with the liquidation of New England Iron.   These charges include:  $325,000 to write off the Company’s minority ownership position in New England Iron, $286,000 to write-down the value of the New England Iron Note to the Company’s estimate of fair value and $900,000 relating to the guarantee of Jahn

 

14



 

Foundry’s obligations under certain equipment lease agreements that had been sublet to New England Iron.

 

Empire Steel

 

The Company substantially completed the closure of Empire Steel, Inc. (“Empire”) by December 31, 2001, and transferred as much work as possible to other locations.  Empire was closed as to commercial work but continues to produce one product for the U.S. Government from time to time. For the second quarter of fiscal years 2002 and 2003, Empire recorded net sales of $1.9 million and $348,000, respectively, and net losses of $224,000 and $400,000, respectively.  For the first six months of fiscal 2002 and 2003, Empire recorded net sales of $4.1 million and $566,000, respectively, and net losses of $776,000 and $679,000, respectively.

 

The Company terminated approximately 106 employees at Empire and recognized a charge for severance benefits of approximately $50,000 in fiscal 2002.

 

Fonderie d’Autun

 

On April 9, 2002, the Company’s French subsidiary, Fonderie d’Autun (“Autun”), filed a voluntary petition for reorganization with the local court in Chalons, France.

 

On September 19, 2002, the court appointed a liquidator to begin the liquidation of Autun.  During the fourth quarter of fiscal 2002, the Company recorded a charge of $567,000 to write off its remaining net investment in Autun and a charge of $3.5 million relating to the Company’s guarantee of Autun’s obligations under certain lease agreements.  Effective April 1, 2002, the Company is no longer consolidating Autun’s results into its consolidated financial statements.

 

As a result of the court’s decision to liquidate the assets of Autun, it is estimated that charges for site cleanup could total up to $8.5 million.  Should Autun not be able to meet the cleanup obligations, the French government might be able to make a claim against the prior owner.  The Company guaranteed payment of certain contingent liabilities of up to 100 million French francs (currently approximately US$16.0 million) when it purchased Autun, for the cost of environmental restoration, if any, in the event Autun were closed and a claim was successfully made against the prior owner.  Such amount has not been recorded in the accompanying financial statements.  These potential contingent liabilities may adversely impact the Company’s ability to proceed with its plans to achieve its financial objectives if they become liabilities of the Company.

 

15



 

For the second quarter of fiscal 2002, Autun recorded net sales of $4.6 million and a net loss of $951,000.  For the first six months of fiscal 2002, Autun recorded net sales of $8.3 million and a net loss of $1.6 million.

 

9.                                       Debt and Financing Arrangements

 

(Dollars in thousands)

 

June 30,
2002

 

December 31,
2002

 

Senior notes with an insurance company

 

$

10,245

 

$

9,895

 

Revolving credit facility with Harris Trust & Savings Bank

 

60,791

 

56,169

 

Term loan between the Company and General Electric Capital Corporation

 

26,542

 

26,542

 

Receivables program and revolving credit facility with Burdale Financial Limited

 

14,178

 

16,727

 

Term loan between G&C and OES Capital, Inc.

 

1,643

 

1,540

 

Term loan between LaGrange and the Missouri Development Finance Board

 

5,100

 

5,100

 

Term loan between the Company and A.I. Credit Corp.

 

121

 

291

 

Subtotal

 

118,620

 

116,264

 

Less amounts classified as current

 

97,958

 

115,042

 

Total long-term debt

 

$

20,662

 

$

1,222

 

 

In September 2001, Atchison Casting UK Limited (“ACUK”), a subsidiary of the Company, ACUK’s subsidiaries, and Burdale Financial Limited (“Burdale”) entered into the Facility Agreement.  This Facility Agreement provides for a facility of up to 25,000,000 British pounds (approximately $40.0 million US), subject to certain eligibility calculations, to be used to fund working capital requirements at Sheffield Forgemasters Group Limited (“Sheffield”), a subsidiary of ACUK. In addition, the Facility Agreement provides security for Sheffield’s foreign currency exchange contracts and performance bond commitments. This facility matures on September 17, 2004 and is secured by substantially all of Sheffield’s assets in the U.K. Loans under this Facility Agreement bear interest at LIBOR plus 2.60% (7.19% at December 31, 2002). As of December 31, 2002, ACUK had drawn approximately $16.7 million under the Facility Agreement. The Facility Agreement contains several covenants, which, among other things, require ACUK to maintain balances under certain eligibility levels.

 

On October 29, 2002, ACUK entered into an amendment of its Facility Agreement to, among other things (a) impose a limit of 10,750,000 British pounds (approximately $17.2 million US) on the aggregate sum at any time of (i) outstanding revolving loans

 

16



 

from Burdale to ACUK plus (ii) accounts receivable purchased from ACUK by Burdale that are not collected (there had previously been no collective limit, though outstanding loans and uncollected receivables each were, and continue to be, subject to independent maximum amounts) and (b) add minimum monthly cash flow and net income covenants and a minimum tangible net worth covenant.

 

ACUK has not been in compliance with those covenants based on results of operations in the second quarter of fiscal 2003 and does not expect to regain compliance. As a result, Burdale has the right to demand payment for the entire balance outstanding under the Facility Agreement. Should Burdale exercise its right to demand immediate payment of the outstanding balance under the Facility Agreement, the Company believes that ACUK would not be able to make such payment under the Facility Agreement. The Company has classified the outstanding borrowings as current in the accompanying consolidated balance sheet as of December 31, 2002.

 

On July 31, 2002, the Company entered into the Thirteenth Amendment and Forbearance Agreement to the Company’s revolving credit facility with Harris Trust and Savings Bank, as agent for several lenders (the “Credit Agreement”), and the Tenth Amendment and Forbearance Agreement to a note purchase agreement under which the Company issued senior notes to an insurance company (the “Note Purchase Agreement”). These amendments, as modified, provided that these lenders would forbear from enforcing their rights with respect to certain existing defaults through October 17, 2002.  Among other things, these amendments provided that the Company would solicit offers for purchase or develop disposition plans for certain subsidiaries and will engage a consulting firm to prepare a valuation analysis and recommended disposition strategy for the Company’s U.K. subsidiaries.  In addition, new covenants regarding minimum cumulative earnings before interest, taxes, depreciation and amortization, capital expenditures and operating cash flow were added.

 

On October 17, 2002, the Company entered into the Fourteenth Amendment and Forbearance Agreement to the Credit Agreement (“Fourteenth Amendment”) and the Eleventh Amendment and Forbearance Agreement to the Note Purchase Agreement (“Eleventh Amendment”).  These amendments provide that these lenders (such lenders, collectively, the “Harris Lenders”) will forbear from enforcing their rights with respect to certain existing defaults through April 3, 2003, subject to certain events that could cause an earlier termination of this forbearance period.  In exchange, the Company agreed, among other things,

 

17



 

(i) to engage an investment banker to solicit offers on Inverness Castings Group, Inc. (“Inverness”); (ii) to enter into an amendment to implement financial covenants by December 13, 2002; and (iii) to prepay the Harris Lenders’ loans in amounts equal to $4.0 million by January 31, 2003 and an additional $7.0 million by February 28, 2003, which the Company is striving to satisfy out of the net proceeds from asset sales (other than inventory and Inverness) and tax refunds.  As of February 13, 2003, the Company had prepaid the Harris Lenders’ loans by approximately $6.4 million.

 

The Company is currently in default of the Fourteenth Amendment and Eleventh Amendment, as the Company and the Harris Lenders have not reached agreement on new financial covenants.  The Company is currently negotiating amendments to the Fourteenth Amendment and Eleventh Amendment that will, among other things, establish new financial covenants relating to capital expenditures, minimum cumulative earnings before interest, taxes, depreciation and amortization and certain legal and restructuring expenses.

 

The Company is also negotiating an amendment to the Cash Collateral Use Agreement between the Company, its U.S. Subsidiaries and the Harris Lenders.  This amendment, among other things, would establish minimum net cash flow covenants for the Company’s La Grange Foundry, Canadian Steel Foundries, Ltd., Empire Steel and PrimeCast, Inc. subsidiaries and for certain affirmative litigation expenses.

 

On October 17, 2002, the Company entered into a Forbearance Agreement and Second Amendment to the Master Security Agreement, as amended on January 24, 2003, and Note with General Electric Capital Corporation (“GECC”) (“GE Financing”), as agent for certain participant lenders (such lenders, collectively, the “GE Lenders”).  This amendment provides that the GE lenders will forbear from enforcing their rights with respect to certain existing defaults through June 29, 2003, subject to earlier termination upon the occurrence of certain defaults, but no longer allows for automatic extensions as originally provided.  The GE Lenders also agreed to allow the Company to make only interest payments through the end of the forbearance period.  In exchange, the Company has agreed to increase the interest rate 25 basis points to 9.30% per year.

 

The termination of the forbearance period in any of the Credit Agreement, Note Purchase Agreement or the Master Security Agreement can result in the termination of the other agreements.  In addition, default under the Facility Agreement could result in

 

18



 

the termination of the Credit Agreement and the Note Purchase Agreement, and in turn, the GE Financing.

 

The Company is currently negotiating with its lenders to extend its current arrangements while it attempts to establish a new credit facility with covenants that the Company believes it will be able to satisfy with additional borrowing capacity.  There are no assurances the Company will be able to establish a restructured or new facility.

 

10.                                 Contingencies

 

An accident involving an explosion and fire occurred on February 25, 1999 at Jahn Foundry, located in Springfield, Massachusetts. Nine employees were seriously injured and there were three fatalities.

 

A civil action has commenced in the Massachusetts Superior State Court on behalf of the estates of deceased workers, their families, injured workers, and their families against the supplier of a chemical compound used in Jahn Foundry’s manufacturing process. The supplier of the chemical compound, Borden Chemical, Inc., filed a Third Party Complaint against Jahn Foundry in the Massachusetts Superior State Court on February 2, 2000 seeking indemnity for any liability it has to the plaintiffs in the civil action. The Company’s comprehensive general liability insurance carrier has retained counsel on behalf of Jahn Foundry and the Company and is aggressively defending Jahn Foundry in the Third Party Complaint. It is too early to assess the potential liability to Jahn Foundry for the Third Party Complaint, which in any event the Jahn Foundry would aggressively defend. In addition, Jahn Foundry has brought a Third Party Counterclaim against Borden and the independent sales representative of the chemical compound, J.R. Oldhan Company, seeking compensation for losses sustained in the explosion, including amounts covered by insurance.

 

The Company dismissed Deloitte & Touche LLP (“Deloitte”) as its auditor on April 16, 2002. On July 26, 2002, the Company filed a complaint against Deloitte in Philadelphia County, Pennsylvania for negligence, professional malpractice, negligent misrepresentation and breach of contract. The Company believes that Deloitte breached its duties to perform audit and consulting services by failing to act with reasonable and ordinary care, with the ordinary skill and diligence of the accounting profession, and in the conformity with the professional standards such as generally accepted auditing standards and generally accepted accounting principles. Deloitte filed a counterclaim

 

19



 

against the Company on September 13, 2002 alleging that the Company was aware of information related to improper activities of certain employees at the Pennsylvania Foundry Group and failed to disclose such information to Deloitte. On September 24, 2002, Deloitte filed a third party claim against certain officers and employees of the Company and others alleging, among other things, that such officers and employees withheld material information in connection with such improper activities. The Company believes that Deloitte’s claims against it and the Company’s officers and employees have no merit and will vigorously defend itself.

 

The Occupational Safety and Health Administration (“OSHA”) cited the Company on September 26, 2002 for 95 alleged violations of Federal Safety and Health regulations at its Atchison, Kansas foundry.  OSHA sought penalties totaling $250,000 in connection with the alleged violations.  At OSHA’s invitation, the Company engaged in settlement negotiations with the agency over the alleged violations.  During the course of settlement discussions, OSHA withdrew some citations it had classified as “serious,” reclassified some “serious” citations to the category “other-than-serious,” and declined to withdraw or modify other citations.  The parties entered into two Informal Settlement Agreements with OSHA whereby OSHA reduced its proposed penalty to $50,000 and the Company agreed to undertake, within one year, abatement of certain conditions relating to the remaining citations.  By entering into the Informal Settlement Agreements, the Company did not admit that it violated the cited standards for any litigation or purpose other than a subsequent proceeding under the Occupational Safety and Health Act.  No subsequent proceeding is pending or anticipated by the Company at this time.  The Company is not able to accurately predict the cost of abatement, but believes it may be as low as approximately $400,000 and as high as approximately $800,000.

 

11.                                 Financial Results and Management’s Plans

 

In fiscal 2002 and the first six months of fiscal 2003, the Company incurred pretax losses of $35.0 million  and $15.8 million, respectively.  The fiscal year 2002 pretax loss included impairment charges related to La Grange Foundry of $5.2 million.  The fiscal year-to-date 2003 pretax loss includes impairment charges related to Jahn Foundry, G&C Foundry, and Canada Alloy of $5.9 million.  As of December 31, 2002, the Company was not in compliance with certain financial covenants included in its primary debt agreements.  These matters raise substantial doubt as to the Company’s ability to continue as a going concern.

 

20



 

To address these conditions, management has taken or is in the process of taking the following actions:

 

OPERATIONS

 

The Company has closed five unprofitable foundries since the beginning of fiscal 2001. Operations from these five foundries have been a significant factor in the Company’s pretax losses. Management has transferred a portion of the work previously performed by these foundries to other foundries, thereby increasing the utilization and profitability of these other foundries.

 

SOLICITATION OF OFFERS ON THREE SUBSIDIARY OPERATIONS

 

The Company is currently soliciting offers to purchase or is engaged in preliminary negotiations to sell the following subsidiaries:

 

•               The G&C Foundry Company

 

•               Canada Alloy Castings, Ltd.

 

•               Inverness Casting Group, Inc.

 

If acceptable offers are  received, the Company expects that the sales of the operations could be completed by the end of fiscal 2003. Any net proceeds will be used primarily to retire outstanding indebtedness.

 

To effect the business model discussed below, the Company must improve its financial condition. Part of the effort includes assessing various opportunities to reduce indebtedness. While each of these three subsidiaries brings certain strengths or capabilities to the Company, they either do not fit well with the new business model or are not operations  in which the Company has elected to direct its resources at this time. However, if acceptable offers are not  received, the Company will continue to work on improving these and all of the Company’s operations, and renegotiating outstanding indebtedness.

 

NEW BUSINESS MODEL

 

To continue as a going concern, attain profitability, and increase market share, management has refined the Company’s business model, consisting of the following key components:

 

                                            Narrow the customer focus to industrial manufacturers, who desire to outsource more manufacturing every year, and the product focus to complex, highly engineered castings.

 

21



 

                                            Grow through more value-added business, such as machining and assembly.

 

                                            More effectively use casting design and simulation technology throughout the Company.

 

                                            Expand ACC Global, a recently formed division devoted to foreign sourcing of castings for customers seeking lower cost global suppliers. ACC Global can provide a customer service by managing this process.

 

The Company believes the success of this new business model depends on improving its financial condition. To accomplish this, the Company must (1) restructure its debt with current or new lenders, and (2) assess each location as to its contribution and develop a plan of disposition or closure if acceptable results in the near term are not feasible.

 

The Company expects that any future growth will result primarily through increasing value-added capability. The Company also hopes to grow through ACC Global as well. For instance, joint ventures with companies identified by ACC Global in low labor cost countries could give rise to a blended source of metal components to industrial manufacturers.

 

While the Company believes this new business model represents a viable plan to achieve its financial objectives, there are no assurances that such plans can be executed as designed or that execution thereof will result in achievement of the Company’s financial objectives. In addition, the Company’s potential contingent liabilities may adversely impact the Company’s ability to proceed with its plans if they become liabilities of the Company.

 

22



 

ITEM 2.

 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF

OPERATIONS AND FINANCIAL CONDITION

 

Results of Operations:

 

Net sales from continuing operations for the second quarter of fiscal 2003 were $77.2 million, representing a decrease of $16.5 million, or 17.6%, from net sales of $93.7 million in the second quarter of fiscal 2002.  Since the beginning of fiscal 2002, Atchison Casting Corporation (the “Company”) has completed the closure of two operations, the sale of two operations and placed one operation into liquidation.  These operations, excluding LaGrange Foundry, Inc. (‘LaGrange”) which has been classified as a discontinued operation, generated net sales of $9.5 million and approximately $300,000 in the second quarter of fiscal 2002 and fiscal 2003, respectively, as follows:

 

Operation

 

FY02 2nd Qtr
Net Sales

 

FY03 2nd Qtr
Net Sales

 

Sale of Jahn Foundry Corp.

 

$

1.3 million

 

 

Closure of Empire Steel Castings, Inc.

 

1.9 million

 

$

0.3 million

 

Sale of Los Angeles Die Casting, Inc.

 

1.7 million

 

 

Liquidation of Fonderie d’Autun

 

4.6 million

 

 

 

 

$

9.5 million

 

$

0.3 million

 

 

Excluding net sales generated by the above operations, net sales for the second quarter of fiscal 2003 were $76.9 million, representing a decrease of $7.3 million, or 8.7%, from net sales of $84.2 million in the second quarter of fiscal 2002.  This 8.7% decrease in net sales was due primarily to decreases in net sales to the mining and power generation markets, partially offset by increases in net sales to the military and rail markets.  Sheffield Forgemasters Group Limited’s (“Sheffield”) net sales for the second quarter of fiscal 2003 decreased $182,000 from net sales in the second quarter of fiscal 2002, reflecting lower net sales to the power generation market.

 

Net sales from continuing operations for the first six months of fiscal 2003 were $153.3 million, representing a decrease of $33.2 million, or 17.8%, from net sales of $186.5 million in the first six months of fiscal 2002.  The operations closed, sold or placed into liquidation since the beginning of fiscal 2002, excluding LaGrange, generated net sales of $18.9 million and approximately $600,000 in the first six months of fiscal 2002 and fiscal 2003, respectively, as follows:

 

23



 

Operation

 

FY02 1st Six Months
Net Sales

 

FY03 1st Six Months
Net Sales

 

Sale of Jahn Foundry Corp.

 

$

2.9 million

 

 

Closure of Empire Steel Castings, Inc.

 

4.1 million

 

$

0.6 million

 

Sale of Los Angeles Die Casting, Inc.

 

3.6 million

 

 

Liquidation of Fonderie d’Autun

 

8.3 million

 

 

 

 

$

18.9 million

 

$

0.6 million

 

 

Excluding net sales generated by the above operations, net sales for the first six months of fiscal 2003 were $152.7 million, representing a decrease of $14.9 million, or 8.9%, from net sales of $167.6 million in the first six months of fiscal 2002.  This 8.9% decrease in net sales was due primarily to decreases in net sales to the mining, power generation and steel markets partially offset by increases in net sales to the military and rail markets.  Sheffield’s net sales for the first six months of fiscal 2003 decreased $4.7 million from net sales in the first six months of fiscal 2002, reflecting lower net sales to the steel and power generation markets.

 

Gross profit from continuing operations for the second quarter of fiscal 2003 decreased $1.7 million, or 20.7%, to $6.5 million, or 8.4% of net sales, compared to $8.2 million, or 8.8% of net sales, for the second quarter of fiscal 2002.  The decrease in gross profit and gross profit as a percentage of net sales was primarily due to lower net sales and reduced absorption of overhead at the Company’s subsidiaries serving the mining and power generation markets and to a change in product mix toward products which have a lower gross profit as a percentage of net sales at the Company’s subsidiary serving the automotive market.

 

Gross profit  from continuing operations for  the first six months of fiscal 2003 decreased $3.2 million, or 24.5%, to $11.9 million, or 7.8% of net sales, compared to $15.1 million, or 8.1% of net sales, for the first six months of fiscal 2002.  The decrease in gross profit and gross profit as a percentage of net sales was primarily due to lower net sales and reduced absorption of overhead at the Company’s subsidiaries serving the mining, power generation and steel markets and to a change in product mix toward products which have a lower gross profit as a percentage of net sales at the Company’s subsidiary serving the automotive market.

 

The gross profit at Sheffield in the first six months of fiscal 2003 decreased $887,000, to a gross profit of $2.8 million, or 5.7% of net sales, compared to a gross profit of $3.7 million, or 6.8% of net sales, in the first six months of fiscal 2002, primarily reflecting the impact of the strong British pound and the competitive environment of the markets served by Sheffield on quoted margins.  Partially offsetting these factors was a decrease in the gross losses at the operations closed, sold or liquidated since the beginning of fiscal 2002 by an aggregate of approximately $700,000 from the gross losses at these locations in the first six months of fiscal 2002.

 

Selling, general and administrative expense (“SG&A”) for the second quarter of fiscal 2003 was $8.5 million, or 11.0% of net sales, compared to $10.3 million, or 11.0% of net sales, in the second quarter of fiscal 2002.  The reduction in SG&A expense is primarily due to reductions in staffing and related benefits, and the reduction in SG&A expense at

 

24



 

the facilities the Company has closed, sold or placed into liquidation since the beginning of fiscal 2002.  SG&A expense in the second quarter of fiscal 2003 at the facilities the Company has closed, sold or placed into liquidation decreased by an aggregate of approximately $1.7 million from the second quarter of fiscal 2002.  Also included in the second quarter of fiscal 2002 and fiscal 2003 were expenses of approximately $300,000 and $950,000, respectively, incurred by the Company in pursuing various options to restructure its bank credit facility.

 

For the first six months of fiscal 2003, SG&A was $16.8 million, or 11.0% of net sales, compared to $19.0 million, or 10.2% of net sales, in the first six months of fiscal 2002.  The reduction in SG&A expense is primarily due to reductions in staffing and related benefits, and the reduction in SG&A expense at the facilities the Company has closed, sold or placed into liquidation since the beginning of fiscal 2002.  SG&A expense in the first six months of fiscal 2003 at the facilities the Company has closed, sold or placed into liquidation decreased by an aggregate of approximately $3.1 million from the first six months of fiscal 2002.  Also included in the first six months of fiscal 2002 and fiscal 2003 were expenses of approximately $1.0 million and $1.9 million, respectively, incurred by the Company in pursuing various options to restructure its bank credit facility.

 

The Company has recorded intangible assets, consisting of goodwill, in connection with certain of the Company’s acquisitions.  The Company adopted SFAS No. 142 “Goodwill and Other Intangible Assets” as of July 1, 2002.  SFAS No. 142 requires that, upon adoption, amortization of goodwill cease and instead, the carrying value of goodwill be evaluated for impairment on an annual basis.  Accordingly, there was no amortization of goodwill in the second quarter or first six months of fiscal 2003.   Amortization of goodwill for the second quarter of fiscal 2002 was $264,000, or 0.3% of net sales.  Amortization of goodwill for the first six months of fiscal 2002 was $525,000, or 0.3% of net sales.  The Company had also recorded a liability, consisting of the excess of acquired net assets over cost (“negative goodwill”), in connection with the acquisition of Fonderie d’Autun (“Autun”).  The amortization of negative goodwill was a credit to income in the second quarter of fiscal 2002 of $404,000, or 0.4% of net sales. The amortization of negative goodwill was a credit to income in the first six months of fiscal 2002 of $805,000, or 0.4% of net sales.  Net income for the second quarter and first six months of fiscal 2002 excluding the amortization of goodwill was not significantly different.

 

The Company is negotiating the sale of substantially all of the assets of Canada Alloy Castings, Ltd. (“Canada Alloy”) and The G & C Foundry Co. (“G & C”) to a single buyer.  There can no assurance that a definitive agreement will ultimately be executed.  If executed and consummated, it is anticipated that this transaction will close during second half of fiscal 2003.

 

In the second quarter of fiscal 2003, the Company recognized an impairment charge of $8.0 million, consisting of $4.4 million to write-down the property, plant and equipment of Canada Alloy and G & C and $3.6 million to write-down the carrying amount of the goodwill at G & C to the Company’s estimate of fair value, which is presented in the Company’s consolidated financial statements as the cumulative effect of a change in accounting principle.  The Company considered its decision to realign its operations,

 

25



 

resulting in its intent to dispose of Canada Alloy and G & C as the primary indicator of impairment.  Prior to the impairment charge, the property, plant and equipment had a carrying value of $7.4 million and the goodwill had a carrying value of $3.6 million.  For the second quarter of fiscal years 2002 and 2003, Canada Alloy recorded net sales of $3.2 million and $2.5 million, respectively, and a net loss of $112,000 and $160,000, respectively.  For the first six months of fiscal years 2002 and 2003, Canada Alloy recorded net sales of $6.6 million and $5.5 million, respectively, and a net loss of $247,000 and $184,000, respectively.  For the second quarter of fiscal years 2002 and 2003, G & C recorded net sales of $3.3 million and $3.0 million, respectively, and a net loss of $291,000 and $213,000, respectively.  For the first six months of fiscal years 2002 and 2003, G & C recorded net sales of $6.7 million and $6.5 million, respectively, and a net loss of $891,000 and $318,000, respectively.

 

The Company substantially completed the closure of Empire by December 31, 2001, and transferred as much work as possible to other locations.  Empire was closed as to commercial work, but continues to produce one product for the U.S. Government from time to time.  For the second quarter of fiscal years 2002 and 2003, Empire recorded net sales of $1.9 million and $348,000, respectively, and net losses of $224,000 and $400,000, respectively.  For the first six months of fiscal years 2002 and 2003, Empire recorded net sales of $4.1 million and $566,000, respectively, and net losses of $776,000 and $679,000, respectively.

 

On February 20, 2002, the Company completed the sale of substantially all of the net assets of LA Die Casting, Inc. (“LA Die Casting”).  After post-closing adjustments, the Company received approximately $3.5 million in cash and a note for the principal amount of $259,000 due in two years in exchange for assets and the assumption of liabilities by the buyer.  The note bears interest at the rate of 6.0% per year and requires quarterly payments of interest only during the two-year period.  The Company recognized a loss on the sale of approximately $169,000.  For the second quarter of fiscal year 2002, LA Die Casting recorded net sales of $1.7 million and net income of $16,000.  For the first six months of fiscal year 2002, LA Die Casting recorded net sales of $3.6 million and a net loss of $26,000.

 

On December 20, 2001, the Company completed the sale of substantially all of the net assets of Jahn Foundry. After post-closing adjustments, the Company received approximately $300,000 in cash, a minority ownership position in the buyer, New England Iron LLC (“New England Iron”), valued at $325,000 and a note (bearing interest at 6.0% per year) for the principal amount of $475,000 amortizing over ten years in exchange for assets and the assumption of liabilities by the buyer.  The Company recognized a loss of the sale of approximately $40,000.  For the second quarter of fiscal year 2002, Jahn Foundry recorded net sales of $1.3 million, and a net loss of $734,000.  For the first six months of fiscal year 2002, Jahn Foundry recorded net sales of $2.9 million, and a net loss of $1.4 million.

 

In October 2002, the majority owner of New England Iron notified the Company that it planned to liquidate New England Iron.  In the first quarter of fiscal 2003, the Company recorded charges of approximately $1.5 million in connection with the liquidation of New England Iron.   These charges include:  $325,000 to write off the Company’s minority ownership position in New England Iron, $286,000 to write-down the value of the New

 

26



 

England Iron promissory note to the Company’s estimate of fair value and $900,000 relating to the guarantee of Jahn Foundry’s obligations under certain equipment lease agreements that had been sublet to New England Iron.

 

Following losses in fiscal 2002, the Company’s Board of Directors committed to a plan to downsize La Grange Foundry to a pattern repair, maintenance and storage operation.  During the second quarter of fiscal 2003, the Company’s Board of Directors committed to a plan for the complete closure of La Grange Foundry that was completed during the second quarter of fiscal 2003.  In connection with the closure of LaGrange Foundry, the Company recorded a restructuring charge, in the second quarter of fiscal 2003, of approximately $520,000 relating to the guarantee of LaGrange Foundry’s obligations under certain equipment leases.

 

For the second quarter of fiscal years 2002 and 2003, La Grange recorded net sales of $3.7 million and $1.0 million, respectively, and net losses of $1.0 million and $814,000, respectively.  For the first six months of fiscal years 2002 and 2003, La Grange Foundry recorded net sales of $7.8 million and $3.3 million, respectively, and net losses of $1.3 million and $1.3 million, respectively, excluding the restructuring charge discussed above in the fiscal 2003 periods.

 

On January 3, 2003, the Company completed the sale of substantially all of the net assets, excluding the land and buildings, of Kramer International, Inc. (“Kramer”).  Prior to post-closing adjustments, the Company received approximately $3.9 million in cash in exchange for assets and the assumption of liabilities by the buyer.  $450,000 of the proceeds are subject to an escrow agreement.  Contemporaneous with the sale transaction, the Company entered into an agreement to lease the land and buildings to the buyer for a period of up to two years, subject to cancellation by the buyer at any time.

 

In the first quarter of fiscal 2003, the Company recognized an impairment charge of $1.6 million to write-down the carrying amount of goodwill at Kramer to the Company’s estimate of fair value, which is presented in the Company’s consolidated financial statements as a portion of the cumulative effect of the change in accounting principle.  The Company considered its decision to realign its operations, resulting in its intent to dispose of Kramer as the primary indicator of impairment.  Prior to the impairment charge, the goodwill had a carrying value of $3.2 million.  For the second quarter of fiscal years 2002 and 2003, Kramer recorded net sales of $2.6 million and $2.2 million, respectively, and net income (loss) of $293,000 and $(136,000), respectively.  For the first six months of fiscal years 2002 and 2003, Kramer recorded net sales of $5.4 million and $4.4 million, respectively, and net income (loss) of $618,000 and $(3,000), respectively, excluding the impairment charge discussed above.

 

Interest expense for the second quarter of fiscal 2003 was $2.5 million, or 3.0% of net sales, compared to $2.9 million, or 3.0% of net sales, in the second quarter of fiscal 2002. Interest expense for the first six months of fiscal 2003 was $5.0 million, or 3.0% of net sales, compared to $5.5 million, or 2.9% of net sales, in the first six months of fiscal 2002.   The decrease in interest expense during both periods primarily reflects lower average levels of outstanding indebtedness.

 

27



 

The Company recorded income tax expense of $3,000 and $175,000 in the second quarter of fiscal 2003 and fiscal 2002, respectively.  The Company recorded income tax expense of $32,000 and $356,000 in the first six months of fiscal 2003 and fiscal 2002, respectively.  Due to the Company’s current income tax position, no income tax benefit was recorded in connection with the losses incurred by the Company in the United States and Europe.

 

Effective July 1, 2002, the Company adopted SFAS 142, “Goodwill and Other Intangible Assets.”  The Company was required to complete its goodwill impairment analysis by December 31, 2002. If the analysis indicates that the goodwill is impaired, writedowns are required once the amount can be determined, but no later than June 30, 2003.  The Company has recorded a SFAS 142 goodwill impairment loss of $19.0 million, which is presented in the Company’s consolidated financial statements for the six months ended December 31, 2002 as the cumulative effect of a change in accounting principle.  Such loss will be reflected in the Company’s results for the first fiscal quarter ended September 30, 2002.

 

As discussed in Footnote 6, “Discontinued Operations,” the Company completed the sale of substantially all the net assets, excluding the land and buildings, of Kramer on January 3, 2003 and completed the closure of LaGrange during the second quarter of fiscal 2003.   The results of Kramer and LaGrange have been reported in discontinued operations for the three-month and six-month periods ended December 31, 2002 and 2001 in the Consolidated Statement of Operations.

 

28



 

Unaudited operating results of Kramer and LaGrange for the three-month and six-month periods ended December 31, 2002 and 2001 were as follows:

 

 

 

Three Months Ended
December 31,

 

Six Months Ended
December 31,

 

 

 

2002

 

2001

 

2002

 

2001

 

Sales

 

$

3,172

 

$

6,350

 

$

7,630

 

$

13,175

 

Cost of Sales

 

3,755

 

6,417

 

8,204

 

12,653

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

(583

)

(67

)

(574

)

522

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

367

 

566

 

772

 

1,126

 

Impairment and restructuring charges

 

520

 

 

520

 

 

Amortization of intangibles

 

 

45

 

 

91

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

887

 

611

 

1,292

 

1,217

 

 

 

 

 

 

 

 

 

 

 

Loss before interest and taxes

 

(1,470

)

(678

)

(1,866

)

(695

)

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before taxes

 

(1,470

)

(678

)

(1,866

)

(695

)

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cumulative effect of accounting change

 

 

 

 

 

(1,600

)

 

 

 

 

 

 

 

 

 

 

 

 

Loss from discontinued operations

 

$

(1,470

)

$

(678

)

$

(3,466

)

$

(695

)

 

For the second quarter of fiscal 2003, the loss from discontinued operations increased $792,000 to approximately $1.5 million compared to a loss of $678,000 in the second quarter of fiscal 2002, primarily reflecting a restructuring charge of approximately $520,000 relating to LaGrange’s Foundry’s obligations under certain equipment leases.  For the first six months of fiscal 2003, the loss from discontinued operations increased approximately $2.8 million to approximately $3.5 million, compared to a loss of $695,000 from the first six months of fiscal 2002.  The increase primarily reflects (i) the $520,000 restructuring charge recorded at LaGrange Foundry, (ii) a $1.6 million goodwill impairment charge recorded at Kramer and presented as a cumulative effect of accounting change, and (iii) reduced gross profits at Kramer (see notes 5 and 6 to the Consolidated Financial Statements above).

 

As a result of the foregoing, the net loss for the second quarter of fiscal 2003 was $10.4 million compared to a net loss of $5.7 million for the first quarter of fiscal 2002.  The net loss for the first six months of fiscal 2003 was $36.7 million compared to a net loss of $10.2 million for the first six months of fiscal 2002.

 

Liquidity and Capital Resources:

 

Cash provided by operating activities for the first six months of fiscal 2003 was $4.2 million ($4.5 million provided by continuing operations and $323,000 used in discontinued operations), compared to cash used in operations of $3.1 million ($3.2 million used in continuing operations and $67,000 provided by discontinued operations) for the first six months of fiscal 2002.  This increase primarily reflects reduced working capital requirements and the collection of an income tax refund.

 

Working capital was a negative $77.5 million at December 31, 2002, as compared to a negative $51.9 million at June 30, 2002.  The change in working capital levels primarily

 

29



 

reflects a decrease in trade receivable balances and the reclassification of $16.7 million and $5.1 million in debt under the Facility Agreement and the Term Loan between LaGrange Foundry and the Missouri Development Finance Board (“LaGrange IRB”), respectively, as current at December 31, 2002.  The working capital levels also reflect the classification of $92.6 million and $97.6 million of the Company’s bank credit facility, term loan and senior notes as current at December 31, 2002 and June 30, 2002, respectively.  The Company is not in compliance with certain financial covenants under the Credit Agreement, Note Purchase Agreement, Facility Agreement and the GE Financing, as defined below, and, accordingly, such amounts outstanding under such arrangements have been classified as current liabilities.

 

As discussed above, the Company has closed LaGrange Foundry.  As a result of the closure, the $5.1 million of debt under the LaGrange IRB has been classified as current at December 31, 2002.  The LaGrange IRB is secured by a letter of credit issued under the Company’s revolving credit facility.

 

During the first six months of fiscal 2003, the Company made capital expenditures of $1.9 million, as compared to $2.0 million for the first six months of fiscal 2002.  The capital expenditures in both periods were used for routine projects at the Company’s facilities.

 

As discussed above, the Company has sold substantially all of the net assets of Jahn Foundry, LA Die Casting and Kramer International.  The Company is currently soliciting offers to purchase or engaged in preliminary negotiations to sell the following subsidiaries:

 

                                            The G&C Foundry Company

                                            Canada Alloy Castings, Ltd.

                                            Inverness Castings Group, Inc.

 

If acceptable offers are received  the Company expects that the sales of the operations could be completed by the end of fiscal 2003, although there are no assurances of such.  Any net proceeds will be used primarily to retire outstanding indebtedness.

 

The G&C Foundry Company, located in Sandusky, Ohio, manufactures gray and ductile iron castings for hydraulic applications.  G&C currently employs approximately 140 people, and generated net sales of approximately $13.6 million and $6.5 million in fiscal 2002 and the first six months of fiscal 2003, respectively.

 

Canada Alloy, located in Kitchener, Ontario, Canada, manufactures stainless, carbon and alloy castings for a variety of markets.  Canada Alloy currently employs approximately 110 people, and generated net sales of approximately $13.6 million and $5.5 million  in fiscal 2002 and the first six months of fiscal 2003, respectively.

 

Inverness Castings Group, located in Dowagiac, Michigan, manufactures aluminum die castings for the automotive, furniture and appliance markets.  Inverness currently employs approximately 240 people, and generated net sales of approximately $51.3 million and $22.2 million in fiscal 2002 and the first six months of fiscal 2003, respectively.

 

30



 

The Company has four primary credit facilities: a revolving credit facility with Harris Trust and Savings Bank, as agent for several lenders (the “Credit Agreement”); senior notes (the “Notes”) with an insurance company issued under a note purchase agreement (the “Note Purchase Agreement”); a term loan with General Electric Capital Corporation (the “GE Financing”); and a receivables program combined with a revolving credit facility with Burdale Financial Limited pursuant to a facility agreement (the “Facility Agreement”).  Each of these facilities require compliance with various covenants, including, but not limited to, financial covenants related to equity levels, cash flow requirements, fixed charge coverage ratios and ratios of debt to equity.

 

The Credit Agreement, as amended, currently consists of a $63.6 million revolving credit facility. Asset sales and tax refunds have been used to reduce indebtedness.  In addition to financial covenants, the Credit Agreement contains restrictions on, among other things, acquisitions, additional indebtedness and the use of net proceeds from the sale of assets (other than inventory), insurance settlements and other non-recurring items.  Secured by substantially all of the Company’s North American assets and a pledge of ACUK’s stock, loans under this revolving credit facility bear interest at a fluctuating rate of the agent bank’s corporate base rate plus 2.0% (6.25% at December 31, 2002).

 

At December 31, 2002, Notes with an aggregate principal amount of $9.9 million were outstanding with interest accruing at 10.44% per year.  The Note Purchase Agreement provides for annual principal payments of $2.9 million. The Company did not make principal payments due on July 31, 2001 and July 31, 2002.  The Notes are secured by the same assets that secure the Credit Agreement and contain similar restrictions to those described above under the Credit Agreement.

 

On July 31, 2002, the Company entered into the Thirteenth Amendment and Forbearance Agreement to the Credit Agreement and the Tenth Amendment and Forbearance Agreement to the Note Purchase Agreement.  These amendments, as modified, provided that these lenders would forbear from enforcing their rights with respect to certain existing defaults through October 17, 2002.  Among other things, these amendments provided that the Company will solicit offers for purchase or develop disposition plans for certain subsidiaries and will engage a consulting firm to prepare a valuation analysis and recommended disposition strategy for the Company’s U.K. subsidiaries.  New covenants regarding minimum cumulative earnings before interest, taxes, depreciation and amortization, capital expenditures and operating cash flow were added.

 

On October 17, 2002, the Company entered into the Fourteenth Amendment and Forbearance Agreement to the Credit Agreement (“Fourteenth Amendment”) and the Eleventh Amendment and Forbearance Agreement (“Eleventh Amendment”) to the Note Purchase Agreement.  These amendments provide that these lenders (such lenders, collectively, the “Harris Lenders”) will forbear from enforcing their rights with respect to certain existing defaults through April 3, 2003, subject to certain events that could cause an earlier termination of this forbearance period.  In exchange, the Company agreed, among other things, (i) to engage an investment banker to solicit offers on Inverness; (ii) to enter into an amendment to implement financial covenants by December 13, 2002;

 

31



 

and (iii) to prepay the Harris Lenders’ loans in amounts equal to $4.0 million by January 31, 2003 and an additional $7.0 million by February 28, 2003, which the Company is striving to satisfy out of the net proceeds from asset sales (other than inventory and Inverness) and tax refunds.  As of February 13, 2003, the Company had prepaid the Harris Lenders’ loans by approximately $6.4 million.

 

The Company is currently negotiating amendments to the Fourteenth Amendment and Eleventh Amendment that is expected to establish, among other things, new financial covenants relating to capital expenditures, minimum cumulative earnings before interest, taxes, depreciation and amortization and certain legal and restructuring expenses. The Company is also negotiating an amendment to Cash Collateral Use Agreement between the Company, its U.S. Subsidiaries and the Harris Lenders.  This amendment, among other things, is expected to establish minimum net cash flow covenants for the Company’s La Grange Foundry, Canadian Steel Foundries, Ltd., Empire Steel and PrimeCast, Inc. subsidiaries and for certain affirmative litigation expenses.

 

At December 31, 2002, the balance of the term loan under the GE Financing was $26.5 million.   The GE Financing is secured by certain of the Company’s fixed assets, real estate, equipment, furniture and fixtures located in Atchison, Kansas and St. Joseph, Missouri, matures in December 2004 and currently bears interest at a fixed rate of 9.30% per year.

 

On October 17, 2002, the Company entered into the Forbearance Agreement and Second Amendment to the Master Security Agreement and Note (the “Forbearance Agreement”) with General Electric Capital Corporation (“GECC”), as agent for certain participant lenders (such lenders, collectively, the “GE Lenders”).  The Forbearance Agreement, as amended on January 24, 2003, provides that the GE Lenders will forbear from enforcing their rights with respect to certain existing defaults through June 29, 2003, subject to earlier termination upon the occurrence of certain defaults, but no longer allows for automatic extensions as originally provided.  The GE Lenders also agreed to allow the Company to make only interest payments through the end of the forbearance period.  In exchange, the Company has agreed to increase the interest rate 25 basis points to 9.30% per year.

 

The termination of the forbearance period in any of the Credit Agreement, Note Purchase Agreement or the Master Security Agreement can result in the termination of the other agreements.  In addition, default under the Facility Agreement could result in the termination of the Credit Agreement and the Note Purchase Agreement, and in turn, the GE Financing.

 

In September 2001, ACUK, a subsidiary of the Company, ACUK’s subsidiaries, and Burdale Financial Limited (“Burdale”) entered into the Facility Agreement.  This Facility Agreement provides for a facility of up to 25,000,000 British pounds (approximately $40.0 million US), subject to certain eligibility calculations, to be used to fund working capital requirements at Sheffield, a subsidiary of ACUK. In addition, the Facility Agreement provides security for Sheffield’s foreign currency exchange contracts and performance bond commitments. This facility matures on September 17, 2004 and is secured by substantially all of Sheffield’s assets in the U.K. Loans under this Facility

 

32



 

Agreement bear interest at LIBOR plus 2.60% (7.19% at December 31, 2002). As of December 31, 2002, ACUK had drawn approximately $16.7 million under the Facility Agreement. The Facility Agreement contains several covenants, which, among other things, require ACUK to maintain balances under certain eligibility levels.

 

On October 29, 2002, ACUK entered into an amendment of its Facility Agreement to, among other things, (a) impose a limit of 10,750,000 British pounds (approximately $17.2 million US) on the aggregate sum at any time of (i) outstanding revolving loans from Burdale to ACUK plus (ii) accounts receivable purchased from ACUK by Burdale that are not collected (there had previously been no collective limit, though outstanding loans and uncollected receivables each were, and continue to be, subject to independent maximum amounts) and (b) add minimum monthly cash flow and net income covenants and a minimum tangible net worth covenant.

 

ACUK has not been in compliance with those covenants based on results of operations in the second quarter of fiscal 2003 and does not expect to regain compliance. Accordingly, the Company has classified the outstanding borrowings as current in the accompanying consolidated balance sheet as of December 31, 2002.

 

The Company is in default under the Credit Agreement, Note Purchase Agreement, the GE Financing and Facility Agreement. To date, the lenders have not enforced their rights with respect to certain events of default, but there can be no assurance that they will not do so in the future.  During much of fiscal 2001, fiscal 2002 and to date in fiscal 2003, the Company borrowed the full amount of the revolving credit facility under the Credit Agreement and managed its cash position accordingly.  To date, the Company has been able to meet its cash needs by traditional cash management procedures in addition to:  (1) the collection of tax refunds resulting from operating losses at U.S. operations, (2) accelerated collections of receivables from certain longstanding customers from time to time, (3) the reduction of expenses after closing and selling certain locations operating with a negative cash flow, (4) the reduction of discretionary capital expenditures, and (5) funds available through the Facility Agreement, particularly for its operations in the U.K.  The Company is also seeking the recovery under various insurance policies for losses due to the accounting irregularities at the Pennsylvania Foundry Group and the industrial accident at Jahn Foundry.  In addition, the Company is pursuing other responsible parties.  There can be no assurance that such actions will be successful in recovering funds or that they will allow the Company to operate without additional borrowing capacity.

 

Compliance with certain financial covenants under the Credit Agreement, Note Purchase Agreement and the GE Financing is determined on a “trailing-twelve-month” basis. The results through December were below results needed to achieve compliance with these covenants under the Credit Agreement, Note Purchase Agreement and the GE Financing.  Accordingly, the Company is currently negotiating with its existing lenders to extend its current arrangements while it attempts to establish a new credit facility with covenants that the Company believes it will be able to satisfy with additional borrowing capacity.  During the past several years, the Company has been able to negotiate operating flexibility with its lenders, although future success in achieving any such renegotiations or refinancings, or the specific terms thereof, including interest rates, capital expenditure limits or borrowing capacity, cannot be assured.  The

 

33



 

Company believes that its operating cash flow and amounts available for borrowing under its existing credit facility will be adequate to fund its capital expenditure and working capital requirements in North America through April 3, 2003, the maturity date of the current forbearance agreements under the Credit Agreement and Note Purchase Agreement. The Company will need to refinance or extend these agreements to satisfy its liquidity needs.  However, the level of capital expenditure and working capital requirements may be greater than currently anticipated as a result of unforeseen expenditures such as compliance with environmental laws and the accident at Jahn Foundry.  If the Company fails to amend its financial covenants on terms favorable to the Company, the Company will continue to be in default under such covenants.  Accordingly, the lenders could accelerate the debt under the Credit Agreement, which, in turn, would permit acceleration of the Notes under the Note Purchase Agreement and the indebtedness under the GE Financing. If the lenders accelerate their indebtedness and the Company is unable to locate alternative sources of financing, the Company may be forced to seek protection under the federal bankruptcy laws.

 

The liquidity position of Sheffield in the U.K. is also very tight.  Management of Sheffield does not believe that results of operations will satisfy the monthly financial covenants under the Facility Agreement.  If Sheffield is unable to amend the financial covenants or convince Burdale to forbear from enforcing its rights with respect to this default, Burdale could accelerate the debt under the Facility Agreement, in which case, Sheffield would be forced to consider all available strategic alternatives, including selling all or portions of Sheffield, protection under the bankruptcy laws of the U.K, or an orderly wind-down or liquidation, in which case the Company’s investment in Sheffield would likely be lost.  At December 31, 2002, the Company’s net investment in Sheffield was approximately $53.2 million.  Based on the Company’s valuation analysis, management of Sheffield does not believe that it would be able to sell all or portions of the business on terms that would satisfy all of its creditors.  A default under the Facility Agreement could result in acceleration of indebtedness under the Credit Agreement and Note Purchase Agreement and, in turn, the GE Financing.

 

Total indebtedness of the Company at December 31, 2002 was $116.3 million, as compared to $118.6 million at June 30, 2002. This decrease primarily reflects a reduction in outstanding balances under the Company’s revolving credit facility. At December 31, 2002, the Company had approximately $1.6 million available for borrowing under its revolving credit facility under the Credit Agreement and the Facility Agreement was fully borrowed.

 

At December 31, 2002, the Company had the following contractual cash obligations and other commitments:

 

(in millions)

 

Total

 

Fiscal
2003

 

Fiscal
2004

 

Fiscal
2005

 

Fiscal
2006

 

Fiscal
2007

 

Thereafter

 

Long-term debt

 

$

116.3

 

$

114.9

 

$

.3

 

$

.4

 

$

.4

 

$

.3

 

$

0.0

 

Operating leases

 

17.6

 

5.0

 

4.5

 

3.7

 

2.4

 

1.2

 

.8

 

Lease guarantees

 

4.8

 

3.7

 

.3

 

.3

 

.2

 

.2

 

.1

 

Total

 

$

138.7

 

$

123.6

 

$

5.1

 

$

4.4

 

$

3.0

 

$

1.7

 

$

0.9

 

 

34



 

In addition, the Company had $4.1 million of outstanding letters of credit as of December 31, 2002.

 

As described above the Company is in violation of various financial covenants of  its primary debt agreements.  The Company has entered into amendments and forbearance agreements, which expire in the near term, and, accordingly, such borrowings have been classified as current liabilities in the consolidated financial statements and the table above.  In addition, the Company guaranteed certain operating lease obligations of Autun, Jahn Foundry and LaGrange Foundry.  The guarantees related to Autun may be called by the lessors and, accordingly, are included in the 2003 column above.

 

For a description of material legal proceedings, see Note 10 to the Consolidated Financial Statements above, and Part II, Item 1 “Legal Proceedings” below.

 

Deloitte & Touche LLP (“Deloitte”) has withdrawn its report dated September 28, 2001 covering the Company’s consolidated financial statements as of June 30, 2001 and 2000 and for the years in the three year period ended June 30, 2002.  Management believes that the consolidated financial statements present fairly, in all material respects, the financial position of the Company and its subsidiaries as of June 30, 2001 and 2000, and the results of operations and cash flows for each of the years in the three year period ended June 30, 2001.  The Company has asked its current auditor, KPMG, LLP, to re-audit its financial statements for the fiscal year ended June 30, 2001.

 

Critical Accounting Policies

 

The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  The Company believes its critical accounting policies are as follows:

 

                    Valuation of long-lived assets and goodwill

                    Estimation of potential warranty claims

                    Workers’ compensation and health insurance reserves

                    Pension cost and prepaid pension cost

                    Accounting for income taxes

 

Valuation of Long-lived Assets and Goodwill

 

The Company assesses the impairment of identifiable long-lived assets and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  Factors considered important which could trigger an impairment review include the following:

 

                    significant changes in the strategy of the Company’s overall business;

 

35



 

                    significant underperformance relative to expected historical or projected future operating results;

 

                    significant changes in the sales levels with the key customers served by any subsidiary; and

 

                    significant negative industry or economic trends.

 

Also on July 1, 2002, SFAS No. 144, became effective for the Company.  Among other things, SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of long-lived assets.  SFAS No. 144 requires that an impairment loss be recognized only if the carrying amount of a long-lived asset is not recoverable from its undiscounted cash flow and that any impairment loss be measured as the difference between the carrying amount and the fair value of the asset.  It requires a probability-weighted cash flow estimation approach to deal with situations in which alternative courses of action to recover the carrying amount of a long-lived asset are under consideration.  The Company’s intent to sell G&C and Canada Alloy significantly affect the expected recovery of the carrying values of the long-lived assets in those subsidiaries.  As a result, the Company recorded an impairment charge of $4.4 million to reduce these subsidiaries’ property, plant and equipment to the estimated fair values.

 

On July 1, 2002, Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” became effective for the Company.  As a result, the Company ceased amortizing its goodwill.  Amortization of this goodwill for the second quarter of fiscal 2002 was $264,000, or 0.3% of net sales. Amortization of this goodwill for the first six months of fiscal 2002 was $525,000, or 0.3% of net sales.    In lieu of amortization, the Company is required to perform an initial impairment review of goodwill in fiscal 2003 and an annual impairment review thereafter.   The Company was required to complete the initial review by December 31, 2002. If the initial review indicates that the goodwill is impaired, writedowns are required once the amount can be determined, but no later than June 30, 2003.  During the second quarter and first six months of fiscal 2003 the Company recognized a SFAS No. 142 goodwill impairment loss of $17.4 million and $19.0 million, respectively, which is presented in the Company’s consolidated financial statements as the cumulative effect of a change in accounting principle.

 

Estimation of Potential Warranty Claims

 

The Company warrants that every product will meet a set of specifications, which is mutually agreed upon with each customer.  The Company’s warranty policy provides for the repair or replacement of its products and excludes contingency costs.  The Company maintains reserves for warranty charges based on specific claims made by customers, for which management estimates a final settlement of the claim, and for expected claims not yet received based on historical results, which management believes provides a reasonable indicator and basis for claims not yet received.  Significant management judgments must be made and used in connection with establishing warranty reserves.  Unforeseen circumstances could result in revisions to these estimates that are material to the Company’s financial statements.  The

 

36



 

provision for warranty expense was $6.9 million and $8.0 million at December 31, 2002 and June 30, 2002, respectively.

 

Workers’ Compensation and Employee Health Care Reserves

 

The Company’s U.S. operations primarily self-insure for workers’ compensation and employee health care expense.  The Company bases its reserves for workers’ compensation expense primarily on estimates provided by third-party administrators and its reserves for health care expense on historical claims experience.  Significant management judgments and estimates are made in establishing these reserves.  The Company’s reserve for workers’ compensation and employee health care was $5.4 million and $5.9 million at December 31, 2002 and June 30, 2002, respectively.  At December 31, 2002, the Company had letters of credit aggregating $4.0 million and  deposits of $625,000 which support claims for workers’ compensation benefits.

 

Pension Cost and Prepaid Pension Cost

 

The Company’s pension cost and prepaid pension cost are dependent on assumptions used in calculating such amounts.  These assumptions include discount rates, health care cost trend rates, benefits earned, interest cost, expected return on plan assets, mortality rates and other factors.  In accordance with accounting principles generally accepted in the United States, actual results that differ from the assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense and the recorded asset or obligation in future periods.  While the Company believes that the assumptions used are appropriate, differences in actual experience or changes in assumptions may have a material impact on the Company’s results of operations,  financial position, and cash flows.

 

Accounting for Income Taxes

 

As part of the process of preparing the Company’s consolidated financial statements, the Company is required to estimate its income taxes in each of the jurisdictions in which it operates.  This process involves estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes.  These differences result in deferred tax assets and liabilities, which are included within the Company’s consolidated balance sheet.  The Company must then assess the likelihood that its deferred tax assets will be recovered from future taxable income and to the extent the Company believes that recovery is not likely, the Company must establish a valuation allowance.  To the extent the valuation allowance is established or increased, an expense must be included within the tax provision in the statement of operations.

 

Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against deferred tax assets.  The Company has recorded a valuation allowance against its net deferred tax assets of approximately $40.8 million and $35.2 million as of December 31, 2002 and June 30, 2002, respectively, due to

 

37



 

uncertainties related to the Company’s ability to utilize some of its deferred tax assets, primarily consisting of certain net operating losses carried forward and foreign tax credits, before they expire.  The valuation allowance is based on the Company’s estimates of taxable income by jurisdiction in which it operates and the period over which the deferred tax assets will be recoverable.  In the event that actual results differ from these estimates or the Company adjusts these estimates in future periods, the Company may need to establish an additional valuation allowance, which could materially impact the Company’s financial position and results of operations.

 

The net deferred tax liability as of December 31, 2002 and June 30, 2002 was approximately $663,000 and $1.2 million, net of a valuation allowance of  $40.8 million and $35.2 million, respectively.

 

Forward-Looking Statements

 

The sections entitled “Liquidity and Capital Resources,” “Critical Accounting Policies” and “Market Risk” contains forward-looking statements that involve a number of risks and uncertainties.  Forward-looking statements such as “expects,” “intends,” “contemplating” and statements regarding quarterly fluctuations, statements regarding the adequacy of funding for capital expenditure and working capital requirements and similar expressions that are not historical are forward-looking statements that involve risks and uncertainties.  Such statements include the Company’s expectations as to future performance.  Among the factors that could cause actual results to differ materially from such forward-looking statements are the following: the results of the litigation with Deloitte & Touche LLP, the re-audit of any financial statements, successful sale of subsidiaries for which offers are being solicited, costs of closing or selling foundries, the results of the liquidation of Fonderie d’Autun, the amount of any claims made against Fonderie d’Autun’s prior owner which are the subject of certain guarantees, business conditions and the state of the general economy in Europe and the U.S., particularly the capital goods industry, the strength of the U.S. dollar, British pound sterling and the Euro, interest rates, the Company’s ability to renegotiate or refinance its lending arrangements, continued compliance with the terms of various forbearance agreements with the Company’s lenders, utility rates, the availability of labor, the successful conclusion of union contract negotiations, the results of any litigation arising out of the accident at Jahn Foundry, results of any litigation or regulatory proceedings arising from the accounting irregularities at the Pennsylvania Foundry Group, the competitive environment in the casting industry and changes in laws and regulations that govern the Company’s business, particularly environmental regulations.

 

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ITEM 3.

 

DISCLOSURES ABOUT MARKET RISK

 

Quantitative and qualitative information about market risk as of June 30, 2002 was addressed in Item 7A of the Company’s Form 10-K for the fiscal year ended June 30, 2002.

 

The Company’s primary interest rate exposures relate to its cash and short-term investments, fixed and variable rate debt and interest rate swaps, which are mainly exposed to changes in short-term interest rates (e.g. USD LIBOR). The potential loss in fair values is based on an immediate change in the net present values of the Company’s interest rate-sensitive exposures resulting from a 10% change in interest rates. The potential loss in cash flows and earnings is based on the change in the net interest income/expense over a one-year period due to an immediate 10% change in rates. A hypothetical 10% change in interest rates would have an impact on the Company’s earnings before income tax of approximately $380,000 and $320,000 in the first six months of fiscal 2002 and fiscal 2003, respectively.

 

The Company’s exposure to fluctuations in currency rates against the British pound, Euro, and Canadian dollar result from the Company’s holdings in cash and short-term investments and its historical utilization of foreign currency forward exchange contracts to hedge customer receivables and firm commitments. The potential loss in fair values is based on an immediate change in the U.S. dollar equivalent balances of the Company’s currency exposures due to a 10% shift in exchange rates versus the British pound and Canadian dollar. The potential loss in cash flows and earnings is based on the change in cash flow and earnings over a one-year period resulting from an immediate 10% change in currency exchange rates versus the British pound, Euro and Canadian dollar.  Based on the Company’s holdings of financial instruments at December 31, 2002 and December 31, 2001, a hypothetical 10% depreciation in the British pound, Euro and the Canadian dollar versus all other currencies would have an impact on the Company’s earnings before income tax of approximately $40,000 and $7,000 in the first six months of fiscal 2002 and fiscal 2003, respectively.

 

39



 

ITEM 4.

 

CONTROLS AND PROCEDURES

 

(a)            Evaluation of disclosure controls and procedures

 

Within 90 days prior to the filing date of this report, the Company’s Chief Executive Officer and Chief Financial Officer completed an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-14 of the Securities Exchange Act of 1934 (the “Exchange Act”).  Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer believe that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

 

(b)           Changes in internal controls.

 

There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their most recent evaluation.

 

The Company operates in a decentralized management and operating structure, including financial reporting.  To further enhance internal controls, the Company has centralized its payroll processing for certain North American locations.  In addition, the Company is assessing various software systems to further improve its financial management and reporting functions in the Company’s ongoing efforts to refine its internal control procedures.

 

40



 

PART II

 

ITEM 1.

 

LEGAL PROCEEDINGS

 

The Company is involved in legal proceedings as described in “Part I, Item 3. Legal Proceedings” of the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2002.   Since the end of fiscal 2002, there have been no material developments in previously reported legal proceedings, except as set forth below.

 

The Occupational Safety and Health Administration (“OSHA”) cited the Company on September 26, 2002 for 95 alleged violations of Federal Safety and Health regulations at its Atchison, Kansas foundry.  OSHA sought penalties totaling $250,000 in connection with the alleged violations.  At OSHA’s invitation, the Company engaged in settlement negotiations with the agency over the alleged violations.  During the course of settlement discussions, OSHA withdrew some citations it had classified as “serious,” reclassified some “serious” citations to the category “other-than-serious,” and declined to withdraw or modify other citations.  The parties entered into two Informal Settlement Agreements with OSHA whereby OSHA reduced its proposed penalty to $50,000 and the Company agreed to undertake, within one year, abatement of certain conditions relating to the remaining citations.  By entering into the Informal Settlement Agreements, the Company did not admit that it violated the cited standards for any litigation or purpose other than a subsequent proceeding under the Occupational Safety and Health Act.  No subsequent proceeding is pending or anticipated by the Company at this time.  The Company is not able to accurately predict the cost of abatement, but believes it may be as low as approximately $400,000 and as high as approximately $800,000.

 

In addition to these matters, from time to time, the Company is the subject of legal proceedings, including employee matters, commercial matters, environmental matters and similar claims.  There are no other material claims pending other than those described here and in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2002.  The Company maintains comprehensive general liability insurance, which it believes to be adequate for the continued operation of its business.

 

ITEM 2 -                                                 Changes in Securities and Use of Proceeds

 

NOT APPLICABLE

 

ITEM 3 -                                                 Defaults Upon Senior Securities

 

See Liquidity and Capital Resources above.

 

ITEM 4 -                                                 Submission of Matters to a Vote of Security Holders

 

The Annual Meeting of Stockholders was held on December 12, 2002

 

41



 

Stockholders owning 6,798,779 shares voted in favor of Vladimir Rada as a Class III director.  There were 87,220 shares withheld and 837,032 shares abstained.  Stockholders owning 6,739,753 shares voted in favor of William Bullard as a Class III director.  There were 146,246 shares withheld and 837,032 shares abstained.  Accordingly, Mr. Rada and Mr. Bullard were elected as Class III directors for terms of three years.

 

ITEM 5 -                                                 Other Information

 

In connection with the sale of Kramer International, Inc., James Stott, President of Kramer, resigned his position as an officer of the Company.

 

ITEM 6 -                                                 Exhibits and Reports of Form 8-K

 

(A)           Exhibits

 

4.1                     Master Security Agreement and Note dated as of December 29, 1999, between the Company and General Electric Capital Corporation, for itself and as agent for certain Participants

 

4.2                     Amendment No. 1 to the Master Security Agreement dated as of February 25, 2000 between the Company and General Electric Capital Corporation, for itself and as agent for certain Participants

 

4.3                     Letter agreement dated April 19, 2001 between the Company and General Electric Capital Corporation, for itself and as agent for certain Participants

 

4.4                     Forbearance Agreement and Second Amendment to Master Security Agreement and Note dated as of June 29, 2002, between the Company and General Electric Capital Corporation, for itself and as agent for certain Participants

 

4.5                     First Amendment to Forbearance Agreement dated as of January 24, 2003, between the Company and General Electric Capital Corporation, for itself and as agent for certain Participants

 

99.1(a)  Certification of Chief Executive Officer

 

99.1(b)  Certification of Chief Financial Officer

 

(B)             Reports on Form 8-K

 

42



 

The Company filed a Form 8-K dated October 10, 2002.

 

Items Reported

 

Item 5.                         Other Events

 

The Company announced that its former auditor, Deloitte & Touche LLP, notified the Company that its report dated September 28, 2001 on the consolidated financial statements of the Company and its subsidiaries as of June 30, 2001 and 2000 and for each of the three years in the period ended June 30, 2001 should no longer be relied upon or associated with those consolidated financial statements.

 

Item 7.                         Financial Statements and Exhibits

 

Press Release dated October 10, 2002.

 

The Company filed a Form 8-K dated October 15, 2002.

 

Items Reported

 

Item 5.                         Other Events

 

The Company entered an amendment to the Thirteenth Amendment and Forbearance Agreement in which, among other things, a date to reduce outstanding loan commitments was extended from October 15, 2002 to October 17, 2002.

 

Item 7.                         Financial Statements and Exhibits

 

Letter agreement dated October 15, 2002 modifying the Thirteenth Amendment and Forbearance Agreement.

 

The Company filed a Form 8-K dated October 17, 2002.

 

Items Reported

 

Item 5.                         Other Events

 

The Company issued a press release announcing its fourth quarter and fiscal 2002 earnings results.

 

43



 

Item 7.                         Financial Statements and Exhibits

 

Press release dated October 17, 2002

 

The Company filed a Form 8-K dated October 22, 2002.

 

Items Reported

 

Item 5.                         Other Events

 

The Company issued a press release announcing the extension of its North American credit facilities.

 

Item 7.                         Financial Statements and Exhibits

 

Fourteenth Amendment and Forbearance Agreement to the Credit Agreement dated as of October 17, 2002.

 

Press release dated October 22, 2002.

 

The Company filed a Form 8-K dated November 15, 2002.

 

Items Reported

 

Item 5.                         Other Events

 

The Company issued a press release announcing its first quarter results of fiscal 2003.

 

Item 7.                         Financial Statements and Exhibits

 

Press release dated November 15, 2002.

 

44



 

*  *  *  *  *  *  *  *  *  *  *  *  *  *  *  *

 

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 14, 2003

/s/ Thomas K. Armstrong, Jr.

 

 

Thomas K. Armstrong, Jr.,
Chairman of the Board, President
and Chief Executive Officer

 

 

 

 

 

 

DATE:

February 14, 2003

/s/ Kevin T. McDermed

 

 

Kevin T. McDermed,
Vice President, Chief Financial
Officer, Treasurer and Secretary

 

45



 

CERTIFICATIONS

 

I, Thomas K. Armstrong, Jr., certify that:

 

1.                                       I have reviewed this quarterly report on Form 10-Q of Atchison Casting Corporation;

 

2.                                       Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.                                       Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4.                                       The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

a)                                      designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

b)                                     evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c)                                      presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.                                       The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

 

a)                                      all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

b)                                     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

46



 

6.                                       The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date:  February 14, 2003

 

 

 

 /s/ Thomas K. Armstrong Jr.

 

Thomas K. Armstrong, Jr.

 

Chief Executive Officer

 

(Principal Executive Officer)

 

47



 

I, Kevin T. McDermed, certify that:

 

1.                                       I have reviewed this quarterly report on Form 10-Q of Atchison Casting Corporation;

 

2.                                       Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

 

3.                                       Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

 

4.                                       The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

 

a)                                      designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

 

b)                                     evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

 

c)                                      presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

 

5.                                       The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

 

a)                                      all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

 

b)                                     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

 

48



 

6.                                       The registrant’s other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

Date:  February 14, 2003

 

 

 

/s/ Kevin T. McDermed

 

Kevin T. McDermed

 

Chief Financial Officer

 

(Principal Financial Officer)

 

49


EX-4.1 3 j7632_ex4d1.htm EX-4.1

Exhibit 4.1

 

MASTER SECURITY AGREEMENT

 

THIS MASTER SECURITY AGREEMENT, made as of December 29, 1999 (“Agreement”), by and between General Electric Capital Corporation, for itself and as agent for certain Participants, a New York corporation with an address at 4 North Park Drive, Suite 500, Hunt Valley, Maryland 21030, and its assigns (together with its successors and assigns, if any, “Secured Party”), and Atchison Casting Corporation, a corporation organized and existing under the laws of the State of Kansas with its chief executive offices located at 400 S. Fourth Street, Atchison, Kansas 66002 (“Debtor”).

 

In consideration of the promises herein contained and of certain other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Debtor and Secured Party hereby agree as follows:

 

1.                                      CREATION OF SECURITY INTEREST.

 

Debtor hereby gives, grants and assigns to Secured Party, its successors and assigns forever, a security interest in and against any and all property listed on any collateral schedule now or hereafter annexed hereto or made a part hereof (“Collateral Schedule”), and in and against any and all additions, attachments, accessories and accessions thereto, any and all substitutions, replacements or exchanges therefor, and any and all insurance and/or other proceeds thereof (all of the foregoing being hereinafter individually and collectively referred to as the “Collateral”).  The foregoing security interest is given to secured the payment and performance of any and all debts, obligations and liabilities of any kind, nature or description whatsoever (whether primary, secondary, direct, contingent, sole, joint or several, or otherwise, and whether due or to become due) of Debtor to Secured Party, now existing or hereafter arising, including but not limited to the payment and performance of certain Promissory Notes from time to time identified on any Collateral Schedule (collectively “Notes” and each a “Note”), and any renewals, extensions and modifications of such debts, obligations and liabilities (all of the foregoing being hereinafter referred to as the “Indebtedness”).  Notwithstanding the foregoing, and notwithstanding anything to the contrary contained elsewhere in this Agreement, to the extent that Secured Party asserts a purchase money security interest in any items of Collateral (“PMSI Collateral”):  (i) the PMSI Collateral shall secure only that portion of the Indebtedness which has been advanced by Secured Party to enable Debtor to purchase, or acquire rights in or the use of such PMSI Collateral (the “PMSI Indebtedness”), and (ii) no other Collateral shall secure the PMSI Indebtedness.

 

2.                                      REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR.

 

Debtor hereby represents, warrants and covenants as of the date hereof and as of the date of execution of each Collateral Schedule hereto that:

 

(a)                                  Debtor is, and will remain, duly organized, existing and in good standing under the laws of the State set forth in the first paragraph of this Agreement, has its chief executive offices at the location set forth in such paragraph, and is, and will remain, duly qualified and licensed in every jurisdiction wherever necessary to carry on its business and operations;

 

(b)                                 Debtor has adequate power and capacity to enter into, and to perform its obligations, under this Agreement, each Note and any other documents evidencing, or given in

 



 

connection with, any of the Indebtedness (all of the foregoing being hereinafter referred to as the “Debt Documents”);

 

(c)                                  This Agreement and the other Debt Documents have been duly authorized, executed and delivered by Debtor and constitute legal, valid and binding agreements enforceable under all applicable laws in accordance with their terms, except to the extent that the enforcement of remedies may be limited under applicable bankruptcy and insolvency laws, similar laws affecting creditors generally and general principles of equity;

 

(d)                                 No approval, consent or withholding of objections is required from any governmental authority or instrumentality with respect to the entry into, or performance by, Debtor of any of the Debt Documents, except such as may have already been obtained;

 

(e)                                  The entry into, and performance by, Debtor of the Debt Documents will not (i) violate any of the organizational documents of Debtor or any judgment, order, law or regulation applicable to Debtor, or (ii) result in any breach of, constitute a default under, or result in the creation of any lien, claim or encumbrance on any of Debtor’s property (except for liens in favor of Secured Party) pursuant to any indenture mortgage, deed of trust, bank loan, credit agreement, or other agreement or instrument to which Debtor is a party;

 

(f)                                    There are no suits or proceedings pending or threatened in court of before any commission, board or other administrative agency against Debtor which could, in the aggregate, have a material adverse effect on Debtor, its business or operations, or its ability to perform its obligations under the Debt Documents other than that described in Schedule 2(f) hereto;

 

(g)                                 All financial statements delivered to Secured Party in connection with the Indebtedness have been prepared in accordance with generally accepted accounting principles, and since the date of the most recent financial statement, there has been no material adverse change;

 

(h)                                 The Collateral is not, and will not be, used by Debtor for personal, family or household purposes;

 

(i)                                     The Collateral is, and will remain, in good condition and repair, ordinary wear and tear excepted, and Debtor will not be negligent in the care and use thereof;

 

(j)                                     Debtor is, and will remain, the sole and lawful owner, and in possession of, the Collateral (except as expressly permitted pursuant to Section 3(h) hereof), and has the sole right and lawful authority to grant the security interest described in this Agreement;

 

(k)                                  The Collateral is, and will remain, free and clear of all liens, claims and encumbrances of every kind, nature and description, except for (i) liens in favor of Security Party, (ii) liens for taxes not yet due or for taxes being contested in good faith and which do not involve, in the reasonable judgment of Secured Party, any risk of the sale, forfeiture or loss of any of the Collateral having an aggregate value in excess of $250,000, and (iii) inchoate materialmen’s, mechanic’s, repairmen’s and similar liens arising by operation of law in the normal course of business for amounts which are not delinquent (all of such permitted liens being hereinafter referred to as “Permitted Liens”);

 

2



 

(l)                                     Debtor shall, at all times while any Indebtedness is outstanding, remain the owner of the real property at which the Collateral is located and cause such real property (except as expressly permitted pursuant to the Negative Pledge Agreements referred to in Section 7(h) hereof) to remain free and clear of all liens, claims and encumbrances of every kind, nature and description, including without limitation, any lien or security interest arising from a deed of trust, mortgage, assignment or lease, except for Permitted Liens; and

 

(m)                               At all times while any Indebtedness is outstanding, Debtor hereby agrees that it shall comply with the following covenants:

 

1.                                       Minimum Tangible Net Worth.  Debtor shall at all times maintain a minimum Tangible Net Worth (hereinafter defined) of not less than $90,000,000.

 

2.                                       Debt to Tangible Net Worth.  Debtor will not permit the ratio of Debtor’s total current and long term debt (as determined in accordance with generally accepted accounting principles consistently applied) to Debtor’s Tangible Net Worth to be greater than 2.00 to 1.00, as measured quarterly.

 

3.                                       Debt Service Coverage Ratio.  Debtor shall at all times maintain a ratio of Operating Cash Flow (as hereinafter defined) to Debt Service (as hereinafter defined) of not less than 2.00 to 1.00, as measured quarterly on a rolling four-quarter basis.

 

As used herein:

 

(a)                                  the terms “Tangible Net Worth” means, as of any date, Debtor’s stockholder equity less Debtor’s intangible assets, as determined in accordance with generally accepted accounting principles, consistently applied;

 

(b)                                 the term “Operating Cash Flow” means, for any period, Debtor’s pre-tax net income, plus interest expense, plus depreciation, amortization, and operating lease rentals, all determined in accordance with generally accepted accounting principles, consistently applied;

 

(c)                                  the terms “Debt Service” means, for any period, Debtor’s interest expense, plus operating lease rentals, determined in accordance with generally accepted accounting principles, consistently applied.

 

Concurrently with the delivery of each financial statement pursuant to Section 5(b) hereof, Debtor shall deliver to Secured Party a compliance certificate in form and substance satisfactory to Secured Party and signed by Debtor’s Chief Financial Officer or Treasurer that sets forth (x) that Debtor is in compliance with the financial covenants provided in this Section 5(b) and (y) the computations in reasonable detail demonstrating such compliance for the fiscal periods to which such financial statements relate.

 

3.                                      COLLATERAL.

 

(a)                                  Until the declaration of any default hereunder, Debtor shall remain in possession of the Collateral except with respect to Collateral sold pursuant to Section 3(h) hereof; provided, however, that Secured Party shall have the right to possess (i) any chattel paper or instrument that constitutes a part of the Collateral, and (ii) any other Collateral which because of its nature may require that Secured Party’s security interest therein be perfected by possession.  Secured

 

3



 

Party, its successors and assigns, and their respective agents, shall have the right to examine and inspect any of the Collateral at any time during normal business hours.  Upon any request from Secured Party, Debtor shall provide Secured Party with notice of the then current location of the Collateral.

 

(b)                                 Debtor shall (i) use the Collateral only in its trade or business, (ii) maintain all of the Collateral in good condition and working order, (iii) use and maintain the Collateral only in compliance with all applicable laws, and (iv) keep all of the Collateral free and clear of all liens, claims and encumbrances (except for Permitted Liens).

 

(c)                                  Except as expressly permitted pursuant to Section 3(h) hereof, Debtor shall not, without the prior written consent of Secured Party, (i) part with possession of any of the Collateral (except to Secured Party or for maintenance and repair), (ii) remove any of the Collateral from the continental United States, or (iii) sell, rent, lease, mortgage, grant a security interest in or otherwise transfer or encumber (except for Permitted Liens) any of the Collateral.

 

(d)                                 Debtor shall pay promptly when due all taxes, license fees, assessments and public and private charges levied or assessed on any of the Collateral, on the use thereof, or on this Agreement or any of the other Debt Documents except for taxes, assessments and charges contested in good faith and which do not involve in the reasonable judgement of Secured Party, any risk of the sale, forfeiture or loss of any of the Collateral having an aggregate value in excess of $250,000.  At its option, Secured Party may discharge taxes, liens, security interests or other encumbrances at any time levied or placed on the Collateral and may pay for the maintenance, insurance and preservation of the Collateral or to effect compliance with the terms of this Agreement or any of the other Debt Documents.  Debtor shall reimburse Secured Party, on demand, for any and all reasonable costs and expenses incurred by Secured Party in connection therewith and agrees that such reimbursement obligation shall be secured hereby.

 

(e)                                  Debtor shall, at all times, keep accurate and complete records of the Collateral, and Secured Party, its successors and assigns, and their respective agents, shall have the right to examine, inspect, and make extracts from all of Debtor’s books and records relating to the Collateral at any time during normal business hours.

 

(f)                                    If agreed by the parties, Secured Party may, but shall in no event be obligated to, accept substitutions and exchanges of property for property, and additions to the property, constituting all or any part of the Collateral.  Such substitutions, exchanges and additions shall be accomplished at any time and from time to time, by the substitution of a revised Collateral Schedule for the Collateral Schedule now or hereafter annexed.  Any property which may be substituted, exchanged or added as aforesaid shall constitute a portion of the Collateral and shall be subject to the security interest granted herein.  Additions to, reductions or exchanges of, or substitutions for, the Collateral, payments on account of any obligation or liability secured hereby, increases in the obligations and liabilities secured hereby, or the creation of additional obligations and liabilities secured hereby, may from time to time be made or occur without affecting the provisions of this Agreement or the provisions of any obligation or liability which this Agreement secures.

 

(g)                                 Any third person at any time and from time to time holding all or any portion of the Collateral shall be deemed to, and shall, hold the Collateral as the agent of, and as pledge holder for, Secured Party.  At any time and from time to time, Secured Party may give notice to

 

4



 

any third person holding all or any portion of the Collateral that such third person is holding the Collateral as the agent of, and as pledge holder for, the Secured Party.

 

(h)                                 Notwithstanding anything herein to the contrary, Debtor is permitted to sell, move, lease or otherwise dispose of any Collateral provided that (i) the aggregate value of all Collateral sold, moved, leased or otherwise disposed of in any calendar year shall not exceed $500,000, (ii) Debtor shall replace the sold or disposed of Collateral with property having an aggregate value equal to or greater than the value of the sold or disposed of Collateral and the replacement Collateral shall be free and clear of all liens and encumbrances other than Permitted Liens and (iii) within thirty (30) days after the end of each calendar year Debtor delivers to Secured Party a written report describing in reasonable detail the item(s) of Collateral having an original invoice cost of $100,000 or more that have been sold, moved, leased or disposed of and the Collateral that has replaced such item(s).

 

4.                                      INSURANCE.

 

The Collateral shall at all times be held at Debtor’s risk, and Debtor shall keep it insured against loss or damage by fire and extended coverage perils, theft, burglary, and for any or all Collateral which are vehicles, for risk of loss by collision, and where requested by Secured Party, against other risks as required thereby, for the full replacement value thereof, with companies, in amounts and under policies reasonably acceptable to Secured Party.  Secured Party acknowledges that the policies of insurance currently in effect that have been delivered to it are acceptable.  Debtor shall, if Secured Party so requires, deliver to Secured Party policies or certificates of insurance evidencing such coverage.  Each policy shall name Secured Party as loss payee thereunder, shall provide for coverage to Secured Party regardless of the breach by Debtor of any warranty or representation made therein (if available), shall not be subject to co-insurance, and shall provide for thirty (30) days written notice to Secured Party of the cancellation or material modification thereof.  Debtor hereby appoints Secured Party as its attorney in face to make proof of loss, claim for insurance and adjustments with insurers, and to execute or endorse all documents, checks or drafts in connection with payments made as a result of any such insurance policies, provided that Secured Party agrees that it shall not exercise such power unless an Event of Default has occurred and is continuing.  Proceeds of insurance shall be applied, at the option of Secured Party, to repair or replace the Collateral or to reduce any of the Indebtedness secured hereby, provided however, as long as no Event of Default has occurred and is continuing hereunder, the proceeds of insurance shall be distributed to Debtor if (a) the Collateral has been repaired or replaced in a timely fashion with Collateral of equal or greater value, free and clear of all liens and encumbrances or (b) the proceeds of insurance are less than $2,000,000.00.

 

5.                                      REPORTS.

 

(a)                                  Debtor shall promptly notify Secured Party in the event of (i) any change in the name of Debtor, (ii) any relocation of its chief executive offices, (iii) any relocation of any of the Collateral but subject to Section 3(h) hereof, (iv) any of the Collateral having an aggregate value in excess of $250,000 being lost, stolen, missing, destroyed or materially damages, or (v) any lien, claim or encumbrance attaching or being made against any of the Collateral other than Permitted Liens.

 

5



 

(b)                                 Debtor will within ninety (90) days of the close of each fiscal year of Debtor, deliver to Secured Party, Debtor’s complete financial statements, certified by a recognized firm of certified public accountants.  Debtor will, within thirty (30) days after the date on which they are filed, deliver to Secured Party all Forms 10-K and 10-Q filed with the Securities and Exchange Commission.  Upon request Debtor will deliver to Secured Party quarterly, within ninety (90) days of the close of each fiscal quarter of Debtor, in reasonable detail, copies of Debtor’s quarterly financial report certified by the chief financial officer of Debtor.  Upon request, Debtor will deliver to Secured Party one copy of each financial statement, report, notice or proxy statement sent by Debtor to shareholders generally and one copy of each regular or periodic report, registration statement or prospectus filed by Debtor with any securities exchange or the Securities and Exchange Commission or any successor agency, such copies to be delivered to Secured Party within thirty (30) days after they become available or are otherwise filed.  Any and all financial statements submitted and to be submitted to Secured Party have and will have been prepared on a basis of generally accepted accounting principles, and are and will be complete and correct and fairly present Debtor’s financial condition as at the date thereof.  Secured Party may at any reasonable time examine the books and records of Debtor and make copies thereof.

 

(c)                                  Within thirty (30) days after any request by Secured Party, Debtor will furnish a certificate of an authorized officer of Debtor stating that he has reviewed the activities of Debtor and that, to the best of his knowledge, there exists no Event of Default (as described in Section 7) or event which with notice or lapse of time (or both) would become an Event of Default.

 

6.                                      FURTHER ASSURANCES.

 

(a)                                  Debtor shall, upon request of Secured Party, furnish to Secured Party such further information, execute and deliver to Secured Party such documents and instruments (including, without limitation, Uniform Commercial Code financing statements) and do such other acts and things, as Secured Party may at any time reasonably request relating to the perfection or protection of the security interest created by this Agreement or for the purpose of carrying out the intent of this Agreement.  Without limiting the foregoing, Debtor shall cooperate and do all acts deemed necessary or advisable by Secured Party to continue in Secured Party a perfected first security interest in the Collateral, and shall obtain and furnish to Secured Party any subordinations, releases, landlord, lessor, or mortgagee waivers, and similar documents as may be from to time to time reasonably requested by, and which are in form and substance reasonably satisfactory to, Secured Party.

 

(b)                                 Debtor hereby grants to Secured Party the power to sign Debtor’s name and generally to act on behalf of Debtor to execute and file applications for title, transfers of title, financing statements, notices of lien and other documents pertaining to any or all of the Collateral but Secured Party may not exercise such rights unless an Event of Default has occurred and is continuing.  Debtor shall, if any certificate of title be required or permitted by law for any of the Collateral, obtain such certificate showing the lien hereof with respect to the Collateral and promptly deliver same to Secured Party.

 

(c)                                  Debtor shall indemnify and defend the Secured Party, its successors and assigns, and their respective directors, officers and employees, from and against any and all claims, actions and suits (including, without limitation, reasonable attorneys’ fees incurred in connection

 

6



 

therewith) of any kind, nature or description whatsoever arising, directly or indirectly, in connection with any of the Collateral.

 

7.                                      EVENTS OF DEFAULT.

 

Debtor shall be in default under this Agreement and each of the other Debt Documents upon the occurrence of any of the following “Event(s) of Default”:

 

(a)                                  Debtor fails to pay any installment or other amount due or coming due under any of the Debt Documents within ten (10) days after its due date;

 

(b)                                 Any attempt by Debtor, without the prior written consent of Secured Party, to sell, rent, lease, mortgage, grant a security interest in, or otherwise transfer or encumber (except for Permitted Liens) any of the Collateral or the real property at which the Collateral is located, except as expressly permitted pursuant to Section 3(h) hereof;

 

(c)                                  Debtor fails to procure, or maintain in effect at all times, any of the insurance on the Collateral in accordance with Section 4 of this Agreement;

 

(d)                                 Debtor breaches any of the financial covenants set forth in Section 2(m);

 

(e)                                  Debtor breaches any of its other obligations under any of the Debt Documents and fails to cure the same within thirty (30) days after written notice thereof;

 

(f)                                    Any warranty, representation or statement made by Debtor in any of the Debt Documents or otherwise in connection with any of the Indebtedness shall be false or misleading in any material respect;

 

(g)                                 Any of the Collateral being subjected to attachment, execution, levy, seizure or confiscation in any legal proceeding;

 

(h)                                 Any default by Debtor under any other agreement between Debtor and Secured Party, including but not limited to, those certain Negative Pledge Agreements dated the date hereof and recorded or to be recorded with the land records of Atchison County, Kansas and Buchanan County, Missouri;

 

(i)                                     Any insolvency or business failure of Debtor;

 

(j)                                     The appointment of a receiver for all or any party of the property of Debtor, or any assignment for the benefit of creditors by Debtor;

 

(k)                                  The filing of a petition by Debtor under any bankruptcy, insolvency or similar law, or the filing of any such petition against Debtor if the same is not dismissed within sixty (60) days of such filing;

 

(l)                                     Any default by Debtor under any payment obligation for borrowed money, for the deferred purchase price of property or any lease that is uncured for thirty (30) days after the date such amount was due and payable and provided that such default allows for the acceleration of such obligations or repossession of the collateral;

 

7



 

(m)                               Any dissolution, termination of existence, merger or consolidation of Debtor (such action being referred to as an “Event”), unless not less than sixty (60) days prior to such Event:  (x) such person is organized and existing under the laws of the United States or any state, and executes and delivers to Secured Party an agreement containing an effective assumption by such person of the due and punctual performance of this Agreements; and (y) Secured Party is reasonably satisfied as to the credit worthiness of such person; or

 

(n)                                 As a result of or in connection with a material change in the ownership of Debtor’s capital stock, Debtor’s debt-to-worth ratio equals or exceeds twice Debtor’s debt-to-worth ratio as of the date of this Agreement (unless Secured Party shall have given its prior written consent thereto).  As used herein, “debt-to-worth ratio” shall mean the ratio of (x) total liabilities which, in accordance with generally accepted accounting principles (“GAAP”) would be included in the liability side of a balance sheet, and (y) tangible net worth including the sum of the par or stated value of all outstanding capital stock, surplus and undivided profits, less any amounts attributable to goodwill, patents, copyrights, mailing lists, catalogs, trademarks, bond discount and underwriting expenses, organization expense and other intangibles, all determined in accordance with GAAP.

 

8.                                      REMEDIES ON DEFAULT.

 

(a)                                  Upon the occurrence of an Event of Default under this Agreement, the Secured Party, at its option, may declare any or all of the Indebtedness, including without limitation the Notes, to be immediately due and payable, without demand or notice to Debtor.  The obligations and liabilities accelerated thereby shall bear interest (both before and after any judgment) until paid in full at the lower of one percent (1%) per annum above the interest rate specified in the applicable Note or the maximum rate not prohibited by applicable law.

 

(b)                                 Upon such declaration of default, Secured Party shall have all of the rights and remedies of a Secured Party under the Uniform Commercial Code, and under any other applicable law.  Without limiting the foregoing, Secured Party shall have the right to (i) notify any account debtor of Debtor or any obligor on any instrument which constitutes part of the Collateral to make payment to the Secured Party, (ii) with or without legal process, enter any premises where the Collateral may be and take possession and/or remove said Collateral from said premises, (iii) sell the Collateral at public or private sale, in whole or in part, and have the right to bid and purchase at said sale, and/or (iv) lease or otherwise dispose of all or part of the Collateral, applying proceeds therefrom to the obligations then in default.  If requested by Secured Party, Debtor shall promptly assemble the Collateral and make it available to Secured Party at a place to be designated by Secured Party which is reasonably convenient to both parties.  Secured Party may also render any or all of the Collateral unusable at the Debtor’s premises and may dispose of such Collateral on such premises without liability for rent or costs.  Any notice which Secured Party is required to give to Debtor under the Uniform Commercial Code of the time and place of any public sale or the time after which any private sale or other intended disposition of the Collateral is to be made shall be deemed to constitute reasonable notice if such notice is given to the last known address of Debtor at least ten (10) days prior to such action.

 

(c)                                  Only upon the occurrence of an Event of Default under this Agreement, the Secured Party may record any or all mortgages or deeds of trust executed by Debtor in favor of Secured Party in connection with the Notes and proceed to enforce all rights and remedies

 

8



 

granted Secured Party under such documents.  All fees and costs (including mortgage registration taxes) incurred in connection with recording the mortgages and deeds of trust shall be paid by Debtor.

 

(d)                                 Proceeds from any sale or lease or other disposition shall be applied:  first, to all costs of repossession, storage, and disposition including without limitation reasonable attorneys’, appraisers’, and auctioneers’ fees; second, to discharge the obligations then in default; third, to discharge any other Indebtedness of Debtor to Secured Party, whether as obligor, endorser, guarantor, surety or indemnitor; fourth, to expenses incurred in paying or settling liens and claims against the Collateral; and lastly, to Debtor, if there exists any surplus.  Debtor shall remain fully liable for any deficiency.

 

(e)                                  In the event this Agreement, any Note or any other Debt Documents are placed in the hands of an attorney for collection of money due or to become due or to obtain performance of any provision hereof, Debtor agrees to pay all reasonable attorneys’ fees incurred by Secured Party, and further agrees that payment of such fees is secured hereunder.

 

(f)                                    Secured Party’s rights and remedies hereunder or otherwise arising are cumulative and may be exercised singularly or concurrently.  Neither the failure nor any delay on the part of the Secured Party to exercise any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege.  Secured Party shall not be deemed to have waived any of its rights hereunder or under any other agreement, instrument or paper signed by Debtor unless such waiver be in writing and signed by Secured Party.  A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion.

 

(g)                                 DEBTOR HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS AGREEMENT, ANY OF THE OTHER DEBT DOCUMENTS, ANY OF THE INDEBTEDNESS SECURED HEREBY, ANY DEALINGS BETWEEN DEBTOR AND SECURED PARTY RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN DEBTOR AND SECURED PARTY.  THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS).  THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, ANY OTHER DEBT DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION.  IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

9



 

9.                                      MISCELLANEOUS.

 

(a)                                  This Agreement, any Collateral Schedules, any Note and/or any of the other Debt Documents may be assigned, in whole or in part, by Secured Party without notice to Debtor, and Debtor hereby waives any defense, counterclaim or cross-complaint by Debtor against any assignee, agreeing that Secured Party shall be solely responsible therefor.  Debtor agrees that if Debtor receives written notice of an assignment from Secured Party, Debtor shall pay all payments and other amounts due under the assigned Note and Collateral Schedule to such assignee or as instructed by Secured Party.  Debtor further agrees to confirm in writing receipt of the notice of assignment as may be reasonably requested by Assignee.

 

(b)                                 All notices to be given in connection with this Agreement shall be in writing, shall be addressed to the parties at their respective addresses set forth hereinabove (unless and until a different address may be specified in a written notice to the other party), and shall be deemed given (i) on the date of receipt if delivered in hand or by facsimile transmission, (ii) on the next business day after being sent by express mail, and (iii) on the fourth business day after being sent by registered or certified mail.  As used herein, the term “business day” shall mean and include any day other than Saturdays, Sundays, or other days on which commercial banks in New York, New York are required or authorized to be closed.

 

(c)                                  Time is of the essence hereof.  This Agreement shall be binding, jointly and severally, upon all parties described as the “Debtor” and their respective heirs, executors, representatives, successors and assigns, and shall inure to the benefit of Secured Party, its successors and assigns.

 

(d)                                 This Agreement and its Collateral Schedules constitute the entire agreement between the parties with respect to the subject matter hereof and supersede all prior understandings (whether written, verbal or implied) with respect thereto.  This Agreement and its Collateral Schedules shall not be changed or terminated orally or by course of conduct, but only by a writing signed by both parties hereto.  Section headings contained in this Agreement have been included for convenience only, and shall not affect the construction or interpretation hereof.

 

(e)                                  This Agreement shall continue in full force and effect until all of the Indebtedness has been indefeasibly paid in full to Secured Party.  The surrender, upon payment or otherwise, of any Note or any of the other documents evidencing any of the Indebtedness shall not affect the right of Secured Party to retain the Collateral for such other Indebtedness as may then exist or as it may be reasonably contemplated will exist in the future.  This Agreement shall automatically be reinstated in the event that Secured Party is ever required to return or restore the payment of all or any portion of the Indebtedness (all as though such payment had never been made).

 

(f)                                    Debtor acknowledges that is has been advised that General Electric Capital Corporation is acting hereunder for itself and as agent for certain third parties (each being herein referred to as a “Participant” and, collectively, as the “Participants”); that the interest of the Secured Party in this Agreement, the Notes, the Collateral Schedules, related instruments and documents and/or the Collateral may be conveyed to, in whole or in part, and may be used as security for financing obtained from, one or more third parties without the consent of Debtor (the “Syndication”).  Debtor agrees reasonably to cooperate with Secured Party in connection with the Syndication, including the execution and delivery of such other documents, instruments,

 

10



 

notices, opinions, certificates and acknowledgements as reasonably may be required by Secured Party.

 

IN WITNESS WHEREOF, Debtor and Secured Party, intending to be legally bound hereby, have duly executed this Agreement in one or more counterparts, each of which shall be deemed to be an original, as of the day and year first aforesaid.

 

 

SECURED PARTY:

 

DEBTOR:

 

 

 

General Electric Capital Corporation,
for itself, and as agent for certain
Participants

 

Atchison Casting Corporation

 

 

 

 

 

 

By:

/s/ Louis J. Vigliotti

 

 

By:

/s/ Kevin T. McDermed

 

 

 

 

Title: Transaction & Syndication Senior Manager

 

Title: V.P. & Treasurer

 

11


EX-4.2 4 j7632_ex4d2.htm EX-4.2

Exhibit 4.2

 

Amendment No. 1 to Master Security Agreement and Other Related Documents

 

This Amendment to Master Security Agreement and Other Related Documents is made as of February 25, 2000, by and between General Electric Capital Corporation, for itself and as agent for certain participants (“Secured Party”) and Atchison Casting Corporation (“Debtor”).  The parties entered into that certain Master Security Agreement dated as of December 29, 1999 (the “Agreement”).  Pursuant to the terms of the Agreement, the Secured Party made a Loan to the Debtor in the original principal amount of $35,000,000.00 (the “Loan”).  The Loan is evidenced by that certain Promissory Note dated December 29, 1999 (“Note”) and is secured by the Agreement, Collateral Schedule No. 1 dated December 29, 1999 (the “Collateral Schedule”), that certain Mortgage, Security Agreement and Fixture Filing (“Mortgage”) dated December 28, 1999 pertaining to a parcel of real property located in Atchison County, Kansas, and that certain Deed of Trust, Security Agreement and Fixture Filing (“Deed of Trust”) dated December 28, 1999 pertaining to a parcel of real property located in Buchanan County, Missouri.

 

The Debtor also executed and delivered certain other documents in conjunction with the subject Loan including a Certificate of Delivery/Installation (“Certificate”) and a Secretary’s Certificate.  (The Note, Agreement, Mortgage, Deed of Trust, Certificate and Secretary’s Certificate are collectively referred to herein as the “Documents”.)

 

The parties hereby amend the date of execution of each of the Documents from “December 29, 1999” to “December 28, 1999”, and in those instances in which the date of execution of a Document is referenced in another Document, any and all such references are hereby amended to provide that the date of execution of such referenced Document was December 28, 1999.

 

Except as expressly modified hereby, all terms and provisions of each of the Documents shall remain in full force and effect.

 

IN WITNESS WHEREOF, Secured Party and Debtor have caused this addendum to be executed by duly authorized representatives as of the date first above written.

 

General Electric Capital Corporation,
for itself and as agent for certain
participants

 

Atchison Casting Corporation

 

 

 

 

 

 

By:

/s/ Daniel W. Cochran

 

 

By:

/s/ Kevin T. McDermed

 

Name:

Daniel W. Cochran

 

 

Name:

Kevin T. McDeremd

 

Title:

Transaction & Syndication Manager

 

 

Title:

V.P. & Treasurer

 

 


EX-4.3 5 j7632_ex4d3.htm EX-4.3

Exhibit 4.3

 

April 19, 2001

 

 

Atchison Casting Corporation

400 S. Fourth Street

Atchison, Kansas 66002

 

Re:  Forbearance

 

Gentlemen:

 

As you know, you are currently in violation of the financial covenants set forth in Section 2(m)(1) and 2(m)(3) of that certain Master Security Agreement dated as of December 29, 1999 (the “Master Security Agreement”), between General Electric Capital Corporation, for itself and as agent for certain Participants (“Secured Party”) and you.  These violations are with respect to your financial reporting periods ending June 30, 2000, September 30, 2000, December 31, 2000, and March 31, 2001 (the “Violations”).  You have requested that we forbear from exercising any rights and remedies available to us as a result of such Violations.  Subject to the following terms and conditions set forth in this letter, we are willing to forbear from exercising any rights and remedies available to us solely as a result of such Violations through and including September 30, 2001.

 

1.                    You shall pay to us a forbearance fee in the amount of $30,625.00 in good and valuable funds by wire transferring such amount to the following account on or before April 19, 2001:

 

BANKER’S TRUST
ONE BANKER’S TRUST PLAZA
NEW YORK, NY 10006
ACCOUNT NAME:  GENERAL ELECTRIC CAPITAL CORPORATION
ACCOUNT # 50 260 660
ABA # 021 001 033
ATTN:  MNCL-Myra Lastner

 

2.                    You shall provide to us within thirty (30) days after the end of each month, beginning with the end of March 2001, your complete financial statements for the preceding month certified by your chief financial officer.  All such financial statements shall be prepared in accordance with generally accepted accounting principles and shall be complete and correct and fairly present your financial condition as of such date.

 

3.                    You shall continue to fully comply with all the terms and conditions of that certain Tenth Amendment and Forbearance Agreement dated April 13, 2001 (the “Harris Forbearance Agreement”), between Harris Trust and Savings Bank

 



 

(“Harris”) and you.  In the event you breach any of the terms and conditions of the Harris Forbearance Agreement, then the forbearance set forth in this letter shall automatically terminate and be deemed null and void without further action and we shall be permitted to exercise any rights and remedies available to us under the Master Security Agreement, any other documents or law as if this letter had never been executed.

 

4.                    You hereby agree to immediately notify us in writing in the event you breach any of the terms and conditions of the Harris Forbearance Agreement or receive any letter or other notification from Harris that you have breached, are in violation of or are in default of the Harris Forbearance Agreement.

 

5.                    You shall continue to perform and fulfill all of your duties and obligations under the Master Security Agreement, the related Promissory Note(s), the related Collateral Schedule(s) and all other agreements, instruments and documents executed in connection therewith (collectively, the “Debt Documents”).  The Debt Documents shall continue in full force and effect and unmodified except as expressly modified in this letter.

 

6.                    Your failure to fully and timely perform or fulfill any of the terms and conditions of this letter or of any of the Debt Documents shall cause the forbearance set forth in this letter to automatically terminate and be deemed null and void without further action and permit us to exercise any and all rights and remedies available to us under the Debt Documents or law.

 

7.                    This letter is not a waiver, nor shall it be deemed to be, a waiver of any Event of Default caused by the above-referenced violations or any other Event of Default whether now existing or hereafter arising.

 

8.                    Time is of the essence.

 

Please acknowledge your agreement to all the terms and conditions set forth in this letter by executing below and returning the signed copy to us no later than April 19, 2001.

 

General Electric Capital Corporation,
for itself and as agent for certain
Participants

 

 

 

 

 

By:

/s/ Erik E. Anderson

 

 

 

Name:

Erik E. Anderson

 

 

 

Title:

Senior Risk Analyst

 

 

 

 

2



 

Acknowledged and agreed:

 

Atchison Casting Corporation

 

 

By:

/s/ Kevin T. McDermed

 

 

 

Name:

Kevin T. McDermed

 

 

 

Title:

V.P. & Treasurer

 

 

 

 

3


EX-4.4 6 j7632_ex4d4.htm EX-4.4

Exhibit 4.4

 

FORBEARANCE AGREEMENT AND SECOND AMENDMENT TO MASTER SECURITY AGREEMENT AND NOTE

 

THIS FORBEARANCE AGREEMENT AND SECOND AMENDMENT TO MASTER SECURITY AGREEMENT AND NOTE (the “Agreement”) is made and entered into as of October 18, 2002 (the “Execution Date”), and effective as of June 29, 2002 (the “Effective Date”), by and between GENERAL ELECTRIC CAPITAL CORPORATION, for itself and as agent for certain participants (“Lender”) and ATCHISON CASTING CORPORATION, a Kansas corporation (“Borrower”).

 

RECITALS

 

A.                Borrower and Lender are parties to that certain Master Security Agreement dated as of December 29, 1999, as amended by that certain Amendment No. 1 to Master Security Agreement and Other Related Documents (“Amendment No. 1”) dated as of February 25, 2000 (which, among other things, amended the effective date of such Master Security Agreement to December 28, 1999; such Master Security Agreement, as amended by Amendment No. 1, and as amended from time to time, is herein referred to as the “Master Agreement;” capitalized terms used herein and not otherwise defined shall have the same definition as set forth in the Master Agreement), pursuant to which Lender made a term loan to Borrower in the original principal amount of $35,000,000 (the “Loan”).  The Loan is evidenced by that certain Promissory Note as amended by Amendment No. 1 (as amended, the “Note”), dated as of December 28, 1999 by Borrower in favor of Lender in the original face amount of $35,000,000.

 

B.                  To secure its obligations to Lender under the Master Agreement and the Note, Borrower has granted to Lender, as a part of the Master Agreement, a security interest in the Collateral.  The Collateral includes, but is not limited to, Borrower’s furniture, fixtures and equipment located at Borrower’s Atchison, Kansas and St. Joseph, Missouri facilities .

 

C.                  In connection with the Master Agreement, the Borrower has executed and delivered:  (i) that certain Mortgage, Security Agreement and Fixture Filing dated as of December 28, 1999 by Borrower in favor of Lender and filed of record with the Register of Deeds of Atchison County, Kansas, on July 22, 2002 in Book 481 at Page 558; and (ii) that certain Deed of Trust, Security Agreement and Fixture Filing dated as of December 28, 1999 by Borrower in favor of Husch Trustee, Inc. as trustee for Lender filed of record with the Recorder of Deeds in Buchanan County, Missouri, on July 22, 2002 as Document No. 11400 in Book 2045 at Page 569, (such mortgage and deed of trust are sometimes herein collectively referred to as the “Mortgages”).  The real property encumbered by the Mortgages is sometimes herein referred to as the “Real Property Collateral”.  The Mortgages secure all Indebtedness.

 

D.                 There is presently outstanding to Lender $26,541,666.57 in principal amount of the Loan, together with accrued interest thereon and certain costs and expenses of Lender.

 

E.                   Borrower has, prior to the date hereof, failed to (i) meet the financial covenants contained in Section 2(m) of the Master Agreement, and (ii) failed to make principal and interest payments required under and pursuant to the terms of the Note.  Such failures constitute Events of Default under the Master Agreement (such Events of Default are sometimes herein referred to as the “Existing Defaults”).

 

F.                   By reason of the existence of the Existing Defaults, Lender has full legal right to exercise its rights and remedies under the Master Agreement.  Such remedies include, but are not limited to, the right to accelerate the Indebtedness and repossession and sale of the Collateral and the Real Property Collateral.

 

G.                  Borrower and certain related entities are indebted to Harris Trust and Savings Bank, as agent, and to Teachers Insurance and Annuity Association (collectively, along with the lenders represented by such institutions as agent, the “Harris Lenders”; and the credit facilities with or in favor of the Harris Lenders are sometimes herein referred to as the “Harris Facilities”).  The Harris Facilities are in default and Borrower, certain related entities and the Harris Lenders have entered into forbearance agreements (the “Harris Forbearance Agreements”).

 



 

H.                 Borrower has requested that Lender forbear for a period of time from exercising its rights and remedies under the Master Agreement, the Note and the Mortgages (collectively, the “Loan Documents”) and to amend the terms of the Master Agreement and the Note.

 

I.                      Lender is willing to forbear in the exercise of its remedies under the Loan Documents, and to amend the terms of the Master Agreement and the Note on the terms and conditions set forth herein.

 

AGREEMENT

 

In consideration of the Recitals and of the mutual promises and covenants contained herein, Lender and Borrower agree as follows:

 

1.                    Forbearance.  During the period (the “Forbearance Period”) commencing on the Effective Date and ending on the earlier to occur of (a) the date that any Forbearance Default (as defined in Section 7 hereof) occurs, (b) the date of a Variance Based Termination (as defined in Section 3(b) below), or (c) the Final Forbearance Date (as defined in Section 3(c) below), Lender will forbear in the exercise of its rights and remedies under the Loan Documents with respect to the Existing Defaults and any other Events of Default (collectively, the “Designated Defaults”), except as set forth in the following sentence.  Notwithstanding anything herein to the contrary, the Designated Defaults shall not include (x) those Events of Default of the type or nature identified in Section 7(b), (c), (e) (but only to the extent the same relates to the maintenance or protection of Collateral), (g), (i), (j), (k) and (m) of the Master Agreement, (y) any default in the performance of obligations of the Borrower under this Agreement, and (z) any default under the Mortgages arising out of Borrower’s failure to maintain or protect the Real Estate Collateral.

 

2.                    Amendment of Note.  Notwithstanding anything to the contrary set forth in the Note:

 

(a)                                  Interest Only During Forbearance Period.  The Periodic Installments (as defined in the Note) due June 29, 2002 through the end of the Forbearance Period shall each be in an amount equal to accrued but unpaid interest on the unpaid balance of the Note.  The principal amount which otherwise would have been paid with respect to such Periodic Installments shall be payable on December 29, 2004 and such amount shall be added to the final installment amount reflected in the Note.

 

(b)                                 Increased Interest Rate.  Effective November 1, 2002, interest shall accrue on the unpaid principal balance of the Note, as set forth in the Note, at the fixed interest rate of 9.30% per annum.

 

3.                    Forecast; Variance Based Termination; Final Forbearance Date.

 

(a)                                  Preliminary Forecast.  Borrower has made a preliminary forecast of its earnings before interest and taxes (“EBIT”) and its ratio of current assets to current liabilities (“Current Ratio”) for the time periods and dates set forth below (the “Preliminary Forecast”):

 

EBIT for 6 month period ending 6/30/2003:

 

$

466,000

 

 

 

 

 

Current Ratio as of 6/30/2003:

 

0.93 to 1.0

 

 

 

 

 

EBIT for 9 month period ending 9/30/2003:

 

$

215,000

 

 

 

 

 

Current Ratio as of 9/30/2003:

 

0.93 to 1.0

 

 

(b)                                 Final Forecast; Variance Based Termination.  Within 30 days following the Execution Date, Borrower shall deliver to Lender a final forecast in writing, of the EBIT and Current Ratio, for the dates and time periods referenced in Section 3(a) above, in form and content reasonably acceptable to Lender (the “Final Forecast”).  If any component of the Final Forecast is less than or greater than the Preliminary Forecast by more than twenty percent (20%), the Lender may, by notice to the Borrower, terminate the Forbearance Period (the “Variance Based Termination”).  The Final Forecast of EBIT and Current Ratio on or as of 6/30/2003 is sometimes herein referred to as the “6/30 Forecast”, and the Final Forecast of EBIT and Current Ratio on or as of 9/30/2003 is sometimes herein referred to as the “9/30 Forecast”.

 

2



 

(c)                                  Final Forbearance Date.  Subject to the following provisions, the term “Final Forbearance Date”, as used in this Agreement shall mean June 29, 2003.  If the Borrower’s actual EBIT or Current Ratio for the period ending 6/30/2003 is not less than 85% nor more than 120% of the 6/30 Forecast, the Final Forbearance Date shall be extended through September 29, 2003. If the Final Forbearance Date has previously been extended to September 29, 2003, and the Borrower’s actual EBIT or Current Ratio for the period ending 9/30/2003 is not less than 85% nor more than 120% of the 9/30 Forecast, the Final Forbearance Date shall be extended through December 29, 2003.  If the Final Forbearance Date is not extended based on 6/30/2003 actual EBIT and Current Ratio, the Final Forbearance Date shall be 6/29/2003, and if the Final Forbearance Date is not extended based on 9/30/2003 actual EBIT and Current Ratio (or if the Final Forbearance Date has not been previously extended), the Final Forbearance Date shall be 9/29/2003.  Notwithstanding anything herein to the contrary, the obligations of the Lender to extend the Final Forbearance Date is subject to the condition precedent that (i) the Company’s credit facilities with the Harris Lenders shall have been restructured in a manner acceptable to Lender, or (ii) the Harris Lenders shall have extended their forbearance period through a period which expires no earlier than the date which would otherwise become the Final Forbearance Date.

 

4.                    Conditions Precedent to Effectiveness of Agreement.  The provisions set forth in Section 1 and Section 2(a) of this Agreement shall not be effective unless and until each of the following conditions shall have been satisfied in Lender’s sole discretion or waived by Lender, for whose sole benefit such conditions exist:

 

(a)                                  Accrued But Unpaid Interest.  Borrower shall have paid to Lender, by wire transfer of good funds on Execution Date, all accrued but unpaid interest on the Note as of the Execution Date.

 

(b)                                 Costs and Expenses.  Borrower shall have paid to the Lender by wire transfer of good funds on the Execution Date, its costs and expenses (including Lender’s attorneys fees) incurred in connection with the recording of the Mortgages, and the preparation of this Agreement and any other outstanding costs and expenses owing by Borrower to Lender under the Loan Documents as of the date this Agreement is executed.  Such costs and expenses are $32,868.40 (legal fees of $15,000 and out of pocket costs and expenses, including mortgage filing fees and registration tax of $17,868.40).

 

(c)                                  Execution and Delivery.  Borrower shall have executed and delivered this Agreement.

 

(d)                                 Harris Lenders.  Borrower shall have delivered to Lender (i) copies of all documentation evidencing or relating to the Harris Facilities, and (ii) evidence satisfactory to Lender that each of the Harris Lenders shall have extended their respective Harris Forbearance Agreements with the Borrower through a date which is not earlier than April 3, 2003.

 

5.                    Covenants.  Borrower hereby covenants and agrees as follows:

 

(a)                                  Appraisal.  Borrower shall cause to be performed and delivered to Lender on or before January 31, 2003, an appraisal of the Real Property Collateral, in form and content acceptable to Lender, and prepared by an MAI appraiser acceptable to Lender.

 

(b)                                 Harris Facility Amendments.  Borrower shall deliver to Lender copies of any and all extension, amendments, modifications, revisions or restatements of all or any portion of the Harris Facilities and the documents evidencing or relating to the Harris Facilities, including all notices delivered to or by the Borrower, and including any extension, amendment, modification of the Harris Forbearance Agreements.

 

(c)                                  Additional Reporting Requirements.  In addition to the reporting requirements set forth in the Master Agreement, Borrower shall deliver quarterly financial reports of the Borrower and its subsidiaries, on a consolidated basis, certified by the chief financial officer of Borrower, for the periods ending June 30, 2003 and September 30, 2003 on or before the 29th day following the last day of each such period, in sufficient form and content to allow Lender to calculate actual EBIT and Current Ratio ending on and as of the last day of each such period.

 

(d)                                 Warrants.  If Borrower, now or hereafter, issues and delivers warrants to purchase common stock to any of the Harris Lenders in connection with the Harris Facilities, or any portion thereof, Borrower agrees, simultaneously with such issuance, to issue to Lender warrants to purchase common stock on terms which are substantially the same as the terms of the warrants being issued to such Harris Lender(s), provided that the total number of shares of common stock with respect to which the warrants issued to Lender shall equal thirty percent (30%) of the aggregate total number of shares of common stock with respect to which the warrants are issued to each of the Harris Lenders.

 

3



 

6.                    Representations and Warranties.  Borrower hereby represents and warrants to Lender as follows:

 

(a)                                  Recitals.  The Recitals in this Agreement are true and correct in all respects.

 

(b)                                 Incorporation of Representations.  All representations and warranties of Borrower in the Master Agreement are incorporated herein in full by this reference and are true and correct in all material respects as of the date hereof; provided, however, that Schedule 2(f) of the Master Agreement is hereby replaced and updated by Schedule 2(f) attached to this Agreement.

 

(c)                                  Corporate Power; Authorization.  Borrower has the corporate power, and has been duly authorized by all requisite corporate action, to execute and deliver this Agreement and to perform its obligations hereunder and thereunder.  This Agreement has been duly executed and delivered by Borrower.

 

(d)                                 Enforceability.  This Agreement is the legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with its respective terms.

 

(e)                                  No Violation.  Borrower’s execution, delivery and performance of this Agreement does not and will not (i) violate any law, rule, regulation or court order to which Borrower is subject; (ii) conflict with or result in a breach of Borrower’s Articles of Incorporation or Bylaws or any agreement or instrument to which Borrower is party or by which it or its properties are bound; or (iii) result in the creation or imposition of any lien, security interest or encumbrance on any property of Borrower, whether now owned or hereafter acquired, other than liens in favor of Lender.

 

(f)                                    Obligations Absolute.  The obligation of Borrower to repay the Loan, together with all interest accrued thereon, is absolute and unconditional, and there exists no right of set off or recoupment, counterclaim or defense of any nature whatsoever to payment of the Obligations.

 

(g)                                 Mortgages.  The Mortgages are and remain enforceable against Borrower in accordance with their respective terms, and create, constitute and evidence good, valid and perfected first liens on the Real Property Collateral in favor of Lender securing the Indebtedness referenced therein.

 

7.                    Default.  Each of the following shall constitute a “Forbearance Default” hereunder:

 

(a)                                  Events of Default.  The existence of any Event of Default or default under any Loan Document (other than a Designated Default); provided that any such Event of Default or default (other than an Event of Default which occurs as a result of Borrower’s insolvency or bankruptcy) which occurs during the Forbearance Period shall not constitute a Forbearance Default if the same is capable of being cured and is cured within thirty (30) days of the date of first occurrence; or

 

(b)                                 Harris Acceleration.  If any of the Harris Facilities or the obligations owed to the Harris Lenders under or pursuant to the Harris Facilities, are accelerated or otherwise become due and payable in full for any reason.

 

8.                    Effect and Construction of Agreement.  Except as expressly provided herein, the Loan Documents shall remain in full force and effect in accordance with their respective terms, and this Agreement shall not be construed to:

 

(i)                  impair the validity, perfection or priority of any lien or security interest securing the Indebtedness;

 

(ii)               waive or impair any rights, powers or remedies of Lender under the Loan Documents upon termination of the Forbearance Period, with respect to the Designated Defaults or otherwise; or

 

(iii)            constitute an agreement by Lender or require Lender to extend the Forbearance Period, or grant additional forbearance periods, or extend the term of the Note or the time for payment of any of the Indebtedness, except as expressly set forth herein.

 

4



 

In the event of any inconsistency between the terms of this Agreement and the Loan Documents, this Agreement shall govern.  Borrower acknowledges that it has consulted with counsel and with such other experts and advisors as it has deemed necessary in connection with the negotiation, execution and delivery of this Agreement.  This Agreement shall be construed without regard to any presumption or rule requiring that it be construed against the party causing this Agreement or any part hereof to be drafted.

 

9.                    Expenses.  Borrower agrees to pay all costs, fees and expenses of Lender (including the fees of Lender’s counsel) incurred by Lender in connection with the negotiation, preparation, administration and enforcement of this Agreement.

 

10.              Miscellaneous.

 

(a)                                  Agreement as Debt Document.  Lender and Borrower agree that this Agreement is a Debt Document, as defined in the Master Agreement.

 

(b)                                 Further Assurance.  Borrower agrees to execute such other and further documents and instruments as Lender may request to implement the provisions of this Agreement.

 

(c)                                  Benefit of Agreement.  This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto, their respective successors and assigns.  No other person or entity shall be entitled to claim any right or benefit hereunder, including, without limitation, the status of a third-party beneficiary of this Agreement.

 

(d)                                 Integration.  This Agreement, together with the Loan Documents, constitutes the entire agreement and understanding among the parties relating to the subject matter hereof, and supersedes all prior proposals, negotiations, agreements and understandings relating to such subject matter.  In entering this Agreement, Borrower acknowledges that it is relying on no statement, representation, warranty, covenant or agreement of any kind made by the Lender or any employee or agent of the Lender, except for the agreements of Lender set forth herein.

 

(e)                                  Severability.  The provisions of this Agreement are intended to be severable.  If any provisions of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or enforceability without in any manner affecting the validity or enforceability of such provision in any other jurisdiction or the remaining provisions of this Agreement in any jurisdiction.

 

(f)                                    Governing Law.  This Agreement shall be governed by and construed in accordance with the internal substantive laws of the State of New York, without regard to the choice of law principles of such state.

 

(g)                                 VENUE; JURISDICTION; JURY TRIAL WAIVER.  LENDER, AND BORROWER EACH HEREBY IRREVOCABLY WAIVE THEIR RIGHT TO TRIAL BY JURY IN ANY CONTROVERSY ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE MASTER AGREEMENT, AND/OR THE LOAN DOCUMENTS.

 

(h)                                 Counterparts; Telecopied Signatures.  This Agreement may be executed in any number of counterparts and by different parties to this Agreement on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same agreement.  Any signature delivered by a party by facsimile transmission shall be deemed to be an original signature hereto.

 

(i)                                     Survival.  All representations, warranties, covenants, agreements, undertakings, waivers and releases of Borrower contained herein shall survive the termination of the Forbearance Period and payment in full of the Indebtedness of Borrower under the Loan Documents.

 

(j)                                     Amendment.  No amendment, modification, rescission, waiver or release of any provision of this Agreement shall be effective unless the same shall be in writing and signed by the parties hereto.

 

(k)                                  Restructure.  If, during the Forbearance Period, the Harris Facilities are restructured in whole, and such restructure involves, among other things, (i) the waiver by the Harris Lenders of all defaults and

 

5



 

events of default which exist under or with respect to the Harris Facilities, (ii) the extension of the terms of the Harris Facilities, and (iii) the amendment and modification of the Harris Facilities, Lender agrees to utilize its best efforts to restructure the credit facilities represented by the Master Agreement and the Note on terms which are consistent, in-so-far as possible or practical with the restructured arrangements under the Harris Facilities. This paragraph does not constitute a commitment by Lender, and Lender has no approval and has no obligation to restructure the facilities evidenced by the Master Agreement and the Note on any terms.  Lender’s failure to restructure the credit facilities evidenced by the Master Agreement or the Note will not create any liability on behalf of Lender, and Borrower agrees to indemnify and hold Lender harmless from any and all claims, liabilities, damages, costs and expenses Borrower may incur as a result of Lender’s failure to restructure the credit facilities evidenced by the Master Agreement and the Note.

 

11.                                 Release of Claims and Waiver.  Borrower hereby releases, remises, acquits and forever discharges Lender and Lender’s employees, agents, representatives, consultants, attorneys, fiduciaries, servants, officers, directors, partners, predecessors, successors and assigns, subsidiary corporations, parent corporations, and related corporate divisions (all of the foregoing hereinafter called the “Released Parties”), from any and all actions and causes of action, judgments, executions, suits, debts, claims, demands, liabilities, obligations, damages and expenses of any and every character, known or unknown, direct and/or indirect, at law or in equity, of whatsoever kind or nature, whether heretofore or hereafter arising, for or because of any matter or things done, omitted or suffered to be done by any of the Released Parties prior to and including the date of execution hereof, and in any way directly or indirectly arising out of or in any way connected to this Agreement and the Loan Documents, including but not limited to, claims relating to any settlement negotiations (all of the foregoing hereinafter called the “Released Matters”).  Borrower acknowledges that the agreements in this paragraph are intended to be in full satisfaction of all or any alleged injuries or damages arising in connection with the Released Matters.  Borrower represents and warrants to Lender that it has not purported to transfer, assign or otherwise convey any right, title or interest of Borrower in any Released Matter to any other Person and that the foregoing constitutes a full and complete release of all Released Matters.

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

 

 

 

GENERAL ELECTRIC CAPITAL CORPORATION

 

 

 

 

 

 

 

 

By:

/s/ Kevin G. Wortman

 

 

 

 

Name: Kevin G. Wortman

 

 

 

Title: SVP, Strategic Asset Financing Group

 

 

 

 

 

ATCHISON CASTING CORPORATION

 

 

 

 

 

 

 

 

By:

/s/ Kevin T. McDermed

 

 

 

 

Name Kevin T. McDermed

 

 

 

Title: V.P. & Treasurer

 

6


EX-4.5 7 j7632_ex4d5.htm EX-4.5

Exhibit 4.5

 

FIRST AMENDMENT TO FORBEARANCE AGREEMENT

 

THIS FIRST AMENDMENT TO FORBEARANCE AGREEMENT (the “Agreement”) is made and entered into as of January 24, 2003, by and between GENERAL ELECTRIC CAPITAL CORPORATION, for itself and as agent for certain participants (“Lender”) and ATCHISON CASTING CORPORATION, a Kansas corporation (“Borrower”).

 

RECITALS

 

A.                                   Borrower and Lender are parties to that certain Master Security Agreement dated as of December 29, 1999, as amended by that certain Amendment No. 1 to Master Security Agreement and Other Related Documents (“Amendment No. 1”) dated as of February 25, 2000 (which, among other things, amended the effective date of such Master Security Agreement to December 28, 1999; such Master Security Agreement, as amended by Amendment No. 1, and as amended by that certain Forbearance Agreement and Second Amendment to Master Security Agreement and Note, dated as of October 17, 2002 (the “Forbearance Agreement”), and as amended from time to time, is herein referred to as the “Master Agreement”).  Capitalized terms used herein and not otherwise defined shall have the same definition as set forth in the Forbearance Agreement or the Master Agreement.

 

B.                                     The Forbearance Period has terminated as the result of a Variance Based Termination.

 

C.                                     Lender and Borrower desire to amend the Forbearance Agreement pursuant to the terms of the Agreement.

 

AGREEMENT

 

In consideration of the Recitals and of the mutual promises and covenants contained herein, Lender and Borrower agree as follows:

 

1.                                       Amendment to Forbearance Agreement.  The Forbearance Agreement is amended as follows:

 

(a)  Section 1 of the Forbearance Agreement is hereby deleted and the following is inserted therefor:

 

“1.  During the period (the “Forbearance Period”) commencing on the Effective Date and ending on the earlier to occur of (a) the date that any Forbearance Default (as defined in Section 7 hereof) occurs or (b) the Final Forbearance Date (as defined in Section 3 below), Lender will forbear in the exercise of its rights and remedies under the Loan Documents with respect to the Existing Defaults and any other Events of Default (collectively, the “Designated Defaults”), except as set forth in the following sentence.  Notwithstanding anything herein to the contrary, the Designated Defaults shall not include (x) those Events of Default of the type or nature identified in Section 7(b), (c), (e) (but only to the extent the same relates to the maintenance or protection of Collateral), (g), (i), (j), (k) and (m) of the Master Agreement, (y) any default in

 



 

the performance of obligations of the Borrower under this Agreement, and (z) any default under the Mortgages arising out of Borrower’s failure to maintain or protect the Real Estate Collateral.”

 

(b)  Section 3 of the Forbearance Agreement and all of its subsections are hereby deleted and the following is inserted therefor:

 

“3.  Final Forbearance Date.  The term “Final Forbearance Date”, as used in this Agreement shall mean June 29, 2003.”

 

(c)  Section 7 of the Forbearance Agreement and all of its subsections are hereby deleted and the following is inserted therefor:

 

“7.  Default.  Each of the following shall constitute a “Forbearance Default” hereunder:

 

(a)                                  Events of Default.  The existence of any

 

(i)  Event of Default which occurs as a result of Borrower’s (A) insolvency or bankruptcy, or (B) failure to make any payment as and when due under or pursuant to the Master Agreement, Note or any other Loan Document; or

 

(ii)  Event of Default or default under any Loan Document (other than a Designated Default, and other than those Events of Default described in Section 7(a)(i) above), provided that any such Event of Default or default shall not constitute a Forbearance Default if the same is capable of being cured and is cured within thirty (30) days of the date of first occurrence; or

 

(b)                                 Harris Facilities Become Due.  If any of the Harris Facilities or the obligations owed to the Harris Lenders under or pursuant to the Harris Facilities, are accelerated or otherwise become due and payable in full for any reason.”

 

2.                                       Conditions Precedent to Effectiveness of Agreement.  The provisions set forth in Section 1 of this Agreement shall not be effective unless and until each of the following conditions shall have been satisfied in Lender’s sole discretion or waived by Lender, for whose sole benefit such conditions exist:

 

(a)                                  Costs and Expenses.  Borrower shall have paid to the Lender by wire transfer of good funds, its costs and expenses (including Lender’s attorneys fees) incurred in connection with the preparation of this Agreement and any other outstanding costs and expenses owing by Borrower to Lender under the Loan Documents as of the date this Agreement is executed.

 

(b)                                 Execution and Delivery.  Borrower shall have executed and delivered this Agreement.

 

2



 

3.                                       Representations and Warranties.  Borrower hereby represents and warrants to Lender as follows:

 

(a)                                  Recitals.  The Recitals in this Agreement are true and correct in all respects.

 

(b)                                 Incorporation of Representations.  All representations and warranties of Borrower in the Master Agreement are incorporated herein in full by this reference and are true and correct in all material respects as of the date hereof; provided, however, that Schedule 2(f) of the Master Agreement is hereby replaced and updated by Schedule 2(f) attached to this Agreement.

 

(c)                                  Corporate Power; Authorization.  Borrower has the corporate power, and has been duly authorized by all requisite corporate action, to execute and deliver this Agreement and to perform its obligations hereunder and thereunder.  This Agreement has been duly executed and delivered by Borrower.

 

(d)                                 Enforceability.  This Agreement is the legal, valid and binding obligations of Borrower, enforceable against Borrower in accordance with its respective terms.

 

(e)                                  No Violation.  Borrower’s execution, delivery and performance of this Agreement does not and will not (i) violate any law, rule, regulation or court order to which Borrower is subject; (ii) conflict with or result in a breach of Borrower’s Articles of Incorporation or Bylaws or any agreement or instrument to which Borrower is party or by which it or its properties are bound; or (iii) result in the creation or imposition of any lien, security interest or encumbrance on any property of Borrower, whether now owned or hereafter acquired, other than liens in favor of Lender.

 

(f)                                    Obligations Absolute.  The obligation of Borrower to repay the Loan, together with all interest accrued thereon, is absolute and unconditional, and there exists no right of set off or recoupment, counterclaim or defense of any nature whatsoever to payment of the Obligations.

 

4.                                       Effect and Construction of Agreement.  Except as expressly provided herein, the Loan Documents, including the Master Agreement and the Forbearance Agreement (as amended hereby) shall remain in full force and effect in accordance with their respective terms, and this Agreement shall not be construed to:

 

(i)                                     impair the validity, perfection or priority of any lien or security interest securing the Indebtedness;

 

(ii)                                  waive or impair any rights, powers or remedies of Lender under the Loan Documents upon termination of the Forbearance Period, with respect to the Designated Defaults or otherwise; or

 

(iii)                               constitute an agreement by Lender or require Lender to extend the Forbearance Period, or grant additional forbearance periods, or extend the term of the Note or the time for payment of any of the Indebtedness, except as expressly set forth herein.

 

3



 

In the event of any inconsistency between the terms of this Agreement and the Loan Documents, this Agreement shall govern.  Borrower acknowledges that it has consulted with counsel and with such other experts and advisors as it has deemed necessary in connection with the negotiation, execution and delivery of this Agreement.  This Agreement shall be construed without regard to any presumption or rule requiring that it be construed against the party causing this Agreement or any part hereof to be drafted.

 

5.                                       Expenses.  Borrower agrees to pay all costs, fees and expenses of Lender (including the fees of Lender’s counsel) incurred by Lender in connection with the negotiation, preparation, administration and enforcement of this Agreement.

 

6.                                       Miscellaneous.

 

(a)                                  Agreement as Debt Document.  Lender and Borrower agree that this Agreement is a Debt Document, as defined in the Master Agreement.

 

(b)                                 Further Assurance.  Borrower agrees to execute such other and further documents and instruments as Lender may request to implement the provisions of this Agreement.

 

(c)                                  Benefit of Agreement.  This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto, their respective successors and assigns.  No other person or entity shall be entitled to claim any right or benefit hereunder, including, without limitation, the status of a third-party beneficiary of this Agreement.

 

(d)                                 Integration.  This Agreement, together with the Loan Documents, including the Master Agreement and the Forbearance Agreement, constitutes the entire agreement and understanding among the parties relating to the subject matter hereof, and supersedes all prior proposals, negotiations, agreements and understandings relating to such subject matter.  In entering this Agreement, Borrower acknowledges that it is relying on no statement, representation, warranty, covenant or agreement of any kind made by the Lender or any employee or agent of the Lender, except for the agreements of Lender set forth herein.

 

(e)                                  Severability.  The provisions of this Agreement are intended to be severable.  If any provisions of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or enforceability without in any manner affecting the validity or enforceability of such provision in any other jurisdiction or the remaining provisions of this Agreement in any jurisdiction.

 

(f)                                    Governing Law.  This Agreement shall be governed by and construed in accordance with the internal substantive laws of the State of New York, without regard to the choice of law principles of such state.

 

(g)                                 VENUE; JURISDICTION; JURY TRIAL WAIVER.  LENDER, AND BORROWER EACH HEREBY IRREVOCABLY WAIVE THEIR RIGHT TO TRIAL BY JURY IN ANY CONTROVERSY ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE MASTER AGREEMENT, AND/OR THE LOAN DOCUMENTS.

 

4



 

(h)                                 Counterparts; Telecopied Signatures.  This Agreement may be executed in any number of counterparts and by different parties to this Agreement on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same agreement.  Any signature delivered by a party by facsimile transmission shall be deemed to be an original signature hereto.

 

(i)                                     Survival.  All representations, warranties, covenants, agreements, undertakings, waivers and releases of Borrower contained herein shall survive the termination of the Forbearance Period and payment in full of the Indebtedness of Borrower under the Loan Documents.

 

(j)                                     Amendment.  No amendment, modification, rescission, waiver or release of any provision of this Agreement shall be effective unless the same shall be in writing and signed by the parties hereto.

 

7.                                       Release of Claims and Waiver.  Borrower hereby releases, remises, acquits and forever discharges Lender and Lender’s employees, agents, representatives, consultants, attorneys, fiduciaries, servants, officers, directors, partners, predecessors, successors and assigns, subsidiary corporations, parent corporations, and related corporate divisions (all of the foregoing hereinafter called the “Released Parties”), from any and all actions and causes of action, judgments, executions, suits, debts, claims, demands, liabilities, obligations, damages and expenses of any and every character, known or unknown, direct and/or indirect, at law or in equity, of whatsoever kind or nature, whether heretofore or hereafter arising, for or because of any matter or things done, omitted or suffered to be done by any of the Released Parties prior to and including the date of execution hereof, and in any way directly or indirectly arising out of or in any way connected to this Agreement and the Loan Documents, including but not limited to, claims relating to any settlement negotiations (all of the foregoing hereinafter called the “Released Matters”).  Borrower acknowledges that the agreements in this paragraph are intended to be in full satisfaction of all or any alleged injuries or damages arising in connection with the Released Matters.  Borrower represents and warrants to Lender that it has not purported to transfer, assign or otherwise convey any right, title or interest of Borrower in any Released Matter to any other Person and that the foregoing constitutes a full and complete release of all Released Matters.

 

5



 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written.

 

 

 

GENERAL ELECTRIC CAPITAL CORPORATION

 

 

 

 

 

 

 

 

By:

/s/ Kevin G. Wortman

 

 

 

 

Name: Kevin G. Wortman

 

 

 

Title: SVP, Strategic Asset Financing

 

 

 

 

 

ATCHISON CASTING CORPORATION

 

 

 

 

 

 

 

 

By:

/s/ Kevin T. McDermed

 

 

 

 

Name Kevin T. McDermed

 

 

 

Title: V.P. & Treasurer

 

6


EX-99.1A 8 j7632_ex99d1a.htm EX-99.1A

Exhibit 99.1(a)

 

Certification of Chief Executive Officer

 

 

Pursuant to 18 U.S.C. §1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, I, the undersigned chief executive officer of Atchison Casting Corporation (the “Company”) hereby certify that, to my knowledge:

 

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarter ended December 31, 2002 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

 

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: February 14, 2003

 

/s/ Thomas K. Armstrong, Jr.

 

 

 

Thomas K. Armstrong, Jr.

 

 

Chief Executive Officer

 


EX-99.1B 9 j7632_ex99d1b.htm EX-99.1B

Exhibit 99.1(b)

 

Certification of Chief Financial Officer

 

 

Pursuant to 18 U.S.C. §1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, I, the undersigned chief financial officer of Atchison Casting Corporation (the “Company”) hereby certify that, to my knowledge:

 

(i) the accompanying Quarterly Report on Form 10-Q of the Company for the quarter ended December 31, 2002 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

 

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: February 14, 2003

 

/s/ Kevin T. McDermed

 

 

 

Kevin T. McDermed

 

 

 

Chief Financial Officer

 

 


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