UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended June 30, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to _________
Commission file number 0-22368
ATCHISON CASTING CORPORATION
(Exact name of registrant as specified in its charter)
Kansas 48-1156578
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:
Name of Each Exchange on
Title of Each Class Which Registered
------------------- ----------------
Common Stock, $.01 par value NOT APPLICABLE
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 for the past 90 days. YES / X / NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the Common Stock, par value $.01 per share, of the
registrant held by nonaffiliates of the registrant as of September 6, 1996 was
$48,175,440.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value, outstanding as of September 6, 1996: 5,528,912
Shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Proxy Statement for the Annual Meeting of
Stockholders to be held November 15, 1996, are incorporated by reference into
Part III.
1
PART I
ITEM 1. BUSINESS
GENERAL
Atchison Casting Corporation (the "Company" or "ACC") is a leading producer
of iron and steel castings. The Company's castings, which range in size up to
60 tons, are sold to customers in the locomotive, mass transit, mining and
construction equipment, farm equipment, trucking, military, energy, utility and
general industrial markets.
The Company has pursued an active acquisition program designed to take
advantage of consolidation opportunities in the widely-fragmented foundry
industry. The Company began this program in June 1991 when it acquired the
steel casting operations of Rockwell International Corporation. Following the
initial acquisition and financed, in part, with the net proceeds ($23.3 million)
of the Company's October 1993 initial public offering, the Company has acquired
eight additional foundries and now operates foundries in seven states and in
Canada. As a result of these transactions as well as internal growth, the
Company's sales have increased from approximately $54.7 million for its first
fiscal year ended June 30, 1992 to $185.1 million for the fiscal year ended June
30, 1996. Four of the acquired foundries have substantial underutilized
capacity, which the Company believes represents a growth opportunity well-suited
to its operating and marketing expertise and enables it to better service its
customers' growing needs. The Company intends to continue to make additional
complementary, industry-related acquisitions.
The Company attributes its favorable industry position to several factors,
including (i) its ability to cast substantially all types of iron and steel,
(ii) the Company's emphasis on marketing, (iii) the limited number of foundries
capable of producing steel castings of the size and complexity produced by the
Company, (iv) the Company's position as a long-term supplier to many of its
major customers, and (v) its use of casting design technology to improve its
products and manufacturing processes.
ACC's customers include General Motors, Caterpillar, General Dynamics,
Rockwell International, Westinghouse, John Deere, General Electric, Morrison
Knudsen, Bombardier, ABB, BTR, Nordberg, Siemens, GE Canada, Dana, Litton,
Eaton, Horton Industries, Mitsubishi, Ingersoll-Dresser, Cooper Energy and
Gardner Denver. The Company has received supplier excellence awards for quality
from, or has been certified by, substantially all of its principal customers.
While few of the Company's castings are sold directly to customers in foreign
markets, a substantial volume of ACC's castings enters the international
marketplace as components on domestic customers' equipment, which is, in turn,
exported. The Company's castings are found in electric power generation
turbines, nuclear power plants, gas pipeline compressors, hydroelectric dams,
locomotives, steam and petrochemical valves, rock crushers, bulldozers, mining
equipment, pumps, farm equipment, hydraulic controls, ships, air compressors,
large trucks, and many other types of machinery and equipment.
Since its inception in 1991, the Company has followed a marketing-oriented
strategy, the principal elements of which include:
- making industry-related acquisitions
- increasing the Company's service and sales to existing
customers
- expanding its customer base and product offerings in the
mass transit market
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- penetrating other promising new markets, such as castings
for turbines, compressors, valves, pumps and farm equipment
- broadening its casting capabilities to include carbon, low
alloy and stainless steels and gray and ductile iron
- applying advanced technology in joint development projects
with customers for the design of new castings
The Company believes that it is successfully implementing this strategy.
Between June 14, 1991 and June 30, 1996, the number of active customers served
by the Company has grown from 12 to more than 300, and the Company's backlog has
increased from $23.2 million to $65.1 million.
The Company believes that its markets are attractive because of a
relatively favorable competitive environment, high barriers to entry, the
opportunity to form strong relationships with customers and a trend by
manufacturing companies to close captive foundries and outsource their casting
requirements. The Company believes that it enjoys a competitive advantage in
its markets, which is due, in part, to (i) the Company's over 120 years of
industry experience, (ii) its superior technical expertise, (iii) its ability to
produce castings meeting stringent customer specifications, (iv) its reputation
for consistent on-time delivery performance, (v) its ability to cast
substantially all grades of iron and steel, (vi) its machining and finishing
capabilities, which enable the Company to produce a higher quality, value-added
product, and (vii) the Company's emphasis on marketing and sales in an industry
in which marketing skills have not, historically, been emphasized.
The Atchison/St. Joseph division of the Company, formerly the steel
castings business of Rockwell International Corporation ("Rockwell
International"), was acquired on June 14, 1991 by a group including members of
management and institutional equity investors (the "Initial Acquisition").
Consistent with its strategy of making industry-related acquisitions, the
Company subsequently purchased the Amite Foundry and Machine Shop ("Amite") (a
then-inactive producer of large iron and steel castings) in February 1993,
Prospect Foundry, Inc. ("Prospect Foundry") (a producer of high quality gray and
ductile iron castings) in April 1994, Quaker Alloy, Inc. ("Quaker Alloy") (a
producer of smaller carbon, low alloy and stainless steel castings) in June
1994, Canadian Steel Foundries, Ltd. ("Canadian Steel") (a producer of large,
carbon, low alloy and stainless steel castings) in December 1994, Kramer
International, Inc. ("Kramer") (a producer of cast iron and steel pump
impellers) in January 1995, Empire Steel Castings, Inc. ("Empire") (a producer
of carbon, low alloy and stainless steel castings) in February 1995, La Grange
Foundry Inc. ("La Grange") (a producer of smaller gray and ductile iron
castings) in December 1995 and The G&C Foundry Company ("G&C") (a producer of
smaller gray and ductile iron castings) in March 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Recent Acquisitions."
The Company's original predecessor was founded in Atchison, Kansas (located
approximately 40 miles north of Kansas City, Missouri) in 1872 to supply iron
castings to the Atchison, Topeka, and Santa Fe Railroad. In 1906, the foundry
merged with a machine shop, and in 1930 a new steel foundry in Atchison was
constructed. In 1956, the operations were acquired by Rockwell International
to ensure availability of steel castings for Rockwell
International's valve divisions. Rockwell International sold its valve
divisions in 1989 and decided to divest the steel castings business shortly
thereafter. Atchison Casting Corporation was incorporated in Delaware on
February 21, 1991 for the purpose of acquiring the steel castings business from
Rockwell International. On December 31, 1994, the Company reincorporated in
Kansas. The principal executive offices of the Company are located at 400 South
Fourth Street, Atchison, Kansas 66002-0188, and the Company's telephone number
is (913) 367-2121.
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STRATEGY
The Company seeks to maintain and enhance its current position as a long-
term preferred supplier of iron and steel castings to a diversified and growing
customer base. The Company has developed and implemented a marketing-oriented
strategy designed to identify markets in which the Company can capitalize on its
manufacturing and technical expertise. The principal elements of the Company's
strategy include:
MAKING INDUSTRY-RELATED ACQUISITIONS. The Company seeks to take
advantage of consolidation opportunities in the widely-fragmented foundry
industry, and the acquisition of complementary, industry-related companies
and facilities is an important element of the Company's strategy for
achieving profitable growth. Consistent with that strategy, the Company
has acquired nine foundries since its inception. ACC believes that it will
be able to apply its marketing and sales expertise and its ability to use
modern casting design technology to the assets and operations acquired.
In February 1993, the Company acquired Amite. The Company reopened
the machine shop at this facility in October 1993 and reopened the foundry
in November 1994. The reopening of the Amite foundry significantly
increased the Company's production capacity. During fiscal 1994, the
Company acquired Prospect Foundry in Minneapolis, Minnesota and Quaker
Alloy in Myerstown, Pennsylvania. Prospect Foundry casts both gray and
ductile iron in sizes ranging from several pounds to 350 pounds. Quaker
Alloy specializes in high alloy and stainless steel castings for the energy
and utility industries, among others.
During fiscal 1995, the Company acquired Canadian Steel in Montreal,
Quebec, Kramer in Milwaukee, Wisconsin and Empire in Reading, Pennsylvania.
Canadian Steel makes low alloy and stainless steel castings for the
hydroelectric, pulp and paper, mining and construction and steel mill
industries. Kramer specializes in making cast-iron, steel and bronze
impellers for the pump industry. Empire supplies iron and steel castings
to the pump and valve industry.
In fiscal 1996, the Company acquired La Grange in La Grange, Missouri
and G&C in Sandusky, Ohio. La Grange produces gray and ductile iron
castings for the industrial compressor and pump markets. G&C casts gray
and ductile iron castings, principally used in hydraulic applications.
ACC is seeking opportunities to acquire other foundries that could
benefit from a stronger emphasis on marketing and technology. The Company
continues to investigate potential acquisitions in North America and
Europe.
INCREASING SERVICE AND SALES TO EXISTING CUSTOMERS. ACC is working
with some of its key customers to jointly develop new castings as a
substitute for existing fabricated parts. These joint development efforts
are based on technology advances, including solid modeling, finite element
analysis, solidification simulation and CNC pattern making. Such new
applications for castings not only expand sales to existing customers but
also increase the overall market for castings.
As ACC's product lines grow, whether through these joint development
efforts or as a result of acquisitions, the Company believes it can utilize
its established customer relationships (channels) to market these
additional types of castings, thereby increasing sales to existing
customers.
4
EXPANDING IN THE MASS TRANSIT MARKET. Since entering the mass transit
market in 1992, the Company has received orders for transit undercarriages
for the mass transit systems in San Francisco (BART), Chicago (METRA),
Atlanta (MARTA), Miami, Vancouver, Los Angeles and San Diego (NCTD). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- General."
The Company hopes to benefit from increased infrastructure spending
for mass transit and passenger rail systems. The Company is one of three
foundries in North America that cast undercarriages for the mass transit
market. ACC owns proprietary designs that are used in transit cars in
Atlanta, Chicago, Cleveland, Los Angeles, Miami, San Diego, San Francisco,
Toronto and Washington D.C. These designs may afford the Company an
advantage when bidding for additional orders in these cities.
PENETRATING NEW MARKETS. Since 1991, the Company has expanded its
marketing and sales department and targeted new markets such as iron and
steel castings for turbines, compressors, farm equipment, valves and pumps,
hydroelectric equipment, as well as mass transit. These markets have been
targeted based on their projected demand for these castings and the
Company's expertise in casting components used in these markets. New
customers include Westinghouse, Siemens, General Electric and Cooper Energy
in turbines and compressors; Marlin Valve, General Valve, Shaffer, Barton
Valve, Cooper Oil Tool and Ingersoll-Dresser in valves and pumps;
Mitsubishi in hydroelectric equipment; and Morrison Knudsen, Bombardier and
GEC Alsthom in mass transit. Through Prospect Foundry, Quaker Alloy,
Canadian Steel, Kramer, Empire, La Grange and G&C, the Company acquired a
number of important new customers, including John Deere, Goulds Pumps,
Vickers, Tippins, Eaton, Ingersoll-Dresser, Horton Industries and Gardner
Denver, among others.
BROADENING THE COMPANY'S MATERIALS CAPABILITIES. Within the last four
years, the Company has expanded its production capabilities to include
castings made from stainless steel, which has corrosion and heat resistant
properties, and gray and ductile iron. These additional capabilities
should enable the Company to further penetrate new markets and increase
sales to existing customers.
APPLYING ADVANCED TECHNOLOGY. ACC uses finite element techniques and
solid modeling to help customers design lighter, stronger castings, and
then to put those castings into production more quickly and economically
than was possible using more traditional foundry methods. The computerized
solid models are used to simulate the casting process, to make patterns and
auxiliary tooling and to machine the finished castings.
CASTINGS
Casting is one of several methods, along with forging and fabricating,
which shape metal into desired forms. Castings are made by pouring molten metal
into a mold and allowing the metal to cool until it solidifies, creating a
monolithic component. Forgings are made by shaping solid metal with pressure,
usually in a die or with hammers. Fabrications are made by welding together
separate pieces of metal. Castings can offer significant advantages over
forgings and fabrications. A well-designed casting can be lighter, stronger and
more stress and corrosion resistant than a fabricated part. Although castings
and forgings are similar in several respects, castings are generally less
expensive than forgings.
Steel is more difficult to cast than iron, copper or aluminum because it
melts at higher temperatures, undergoes greater shrinkage as it solidifies,
causing the casting to crack or tear if the
5
mold is not properly designed, and is highly reactive with oxygen, causing
chemical impurities to form as it is poured through air into the mold. Despite
these challenges, cast steel has become a vital material due to its superior
strength compared to most other ferrous metals.
In applications that do not require the strength, ductility and/or
weldability of steel, iron castings are generally preferred due to their lower
cost, shorter lead-times and somewhat simpler manufacturing processes. Ductile
iron is especially popular because it exhibits a good combination of the
qualities of both iron and steel. Ductile iron is stronger and more flexible
than traditional cast iron--known as "gray iron"--but is easier and less
expensive to cast than steel.
INDUSTRY OVERVIEW
The U.S. castings industry had shipments of approximately $25.8 billion in
1995, of which steel castings accounted for approximately $3.2 billion and iron
castings for approximately $10.3 billion. Between 1982 and 1995, the castings
industry experienced a period of consolidation, reflecting among other things an
industry trend of closing captive, company-specific foundries and outsourcing
the production formerly associated with those closed facilities. During that
period, the number of steel foundries declined from 465 to approximately 290,
while iron foundries declined from 1,400 to approximately 700. As the industry
consolidated, capacity utilization increased from approximately 45% in 1982 to
more than 84% in 1995.
The Company believes that the market for iron and steel castings is
attractive because of a relatively favorable competitive environment, high
barriers to entry and the opportunity to form strong relationships with
customers. New competitors are unlikely to enter the foundry industry because
of the high cost of new foundry construction, the need to secure environmental
approvals at a new foundry location, the technical expertise required and the
difficulty of convincing customers to switch to a new, unproven supplier.
Customers tend to develop long term relationships with those foundries that
can provide high quality, machined castings delivered on a just-in-time basis
that do not require on-site inspection. In addition, a number of customers are
forming product development partnerships with their suppliers to develop new
applications for castings.
PRODUCT LINES AND CUSTOMERS
LOCOMOTIVE. Locomotive undercarriages (also known as trucks or bogies)
constitute one of the Company's most important product lines. The undercarriage
is the frame that surrounds and supports the wheels, axles, brakes and motors of
the locomotive, and upon which the body or superstructure rests. Each locomotive
has two locomotive undercarriages, which support the weight of the locomotive
and absorb the shocks from the rails. Locomotive undercarriages, which are
large, complex, hollow, flexible steel castings weighing approximately 11,000
pounds, are one of the most difficult castings produced in foundries today. The
Company supplies undercarriages completely machined and painted, ready to
assemble with wheels, brakes and motors on the customer's production floor
without further processing and generally without further inspection. Net sales
of locomotive undercarriages accounted for 27.8%, 19.2% and 7.5%, respectively,
of fiscal 1994, fiscal 1995 and fiscal 1996 net sales.
MASS TRANSIT. Undercarriages and suspension parts for subway, commuter and
passenger rail cars are an important and growing part of the Company's business.
Although similar in some respects to locomotive undercarriages, transit
undercarriages are smaller, averaging 5,000 pounds.
6
Transit undercarriages perform a similar function as locomotive undercarriages,
but must be designed to provide a smoother ride for passenger comfort.
Since entering this market in 1992, the Company has acquired contracts for
transit undercarriages and related rail car parts being built by Morrison
Knudsen (METRA and BART), Bombardier (NCTD, Miami, Los Angeles and Vancouver)
and GEC Alsthom (MARTA). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- General." The Company owns proprietary
patterns and designs for transit and passenger rail undercarriages, which are
approved by Amtrak or in service in the mass transit systems in Atlanta,
Chicago, Cleveland, Los Angeles, Miami, San Diego, San Francisco, Toronto,
Vancouver and Washington, D.C.
MINING AND CONSTRUCTION. Mining and construction equipment is subject to
high stress, fatigue and a harsh outdoor environment. For these reasons, steel
castings are often preferred over fabrications or cast iron. The Company
currently supplies castings to Caterpillar for mining trucks, wheel loaders,
pipelayers, the D-8N and D-11 tractor-crawlers and hydraulic excavators. The
Company also supplies to other original equipment manufacturers rock crusher
components and housings for wheels and axles. Products supplied to the mining
and construction industry, including Caterpillar, accounted for 21.4%, 25.6% and
31.1%, respectively, of the Company's net sales in fiscal 1994, fiscal 1995 and
fiscal 1996. In fiscal 1996, Caterpillar accounted for more than 10% of net
sales.
The Company is working with customers to develop castings for new products,
which are currently in the prototype stage. Such joint developmental projects
have the potential to expand the total steel castings market by substituting
castings for fabrications, and also place the Company in a preferred position to
obtain future contracts.
MILITARY. The Company is the exclusive supplier to General Dynamics of
over seven tons of cast armor components utilized in the M1-A2 main battle tank,
representing approximately 80% of the steel castings (by weight) used per tank.
Armor is extremely difficult to cast, heat treat and machine, and the Company
has developed highly specialized processes to do so. The Company has supplied
tank castings since 1978, first to Chrysler and then to General Dynamics, which
purchased the tank business from Chrysler. Tank castings and other military
products produced by the Company, including steel castings for Army howitzers
and Navy ships, accounted for 18.9%, 9.0% and 7.6%, respectively, of fiscal
1994, fiscal 1995 and fiscal 1996 net sales.
Currently, General Dynamics is filling orders for tanks for foreign
military customers. The U.S. Army has a fleet of 9,000 M1 tanks and is
beginning to convert a small number of older M1 tanks to the M1-A2
configuration. Each such conversion would require approximately half the volume
of castings used on a new tank.
Not all foundries can meet military specifications, which are generally
much more stringent than industrial specifications. The Company's ability to
satisfy these difficult metallurgical, mechanical and dimensional requirements
positions the Company to enter other demanding castings markets, such as those
for turbines and compressors.
TURBINES AND COMPRESSORS. The Company produces housings for rotating
parts, blade rings, bases and other components of turbines and compressors.
Steel castings for turbines and compressors must conform to strict metallurgical
and heat treatment specifications since such castings are subject to pressure,
vibration and temperature extremes. The castings are critical to the
performance of turbines and compressors, and manufacturers have implemented
demanding qualification procedures for new castings suppliers.
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VALVES AND PUMPS. Cast steel valves and pumps are used by the oil and
gas, petrochemical, power generation, paper and water treatment industries.
These castings range in size from 25 pounds to 30 tons and must be able to
withstand high pressures. The valve and pump market demands complex designs,
short delivery lead times, excellent finishing and a wide range of materials,
including stainless steel. In order to cast stainless steel, the Company
installed its first Argon Oxygen Decarburization ("AOD") system in fiscal 1992.
See "--Stainless Steel."
Historically, the Company made valve castings from carbon steel for
Rockwell International's two valve divisions. Rockwell International bought the
Atchison foundry in 1956 to ensure a source of valve castings for its divisions.
While under Rockwell International's ownership, the foundry did not supply valve
castings to outside companies. Since 1991, the Company has focused on becoming
a leading supplier of valve and pump castings and has gained a number of new
customers in this market. The Company continues to supply the former Rockwell
International valve divisions, which are now owned by BTR (formerly British Tire
and Rubber).
Through Quaker Alloy, the Company has acquired a number of new valve and
pump customers, including Ingersoll-Dresser Pump.
PUMP IMPELLERS. Through the acquisition of Kramer, the Company became an
important supplier of impeller castings to the U.S. pump industry. Impellers
are difficult to cast because the inside passages must be very smooth, and are
often quite intricate as well. Kramer has developed techniques for efficiently
using ceramic cores to produce the quality demanded by this market.
HYDROELECTRIC. Through the acquisition of Canadian Steel, the Company
entered the worldwide market for castings used in hydroelectric applications,
generally installed in dams which generate electricity. These castings can
weigh up to 60 tons, and are often made of stainless steel. Customers include
GE Canada, Voith Hydro, Escher-Wyss, Mitsubishi and others.
FARM EQUIPMENT. Through its acquisition of Prospect Foundry, ACC has
gained access to customers in the farm equipment market. Prospect Foundry
supplies iron castings to a number of John Deere facilities.
OTHER PRODUCTS. The Company makes products for a number of other
industries. These products include machined castings for equipment used in food
processing, oil and gas extraction and distribution, transportation, rubber and
plastic processing and other industries.
STAINLESS STEEL. Stainless steel castings are used in corrosion and heat
resistant applications. Stainless steel, which is iron alloyed with chrome,
nickel and other elements, is more accurately defined as a material than a
product. There is a wide variety of stainless steels, and relatively few
foundries can cast them effectively. In fiscal 1992, the Company installed at
its Atchison foundry an Argon-Oxygen-Decarburization vessel (an "AOD"), a
special steel processing system that makes it possible to precisely control the
metallurgy of liquid steel and allows stainless steel to be efficiently made
from ordinary carbon steel scrap. This method is the most economical means to
produce high quality stainless steel castings.
Quaker Alloy and Canadian Steel, which manufacture stainless steel and
other high-alloy castings, also employ AOD systems.
Few domestic competitors in the large casting segment have an AOD system.
The ability to cast stainless steel has enabled the Company to further penetrate
the market for cast steel valve components because valve and pump manufacturers
are less willing to place orders for any of their requirements, including carbon
steel, with foundries that cannot also cast stainless steel. In
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addition, the Company has gained other customers for other stainless steel
castings such as turbine blade rings and chemical and food processing equipment.
DUCTILE IRON. Another important cast material supplied by ACC is ductile
iron, a market which for the last ten years has been growing faster than either
the traditional cast or "gray" iron or cast steel markets. Ductile iron is a
relatively new material which combines important features of both traditional
"gray iron" and steel. Ductile iron is used in a wide range of applications, by
many industries, including energy, mining and construction, hydraulic, utility,
trucking and automotive.
PRODUCT AND PROCESS DEVELOPMENT
The Company believes product development is essential to its continued
growth. Its product development efforts have focused on learning to cast new
materials, working in partnership with customers to design and develop new
castings and new casting applications and continuously improving specific
castings through process refinements.
Major efforts to develop new castings and materials have included: (i)
adding stainless steel capability, (ii) identifying existing steel fabrications
that can be replaced by castings, (iii) participating in casting design
improvements for various customers, (iv) continuing to develop improvements to
the mass transit undercarriage patterns and (v) acquiring the capability to cast
ductile iron.
Examples of recent process improvement efforts include the use of (i)
equipment and processes to measure the nitrogen content of liquid steel, (ii)
more advanced solidification software, (iii) computer numerical control ("CNC")
pattern cutting and (iv) controlled experimentation to improve the process for
making difficult castings.
MARKETING AND SALES
The Company believes that many foundries are characterized by a lack of
emphasis on marketing and sales. Historically, many foundries have been family-
owned and began as dedicated suppliers focused on a particular customer. As
such, most foundries failed to develop a marketing orientation and did not try
to expand their customer base. By developing a professional marketing
organization and building a sales force, the Company believes it has been and
will continue to be able to capitalize on the industry's traditional lack of
focus in marketing and sales.
The Company's marketing and sales organization is structured along industry
lines. The expertise of the sales force enables it to work closely with the
Company's customers to identify new applications for castings, understand the
customers' requirements and improve designs and manufacturing processes. The
sales force coordinates engineering, purchasing and scheduling in order to
ensure the highest quality and reliable delivery. The sales force is supported
by customer service representatives who handle customer inquiries. The Company
supplements its direct sales effort with participation in trade shows, marketing
videos, brochures, use of manufacturer's representatives, technical papers and
customer seminars on castings design.
BACKLOG
The Company's backlog of orders was $65.1 million at June 30, 1996, as
compared to $68.5 million at June 30, 1995. The backlog is scheduled for
delivery in fiscal 1997, except for
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approximately $1.0 million, of which approximately $600,000 is expected to be
delivered in fiscal 1998.
COMPETITION
The Company faces strong competitors in most of its markets. Some of the
Company's competitors may have greater financial resources than the Company;
others may have lower costs than the Company. There can be no assurance that
existing or potential competitors will not substantially increase their
resources devoted to the development and marketing of products competitive with
those of the Company.
The Company competes with a number of foundries in one or more product
lines, although none of the Company's competitors compete with it across all
product lines. The principal competitive factors in the castings market are
quality, delivery and price. The Company believes that it is able to compete
successfully in its markets by (i) offering high quality, machined and finished
castings, (ii) working with customers to develop and design new castings, (iii)
providing reliable delivery and short lead times, (iv) containing its
manufacturing costs, thereby pricing competitively and (v) offering a broad
range of cast materials.
In addition, the Company generally believes new competitors are unlikely to
enter its markets because of the difficulty of overcoming barriers to entry such
as the capital requirements of building a new foundry, the need to secure
environmental approvals at a new foundry location, the technical expertise
required to make and machine large, complex castings and the difficulty of
convincing customers to switch to a new, unproven supplier. A Canadian foundry,
which underwent a change in ownership in 1993, has re-entered the locomotive
undercarriage market, and is competing with the Company for undercarriage
business.
MANUFACTURING
STEEL CASTINGS. The steel castings manufacturing process involves melting
steel scrap in electric arc or induction furnaces, adding alloys, pouring the
molten metal into molds made primarily of sand and removing the solidified
casting for cleaning, heat treating and quenching prior to machining the casting
to final specifications. The manufacture of a steel casting begins with the
molding process. Initially, a pattern constructed of wood, aluminum or plastic
is created to duplicate the shape of the desired casting. The pattern, which has
similar exterior dimensions to the final casting, is positioned in a flask and
foundry sand is packed tightly around it. After the sand mold hardens, the
pattern is removed. When the sand mold is closed, a cavity remains within it
shaped to the contours of the removed pattern. Before the mold is closed, sand
cores are inserted into the cavity to create internal passages within the
casting. For example, a core would be used to create the hollow interior of a
valve casing. With the cores in place, the mold is closed for pouring.
Steel scrap and alloys are melted in an electric arc furnace at
approximately 2,900 degrees Fahrenheit, and the molten metal is poured from
ladles into the molds. After pouring and cooling, the flask undergoes a
"shakeout" procedure in which the casting is removed from the flask and vibrated
to remove sand. The casting is then moved to a blasting chamber for removal of
any remaining foundry sand and scale. Next, the casting is sent to the cleaning
room, where an extensive process removes all excess metal. Cleaned castings are
put through a heat treating process, which improves properties such as hardness
and tensile strength through controlled increases and decreases in temperature.
A quench tank is also available for use in heat treatment. The castings are
shot blasted again and checked for dimensional accuracy. Each casting undergoes
10
a multi-stage quality control procedure before being transported to one of the
Company's machine shops for any required machining.
IRON CASTINGS. Iron castings are processed similarly in many respects to
steel castings. Melting and pouring temperatures for molten ductile iron are
approximately 2,400 degrees Fahrenheit, and less cleaning and finishing is
required for iron castings than that typically required for steel castings.
Iron scrap as well as steel scrap may be used in making cast iron.
MACHINING. The Company machines many of its steel castings, typically to
tolerances within 30 thousandths of an inch. Some castings are machined to
tolerances of five thousandths of an inch. Machining includes drilling,
threading or cutting operations. The Company's St. Joseph and Amite machine
shops have a variety of CNC machine tools. The benefits of access to captive
machine shops include providing a higher value-added product to the customer and
improved quality. Casting imperfections are usually discovered during machining
and corrected before the casting is shipped to the customer.
NON-DESTRUCTIVE TESTING. Customers typically specify the physical
properties which their castings are to possess, such as hardness and strength.
The Company determines how best to meet those specifications. Constant testing
and monitoring of the manufacturing process are necessary to maintain the
quality and to ensure the consistency of the castings. Electronic testing and
monitoring equipment for tensile, impact, radiography, ultrasonic, magnetic
particle, dye penetrant and spectrographic testing are used extensively to
analyze molten metal and test castings.
ENGINEERING AND DESIGN. The Company's process engineering department
assists the customer in designing the product and works with manufacturing
departments to determine the most cost effective way to produce the casting.
Among other computer-aided design techniques, the Company uses three-dimensional
solid modeling and solidification software. This equipment reduces the time
required to produce sample castings for customers by several weeks and improves
the casting design.
RAW MATERIALS
The principal raw materials used by the Company include scrap iron and
steel, molding sand, chemical binders and alloys, such as manganese, nickel and
chrome. The raw materials utilized by the Company are available in adequate
quantities from a variety of domestic sources. From time to time the Company
has experienced fluctuations in the price of scrap steel, which accounts for 4%
of sales value, and alloys, which account for less than 2% of sales value. The
Company has generally been able to pass on the increased costs of raw materials
and has escalation clauses for scrap and certain alloys with certain of its
customers. As part of its commitment to quality, the Company issues rigid
specifications for its raw materials and performs extensive inspections of
incoming raw materials.
QUALITY ASSURANCE
The Company has adopted sophisticated quality assurance techniques and
policies which govern every aspect of its operations to ensure high quality.
During and after the casting process, the Company performs many tests, including
tensile, impact, radiography, ultrasonic, magnetic particle, dye penetrant and
spectrographic tests. The Company has long utilized statistical process control
to measure and control dimensions and other process variables. Analytical
techniques such as Design of Experiments and the Taguchi Method are employed for
trouble-shooting and process optimization.
11
As a reflection of its commitment to quality, the Company has been
certified by, or won supplier excellence awards from, substantially all of its
principal customers. Of 600 suppliers to General Motors' Electromotive
Division, the Company was the first supplier to receive the prestigious Targets
of Excellence award. Reflecting its emphasis on quality, the Atchison foundry
and St. Joseph machine shop were certified to ISO 9001 in August 1995, which
represents compliance with an international standard for quality assurance.
Quaker Alloy was certified to ISO 9002 in March 1995, and La Grange in June,
1994. Other ACC foundries are preparing for ISO certification.
TECHNOLOGY
Advances in technology help the Company to design and produce the highest
quality castings for its customers. The Company is one of very few foundries
that uses its own scanning electron microscope to analyze inclusions in cast
metal. Recent investments by the Company in technology improvements include AOD
refining, computer-controlled sand binder pumps, new solidification software and
hardware, CNC machine tools for cutting patterns and machining castings, new
cutting head designs for machine tools and equipment for measuring the nitrogen
content of steel.
To stay abreast of technological developments in the U.S. and abroad, the
Company participates in trade shows, industry associations, joint experiments,
foundry visits and vendor trials of new products. The Company makes continuous
enhancements in computer-aided design of castings and patterns and computer-
aided solidification simulation.
Advances in computer hardware and software have made it possible for the
Company to design castings faster, to higher levels of quality and performance
and at lower cost than was possible a decade ago. Using finite element analysis
on an inexpensive but powerful workstation, foundries and their customers can
use stress analysis and casting simulation programs to avoid some of the costly
trial and error associated with manual prototyping and physical testing. This
trend, which is based on technologies primarily developed outside the foundry
industry, is having a beneficial impact by shortening design cycles, lowering
casting cost and in some cases opening up new applications for the use of
castings, in substitution for fabricated parts.
EMPLOYEE AND LABOR RELATIONS
As of June 30, 1996, the Company had approximately 2,200 full-time
employees. The Company's hourly employees are covered by collective bargaining
agreements with several unions at seven of its locations, which agreements
expire at different times over the next several years. The Company's collective
bargaining agreement at the Atchison foundry and St. Joseph machine shop,
covering approximately 589 employees, expires in May 1999. The Company's
collective bargaining agreement at Canadian Steel, covering approximately 86
employees, expires in February 2001. The Company's collective bargaining
agreements at Prospect Foundry and Quaker Alloy, covering approximately 174 and
200 employees, respectively, expire in June 1999 and July 1999, respectively.
The Company's collective bargaining agreements at Empire and G&C, covering
approximately 170 and 106 employees, respectively, expire in November 1996 and
June 1997, respectively. The Company's collective bargaining agreement at La
Grange, covering approximately 198 employees, expires in December 2000. In the
last five years, the Company has had one work stoppage at the Atchison foundry
and St. Joseph machine shop, which lasted for nine days in May 1993.
12
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
executive officers of the Company.
NAME AGE POSITION WITH THE COMPANY
Hugh H. Aiken 52 Chairman of the Board, President, Chief
Executive Officer and Director
Charles T. Carroll 46 Vice President--G&C
Edward J. Crowley 58 Vice President--Empire
C. Dinny Kinloch 42 Vice President--Quaker Alloy
John R. Kujawa 42 Vice President--Atchison/St. Joseph
--Amite
Donald J. Marlborough 59 Vice President--Corporate Development
--Canadian Steel
--La Grange
Kevin T. McDermed 36 Vice President, Chief Financial Officer,
Treasurer and Secretary
Richard J. Sitarz 54 Vice President--Prospect
James Stott 54 Vice President--Kramer
HUGH H. AIKEN has been the Chairman of the Board, President, Chief
Executive Officer and a Director since June 1991. From 1989 to 1991, Mr. Aiken
served as an Associate of Riverside Fund I, L.P., Partners, an investment firm
located in Cambridge, Massachusetts, and from 1985 to 1989, Mr. Aiken served as
General Manager for AMP Keyboard Technologies, Inc., a manufacturer of
electromechanical assemblies located in Milford, New Hampshire. Mr. Aiken
previously served as a Director and Chief Operating Officer of COMNET
Incorporated and as a Director and Chief Executive Officer of General Computer
Systems, Inc., both public companies.
CHARLES T. CARROLL has been Vice President--G&C since September 1996 and
has served as President of G&C since June 1980. He served as Plant Manager of
G&C from June 1978 to June 1980. Mr. Carroll has been with G&C since 1973.
EDWARD J. CROWLEY has been Vice President--Empire since February 1995. He
served as President and Chief Executive Officer of Empire Steel Castings, Inc.
(the predecessor of Empire) since 1985.
C. DINNY KINLOCH has been Vice President--Quaker Alloy since September 1994
and has served as President of Quaker Alloy since June 1994. He served as
General Manager of CMI-Quaker Alloy, Inc. (the predecessor of Quaker Alloy) from
August 1993 to June 1994, as its Operations Manager from March 1991 to August
1993 and as its Shift Superintendent from October 1989 to March 1991. Mr.
Kinloch has been with Quaker Alloy and its predecessor since 1976.
13
JOHN R. KUJAWA has been Vice President--Atchison/St. Joseph since August
1994 and Vice President--Amite since May, 1995. He served as Executive Vice
President--Operations of the Company from July 1993 to August 1994, Vice
President--Foundry of the Company from June 1991 to July 1993, Assistant Foundry
Manager of the Company from 1990 to 1991 and as Senior Process Engineer of the
Company from 1989 to 1990. He served as Operations Manager for Omaha Steel
Castings, a foundry in Omaha, Nebraska from 1984 to 1989.
DONALD J. MARLBOROUGH has been Vice President--Corporate Development, Vice
President -- Canadian Steel since December 1994 and Vice President -- La Grange
since December 1995. From May 1991 to October 1994, Mr. Marlborough served as
Vice President - Manufacturing and Plant Manager for American Steel Foundries, a
foundry in Chicago, Illinois, and served as President and Director of
Manufacturing for Racine Steel Castings, a foundry in Racine, Wisconsin, from
1985 to June 1990.
KEVIN T. MCDERMED has been Vice President, Chief Financial Officer and
Treasurer of the Company since June 1991 and has served as Secretary of the
Company since May 1992. He served as the Controller of the Company from 1990 to
June 1991 and as its Finance Manager from 1986 to 1990. Mr. McDermed has been
with the Company since 1981.
RICHARD J. SITARZ has been Vice President--Prospect since September 1994
and has served as President of Prospect Foundry since July 1992. He served as
Executive Vice President of Prospect Foundry since 1985. Mr. Sitarz has been
with Prospect Foundry since 1967.
JAMES STOTT has been Vice President--Kramer since January 1995. He served
as President, Chief Executive Officer and Chief Operating Officer of Kramer
International, Inc. (the predecessor of Kramer) since 1980.
PRODUCT WARRANTY
The Company warrants that every product will meet a set of specifications,
which is mutually agreed upon with each customer. The Company's written
warranty provides for the repair or replacement of its products and excludes
contingency costs. Often, the customer is authorized to make the repair within
a dollar limit, in order to minimize freight costs and the time associated
therewith. Although the warranty period is 90 days, this time limit is not
strictly enforced if there is a defect in the casting. In fiscal 1996, warranty
costs amounted to less than one percent of the Company's net sales.
14
ENVIRONMENTAL REGULATIONS
Companies in the foundry industry must comply with numerous Federal, state
and local (and, with respect to Canadian operations, provincial and local)
environmental laws and regulations relating to air emissions, stormwater run-
off, landfill operations, workplace safety and other matters. The Clean Air
Act, as amended, the Clean Water Act, as amended, and similar provincial, state
and local counterparts of these Federal laws regulate air and water emissions
and discharges into the environment, respectively. The Resource Conservation
and Recovery Act, as amended, and the Comprehensive Environmental Response,
Compensation and Liability Act, as amended ("CERCLA"), among other laws, address
the generation, storage, treatment, transportation and disposal of solid and
hazardous waste and releases of hazardous substances into the environment,
respectively. The Company believes that it is in material compliance with
applicable environmental laws and regulations and is not aware of any
outstanding violations or citations with respect thereto at any of its
facilities. As the Company evaluates and updates the environmental compliance
programs at foundry facilities recently acquired, the Company may become aware
of matters of non-compliance that need to be addressed or corrected, none of
which are expected to have a material adverse effect on the Company's results of
operations or financial condition.
A Phase I environmental assessment of each of the Company's facilities has
been performed, and no significant or widespread contamination has been
identified at any Company facility. There can be no assurance that these Phase
I assessments have identified, or could be expected to identify, all areas of
contamination or that material adverse conditions have not developed at any of
the Company's facilities since such assessments.
The chief environmental issues for the Company's foundries are air
emissions and solid waste disposal. Air emissions, primarily dust particles,
are handled by dust collection systems. The Company anticipates that it will
incur additional capital and operating costs to comply with the Clean Air Act
Amendments of 1990 and the regulations thereunder. Because the final standards
implementing the Clean Air Act Amendments have not yet been established, the
Company cannot at this time reasonably estimate the cost of compliance with
these requirements (or the timing of such costs). Such compliance costs,
however, could have a material adverse effect on the Company's results of
operations and financial condition.
The solid waste generated by the Company's foundries generally consists of
non-hazardous foundry sand that is reclaimed for reuse in the foundries until it
becomes dust. The non-hazardous foundry dust waste is then disposed of in
landfills, two of which are owned by the Company (one in Atchison County,
Kansas, and one in Myerstown, Pennsylvania). No other parties are permitted to
use the Company's landfills, which are both in material compliance with all
applicable regulations. The Company believes that its landfills have a
remaining useful life of approximately 10 years before closure may be required
due to capacity constraints. There can be no assurance that closure of the
landfills will not be required at an earlier date due to changes in regulatory
requirements, and the costs associated with closing the Company's landfills
could be material.
The prior owner of the Prospect Foundry was notified by the United States
Environmental Protection Agency (EPA) that it was a potentially responsible
party ("PRP") allegedly liable under CERCLA for costs incurred in connection
with clean-up activities at the Oak Grove Sanitary Landfill site in Anoka
County, Minnesota. The prior owner already has paid amounts in settlement of
its obligations. As a result of the payment by the prior owner and the presence
of other financially viable PRPs, the Company believes that additional payments,
if any, with respect to this site will not have a material adverse effect on the
Company's results of operations or financial condition.
While under prior ownership, Kramer was identified as a PRP with respect to
clean-up of a waste disposal site located in Franklin, Wisconsin which was used
by one of Kramer's former
15
subcontractors. The $6 million clean-up of this site has been completed.
Kramer's insurance carriers paid $300,000 toward clean-up. The performing PRP
has sued a group of nonperforming PRPs, including Kramer, for contribution.
ACME PRINTING INK COMPANY V. MENARD, ET AL., Case No. 89-C-834 (E.D. Wis.).
Because of alleged unexpected clean-up costs, the performing PRP is demanding
additional contribution from Kramer beyond the $300,000 already paid.
Management believes that the resolution of this matter will not result in a
material adverse effect on the Company's results of operations or financial
condition. To date, all litigation costs related to this matter, including
attorneys' fees, have been paid by Kramer's insurance carriers.
None of the events involved in either of the above two cases occurred under
ACC's period of ownership.
The Company also operates pursuant to regulations governing workplace
safety. The Company samples its interior air quality to ensure compliance with
Occupational Safety and Health Administration (OSHA) requirements. To the
Company's knowledge, it currently operates in material compliance with all OSHA
and other regulatory requirements governing workplace safety.
The Company continues to evaluate its manufacturing processes and equipment
(including its recently acquired facilities) to ensure compliance with the
complex and constantly changing environmental laws and regulations. Although
the Company believes it is currently in material compliance with such laws and
regulations, the operation of casting manufacturing facilities entails
environmental risks, and there can be no assurance that the Company will not be
required to make substantial additional expenditures to remain in or achieve
compliance in the future.
16
ITEM 2. PROPERTIES
The Company's principal facilities are listed in the accompanying table,
together with information regarding their location, size, principal function and
capacity. The available capacity is dependent on product mix and customer
loading, and is therefore shown as approximate. Amite, Quaker Alloy, Canadian
Steel and La Grange have substantial underutilized capacity. The foundries that
are located in Atchison, Montreal and Amite include on-site pattern shops that
construct patterns used for mold making. The two landfills are used solely by
the Company and contain non-hazardous materials only, principally foundry sand.
All of the Company's principal facilities are owned, with the exception of
Kramer's foundry in Milwaukee, which is leased.
The following table sets forth certain information with respect to the
Company's principal facilities.
APPROXIMATE
ANNUAL
CAPACITY OF FLOOR
FOUNDRIES IN SPACE IN
NAME LOCATION PRINCIPAL USE NET TONS CAST SQ. FEET
---- -------- ------------- ------------- --------
Corporate Office Atchison, KS Offices N/A 3,000
Atchison Foundry Atchison, KS Steel Foundry 29,000 525,000
St. Joseph Machine Shop St. Joseph, MO Machine Shop N/A 131,000
Amite Foundry & Machine Shop Amite, LA Steel Foundry and Machine Shop 14,000 282,000
Atchison Casting Landfill Atchison, KS Landfill for Foundry sand N/A N/A
Canadian Steel Foundries Montreal, Quebec Steel Foundry 7,200 455,335
Kramer International* Milwaukee, WI Steel Foundry 1,000 23,000
Empire Steel Castings Reading, PA Iron and Steel Foundry 4,800 177,000
Prospect Foundry Minneapolis, MN Iron Foundry 13,000 133,000
Quaker Alloy Myerstown, PA Steel Foundry & Landfill 8,400 301,000
La Grange Foundry La Grange, MO Iron Foundry 15,000 189,000
G&C Foundry Sandusky, OH Iron Foundry 11,500 80,000
*Approximately one-half of facility is leased.
17
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings involving
claims against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
PRICE RANGE OF COMMON STOCK
The Common Stock has been traded on the Nasdaq National Market tier of The
Nasdaq Stock Market under the symbol "ACCX" since October 4, 1993. Prior to
that date there was no trading market for the Common Stock. The following table
sets forth the high and low sales prices for the shares of Common Stock on the
NASDAQ National Market for the periods indicated.
HIGH LOW
---- ---
Fiscal Year ending June 30, 1995:
First Quarter.......................................... 17 1/4 13 1/2
Second Quarter......................................... 17 1/4 14 11/16
Third Quarter.......................................... 17 7/8 14 3/4
Fourth Quarter......................................... 17 5/8 14
Fiscal Year ending June 30, 1996:
First Quarter.......................................... 18 1/4 14 1/8
Second Quarter......................................... 17 11
Third Quarter.......................................... 13 1/4 10 3/4
Fourth Quarter......................................... 15 3/4 12 7/16
Fiscal Year ending June 30, 1997:
First Quarter (through September 6, 1996).............. 15 1/2 13
As of September 6, 1996, there were approximately 2,000 holders of the
Common Stock, including shares held in nominee or street name by brokers.
DIVIDEND POLICY
The Company has not declared or paid cash dividends on shares of its Common
Stock. The Company does not anticipate paying any cash dividends or other
distributions on its Common Stock in the foreseeable future. The current policy
of the Company's Board of Directors is to reinvest all earnings to finance the
expansion of the Company's business. The agreements governing the Company's
credit facility and $20 million senior notes contain limitations on the
Company's ability to pay dividends.
19
ITEM 6. SELECTED FINANCIAL DATA
The following table contains certain selected historical consolidated financial
information and is qualified by the more detailed Consolidated Financial
Statements and Notes thereto included elsewhere in this Annual Report on Form
10-K. The selected consolidated financial information for the fiscal years
ended June 30, 1992, 1993, 1994, 1995 and 1996 has been derived from audited
consolidated financial statements. The information below should be read in
conjunction with Consolidated Financial Statements and Notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Annual Report on Form 10-K.
20
(IN THOUSANDS, EXCEPT PER SHARE DATA)
---------------------------------------------------------------------
FISCAL YEAR ENDED JUNE 30,
-----------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
STATEMENT OF OPERATIONS DATA:
Net Sales . . . . . . . . . . . . . . . . . . . . . . $54,729 $66,591 $82,519 $141,579 $185,081
Cost of Sales . . . . . . . . . . . . . . . . . . . . 44,612 52,756 66,066 115,231 156,612
Amortization of Intangibles . . . . . . . . . . . . . 3,150 1,565 238 227 ---
-------- -------- -------- -------- --------
Total Cost of Sales. . . . . . . . . . . . . . . . 47,762 54,321 66,304 115,458 156,612
-------- -------- -------- -------- --------
Gross Profit . . . . . . . . . . . . . . . . . . 6,967 12,270 16,215 26,121 28,469
Operating Expenses. . . . . . . . . . . . . . . . . .
Selling, General & Administrative . . . . . . . . 4,844 5,986 6,581 13,058 15,459
Amortization of Intangibles . . . . . . . . . . . 1,143 1,143 1,209 1,392 1,508
Other Income (1). . . . . . . . . . . . . . . . . --- --- --- 6,370 26,957
-------- -------- -------- -------- --------
Operating Income . . . . . . . . . . . . . . . 980 5,141 8,425 18,041 38,459
Interest Expense. . . . . . . . . . . . . . . . . . . 3,513 3,926 1,223 2,326 2,845
Minority Interest in Net Income
of Subsidiaries. . . . . . . . . . . . . . . . . . . --- --- 62 280 225
-------- -------- -------- -------- --------
Income (Loss) Before Taxes and
Extraordinary Charges. . . . . . . . . . . . (2,533) 1,215 7,140 15,435 35,389
Income Taxes. . . . . . . . . . . . . . . . . . . . . --- --- 2,494 5,971 14,063
-------- -------- -------- -------- --------
Income (Loss) Before Extraordinary
Charges. . . . . . . . . . . . . . . . . . . (2,533) 1,215 4,646 9,464 21,326
Extraordinary Charges, net of tax (2) . . . . . . . . --- --- 1,230 --- ---
-------- -------- -------- -------- --------
Net Income (Loss) . . . . . . . . . . . . . . $(2,533) $ 1,215 $ 3,416 $9,464 $21,326
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net Income (Loss) Per Share Before
Extraordinary Charges . . . . . . . . . . . . . . . $ (.86) $ .40 $ .98 $ 1.73 $ 3.87
Extraordinary Charges Per Share . . . . . . . . . . . --- --- $ (.26) --- ---
-------- -------- -------- -------- --------
Net Income
(Loss) Per Share . . . . . . . . . . . . . . . . . $ (.86) $ .40 $ .72 $ 1.73(3) $ 3.87(4)
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Weighted Average Common Shares
Outstanding. . . . . . . . . . . . . . . . . . . . 2,958,398 3,026,866 4,757,607 5,477,881 5,516,597
SUPPLEMENTAL DATA:
EBITDA (5). . . . . . . . . . . . . . . . . . . . . . $7,329 $10,098 $12,838 $23,777 $45,576
Capital Expenditures (6). . . . . . . . . . . . . . . 1,920 4,841 7,524 12,837 12,740
BALANCE SHEET DATA (AT PERIOD END):
Working Capital . . . . . . . . . . . . . . . . . . . $ 1,337 $2,074 $19,240 $27,727 $36,419
Total Assets. . . . . . . . . . . . . . . . . . . . . 50,022 52,004 87,217 130,287 162,184
Long-Term Obligations . . . . . . . . . . . . . . . . 22,836 19,934 22,549 34,920 34,655
Total Stockholders' Equity. . . . . . . . . . . . . . 6,796 13,851 42,683 52,698 74,654
21
(1) Other income for fiscal 1996 ($16.2 million, net of tax), consists of $11.1
million and $16.2 million of payments by the Company's insurance carrier
against the business interruption portion and property damage portion,
respectively, of the Company's claim, which was filed as a result of the
July 1993 Missouri River flood, net of litigation costs of $165,000 related
to the litigation with Dofasco, Inc. and $195,000 of expenses incurred by
the Company in preparing a secondary offering of its common stock, which
was subsequently withdrawn by the Company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
Other income for fiscal 1995 ($3.9 million, net of tax) consists of the
partial payment of $6.6 million by the Company's insurance carrier against
the business interruption portion of the Company's insurance claim, which
was filed as a result of the July 1993 Missouri River flood, net of
litigation costs of $269,000 related to the litigation with Dofasco, Inc.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
(2) In connection with the repayment in October 1993 of substantially all of
the Company's interest-bearing indebtedness with the net proceeds of the
Company's initial public offering of Common Stock, the Company recorded an
extraordinary charge to income in the amount of approximately $1.2 million
(net of related income tax benefit of $787,000), relating to the early
retirement of debt and the write-off of deferred financing charges.
(3) Net income per share, without giving effect to other income, was $1.02
during the year ended June 30, 1995.
(4) Net income per share, without giving effect to other income, was $0.92
during the year ended June 30, 1996.
(5) "EBITDA" represents earnings before interest, taxes, depreciation and
amortization. EBITDA data are used by certain investors to measure a
company's ability to meet historical debt service requirements. EBITDA is
not a measure of financial performance under GAAP and should not be
considered an alternative to, or more meaningful than, net income or any
other measure determined in accordance with GAAP as an indication of the
Company's operating results, or cash flows from operating, investing and
financing activities determined in accordance with GAAP as a measure of
liquidity.
(6) During fiscal 1994, fiscal 1995 and fiscal 1996, the Company made capital
expenditures of $4.7 million, $8.1 million and $1.8 million, respectively,
in connection with the refurbishment of Amite. This 282,000 square foot
facility was acquired in February 1993 and had been inactive for several
years.
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company has pursued an active acquisition program designed to take
advantage of consolidation opportunities in the widely-fragmented foundry
industry. The Company has acquired nine foundries since June 1991 and now
operates foundries in seven states and in Canada. As a result of these
completed transactions as well as internal growth, the Company's net sales have
increased from approximately $54.7 million for its fiscal year ended June 30,
1992 to $185.1 million for the fiscal year ended June 30, 1996, and to a pro
forma $202.3 million for the fiscal year ended June 30, 1996 assuming each
acquisition made during fiscal 1996 was completed at the beginning of the 1996
fiscal year. Four of the acquired foundries have substantial underutilized
capacity, which the Company believes represents a growth opportunity well-suited
to its operating and marketing expertise and enables it to better service its
customers' growing needs.
Between June 14, 1991 and June 30, 1996, the number of active customers
served by the Company has grown from 12 to more than 300. The Company's backlog
was $65.1 million at June 30, 1996, down from $68.5 million at June 30, 1995,
due primarily to a decline in backlog for the M1-A2 main battle tank.
To position itself for internal growth and to make industry-related
acquisitions, in October 1993 the Company completed an initial public offering
(the "IPO") of 2,150,000 shares of Common Stock at $12.00 per share. The net
proceeds of the IPO ($23.3 million) were used to repay substantially all of the
Company's then existing interest-bearing indebtedness and, together with cash on
hand, to discharge a long-term obligation.
During July 1993, flooding on the Missouri River halted production of the
Company's Atchison, Kansas foundry for a period of four weeks. While following
the four-week shut down the Company was able to resume production at the
Atchison facility without a significant loss of orders, the 1993 flood has had a
continuing negative effect on productivity and sales due to increased equipment
maintenance, production downtime and employee overtime.
ACC carried flood insurance for business interruption/lost profits and
casualty/damage. On April 11, 1996, the Company and its insurance carrier
reached final settlement of the Company's claim filed as a result of the flood.
During fiscal 1995 and fiscal 1996, the Company recorded payments on the
business interruption portion of its insurance claim in the amount of $6.6
million and $11.1 million, respectively, which amounts have been classified as
"Other income" in the Company's Statement of Operations. The Company also
recorded, in fiscal 1996, payments on the casualty portion of its insurance
claim in the amount of $18.2 million, of which $16.2 million has been recorded
as "Other Income" in the Company's Statement of Operations. The Company also
recorded $5.5 million and $2.0 million in advances during fiscal 1995 and fiscal
1996, respectively, against future repair expenses, which amounts have been
classified as accrued expenses on the Company's Balance Sheet.
The Company supplies, as a subcontractor to Morrison Knudsen,
undercarriages for passenger rail cars utilized by the Chicago transit system
(METRA). In June 1996, Morrison Knudsen filed for Chapter 11 bankruptcy
protection. At June 30, 1996, the Company had work-in-progress attributable to
Morrison Knudsen and its affiliates in the amount of approximately $1.6 million.
Morrison Knudsen continues to accept and pay for undercarriages as of June 1996.
The Company has not reserved amounts for work-in-process orders by Morrison
Knudsen.
23
ACC is no longer shipping locomotive undercarriages to General Electric,
and sales of armor castings to General Dynamics declined substantially since
fiscal 1994. In recent years General Electric and General Dynamics have each
accounted for more than 10% of the Company's net sales. These sales declines
have been offset by new sales to other customers. These new sales entail start-
up costs for tooling, prototyping and training, which costs the Company believes
will diminish over time. During each of the last three years, customer
concentration has decreased as total sales have grown.
RECENT ACQUISITIONS
On December 14, 1995, the Company purchased certain assets of the La
Grange, Missouri foundry operations of Gardner Denver Machinery Inc. for $5.2
million in cash. La Grange Foundry Inc. ("La Grange") produces gray and ductile
iron castings for the industrial compressor and pump markets, among others. The
Company financed this transaction with funds available under its revolving
credit facility.
On March 11, 1996, the Company purchased all of the outstanding capital
stock of The G&C Foundry Company ("G&C") for $9.6 million in cash and the
assumption of $2.0 million of change of control benefits that became payable in
three equal annual payments commencing on June 15, 1996. In addition, G&C had
$524,348 of other outstanding indebtedness at closing. G&C, located in
Sandusky, Ohio, is a foundry that produces gray and ductile iron castings,
principally used in hydraulic applications. The Company financed this
transaction with funds available under its revolving credit facility.
RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and results
of operations should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and other financial information included elsewhere
in this Report.
FISCAL YEAR ENDED JUNE 30, 1996 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1995
Net sales for fiscal 1996 were $185.1 million, representing an increase of
$43.5 million, or 30.7%, over net sales of $141.6 million in fiscal 1995. The
operations acquired by the Company in fiscal 1995 and fiscal 1996 generated net
sales of $16.5 million and $59.3 million, respectively, as follows:
FY 1995 FY 1996
Operation Date Acquired Net Sales Net Sales
--------- ------------- --------- ---------
Canadian Steel Foundries, Ltd. November 30, 1994 $7.2 million $18.3 million
Kramer International, Inc. January 3, 1995 5.3 million 12.8 million
Empire Steel Castings, Inc. February 1, 1995 4.0 million 13.4 million
La Grange Foundry Inc. December 14, 1995 - 10.9 million
The G&C Foundry Company March 11, 1996 - 3.9 million
Excluding net sales attributable to the operations acquired in fiscal 1995
and fiscal 1996, net sales for fiscal 1996 were $125.8 million, representing an
increase of $700,000, or 0.6%, over net sales of $125.1 million in fiscal 1995.
This 0.6% increase in net sales was due primarily to increases
24
in net sales to the mining and construction, energy and utility markets, offset
by decreases in net sales to the locomotive, mass transit and trucking markets.
In addition, the Company recorded, in the first quarter of fiscal 1995, a non-
recurring sale of casting technology to Indian Railways of $746,000.
Gross profit for fiscal 1996 increased by $2.3 million, or 9.0%, to $28.4
million, or 15.4% of net sales, compared to $26.1 million, or 18.4% of net
sales. The increase in gross profit was primarily due to increased sales volume
levels. The decrease in gross profit as a percentage of net sales was
attributable to: (i) the continuing start-up of the Company's Amite facility in
Louisiana and non-recurring costs associated with the transfer to that facility
of production from a foundry purchased in May 1995, (ii) the completion, at
Canadian Steel Foundries, Ltd. ("Canadian Steel"), of several negative margin
orders which were accepted prior to the acquisition of Canadian Steel by the
Company, (iii) a change in product mix toward products which have a lower gross
profit as a percentage of net sales, (iv) higher maintenance costs associated
with deferred maintenance expense on two newly acquired foundries and increased
maintenance costs related to regularly scheduled July shutdowns at the Company's
other foundries, (v) above average training expenses associated with the start-
up of new products and (vi) a non-recurring sale in the first quarter of fiscal
1995 to Indian Railways of $746,000, which sale had a much higher gross profit
as a percentage of net sales than the Company's average.
Selling, general and administrative expenses for fiscal 1996 were $15.5
million, or 8.4% of net sales, as compared to $13.1 million, or 9.2% of net
sales, in fiscal 1995. The increase in selling, general and administrative
expenses was primarily attributable to expenses associated with the operations
acquired by the Company in fiscal 1995 and fiscal 1996. The decrease in
selling, general and administrative expense as a percentage of net sales was
primarily attributable to decreased expenditures for outside professional
services.
Amortization of certain intangibles for fiscal 1996 was $1.5 million, or
0.8% of net sales, as compared to $1.4 million, or 1.0% of net sales, in fiscal
1995. The intangible assets consisted of the capitalized value of a non-compete
agreement with Rockwell International, which became fully amortized in June
1996, and goodwill recorded in connection with the acquisitions of Prospect
Foundry, Inc. ("Prospect Foundry"), Kramer International, Inc. ("Kramer"),
Empire Steel Casting, Inc. ("Empire") and G&C. Partially offsetting the expense
relating to the amortization of these assets is the amortization of the excess
of acquired net assets over cost (negative goodwill) recorded by the Company in
connection with the acquisition of Canadian Steel.
Other income for fiscal 1996 was $27.0 million ($16.2 million, net of
related income tax expense of $10.8 million). Other income consists primarily
of $27.3 million ($29.1 million before deduction of fees paid to consultants and
engineers who assisted in the development of the claim and amounts recovered for
the repair and replacement of property) of partial payments by the Company's
insurance carrier. Of this $27.3 million, $11.1 million consisted of payments
for business interruption and $16.2 million consisted of payments for property
damage. The Company's insurance claim was filed as a result of the July 1993
Missouri River flood.
Interest expense for fiscal 1996 increased to $2.8 million, or 1.5% of net
sales, from $2.3 million, or 1.6% of net sales, in fiscal 1995. The increase in
interest expense is the result of an increase in the average amount of
indebtedness outstanding. The increase in the average amount of outstanding
indebtedness is primarily a result of the Company's acquisitions.
Income tax expense for fiscal 1996 reflected the combined federal and state
statutory rate of approximately 40%. Income tax expense for fiscal 1995
reflected the combined federal and state statutory rate of approximately 39%.
25
As a result of the foregoing factors, net income increased by $11.8
million, from net income of $9.5 million in fiscal 1995 to net income of $21.3
million in fiscal 1996.
FISCAL YEAR ENDED JUNE 30, 1995 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1994
Net sales for fiscal 1995 were $141.6 million, representing an increase of
$59.1 million, or 71.6%, over net sales of $82.5 million in fiscal 1994.
Prospect Foundry (acquired in April 1994) generated net sales of $28.8 million
for the full year of fiscal 1995, representing an increase of $21.8 million over
the $7.0 million of net sales generated by Prospect Foundry in the three month
period of fiscal 1994. Quaker Alloy, Inc. ("Quaker Alloy") (acquired in June
1994) generated net sales of $14.4 million for the full year of fiscal 1995,
representing an increase of $13.1 million over the $1.3 million of net sales
generated by Quaker Alloy in the one month period of fiscal 1994. The
operations acquired by the Company in fiscal 1995 generated net sales of $16.5
million, as follows:
FY 1995
Operation Date Acquired Net Sales
--------- ------------- ---------
Canadian Steel Foundries, Ltd. November 30, 1994 $7.2 million
Kramer International, Inc. January 3, 1995 $5.3 million
Empire Steel Castings, Inc. February 1, 1995 $4.0 million
Excluding net sales attributable to the operations acquired in fiscal 1994
and fiscal 1995, net sales for fiscal 1995 were $81.9 million, representing an
increase of $7.7 million, or 10.4%, over net sales of $74.2 million in fiscal
1994. This 10.4% increase in net sales was due primarily to increases in net
sales to the locomotive, mass transit and mining and construction markets,
partially offset by decreases in net sales to the military markets. In
addition, the Company recorded, in the first quarter of fiscal 1995, a non-
recurring sale of casting technology to Indian Railways of $746,000.
Gross profit for fiscal 1995 increased by $9.9 million, or 61.1%, to $26.1
million, or 18.4% of net sales, compared to $16.2 million, or 19.7% of net
sales. The increase in gross profit was primarily due to increased sales volume
levels. The decrease in gross profit as a percentage of net sales was
attributable to: (i) a change in product mix toward product segments which have
a lower gross profit as a percentage of net sales, (ii) expenses associated with
the start-up of the Company's Amite subsidiary and (iii) higher than normal
training expenses associated with employees hired in response to the increased
production volume levels. Partially offsetting these factors was a non-
recurring sale in the first quarter of fiscal 1995 to Indian Railways of
$746,000, which sale had a much higher gross profit as a percentage of net sales
than the Company's average.
Selling, general and administrative expenses for fiscal 1995 were $13.1
million, or 9.2% of net sales, as compared to $6.6 million, or 8.0% of net
sales, in fiscal 1994. The increase in selling, general and administrative
expenses was primarily attributable to expenses associated with the operations
acquired by the Company since April 1, 1994. The increase in selling, general
and administrative expense as a percentage of net sales was primarily
attributable to: (i) increased overall expenditure levels at Amite in response
to the start-up of the Amite facility, (ii) increased expenditures for outside
professional services and (iii) increased compensation under the Company's
incentive bonus plans. Selling, general and administrative expenses as a
percentage of net sales also increased due to four weeks of the Company's first
quarter of fiscal 1994 expenditures being covered by the Company's flood
insurance policies. The Company's Atchison, Kansas foundry operations were shut
down for a period of four weeks in July 1993 due to the 1993 Missouri River
flood.
Amortization of certain intangibles for fiscal 1995 was $1.4 million, or
1.0% of net sales, as compared to $1.2 million, or 1.5% of net sales, in fiscal
1994. The intangible assets consist of the
26
capitalized value of a non-compete agreement with Rockwell International
recorded in connection with the Initial Acquisition and goodwill recorded in
connection with the acquisitions of Prospect Foundry, Kramer and Empire.
Partially offsetting the expense relating to the amortization of these assets is
the amortization of the excess of acquired net assets over cost (negative
goodwill) recorded by the Company in connection with the acquisition of Canadian
Steel.
Other income for fiscal 1995 was $6.4 million ($3.9 million, net of related
income tax expenses of $2.5 million). Other income consists primarily of $6.6
million of partial payments by the Company's insurance carrier against the
business interruption portion of the Company's insurance claim filed as a result
of the July 1993 Missouri River flood.
Interest expense for fiscal 1995 increased to $2.3 million, or 1.6% of net
sales, from $1.2 million, or 1.5% of net sales, in fiscal 1994. The increase in
interest expense is the result of an increase in the average amount of
indebtedness outstanding, partially offset by lower average interest rates on
the Company's outstanding indebtedness. The increase in the average amount of
outstanding indebtedness is primarily a result of the Company's acquisitions and
the start-up of Amite.
Income tax expense for fiscal 1995 reflected the combined federal and state
statutory rate of approximately 39%. Income tax expense for fiscal 1994
reflected approximately a 35% rate based upon the taxable income of the Company,
the usage of net operating loss carryforwards and the elimination of the
valuation allowance previously established by the Company.
There were no extraordinary charges in fiscal 1995. In connection with the
repayment of indebtedness with the proceeds of the IPO, the Company recorded in
fiscal 1994 an extraordinary charge to income in the amount of approximately
$1.2 million (net of related income tax benefit of $787,000), relating to the
early retirement of debt and the write-off of deferred financing charges.
As a result of the foregoing factors, net income increased by $6.1 million,
from net income of $3.4 million in fiscal 1994 to net income of $9.5 million in
fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed operations with internally generated
funds, proceeds from the sale of senior notes and available borrowings under its
bank credit facilities. Cash provided by operating activities for fiscal 1996
was $36.6 million, an increase of $21.0 million from fiscal 1995. This increase
was primarily attributable to increases in net income and net deferred income
tax payable balances.
Working capital was $36.4 million at June 30, 1996, as compared to $27.7
million at June 30, 1995. The increase primarily resulted from net additional
working capital of $1.2 million and $2.2 million associated with the newly
acquired La Grange and G&C operations, respectively, and an increase in cash
balances resulting from insurance payments.
During fiscal 1996, the Company made capital expenditures of $12.7 million,
as compared to $12.8 million in fiscal 1995. In fiscal 1996, the Company made
capital expenditures of $1.8 million at its Amite foundry, $544,000 to acquire a
production facility previously leased by Prospect Foundry and $1.1 million to
acquire an inactive production/storage facility adjacent to Canadian Steel. The
balance of capital expenditures was used for routine projects at each of the
Company's facilities. In fiscal 1995, the Company made capital expenditures of
$8.1 million at the Amite foundry, which became operational in late October
1994. The balance of capital expenditures during fiscal 1995 was used primarily
for routine projects at the Atchison, Kansas foundry, the St. Joseph, Missouri
machine
27
shop, Prospect Foundry and Quaker Alloy. The Company expects to incur
approximately $13.0 million of capital expenditures during fiscal 1997.
The Company's results for fiscal 1996 included $27.3 million ($16.3
million, net of related income tax expense of $11.0 million) of insurance
payments, as described above.
On May 24, 1996, the Company and its bank entered into a new credit
agreement providing for unsecured loans of up to $40 million in a revolving
credit facility terminating on July 29, 1998. In addition, the credit agreement
permits the Company's La Grange operation to incur up to $5.1 million of
indebtedness to the Missouri Development Finance Board (the "Missouri Board") in
connection with the issuance by the Missouri Board of its $5.1 million
Industrial Development Revenue Bonds, Series 1996 (La Grange Foundry Inc.
Project) and other subsidiary indebtedness of up to $5.5 million. Loans under
this revolving credit facility will bear interest at fluctuating rates of either
(i) the bank's corporate base rate or (ii) LIBOR plus 1.50% subject, in the case
of the LIBOR rate option, to a reduction of up to .50% (50 basis points) if
certain financial ratios are met. At June 30, 1996, $23.7 million was available
for borrowing under this facility. Loans under this revolving credit facility
may be used for general corporate purposes, acquisitions and approved
investments.
On March 8, 1996, the Company and the insurance company holding the
Company's $20 million aggregate principal amount of unsecured, senior notes
entered into the First Amendment to the Note Purchase Agreement providing for an
increase in permitted subsidiary indebtedness from $2.5 million to $5.5 million.
On May 24, 1996, the Company entered into the Second Amendment to the Note
Purchase Agreement permitting the Company's La Grange operation to incur up to
$5.1 million of indebtedness to the Missouri Board in connection with the
issuance by the Missouri Board of its $5.1 million Industrial Development
Revenue Bonds, Series 1996 (La Grange Foundry Inc. Project).
The agreements governing the Company's credit facility and $20 million
senior notes contain a number of customary covenants and conditions.
Total indebtedness of the Company at June 30, 1996 was $35.4 million, as
compared to $34.9 million at June 30, 1995. This increase of $500,000 primarily
reflects indebtedness incurred of $5.3 million and $12.3 million to finance the
acquisitions of La Grange and G&C, respectively, offset by the payment of
outstanding indebtedness using the insurance payments received from the
Company's insurance carrier on the Company's claim, filed as a result of the
July 1993 Missouri River flood.
Acquisitions have been financed with borrowings under the Company's bank
credit facilities and, occasionally, with common stock. For a discussion of
recent acquisitions, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- General" and " -- Recent Acquisitions."
The Company anticipates that its operating cash flow and amounts available
under its bank revolving credit facility will be adequate to fund capital
expenditures and working capital requirements for the next two years.
INFLATION
Management believes that the Company's operations have not been adversely
affected by inflation or changing prices.
28
SUPPLEMENTAL QUARTERLY INFORMATION
The Company's business is characterized by large unit and dollar volume
customer orders. As a result, the Company has experienced and may continue to
experience fluctuations in its sales and net income from quarter to quarter.
The following table presents selected unaudited supplemental quarterly
results for fiscal 1995 and fiscal 1996.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
FISCAL 1995 FISCAL 1996
QUARTERS ENDED QUARTERS ENDED
------------------------------------- -----------------------------------
(UNAUDITED) (UNAUDITED)
SEPT. DEC. MAR. JUNE SEPT. DEC. MAR. JUNE
----- ---- ---- ---- ----- ---- ---- ----
Net Sales. . . . . . . . . . . . . . . . . . $29,345 $32,424 $41,433 $38,377 $36,987 $40,683 $52,330 $55,081
Gross Profit . . . . . . . . . . . . . . . . 5,092 5,448 7,610 7,971 5,755 4,846 7,852 10,016
Operating Income . . . . . . . . . . . . . . 4,341 5,311 3,551 4,838 11,811 1,264 3,618 21,766
Net Income . . . . . . . . . . . . . . . . . 2,314 2,870 1,648 2,632 6,845 332 1,463 12,686
Net Income
Per Share. . . . . . . . . . . . . . . . . . 0.42 0.52 0.30 0.48 1.24 0.06 0.27 2.29
NEW ACCOUNTING STANDARDS
Effective for fiscal years beginning after December 15, 1995, Statement of
Financial Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", establishes
accounting standards for the impairment of long-lived assets, certain
intangibles and goodwill related to those assets. The Company does not expect
this Statement to have a material effect on its consolidated financial
statements.
Effective for fiscal years beginning after December 15, 1995, SFAS No. 123,
"Accounting for Stock-Based Compensation", will require increased disclosure of
compensation expense arising from stock compensations plans. The statement
encourages, rather than requires, companies to adopt a new method that accounts
for stock compensation awards based on their estimated fair value at the date
they are granted. Companies will be permitted, however, to continue accounting
under APB Opinion No. 25 which requires compensation cost to be recognized based
on the difference, if any, between the quoted market price of the stock and the
amount an employee must pay to acquire the stock. The Company will continue to
apply APB Opinion No. 25 in its consolidated financial statements and will
disclose pro forma net income and earnings per share in a footnote to its
consolidated financial statements, determined as if the new method were applied.
The impact of this Statement has not yet been completely evaluated.
29
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the Company are filed under this
Item, beginning on page F-1 of this Report. No financial statement schedules
are required to be filed under Regulation S-X.
Selected quarterly financial data required under this item is included in
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
30
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item with respect to directors and
compliance with Section 16(a) of the Securities Exchange Act of 1934 is
incorporated herein by reference to the Registrant's Proxy Statement for the
1996 Annual Meeting of Stockholders, dated October 7, 1996, to be filed pursuant
to Regulation 14A. The required information as to executive officers is set
forth in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference
to the Registrant's Proxy Statement for the 1996 Annual Meeting of Stockholders,
dated October 7, 1996, to be filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item is incorporated herein by reference
to the Registrant's Proxy Statement for the 1996 Annual Meeting of Stockholders,
dated October 7, 1996, to be filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item is incorporated herein by reference
to the Registrant's Proxy Statement for the 1996 Annual Meeting of Stockholders,
dated October 7, 1996, to be filed pursuant to Regulation 14A.
31
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
PAGE
NUMBER
(A) DOCUMENTS LIST
(1) The following financial statements are included in Part II Item 8:
Report of Independent Accountants F-2
Consolidated Balance Sheets at June 30, 1995 and 1996 F-3
Consolidated Statements of Income for the Years F-4
Ended June 30, 1994, 1995 and 1996
Consolidated Statements of Stockholders' Equity F-5
For the Years Ended June 30, 1994, 1995 and 1996
Consolidated Statements of Cash Flows For the Years F-6
Ended June 30, 1994, 1995 and 1996
Notes to Consolidated Financial Statements F-8
(2) No Financial Statement Schedules are required to be filed.
(3) List of Exhibits:
Exhibits required by Item 601 of Regulation S-K are listed in the
Exhibit Index which is incorporated herein by reference.
(b) REPORTS ON FORM 8-K
The Company filed a Form 8-K dated March 25, 1996, as amended by the Form
8-K/A dated May 21, 1996.
Items Reported:
Item 2. Acquisition of G&C
Item 7. Financial Statements and Exhibits
Financial Statements filed:
(1) Audited Financial Statements of The G&C Foundry Company as of March
10, 1996 and for the period from February 27, 1995 to March 10, 1996.
32
(2) Pro Forma Combined Financial Information consisting of a pro forma
combined balance sheet as of December 31, 1995 and pro forma combined
statements of income for the six-month period ended December 31, 1995
and the year ended June 30, 1995.
(C) EXHIBITS
The response to this portion of Item 14 is submitted as a separate section
to this report.
(D) FINANCIAL STATEMENTS SCHEDULES
The consolidated financial statement schedules required by this Item are
listed under Item 14(a)(2).
33
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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)
By: /s/ Hugh H. Aiken
-----------------------
Hugh H. Aiken
Principal Executive Officer
Dated: September 10, 1996
------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dated indicated:
Signature Title Date
--------- ----- ----
/s/ Hugh H. Aiken
- ------------------------- Chairman of the Boards September 9, 1996
Hugh H. Aiken President, Chief Executive ------------------
Officer and Director
(Principal Executive Officer)
/s/ Paul C. Craig Director September 9, 1996
- ------------------------- ------------------
Paul C. Craig
/s/ David L. Belluck Director September 10, 1996
- ------------------------- ------------------
David L. Belluck
/s/ Ray H. Witt Director September 10, 1996
- ------------------------- ------------------
Ray H. Witt
/s/ John O. Whitney Director September 10, 1996
- ------------------------- ------------------
John O. Whitney
/s/ Kevin T. McDermed
- ------------------------- Vice President, Chief September 9, 1996
Kevin T. McDermed Financial Officer, Treasurer ------------------
and Secretary
(Principal Financial Officer
and Principal Accounting
Officer)
34
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED JUNE 30, 1994, 1995 AND 1996,
AND INDEPENDENT AUDITORS' REPORT
F-1
INDEPENDENT AUDITORS' REPORT
Board of Directors of
Atchison Casting Corporation
Atchison, Kansas
We have audited the accompanying consolidated balance sheets of Atchison Casting
Corporation and subsidiaries (the "Company") as of June 30, 1995 and 1996 and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of June 30, 1995 and
1996, and the results of its operations and its cash flows for each of the three
years in the period ended June 30, 1996 in conformity with generally accepted
accounting principles.
/s/ Deloitte & Touche LLP
Kansas City, Missouri
August 16, 1996
F-2
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995 AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
ASSETS 1995 1996
CURRENT ASSETS:
Cash and cash equivalents $ 759 $ 7,731
Customer accounts receivable, net of allowance
for doubtful accounts of $794 and $295 22,148 32,224
Insurance receivable 6,137
Inventories 23,382 24,357
Deferred income taxes 2,813 1,985
Other current assets 1,357 1,968
-------- --------
Total current assets 56,596 68,265
PROPERTY, PLANT AND EQUIPMENT, Net 56,152 72,160
INTANGIBLE ASSETS, Net 15,245 18,441
DEFERRED CHARGES, Net 315 440
OTHER ASSETS 1,979 2,878
-------- --------
TOTAL $130,287 $162,184
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 9,502 $ 8,483
Accrued expenses 19,367 22,583
Current maturities of long-term obligations 780
-------- --------
Total current liabilities 28,869 31,846
LONG-TERM OBLIGATIONS 34,920 34,655
DEFERRED INCOME TAXES 5,784 12,686
OTHER LONG TERM OBLIGATIONS 1,193 1,207
EXCESS OF ACQUIRED NET ASSETS OVER COST, Net 1,267 922
POSTRETIREMENT OBLIGATION OTHER THAN PENSION 5,044 5,414
MINORITY INTEREST IN SUBSIDIARIES 512 800
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 2,000,000
authorized shares; no shares issued and
outstanding
Common stock, $.01 par value,
19,300,000 authorized shares; 5,520,581 and
5,564,914 shares issued and outstanding in 1995
and 1996 including treasury shares, respectively 55 56
Class A common stock (non-voting), $.01 par value,
700,000 authorized shares; no shares issued and
outstanding
Additional paid-in capital 41,623 42,159
Retained earnings 11,386 32,712
Minimum pension liability adjustment (375) (293)
Accumulated foreign currency translation adjustment 9 20
Common stock held in treasury, 30,823 amd 36,002
shares in 1995 and 1996, respectively, at cost
-------- --------
Total stockholders' equity 52,698 74,654
-------- --------
TOTAL $130,287 $162,184
-------- --------
-------- --------
See notes to consolidated financial statements.
F-3
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
1994 1995 1996
NET SALES $ 82,519 $ 141,579 $ 185,081
COST OF GOODS SOLD 66,304 115,458 156,612
---------- ---------- ----------
GROSS PROFIT 16,215 26,121 28,469
OPERATING EXPENSES:
Selling, general and administrative 6,581 13,058 15,459
Amortization of intangibles 1,209 1,392 1,508
Other income (6,370) (26,957)
---------- ---------- ----------
Total operating expenses 7,790 8,080 (9,990)
---------- ---------- ----------
OPERATING INCOME 8,425 18,041 38,459
INTEREST EXPENSE 1,223 2,326 2,845
MINORITY INTEREST IN NET INCOME OF
SUBSIDIARIES 62 280 225
---------- ---------- ----------
INCOME BEFORE TAXES AND EXTRAORDINARY
ITEM 7,140 15,435 35,389
INCOME TAXES 2,494 5,971 14,063
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM 4,646 9,464 21,326
EXTRAORDINARY ITEM -
Early extinguishment of debt, net of
income tax benefit of $787 1,230
---------- ---------- ----------
NET INCOME $ 3,416 $ 9,464 $ 21,326
---------- ---------- ----------
---------- ---------- ----------
INCOME BEFORE EXTRAORDINARY ITEM PER
COMMON AND EQUIVALENT SHARES $ 0.98 $ 1.73 $ 3.87
EXTRAORDINARY ITEM -
Early extinguishment of debt, per
common and equivalent shares 0.26
---------- ---------- ----------
NET INCOME PER COMMON AND EQUIVALENT
SHARES $ 0.72 $ 1.73 $ 3.87
---------- ---------- ----------
---------- ---------- ----------
WEIGHTED AVERAGE NUMBER OF COMMON AND
EQUIVALENT SHARES OUTSTANDING 4,757,607 5,477,881 5,516,597
---------- ---------- ----------
---------- ---------- ----------
See notes to consolidated financial statements.
F-4
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
RETAINED MINIMUM FOREIGN
CLASS A ADDITIONAL EARNINGS PENSION CURRENCY
COMMON COMMON PAID-IN (ACCUMULATED LIABILITY TRANSLATION
STOCK STOCK CAPITAL DEFICIT) ADJUSTMENT ADJUSTMENT TOTAL
Balance, July 1, 1993 $ 25 $ 7 $ 15,313 $ (1,494) $ 13,851
Issuance of 6,349 shares 71 71
Issuance of 2,150,000 shares for
initial public stock offering 21 23,237 23,258
Issuance of 175,583 shares for
purchase of subsidiary 2 2,398 2,400
Conversion of 673,653 shares of
Class A common stock to common stock 7 (7)
Minimum pension liability adjustment,
net of income tax benefit of $200 $ (313) (313)
Net income 3,416 3,416
----- --- -------- --------- ------- ----- ---------
Balance, June 30, 1994 55 41,019 1,922 (313) 42,683
Issuance of 11,754 shares 154 154
Issuance of 26,895 shares for
purchase of subsidiary 450 450
Conversion of 19,629 shares of
Class A common stock to common stock
Minimum pension liability adjustment,
net of income tax benefit of $38 (62) (62)
Purchase of 30,823 nonvested shares
under Stock Restriction Agreement
Foreign currency translation adjustment
of investment in subsidiary $ 9 9
Net income 9,464 9,464
----- --- -------- --------- ------- ----- ---------
Balance, June 30, 1995 55 41,623 11,386 (375) 9 52,698
Issuance of 34,333 shares 1 402 403
Exercise of stock options (10,000 shares) 134 134
Minimum pension liability adjustment,
net of income tax expense of $59 82 82
Purchase of 5,179 nonvested shares
under Stock Restriction Agreement
Foreign currency translation adjustment
of investment in subsidiary 11 11
Net income 21,326 21,326
----- --- -------- --------- ------- ----- ---------
Balance June 30, 1996 $ 56 $ $ 42,159 $ 32,712 $ (293) $ 20 $ 74,654
----- --- -------- --------- ------- ----- ---------
----- --- -------- --------- ------- ----- ---------
See notes to financial statements.
F-5
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(AMOUNTS IN THOUSANDS)
1994 1995 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,416 $ 9,464 $ 21,326
Extraordinary item - early extinguishment of debt 1,230
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization 4,541 6,067 7,411
Minority interest in net income of subsidiaries 62 280 225
(Gain) loss on disposal of capital assets (8) (50) 8
Accretion of long-term obligation discount 156 160 161
Deferred income taxes 407 1,551 7,918
Changes in assets and liabilities:
Receivables (6,472) 2,350 (8,286)
Insurance receivable (6,137) 6,137
Inventories (1,878) (7,168) 1,614
Other current assets (261) (177) (715)
Accounts payable 816 1,697 (1,480)
Accrued expenses 473 7,344 2,073
Postretirement obligation other than pension 171 162 209
Other 31 9
-------- -------- ---------
Cash provided by operating activities 2,653 15,574 36,610
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,524) (12,837) (12,740)
Proceeds from sale of capital assets 13 57 8
Payment for purchase of net assets of subsidiaries, net of cash acquired
of $2, $49 and $1,778, respectively (15,136) (13,327) (13,251)
Assets held for resale (1,566) (274)
Other (330)
-------- -------- ---------
Cash used in investing activities (22,647) (27,673) (26,587)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Costs paid to raise capital (736)
Proceeds from issuance of common stock 24,065 154 537
Proceeds from sale of minority interest in subsidiary 86 84 63
Proceeds from issuance of long-term obligations 21,020 33,231 5,309
Payments on long-term obligations (22,974) (21,026) (2,646)
Capitalized financing costs paid (68) (221) (283)
Net repayments under revolving loan note (921) (6,031)
-------- -------- ---------
Cash provided by (used in) financing activities 20,472 12,222 (3,051)
-------- -------- ---------
EFFECT OF EXCHANGE RATE ON CASH (2)
NET INCREASE IN CASH AND CASH EQUIVALENTS 478 121 6,972
(Continued)
F-6
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
1994 1995 1996
NET INCREASE IN CASH AND CASH EQUIVALENTS $ 478 $ 121 $ 6,972
CASH AND CASH EQUIVALENTS, Beginning of period 160 638 759
------- ------- -------
CASH AND CASH EQUIVALENTS, End of period $ 638 $ 759 $ 7,731
------- ------- -------
------- ------- -------
CASH PAID DURING THE YEAR FOR:
Interest $ 1,009 $ 1,611 $ 2,728
------- ------- -------
------- ------- -------
Income taxes $ 457 $ 5,224 $ 6,883
------- ------- -------
------- ------- -------
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Minimum pension liability adjustment, net of income tax benefit (expense)
of $200, $38 and ($59), respectively, recorded to stockholders' equity $ 313 $ 62 $ (82)
------- ------- -------
------- ------- -------
Recording of other asset related to pension liability $ 198 $ (15) $ (24)
------- ------- -------
------- ------- -------
Unexpended bond funds $ 1,198
-------
-------
Recording of additional pension liability $ (711) $ (85) $ 175
------- ------- -------
------- ------- -------
Issuance of common stock in purchase of subsidiary $ 2,400 $ 450
------- -------
------- -------
See notes to consolidated financial statements. (Concluded)
F-7
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1994, 1995 AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Atchison Casting Corporation ("ACC") was organized
in 1991 for the purpose of becoming a broad based foundry company producing
iron and steel castings ranging from one pound to 120,000 pounds. A
majority of the Company's sales are to US customers, however, the Company
also has sales to Canadian and other foreign customers.
PERVASIVENESS OF ESTIMATES - The preparation of the financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
BASIS OF PRESENTATION - The consolidated financial statements present the
financial position of the Company ("ACC") and its subsidiaries, Amite
Foundry and Machine, Inc. ("AFM"), Prospect Foundry, Inc. ("Prospect"),
Quaker Alloy, Inc. ("Quaker"), Canadian Steel Foundries, Ltd. ("CSF"),
Kramer International, Inc. ("Kramer"), Empire Steel Castings, Inc.
("Empire"), La Grange Foundry Inc. ("La Grange") and The G&C Foundry
Company ("G&C"). AFM, CSF, Kramer, Empire and La Grange are wholly owned
subsidiaries. The Company owns 90.9%, 89.7% and 92.0% of the outstanding
capital stock of Prospect, Quaker and G&C, respectively. All significant
intercompany accounts and balances have been eliminated.
STATEMENT OF CASH FLOWS - For purposes of cash flow reporting, cash and
cash equivalents include cash on hand, amounts due from banks and temporary
investments with original maturities of 90 days or less at the date of
purchase.
REVENUE RECOGNITION - Sales and related cost of sales are recognized upon
shipment of products. Sales and related cost of sales under long-term
contracts to commercial customers are recognized as units are delivered.
RECEIVABLES - Approximately 60%, 41% and 28% of the Company's business in
1994, 1995 and 1996, respectively, was with four major customers in the
locomotive, military and general industrial markets. As of June 30, 1995
and 1996, 31% and 24%, respectively, of accounts receivable were with these
four major customers. The Company generally does not require collateral or
other security on accounts receivable. Credit risk is controlled through
credit approvals, limits and monitoring procedures.
INVENTORY - Approximately 29% of the Company's inventory is valued at the
lower of cost, determined on the last-in, first-out ("LIFO") method, or
market. The remaining inventory is valued at the lower of cost, determined
on the first-in, first-out ("FIFO") method, or market.
F-8
PROPERTY, PLANT AND EQUIPMENT - Major renewals and betterments are
capitalized while replacements, maintenance and repairs which do not
improve or extend the life of the respective assets are charged to expense
as incurred. Upon sale or retirement of assets, the cost and related
accumulated depreciation applicable to such assets are removed from the
accounts and any resulting gain or loss is reflected in operations.
Property, plant and equipment is carried at cost less accumulated
depreciation. Plant and equipment is depreciated over the estimated useful
lives of the assets using the straight-line method.
INTANGIBLE ASSETS - Intangible assets acquired are being amortized over
their estimated lives using the straight-line method. The Company
periodically reviews the continuing value of intangibles to determine if
there has been an impairment. The basis of this valuation includes the
continuing profitability of the acquired operations, their expected future
undiscounted cash flows, the maintenance of a significant customer base and
similar factors.
INCOME TAXES - Deferred income taxes are provided on temporary differences
between the financial statements and tax basis of the Company's assets and
liabilities in accordance with the liability method.
EARNINGS PER SHARE - Earnings per common share are based upon the weighted
average number of common and common equivalent shares outstanding.
NEW ACCOUNTING STANDARD - Effective for fiscal years beginning after
December 15, 1995, Statement of Financial Accounting Standards ("SFAS")
No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-
LIVED ASSETS TO BE DISPOSED OF, establishes accounting standards for the
impairment of long-lived assets, certain intangibles and goodwill related to
those assets. The Company does not expect the implementation of this
Statement to have a material effect on its consolidated financial
statements.
Effective for fiscal years beginning after December 15, 1995, SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, will require increased disclosure
of compensation expense arising from stock compensations plans. The
statement encourages, rather than requires, companies to adopt a new method
that accounts for stock compensation awards based on their estimated fair
value at the date they are granted. Companies will be permitted, however,
to continue accounting for stock compensation under APB Opinion No. 25
which requires compensation cost to be recognized based on the difference,
if any, between the quoted market price of the stock and the amount an
employee must pay to acquire the stock. The Company will continue to apply
APB Opinion No. 25 in its consolidated financial statements and will
disclose pro forma net income and earnings per share in a footnote to its
consolidated financial statements, determined as if the new method were
applied. The impact of this Statement has not yet been completely
evaluated.
ACCRUED INSURANCE EXPENSE - Costs estimated to be incurred in the future
for employee medical benefits and casualty insurance programs resulting
from claims which have occurred are accrued currently.
In order to support claims for workman's compensation benefits, the Company
has letters of credit aggregating $3,644 and a certificate of deposit of
$175.
F-9
2. ACQUISITIONS
On April 1, 1994, ACC acquired all of the capital stock of Prospect for
$14,000 in cash and $140 of related expenses. ACC subsequently issued 9.1%
of the acquired Prospect stock to Prospect management. The difference
between the fair market value of the minority interest, as estimated by the
Company's management, and the consideration paid by Prospect's management
was not material. Prospect, located in Minneapolis, Minnesota, produces
ductile and gray iron castings used in construction, agricultural
equipment, transportation, hydraulic and other related markets.
On June 1, 1994, ACC acquired the inventory and certain property, plant and
equipment of Quaker for $950 in cash, 175,583 shares of ACC stock, which
had a market value of $2,400, and $48 of related expenses. ACC
subsequently issued 10.3% of Quaker stock to Quaker management. The
difference between the fair market value of the minority interest, as
estimated by the Company's management, and the consideration paid by
Quaker's management was not material. Quaker, located in Myerstown,
Pennsylvania, serves the pump and valve industries, among others.
On November 30, 1994, the Company purchased the assets of the Canadian
Steel Foundries Division of Hawker Siddeley Canada Inc., a publicly-traded
Canadian company, for $2,179 and $221 of related expenses, in addition to
the assumption of approximately $4,023 of liabilities. As the current
assets acquired exceeded the purchase price, the Company recorded negative
goodwill in the amount of $1,432 in connection with the transaction which
is being amortized over 5 years. CSF, located in Montreal, Quebec, makes
steel castings ranging in size up to 60 tons for the utility, mining and
construction, pulp and paper, energy and steel industries. The Company
financed this acquisition with internally generated funds.
On January 3, 1995, the Company purchased all of the outstanding capital
stock of Kramer for $6,754 in cash and $20 of related expenses.
Contemporaneous with the consummation of this acquisition, the Company
retired $298 of Kramer's outstanding indebtedness. Kramer, located in
Milwaukee, Wisconsin, is a foundry specializing in the casting of iron,
steel and non-ferrous pump impellers, ranging in size from one pound to
2,500 pounds. The Company financed this transaction with funds available
under its revolving credit facility.
On October 11, 1994, the Company purchased approximately 41.6% of the
outstanding shares of capital stock of Empire for $350 in cash. On
February 1, 1995, the Company purchased the balance of Empire's outstanding
capital stock for $596 in cash and issued 26,895 shares of the Company's
Common Stock, which had a fair market value of $450 and $110 of related
expenses. Contemporaneous with the consummation of this acquisition, the
Company retired $2,848 of Empire's outstanding indebtedness. Empire,
located in Reading, Pennsylvania, is a foundry that produces steel castings
ranging in size from one pound to five tons for the pump and valve
industries, among others. The Company financed this transaction with funds
available under its revolving credit facility.
On December 14, 1995, the Company purchased certain assets of the
La Grange, Missouri foundry operations of Gardner Denver Machinery,
Incorporated for $5,187 in cash and $103 of related expenses. La Grange
produces gray and ductile iron castings for the industrial compressor and
pump markets, among others. The Company financed this transaction with
funds available under its revolving credit facility.
F-10
On March 11, 1996, the Company purchased all of the outstanding capital
stock of G&C for $9,620 in cash, the assumption of $2,000 of change of
control benefits, the assumption of $524 of outstanding indebtedness and
$119 of related expenses. ACC subsequently issued 8% of the acquired G&C
stock to G&C management. The difference between the fair market value of
the minority interest, as estimated by the Company's management, and the
consideration paid by G&C's management, was not material. G&C, located in
Sandusky, Ohio, is a foundry that produces gray and ductile iron castings,
principally used in hydraulic applications. The Company financed this
transaction with funds available under its revolving credit facility.
The acquisitions have been accounted for by the purchase method of
accounting, and accordingly, the purchase price including the related
acquisition expenses have been allocated to the assets acquired based on
the estimated fair values at the date of the acquisitions. For the
Prospect, Kramer, Empire and G&C acquisitions, the excess of purchase price
over estimated fair values of the net assets acquired has been included in
"Intangible Assets, net" on the Consolidated Balance Sheet. For the
Quaker, CSF and La Grange acquisitions, the fair value of the net assets
acquired exceeded the purchase price. Accordingly, the excess fair value
was subtracted from identifiable long-term assets ratably based on their
relative fair values as a percentage of total long-term assets with any
remaining excess recorded as negative goodwill and included in "Excess of
Acquired Net Assets Over Cost, net" on the Consolidated Balance Sheet.
The estimated fair values of assets and liabilities acquired in the 1994,
1995 and 1996 acquisitions are summarized as follows:
1994 1995 1996
Cash $ 2 $ 49 $ 1,778
Accounts receivable 3,663 6,421 1,791
Inventories 2,403 5,699 2,557
Property, plant and equipment 9,296 2,623 7,825
Intangible assets, primarily goodwill 6,763 6,444 4,779
Other assets 53 338 206
Accounts payable and accrued expenses (2,462) (6,543) (1,529)
Deferred income taxes (2,180) 389 247
Other liabilities (1,594) (101)
Long-term obligations (2,524)
-------- -------- --------
17,538 13,826 15,029
Stock issued (2,400) (450)
Cash acquired (2) (49) (1,778)
-------- -------- --------
Cash used in acquisitions $ 15,136 $ 13,327 $ 13,251
-------- -------- --------
-------- -------- --------
The operating results of these acquisitions are included in ACC's
consolidated statements of income from the dates of acquisition. The
following unaudited pro forma summary presents the consolidated results of
operations as if the acquisitions had occurred at July 1, 1994, after
giving effect to certain adjustments, including amortization of goodwill,
interest expense on the acquisition debt and related
F-11
income tax effects. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what would
have occurred had the acquisitions been made as of that date or of results
which may occur in the future.
Thousands of Dollars, Except per
Share Data (Unaudited) 1995 1996
Net sales $ 190,108 $ 202,250
Net income 9,540 20,781
Net income per common and equivalent shares 1.74 3.77
3. INVENTORIES
1995 1996
Raw materials $ 2,690 $ 3,589
Work-in-process 16,249 16,677
Finished goods 2,322 1,455
Deferred supplies 2,121 2,636
------- -------
$23,382 $24,357
------- -------
------- -------
Inventories as of June 30, 1995 and 1996 would have been higher by $293 and
$642, respectively, had the Company used the first-in, first-out method of
valuing those inventories that are valued using the last-in, first-out
method.
4. PROPERTY, PLANT AND EQUIPMENT
LIVES
(IN YEARS) 1995 1996
Land - $ 1,394 $ 1,822
Improvements to land 12-15 1,931 2,109
Buildings and improvements 35 7,897 14,088
Machinery and equipment 5-14 47,596 59,541
Automobiles and trucks 3 311 428
Office furniture, fixtures and equipment 5-10 1,019 1,798
Tooling and patterns 1.5-6 2,046 3,186
------- -------
62,194 82,972
Less accumulated depreciation 11,435 17,179
------- -------
50,759 65,793
Construction in progress 2,203 5,169
Plant under renovation 3,190
Unexpended bond funds 1,198
------- -------
$56,152 $72,160
------- -------
------- -------
Depreciation expense was $2,934, $4,304 and $5,745 for the years ended
June 30, 1994, 1995 and 1996, respectively.
F-12
5. INTANGIBLE ASSETS
LIVES
(IN YEARS) 1995 1996
Goodwill 25 $ 14,639 $ 19,578
Noncompete agreement 5 5,716
-------- --------
20,355 19,578
Less accumulated amortization 5,110 1,137
-------- --------
$ 15,245 $ 18,441
-------- --------
-------- --------
Amortization expense was $1,448, $1,790 and $1,744 for the years ended
June 30, 1994, 1995 and 1996, respectively.
6. DEFERRED CHARGES
LIVES
(IN YEARS) 1995 1996
Capitalized financing costs 3 to 10 $ 289 $ 572
Organizational costs 5 465
----- -----
754 572
Less accumulated amortization 439 132
----- -----
$ 315 $ 440
----- -----
----- -----
Amortization of such costs was $159, $139 and $158 for the years ended
June 30, 1994, 1995 and 1996, respectively, of which $66, $46 and $69,
respectively, is included in interest expense.
On July 29, 1994, the Company issued to an insurance company $20,000
aggregate principal of unsecured, senior notes. The notes have an average
maturity of seven years and bear interest at a fixed rate of 8.44% per
year. In conjunction with this note purchase agreement, $180 of financing
costs were capitalized and are being amortized over ten years.
Concurrently, with the sale of the senior notes the Company entered into a
credit agreement with Harris Trust and Savings Bank ("Harris") providing
for unsecured loans of up to $20,000 in a three year revolving credit
facility. In connection with this credit agreement, $41 of financing costs
were capitalized and are being amortized over three years.
On March 8, 1996, the Company and Harris entered into the First Amendment
to the Credit Agreement providing for an increase in unsecured loans from
$20,000 to $40,000 and an increase in permitted subsidiary indebtedness
from $2,500 to $5,500. In connection with this amendment, $150 of
financing costs were capitalized and are being amortized over the remaining
two and one-half year term of the credit agreement.
F-13
On May 1, 1996, the Company's La Grange subsidiary entered into a Loan
Agreement with the Missouri Development Finance Board (the "Board"),
providing for a loan of $5,100 to La Grange using the proceeds of the
Board's Industrial Development Revenue Bonds, Series 1996 (La Grange
Foundry Inc. Project). The Loan Agreement terminates on November 1, 2011.
In connection with this loan agreement, $133 of financing costs were
capitalized and are being amortized over ten years.
7. ACCRUED EXPENSES
1995 1996
Payroll, vacation and other compensation $ 4,132 $ 5,560
Accrued pension liability 2,080 2,131
Advances from customers 7,051 1,194
Reserve for flood repairs 6,946
Reserve for workers' compensation and
employee health care 3,142 3,128
Income taxes payable 882 535
Taxes other than income 232 385
Interest payable 814 800
Other 1,034 1,904
-------- --------
$ 19,367 $ 22,583
-------- --------
-------- --------
8. LONG-TERM OBLIGATIONS
On July 29, 1994, the Company issued to an insurance company $20 million
aggregate principal amount of unsecured, senior notes. The notes have an
average maturity of seven years and bear interest at a fixed rate of 8.44%
per year.
Concurrently, with the sale of the senior notes, the Company entered into a
credit agreement with Harris (the "Credit Agreement") providing for
unsecured loans of up to $20 million in a three year revolving credit
facility. Loans under the revolving credit facility will bear interest at
fluctuating rates of either (i) the bank's corporate base rate or (ii)
LIBOR plus 1.75% subject, in the case of the LIBOR rate option, to
reduction of up to .50% (50 basis points) if certain financial ratios are
met. Loans under this revolving credit facility may be used for general
corporate purposes and approved investments. At June 30, 1995, $3.7
million was available for borrowing under this facility after consideration
of outstanding advances of $13.2 million and letters of credit of $3.1
million.
On March 8, 1996, the Company and Harris entered into the First Amendment
to the Credit Agreement providing for an increase in unsecured loans from
$20 million to $40 million and an increase in permitted subsidiary
indebtedness from $2,500 to $5,500.
On May 1, 1996, the Company's La Grange subsidiary entered into a Loan
Agreement with the Board, providing for a loan of $5,100 to La Grange using
the proceeds of the Board's Industrial Development Revenue Bonds, Series
1996 (La Grange Foundry Inc. Project). Loans under the Loan Agreement will
bear interest at rates that fluctuate weekly based upon the then-prevailing
market rates for such securities. Loans under this Loan Agreement were
used to finance the costs of acquiring, and will be used to finance the
costs of reconstructing, improving and equipping certain additions and
improvements to the Company's La Grange manufacturing facilities. The Loan
Agreement terminates on November 1, 2011.
F-14
On May 24, 1996, the Company entered into a new credit agreement with
Harris providing for unsecured loans of up to $40 million in a revolving
credit facility terminating on July 29, 1998. Loans under this revolving
credit facility will bear interest at fluctuating rates of either (i) the
bank's corporate base rate or (ii) LIBOR plus 1.50% subject, in the case of
the LIBOR rate option, to a reduction of up to .50% (50 basis points) if
certain financial ratios are met. Loans under this revolving credit
facility may be used for general corporate purposes and approved
investments. At June 30, 1996, 23.7 million was available for borrowing
under this facility after consideration of outstanding advances of $7.2
million and letters of credit of $9.1 million. Amounts are outstanding as
follows as of June 30:
1995 1996
Unsecured, senior notes with an insurance company,
maturing on July 30, 2004 and bearing interest at a fixed rate of
8.44% per year $ 20,000 $ 20,000
Unsecured, revolving credit facility with Harris, maturing on
July 29, 1998, bearing interest at 9% and 8.25%, respectively (Prime) 13,231 7,200
Term loan between G&C and the Ohio Department of
Development, secured by certain assets of G&C, maturing on
June 1, 1999, bearing interest at 5.0% 95
Term loan between G&C and OES Capital, Incorporated (assignee of
loan agreement with Ohio Air Quality Development Authority),
secured by certain assets of G&C, maturing on December 31, 2006,
bearing interest at 6.5% 1,707
Change of Control Benefits to be paid by G&C pursuant to certain
Employment Agreements and a Change of Control Agreement,
maturing on June 11, 1998, non interest bearing 1,333
Term loan between La Grange and the Missouri Development Finance
Board, secured by a letter of credit, maturing on November 1, 2011
bearing interest at 3.69% 5,100
Subordinated promissory note payable to Rockwell,
repaid during fiscal year 1996 1,689
-------- --------
34,920 35,435
Less current maturities 780
-------- --------
Total long-term obligations $ 34,920 $ 34,655
-------- --------
-------- --------
The subordinated promissory note payable to Rockwell was discounted at 10%
from its original face of $1,850 as such note was interest free from the
date of acquisition (June 14, 1991) for five years. After such date, the
note was to accrue interest at 10%. The discount amortization was $145,
$160 and $161 for the years ended June 30, 1994, 1995 and 1996,
respectively, and is included in interest expense.
The credit agreement with Harris and a note purchase agreement with an
insurance company limit the Company's ability to pay dividends in any
fiscal year to an amount not more than 25% of net earnings in the preceding
fiscal year.
F-15
The amounts of long-term obligations outstanding as of June 30, 1996 mature
as follows:
1997 $ 780
1998 870
1999 10,262
2000 3,028
2001 3,028
Thereafter 17,467
-------
$35,435
-------
-------
The amounts of interest expense for the years ended June 30, 1994, 1995 and
1996 consisted of the following:
1994 1995 1996
Senior notes with an insurance company $ 1,544 $ 1,688
Credit facility with Harris $ 311 576 902
Revolving loan note, including fees 46
Term loans with Heller 655
Subordinated promissory note payable to
Rockwell 145 160 161
Amortization of deferred charges 66 46 69
Other 25
------- ------- -------
$ 1,223 $ 2,326 $ 2,845
------- ------- -------
------- ------- -------
9. INCOME TAXES
Income taxes for the years ended June 30, 1994, 1995 and 1996 are comprised
of the following:
1994 1995 1996
Current:
Federal $ 1,300 $ 3,169 $ 4,972
State and local 943 1,376
Foreign 308 (203)
------- ------- -------
1,300 4,420 6,145
Deferred 407 1,551 7,918
------- ------- -------
$ 1,707 $ 5,971 $14,063
------- ------- -------
------- ------- -------
Income tax expense (benefit) has been allocated as follows:
1994 1995 1996
Income before taxes and
extraordinary item $ 2,494 $ 5,971 $14,063
Extraordinary item (787)
------- ------- -------
$ 1,707 $ 5,971 $14,063
------- ------- -------
------- ------- -------
F-16
1994 1995 1996
Items giving rise to the provision for
deferred income taxes:
Postretirement benefits $ (67) $ (187) $ (145)
Accrued liabilities 663 (56) 160
Net operating loss carryforwards 1,171 577
Pension costs (742) (20) 16
Alternative minimum tax credit
carryforward (1,105) 1,264 724
Flood wall capitalization (465) 36
Deferred gain on flood proceeds 5,898
Depreciation and amortization 738 753 1,003
Inventory (12) (231) 56
Minimum pension liability 277 33 (70)
Capital start-up costs (35)
Capital appreciation right obligation 455
Valuation allowance (556)
All other 85 (582) 240
------ ------- -------
$ 407 $ 1,551 $ 7,918
------ ------- -------
------ ------- -------
Following is a reconciliation between the total income taxes and the amount
computed by multiplying income before income taxes by the statutory federal
income tax rate:
1994 1995 1996
-------------------------- --------------------------- --------------------------
AMOUNT % AMOUNT % AMOUNT %
Computed expected
federal income tax
expense $ 2,427 34.0 $ 5,248 34.0 $ 12,465 35.0
State income taxes,
net of federal benefit 357 5.0 624 4.1 1,498 4.2
Change in valuation
allowance (556) (7.8)
Adjustment to prior
year taxes 200 2.8
Permanent differences 30 0.4 182 1.1 337 0.9
Other 36 0.5 (83) (0.5) (237) (0.6)
-------- -------- -------- -------- -------- --------
$ 2,494 34.9 $ 5,971 38.7 $ 14,063 39.5
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
F-17
Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities for financial reporting purposes and
such amounts as measured by tax laws and regulations. Deferred income
taxes as of June 30, 1995 and 1996 are comprised of the following:
1995 1996
Deferred tax assets:
Postretirement benefits $ 1,967 $ 1,988
Accrued liabilities 1,416 1,900
Net operating loss carryforwards
Pension costs 762 882
Alternative minimum tax credit carryforwards 452
Flood wall capitalization 465 429
Other 389 520
------- --------
5,451 5,719
Deferred tax liabilities:
Depreciation and amortization 7,901 9,108
Deferred gain on flood proceeds 6,257
Inventory 335 808
Minimum pension liability 310 240
Capital start-up costs 68 66
Discounted note 46 39
Other 81
------- --------
8,660 16,599
------- --------
(3,209) (10,880)
Allocation to minimum pension liability adjustment 238 179
------- --------
Total $(2,971) $(10,701)
------- --------
------- --------
SFAS 109 requires a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized. As of
June 30, 1996, no allowance has been recorded.
United States income taxes have not been provided on $307 of cumulative
undistributed earnings of CSF because of the Company's intentions to
reinvest these earnings. It is not practical to determine the unrecognized
deferred tax liability that would be payable upon remittance of assets that
represent those earnings. Such taxes, if ultimately paid, may be
recoverable as foreign tax credits in the United States.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS. The estimated fair
value amounts have been determined by the Company using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required in interpreting market data to develop
estimates of fair value. Accordingly, the estimates presented herein are
not necessarily indicative of the amounts that the Company could realize in
a current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair
value amounts.
F-18
CASH, ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE - The carrying amounts of
these items are a reasonable estimate of their fair value.
LONG-TERM OBLIGATIONS AND CURRENT MATURITIES OF LONG-TERM OBLIGATIONS -
Based on the borrowing rates currently available to the Company for loans
with similar terms and maturities, the fair value approximates carrying
value.
11. STOCKHOLDERS' EQUITY
In connection with the acquisition of the steel castings business from
Rockwell on June 14, 1991, the Company issued common stock or conveyed
purchase rights for common stock to certain employees in accordance with
various stock restriction agreements representing 476,173 shares. All such
shares became fully vested as of June 30, 1996.
The Atchison Casting 1993 Incentive Stock Plan (the "Incentive Plan") was
adopted by the Board of Directors on August 10, 1993 and approved by the
Company's stockholders on September 27, 1993. The Incentive Plan allows
the Company to grant stock options to employees to purchase up to 300,000
shares of common stock at prices that are not less than the fair market
value at the date of grant. The options become exercisable with respect to
one-third of the shares subject to the options each year from the date of
grant and remain exercisable for a term of not more than 10 years after the
date of grant. The Incentive Plan provides that no options may be granted
more than 10 years after the date of approval by the stockholders. The
changes in outstanding options were as follows:
SHARES PRICE RANGE
UNDER OPTION PER SHARE
Issued 145,300 $ 13.375
Balance, June 30, 1994 145,300 13.375
Issued 31,000 14.500 - 14.75
Surrendered (5,900) 13.375
------- -----------
Balance, June 30, 1995 170,400 13.375 - 14.75
Issued 45,800 14.125
Surrendered (4,000) 13.375
------- -----------
Balance, June 30, 1996 212,200 $13.375 - 14.75
-------- ---------------
-------- ---------------
Exercisable
June 30, 1996 100,600 $13.375 - 14.75
-------- ---------------
-------- ---------------
At June 30, 1996, options to purchase 87,800 shares were authorized but not
granted.
The 1993 Atchison Casting Corporation Employee Stock Purchase Plan (the
"Purchase Plan") was adopted by the Board of Directors on August 10, 1993
and approved by the Company's stockholders on September 27, 1993. An
aggregate of 400,000 shares of common stock were initially made available
for purchase by employees upon the exercise of options under the Purchase
Plan. On the first day of every option period (option periods are three-
month periods beginning on January 1, April 1, July 1 or October 1 and
ending on the next March 31, June 30, September 30 or December 31,
respectively), each
F-19
eligible employee is granted a nontransferable option to purchase common
stock from the Company on the last day of the option period. As of the
last day of an option period, employee contributions (authorized payroll
deductions and lump sum contributions) during such option period will be
used to purchase full and partial shares of common stock. The price for
stock purchased under each option is 90% of the stock's fair market value
on the first day or the last day of the option period, whichever is lower.
During the years ended June 30, 1994, 1995 and 1996, 3,868, 11,754 and
34,333 common shares, respectively, were purchased by employees under the
Purchase Plan. At June 30, 1996, 350,045 shares remained available for
grant.
On November 18, 1994, the Company's stockholders approved the Atchison
Casting Non-Employee Director Option Plan (the "Director Option Plan").
The Director Option Plan provides that each non-employee director of the
Company who served in such capacity on April 15, 1994 and each non-employee
director upon election or appointment to the Board of Directors thereafter
shall automatically be granted an option to purchase 10,000 shares of the
Company's common stock. No person shall be granted more than one such
option pursuant to the Director Option Plan. An aggregate of 100,000
shares were reserved for purchase under the plan. The price for stock
purchased under the plan is the fair market value at the date of grant.
The changes in outstanding options were as follows:
SHARES PRICE
UNDER OPTION PER SHARE
Issued 50,000 13.375
-------
Balance, June 30, 1995 50,000 13.375
Exercised (10,000) 13.375
-------
Balance, June 30, 1996 40,000 13.375
-------
-------
Because the options granted on April 15, 1994, were subject to approval by
the stockholders, they are reflected as 1995 grants. At June 30, 1996,
options to purchase 50,000 shares were authorized but not granted.
12. PENSION PLANS
The Company sponsors separate defined benefit pension plans for certain of
its salaried and hourly employees. Employees are eligible to participate
on the date of employment with vesting after five years of service.
Benefits for hourly employees are determined based on years of credited
service multiplied by a benefit formula or unit. Benefits for salaried
employees are determined based on credited service and employee earnings.
Pension expense for the defined benefit plans is presented below.
1994 1995 1996
Service costs $ 438 $ 594 $ 717
Interest costs 1,266 1,579 1,961
Actual return on net assets (659) (1,267) (4,302)
Net deferral items (538) 20 2,559
------ ------ ------
$ 507 $ 926 $ 935
------ ------ ------
------ ------ ------
F-20
The pension plans' assets (primarily U. S. Government securities, common
stock and corporate bonds) are deposited with a bank. A comparison of
projected benefit obligation and plan assets at fair value as of June 30,
1995 and 1996 is presented below:
1995 1996
----------------------------------- -----------------------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
Actuarial present value of:
Vested benefit obligation $ (6,177) $ (12,858) $ (8,653) $(15,102)
------- -------- ------- --------
------- -------- ------- --------
Accumulated benefit
obligation $ (6,769) $(13,245) $ (9,371) $(15,564)
------- -------- ------- --------
------- -------- ------- --------
Projected benefit obligation $(10,304) $(13,245) $(13,520) $(15,564)
Plan assets at fair value 8,246 11,992 10,829 14,506
------- -------- ------- --------
Projected benefit obligation
in excess of plan assets (2,058) (1,253) (2,691) (1,058)
Unrecognized prior
service costs (39) 183 129 189
Unrecognized net obligation (346) 389 (384) 417
Unrecognized net loss 1,709 22 2,272 (44)
Additional liability (796) (732)
------- -------- ------- --------
Accrued pension liability $ (734) $ (1,455) $ (674) $ (1,228)
------- -------- ------- --------
------- -------- ------- --------
The actuarial valuation was
prepared assuming:
Discount rate 8.25 % 7.25 %
Expected long-term rate of
return on plan assets 9.00 % 9.00 %
Salary increases per year 5.00 % 5.00 %
In accordance with SFAS No. 87, the Company has recorded an additional
minimum pension liability for underfunded plans of $796 and $732 at
June 30, 1995 and 1996, respectively, representing the excess of unfunded
accumulated benefit obligations over previously recorded pension cost
liabilities. A corresponding amount is recognized as an intangible asset
except to the extent that these additional liabilities exceed related
unrecognized prior service cost and net transition obligation, in which
case the increase in liabilities is charged directly to stockholders'
equity. For 1995, $62 of the excess minimum pension liability resulted in
a charge to equity, net of income taxes of $38. For 1996, $82 of the
excess minimum pension liability resulted in a credit to equity, net of
income taxes of $59.
F-21
In addition, the Company sponsors a defined contribution 401(k) benefit
plan covering certain of its salaried employees who have attained age 21
and have completed one year of service. The Company matches 75% of
employee contributions up to 8% of an employee's salary. Employees vest in
the Company matching contributions after five years. The cost of the
Company's contribution was $194, $330 and $429 for the years ended June 30,
1994, 1995 and 1996, respectively.
The Company's subsidiary, Prospect, contributed $55, $206 and $189 for the
period April 1, 1994 (date of acquisition) to June 30, 1994, fiscal year
ended June 30, 1995 and fiscal year ended June 30, 1996, respectively, to a
multiemployer pension plan for employees covered by a collective bargaining
agreement. This plan is not administered by the Company and contributions
are determined in accordance with provisions of negotiated labor contracts.
Information with respect to the Company's proportionate share of the excess
of the actuarially computed value of vested benefits over the total of the
pension plan's net assets is not available from the plan's administrators.
The Multiemployer Pension Plan Amendments Act of 1980 (the "Act")
significantly increased the pension responsibilities of participating
employers. Under the provisions of the Act, if the plans terminate or the
Company withdraws, the Company may be subject to a substantial "withdrawal
liability." As of the date of the most current unaudited information
submitted by the plan's administrators (December 31, 1995), no withdrawal
liabilities exist.
The Company also has various other profit sharing plans. Costs of such
plans charged against earnings were $403 and $878 for the years ended
June 30, 1995 and 1996, respectively.
13. POSTRETIREMENT OBLIGATION OTHER THAN PENSION
The Company provides certain health care and life insurance benefits to
certain of its retired employees. SFAS No. 106, EMPLOYER'S ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS, requires the Company to accrue
the estimated cost of retiree benefit payments during the years the
employee provides services. The accumulated postretirement benefit
obligation and the accrued postretirement benefit cost as of June 30, 1995
and 1996 is as follows:
1995 1996
Accumulated postretirement benefit obligation:
Retirees $ 664 $ 874
Fully eligible active plan participants 641 864
Other active plan participants 2,897 4,069
------ ------
4,202 5,807
Plan assets at fair value
------ ------
Accumulated postretirement benefit obligation
in excess of plan assets 4,202 5,807
Unrecognized net loss (399) (1,503)
Unrecognized prior service cost 1,241 1,110
------ ------
Accrued postretirement benefit cost $5,044 $5,414
------ ------
------ ------
F-22
Net postretirement benefit cost for the years ended June 30, 1994, 1995 and
1996 consisted of the following components:
1994 1995 1996
Service cost - benefits earned during the year $ 170 $ 180 $ 223
Interest cost on accumulated postretirement
benefit obligation 231 281 328
Amortization of prior service cost (131) (132) (132)
Amortization of loss 7
----- ----- -----
$ 270 $ 329 $ 426
----- ----- -----
----- ----- -----
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation for pre-age 65 benefits as of June 30,
1996 was 8.9% decreasing each successive year until it reaches 5.5% in
2016, after which it remains constant. The assumed rate used for post-age
65 benefits was 8.4% decreasing each successive year until it reaches 5.5%
in 2021. A one-percentage-point increase in the assumed health care cost
trend rate for each year would increase the accumulated postretirement
benefit obligation as of June 30, 1996 by approximately $843 (15.9%) and
the aggregate of the service and interest cost components of the net
periodic postretirement benefit cost for the year then ended by
approximately $118 (17.9%). The assumed discount rate used in determining
the accumulated postretirement obligation as of June 30, 1996 was 7.5%, and
the assumed discount rate in determining the service cost and interest cost
for the year ended June 30, 1996 was 7.5%.
SFAS No. 112, EMPLOYERS' POSTEMPLOYMENT BENEFITS, requires employers who
provide benefits to former or inactive employees after employment but
before retirement to recognize an obligation for such benefits over the
period ending on the date an employee is fully eligible to receive
benefits. The Company adopted SFAS No. 112 in the first fiscal quarter of
1995, which did not have a material effect on the Company's financial
condition or results of operations.
14. OPERATING LEASES
The Company leases certain buildings, equipment, automobiles and trucks,
all accounted for as operating leases, on an as needed basis to fulfill
general purposes. Total rental expense was $648, $957 and $544 for the
years ended June 30, 1994, 1995 and 1996, respectively. Long-term,
noncancellable operating leases having an initial or remaining term in
excess of one year require minimum rental payments as follows:
1997 $ 520
1998 346
1999 84
2000 42
2001 23
F-23
15. MAJOR CUSTOMERS
The Company's operations are conducted within one business segment and
revenues attributable to foreign customers are not material. Net sales to
and customer accounts receivable from major customers are as follows:
AMOUNT OF NET SALES
----------------------------------------
1994 1995 1996
Customer A $ 13,114 $ 8,224 $ 6,500
Customer B 13,439 11,312 7,030
Customer C 12,292 18,611 24,822
Customer D 10,602 20,606 13,396
-------- -------- --------
$ 49,447 $ 58,753 $ 51,748
-------- -------- --------
-------- -------- --------
CUSTOMER
ACCOUNTS
RECEIVABLE
----------------------
1995 1996
Customer A $ 269 $ 891
Customer B 793 501
Customer C 1,901 3,765
Customer D 3,769 2,481
------- -------
$ 6,732 $ 7,638
------- -------
------- -------
16. OTHER INCOME
Other income in fiscal 1996 includes $11,087 of payments received by the
Company from its insurance carrier in final settlement of the business
interruption portion of the Company's insurance claim. Other income also
includes $16,231 of payments received in the fourth quarter from the
Company's insurance carrier in final settlement of the casualty and
property damage portion of the Company's insurance claim. The Company's
claim was a result of the July 1993 Missouri River flood. As of June 30,
1996, the Company has recorded $6,946 in reserves against future repair
expenses which have been classified as accrued expenses.
Other income in fiscal 1995 includes $6,639 in partial payments by the
Company's insurance carrier against the business interruption portion of
the Company's insurance claim, which was filed as a result of the July 1993
Missouri River flood. Of this amount, $1,137 along with $5,000 recoverable
under the Company's casualty/damage coverage is included in insurance
receivable at June 30, 1995 and was received on July 6, 1995.
During fiscal 1994, the Company was advanced $4.0 million under the
casualty portion of its insurance coverages, which was used to offset the
direct expenses of fighting the flood itself, the cost of repair and
replacement of property and equipment damaged in the flood and the
construction of a flood wall. The recovery of direct and indirect costs
(primarily labor and repairs) of $2.5 million was used to reduce the
incurred costs in the 1994 statement of income.
******
F-24
EXHIBIT INDEX
Exhibit
- -------
2.1 Asset Purchase Agreement dated November 29, 1994 by and between
the Company and Hawker Siddeley Canada Inc. (incorporated by
reference to Exhibit 2.1 of the Company's Quarterly Report on Form
10-Q for the quarter ended December 31, 1994)
2.2 Agreement dated December 30, 1994 by and among the Company,
A. Harold Songer and James Stott (incorporated by reference to
Exhibit 2 of the Company's Current Report on Form 8-K dated
January 12, 1995)
2.3 Stock Purchase Agreement dated January 26, 1995 by and between
Edward J. Crowley and the Company (incorporated by reference to
Exhibit 2.3 of the Company's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1994)
2.4 Stock Purchase Agreement dated as of February 28, 1996 by and
among the stockholders of G&C, the Stockholders' Representative and
the Company (incorporated by reference to Exhibit 2 of the Company's
Current Report on form 8-K dated March 25, 1996)
3.1 Articles of Incorporation of Atchison Casting Corporation, a Kansas
corporation (incorporated by reference to Exhibit 4.1 of the Company's
Quarterly Report on Form 10-Q for the quarter ended December
31, 1994)
3.2 By-Laws of Atchison Casting Corporation, a Kansas corporation
(incorporated by reference to Exhibit 4.2 of the Company's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1994)
4.0 Long-term debt instruments of the Company in amounts not
exceeding 10% of the total assets of the Company and its
subsidiaries on a consolidated basis will be furnished to the
Commission upon request
4.1 Credit Agreement dated as of May 24, 1996 by and among the
Company, the banks party thereto and Harris Trust and Savings Bank,
as Agent
4.2(a) Note Purchase Agreement dated as of July 29, 1994 between the
Company and Teachers Insurance and Annuity Association of America
pursuant to which the Company's 8.44% Senior Notes due 2004
were issued (incorporated by reference to Exhibit 4.3 of the Company's
Annual Report on Form 10-K for the year ended June 30, 1994)
EXHIBIT INDEX
Exhibit
- -------
4.2(b) First Amendment dated as of March 8, 1996 to the Note Purchase
Agreement dated July 29, 1994, between the Company and Teachers
Insurance and Annuity Association of America (incorporated by
reference to Exhibit 4.2 of the Company's Current Report on Form 8-K
dated March 25, 1996)
4.2(c) Second Amendment dated as of May 24, 1996 to the Note Purchase
Agreement dated July 29, 1994, between the Company and Teachers
Insurance and Annuity Association of America
10.1(a) Employment Agreement between the Company and Hugh H. Aiken
dated as of June 14, 1991 (incorporated by reference to Exhibit
10.1 of Form S-1 Registration Statement No. 33-67774 filed
August 23, 1993)
10.1(b) Amendment No. 1 dated as of September 27, 1993 to Employment
Agreement between the Company and Hugh H. Aiken (incorporated
by reference to Exhibit 10.1(b) of Amendment No. 1 to Form S-1
Registration Statement No. 33-67774 filed September 27, 1993)
10.2(a) Registration Rights Agreement dated June 14, 1991 by and among
the Company, Creditanstalt-Bankverein ("Creditanstalt"), CBC Capital
Partners, Inc. ("CBCCP"), Chemical Equity Associates, L.P. ("CEA"),
and Riverside Fund I, L.P. ("Riverside Partners") (the "Registration
Rights Agreement") (incorporated by reference to Exhibit 10.5 of Form
S-1 Registration Statement No. 33-67774 filed August 23, 1993)
10.2(b) Amendment No. 1 dated as of August 23, 1993 to the Registration
Rights Agreement (incorporated by reference to Exhibit 10.5(c) of
Amendment No. 2 to Form S-1 Registration No. 33-67774 filed
September 30, 1993)
10.3(a) Stock Restriction Agreements by and among the Company, Riverside
Partners and executive officers of the Company (the "Stock Restriction
Agreements") (incorporated by reference to Exhibit 10.6 of Form
S-1 Registration Statement No. 33-67774 filed August 23, 1993)
10.3(b) Amendment No. 1 dated as of August 23, 1993 to the Stock Restriction
Agreements (incorporated by reference to Exhibit 10.6(b) of Amendment
No. 1 to Form S-1 Registration Statement No. 33-67774 filed September
27, 1993)
10.4 Atchison Casting 1993 Incentive Stock Plan (incorporated by reference
to Exhibit 10.7 of Form S-1 Registration Statement No. 33-67774 filed
August 23, 1993)
EXHIBIT INDEX
Exhibit
- -------
10.5 Confidentiality and Noncompetition Agreements by and among the
Company and executive officers of the Company (incorporated by
reference to Exhibit 10.8 of Form S-1 Registration Statement No.
33-67774 filed August 23, 1993)
10.6 Stockholders' Agreement dated as of August 23, 1993 by and among
the Company, Riverside Partners, CBCCP, CEA and Creditanstalt
(incorporated by reference to Exhibit 10.9 of Amendment No. 1 to
Form S-1 Registration Statement No. 33-67774 filed September
27, 1993)
10.7 Atchison Casting Non-Employee Director Option Plan (incorporated
by reference to Exhibit 10.7 of the Company's Annual Report on Form
10-K for the year ended June 30, 1994)
10.8 Letter Agreement dated January 3, 1995 between James Stott and
the Company (incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1994)
10.9 Stock Option Agreement dated February 1, 1995 by and between
Edward J. Crowley, Rhoda, Stoudt & Bradley Law Offices and the
Company (incorporated by reference to Exhibit 10.2 of the Company's
Quarterly Report on Form 10-Q for the quarter ended December
31, 1994)
10.10 Employment Agreement dated February 1, 1995 by and between
Edward J. Crowley, Empire Steel Castings, Inc. and the Company
(incorporated by reference to Exhibit 10.3 of the Company's Quarterly
Report on Form 10-Q for the quarter ended December 31, 1994)
10.11 Employee Incentive Stock Agreement dated as of April 1, 1994 by
and between Prospect Foundry, Inc., Atchison Casting Corporation
and Richard J. Sitarz (incorporated by reference to Exhibit 10.1 of
the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994)
10.12 Employee Incentive Stock Agreement dated as of October 3, 1994 by
and between Quaker Alloy, Inc., Atchison Casting Corporation and C.
Dinny Kinloch (incorporated by reference to Exhibit 10.2 of the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994)
10.13 Plan for conversion of Prospect Foundry, Inc. and Quaker Alloy, Inc.
stock to Atchison Casting Corporation stock (incorporated by reference
to Exhibit 10.3 of the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1994)
EXHIBIT INDEX
Exhibit
- -------
10.14 Letter Agreement dated November 2, 1994 between Riverside Partners,
Inc. and the Company regarding a finder's fee in connection with the
acquisition of Canadian Steel (incorporated by reference to Exhibit
10.15 of the Company's Form 8-B Registration Statement dated April
24, 1995)
10.15 Lease Agreement dated September 23, 1987 between James Stott and
Kramer International, as amended by the First Amendment thereto dated
May 16, 1989 and extended through December 31, 1996 (incorporated
by reference to Exhibit 10.2 of the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1995)
10.16 Hugh H. Aiken Supplemental Retirement Benefit Plan (incorporated by
reference to Exhibit 10.2 of the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996)
21.1 Subsidiaries of the Company
23.1 Consent of Deloitte & Touche LLP
27 Financial Data Schedule