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
For the fiscal year ended June 30, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to _________
Commission file number 1-12541
ATCHISON CASTING CORPORATION
(Exact name of registrant as specified in its charter)
Kansas 48-1156578
(State 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:
Name of Each Exchange on
Title of Each Class Which Registered
------------------- ------------------------
Common Stock, $.01 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT: NONE
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 9, 1999 was
$63,827,463.
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 9, 1999: 7,636,901
Shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Proxy Statement for the Annual Meeting of
Stockholders to be held November 19, 1999, are incorporated by reference into
Part III.
PART I
ITEM 1. BUSINESS
GENERAL
Atchison Casting Corporation ("Atchison" or "ACC") was formed in 1991 with
the dual objectives of acting as a consolidator in the foundry industry and
bringing new technology for casting design and manufacture to the foundries it
acquires. While Atchison in its current form has been in operation since 1991,
its operating units have been in continuous operation for much longer, in some
cases for more than 100 years. The first foundry acquired by ACC, the
steel-castings division of Rockwell International, has been in continuous
operation since 1872. The period as a semi-captive foundry, under Rockwell, was
characterized by high quality design and production, but less emphasis on
outside customers and new markets.
Atchison manufactures highly engineered metal castings and forgings that are
utilized in a wide variety of products, including cars, trucks, gas, steam and
hydroelectric turbines, mining equipment, locomotives, passenger rail cars,
pumps, valves, army tanks, navy ships, paper-making machinery, oil field
equipment, reactor vessels for plastic manufacturing, computer peripherals,
office furniture, home appliances, satellite receivers and consumer goods.
Having completed nineteen acquisitions since 1991, the Company has established
itself as a leading consolidator in the casting industry. As a result of these
acquisitions, the Company has the ability to produce castings from a wide
selection of materials, including carbon, low-alloy and stainless steel, gray
and ductile iron, aluminum and zinc as well as the ability to manufacture parts
in a variety of sizes, ranging from small die cast components for the computer
industry that weigh a few ounces to mill stands for the steel industry that
weigh up to 280 tons. The Company believes that its broad range of capabilities,
which addresses the needs of many different markets, provides a distinct
competitive advantage in the casting and forging industry.
The Company was founded to make acquisitions in the highly fragmented
foundry industry and to implement new casting design technology to make the
foundries more competitive. Following the initial acquisition of the steel
casting operations of Rockwell International in 1991, the Company has continued
to acquire foundries in the U.S., Canada and Europe. As a result of these
acquisitions, as well as internal growth, ACC's net sales have increased from
approximately $54.7 million in its first fiscal year ended June 30, 1992, to
$475.6 million for the fiscal year ended June 30, 1999, resulting in a compound
annual growth rate of 36.2%. The Company is not currently contemplating any
major acquisitions. The Company's primary focus in fiscal 2000 will be on the
integration and improvement of existing operations.
Since 1991, the number of customers served by the Company has increased
from 12 to more than 500, including companies such as Caterpillar, Gardner
Denver, General Motors, General Electric, Siemens (formerly Westinghouse),
General Dynamics, Shell, British Steel, Nucor, GEC-Alstom, Ingersoll-Dresser,
John Deere, DaimlerChrysler, and Meritor (formerly Rockwell International).
The Company has received supplier excellence awards for quality from, or has
been certified by, substantially all of its principal customers.
The Company's favorable industry position is attributable to several
factors, including: (i) its use of new and advanced casting technologies;
(ii) its ability to cast substantially all types of iron and
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steel, as well as aluminum and zinc; (iii) the Company's emphasis on customer
service and marketing; and (iv) the Company's position as a long-term
supplier to many of its major customers.
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.
COMPANY STRATEGY
ACC is pursuing growth and diversification through a two-pronged approach
of: (i) making strategic acquisitions within the widely fragmented and
consolidating foundry industry; and (ii) integrating the acquired foundries
to achieve economies of scale, while strengthening marketing and promoting
the use of new casting technology. No major acquisitions are currently
contemplated during fiscal 2000. ACC's primary focus during fiscal 2000 will
be on the integration and improvement of existing operations.
STRATEGIC ACQUISITIONS
ACQUIRE LEADERS AND BUILD CRITICAL MASS. The Company initially seeks to
acquire foundries that are considered leaders in their respective sectors. After
acquiring a leader in a new market, ACC strives to make subsequent acquisitions
that further penetrate that market and take advantage of the leader's technical
expertise. The Atchison/St. Joe Division is a leader in the field of large,
complex steel castings. This acquisition in 1991 provided credibility for ACC's
presence in the industry and established a base for add-on acquisitions.
Following the Atchison/St. Joe Division acquisition, the Company added capacity
and strengthened its base through the add-on acquisitions of Amite Foundry and
Machine, Inc. ("Amite") in 1993 and Canadian Steel Foundries, Ltd. ("Canadian
Steel") in 1994. As an additional example, Prospect Foundry, Inc. ("Prospect")
was acquired in 1994 due to its leading position in gray and ductile iron
casting production. The subsequent acquisition of La Grange Foundry Inc. ("La
Grange") in 1995 further enhanced ACC's position in this market.
BROADEN PRODUCT OFFERINGS AND CAPABILITIES. The Company also seeks to
acquire foundries that add a new product line or customer base that can be
leveraged throughout ACC's network of foundries. For example, prior to the
acquisition of Prospect in 1994, which expanded ACC's capabilities to include
gray and ductile iron, the Company only produced carbon and low alloy steel
castings. The acquisition of Quaker Alloy, Inc. ("Quaker Alloy") expanded ACC's
stainless and high alloy steel capabilities to include a wider range of casting
sizes. Los Angeles Die Casting Inc. ("LA Die Casting"), a leading die caster of
aluminum and zinc components for the computer and recreation markets, provides
ACC with an entry into the aluminum and zinc die casting markets. PrimeCast,
Inc. ("PrimeCast") (formerly the Beloit Castings Division of Beloit Corporation)
expanded ACC's capabilities to produce large iron castings. The acquisition of
Sheffield Forgemasters Group Limited ("Sheffield") brings to ACC the ability to
offer cast and forged rolls, larger steel castings and centrifically cast parts.
London Precision Machine & Tool Ltd. ("London Precision") expanded ACC's
capabilities in the machining of castings.
DIVERSIFY END MARKETS. The Company attempts to lessen the cyclical exposure
at individual foundries by creating a diversified network of foundries that
serve a variety of end markets. Kramer International, Inc. ("Kramer"), a
supplier of pump impellers, was acquired in 1995, expanding ACC's sales to the
energy and utility sectors. The Company believes ACC's presence in these markets
somewhat offsets its exposure to the railroad and mining and construction
markets, as energy and utility cycles do not necessarily coincide with railroad
investment or mining and construction cycles. The acquisition of Prospect
diversified the end markets served by the Company by providing access to both
the agricultural equipment and trucking industries. Sheffield provided a strong
position as a supplier to the steel industry, as well as substantial enhancement
of ACC's presence in the oil and gas
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industry. Currently, the Company serves more than ten major end-user
markets, compared to three in 1991.
DIVERSIFY GEOGRAPHICALLY. The Company also seeks to acquire foundries which
would expand the operations to other major world economies. Sheffield and
Founderie d'Autun ("Autun") provide entry into the Euromarket.
The following table presents the Company's nineteen acquisitions and their
primary strategic purpose.
DATE
MANUFACTURING UNIT ACQUIRED STRATEGIC PURPOSE
------------------------------- ------------ --------------------------------------------------------------
Atchison/St. Joe Division 06/14/91 Leader in carbon and low alloy, large, complex steel castings.
Initial platform for Company strategy.
Amite 02/19/93 Increase capacity to take on new projects with customers.
Add-on to Atchison/St. Joe Division.
Prospect 04/01/94 Leader in gray and ductile iron castings.
Quaker Alloy 06/01/94 Develop position in stainless and high alloy steel castings.
Canadian Steel 11/30/94 Access to hydroelectric and steel mill markets. Develop
position in large castings.
Kramer 01/03/95 Leader in castings for pump industry.
Empire Steel Castings, Inc. 02/01/95 Build position in pump and valve markets. Add-on to Quaker
Alloy.
La Grange 12/14/95 Build position in gray and ductile iron casting markets.
The G&C Foundry Company 03/11/96 Highly regarded in fluid power market. Build position in
gray and ductile iron casting markets.
LA Die Casting 10/01/96 Leader in aluminum and zinc die casting.
Canada Alloy Castings, Ltd. 10/26/96 Build position in existing markets. Smaller castings than
Canadian Steel, but similar markets and materials.
Pennsylvania Steel Foundry 10/31/96 Well regarded in turbine industry. Build position in power
& Machine Company generation, pump and valve markets. Add-on to Quaker
Alloy and Empire.
Jahn Foundry Corp. 02/14/97 Develop position in market for automotive castings. Add-on
iron foundry.
PrimeCast 07/01/97 Build position in gray and ductile iron casting markets.
Enter paper-machinery market, acquire capability for large
iron castings and expand ability to cast bronze.
Inverness Castings Group, Inc. 10/06/97 Expand in automotive and aluminum products.
Sheffield 04/06/98 Enter European marketplace and add new product lines,
including forgings. Gain strong position in steel
industry and off-shore oil and gas industry.
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DATE
MANUFACTURING UNIT ACQUIRED STRATEGIC PURPOSE
------------------------------- ------------ --------------------------------------------------------------
Claremont Foundry, Inc. 05/01/98 Company's first automatic molding line for steel castings
made in green sand molds. Penetrate more deeply into
mass transit market.
London Precision 09/01/98 Enhance the Company's capability to machine castings, including
finish machining.
Fonderie d'Autun 02/25/99 Establish additional operations in Europe.
INTEGRATION OF ACQUIRED FOUNDRIES
STRENGTHEN MARKETING FUNCTIONS. Many foundries, particularly those that
operate as captive foundries or only rely on a small number of customers, do not
have strong marketing capabilities. ACC views this industry-wide marketing
weakness as an opportunity to establish a competitive advantage. The Company
places great emphasis on maximizing new business opportunities by strengthening
marketing capabilities, adding sales people and cross-selling between foundries.
One way in which ACC builds the marketing efforts of its foundries is to
increase the number of sales personnel at both existing and acquired foundries.
In addition to sales people added through acquisitions, the Company has
incrementally increased the sales force by 31%. Another element of the Company's
marketing effort is to jointly develop castings with its customers. Joint
development projects using new technology, and the resulting increased service
and flexibility provided to customers, is an important marketing tool and has
been instrumental in receiving several new orders. For example, a joint
development project between Caterpillar and ACC led to the production of the
boom tip casting for one of Caterpillar's new hydraulic excavators. Joint
development projects have also taken place with General Motors, Nordberg, John
Deere, New Holland and DaimlerChrysler, among others.
An increasingly important aspect of the Company's marketing strategy has
been to develop its ability to cross-sell among its foundries. In acquiring new
foundries and expanding into new markets, the Company has gained a significant
advantage over smaller competitors since its sales force is able to direct its
customers to foundries with different capabilities. This benefits ACC in that it
enables foundries to use the Atchison name and relationships to gain new
customers as well as helping customers to reduce their supplier base by
providing "one-stop" shopping. The Company facilitates cross-selling by
reinforcing the sales force's knowledge of Company-wide capabilities through
visits to individual facilities.
INTRODUCE ADVANCED TECHNOLOGY. As part of its acquisition strategy, the
Company is systematically introducing new advanced technologies into each of its
acquired foundries to enhance their competitive position. For example, the
Company's capabilities in finite element analysis and three-dimensional solid
modeling are having a beneficial impact on sales and casting production by
helping customers to design lighter and stronger castings, shortening design
cycles, lowering casting costs and in some cases creating new applications.
These new technologies have enhanced the Company's ability to assist customers
in the component design and engineering stages, strengthening the Company's
relationships with its customers. New techniques involve computerized solid
models that are used to simulate the casting process, to make patterns and
auxiliary tooling and to machine the
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finished castings. The Company intends to implement this new technology in
all of its foundries and, to date, fourteen of ACC's foundries have
implemented or are in the process of implementing this technology. The
Company has established a Fabrication-to-Casting Design Center at its
Atchison, Kansas facility. The focus of the design center is to help
customers design new castings, especially those which can replace existing
fabricated assemblies.
Investments by the Company in technology improvements include: (i) new
solidification software and hardware for better casting design and process
improvement; (ii) Computer Numerical Control ("CNC") machine tools,
computer-assisted, laser measurement devices and new cutting head designs for
machine tools to improve productivity and quality in the machining of
castings; (iii) Argon-Oxygen Decarburization ("AOD") refining, which is used
to make high-quality stainless steel; (iv) computer-controlled sand binder
pumps to improve mold quality and reduce cost; and (v) equipment for
measuring the nitrogen content of steel, which helps in casting quality
improvement. ACC is one of the few foundry companies that uses its own
scanning electron microscope to analyze inclusions in cast metal. The Company
also participates in technical projects led by the Steel Founders' Society of
America and the American Foundrymen's Society, which are exploring ways to
melt and cast cleaner iron and steel, as well as U.S. government/industry
specific projects to shorten and improve the casting design cycle.
INCREASE CAPACITY UTILIZATION. A principal objective of the Company in
integrating and operating its foundries is to increase capacity utilization at
both its existing and newly acquired facilities. Many of the Company's foundries
at the time of their acquisition have been operating with underutilized
capacity. The Company seeks to improve capacity utilization by introducing more
effective marketing programs and applying advanced technologies as described
above.
ACHIEVE PURCHASING ECONOMIES. Once an acquisition has been completed, ACC
makes its volume purchasing programs available to the newly acquired foundry.
ACC has realized meaningful cost savings by achieving purchasing efficiencies
for acquired foundries. By jointly coordinating the purchase of raw materials,
negotiation of insurance premiums and procurement of freight services, ACC's
individual foundries have, in some cases, realized savings of 10% to 30% of
these specific costs.
LEVERAGE MANAGEMENT EXPERTISE. The Company believes that improvements can
often be made in the way acquired foundries are managed, including the
implementation of new technologies, advanced employee training programs,
standardized budgeting processes and profit sharing programs and providing
access to capital. In this view, ACC enhances management teams by adding
technical, marketing or production experience, if needed. For example, ACC was
able to significantly improve the profitability of Canadian Steel by adding new
members to management, entering new markets, installing finite element
solidification modeling and providing capital. As another example, under ACC
ownership, La Grange was able to negotiate a new labor agreement, create profit
sharing for all employees, broaden its customer base and install solidification
modeling.
INDUSTRY TRENDS
The American Foundrymen's Society estimates that global casting production
was 60.9 million metric tons in 1997 of which steel castings accounted for
approximately 5.5 million tons, iron castings for approximately 46.8 million
tons and nonferrous castings for approximately 8.6 million tons. It is further
estimated that the top ten producing countries represent 80% of the total
production, with the U.S. representing in excess of 23% of the world market.
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The U.S. casting industry is estimated to have had shipments of
approximately 14.9 million tons in 1998, of which steel castings accounted for
approximately 1.4 million tons, iron castings for approximately 10.8 million
tons and non-ferrous castings for approximately 2.7 million tons. Recent
estimates forecast an approximate 2-3% decline in shipments in each of 1999 and
2000. Forecasts for years 2002 and 2003 project the shipments to grow to 14.2
million tons and 14.9 million tons, respectively. The Company has been able to
grow at a rate substantially in excess of the overall industry principally as a
result of its strategy and due to key trends affecting the casting industry,
including the following:
INDUSTRY CONSOLIDATION
Although still highly fragmented, the U.S. foundry industry has consolidated
from approximately 465 steel foundries and 1,400 iron foundries in 1982 to
approximately 400 and 700 steel and iron foundries, respectively, in 1998. As
the industry has consolidated, capacity utilization has increased from
approximately 45% in 1982 to more than 85% in 1998. This consolidation trend has
been accompanied by increased outsourcing of casting production and OEM supplier
rationalization.
OUTSOURCING. Many OEMs are outsourcing the manufacture of cast components to
independent foundries in an effort to reduce their capital and labor
requirements and to focus on their core businesses. Management believes that
captive foundries are often underutilized, inefficiently operated and lack the
latest technology. Several of ACC's OEM customers, such as Caterpillar, General
Motors, General Electric, Meritor (formerly Rockwell International),
Ingersoll-Dresser, Gardner Denver, Compagnie Internationale du Chauffage and
Beloit Corporation, have closed or sold one or more of their captive foundries
during the past ten years and have outsourced the castings which they once made
to independent suppliers such as the Company. As described above, the closure of
these facilities has contributed to increased capacity utilization at the
remaining foundries.
OEM SUPPLIER RATIONALIZATION. OEMs are rationalizing their supplier base to
fewer foundries that are capable of meeting increasingly complex requirements.
For example, OEMs are asking foundries to play a larger role in the design,
engineering and development of castings. In addition, some customers have
demanded that suppliers implement new technologies, adopt quality (ISO 9000 and
QS 9000) standards and make continuous productivity improvements. As a result,
many small, privately-owned businesses have chosen to sell their foundries
because they are unwilling or unable to make investments necessary to remain
competitive. Moreover, the EPA and OSHA require compliance with increasingly
stringent environmental and governmental regulations.
NEW CASTING TECHNOLOGY
Recent advances in casting technology and pattern-making have created new
opportunities for reducing costs while increasing efficiency and product
quality. The combination of powerful, low cost computer workstations with finite
element modeling software for stress analysis and metal solidification
simulation is helping foundries and customers to design castings that are
lighter, stronger and more easily manufactured at a competitive cost.
The Company believes new casting technologies have led to growth in casting
shipments by replacing forgings and fabrications in certain applications. In the
past, fabricated (welded) components have been used in order to reduce tooling
costs and product development lead-time. New casting technology has helped to
reduce the weight and cost, and shorten the lead-time, of castings and has
therefore increased the relative attractiveness of cast components. For example,
these improvements allowed an ACC customer to replace a fabricated steel boom
that is used in a typical mining vehicle with
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one that is cast. The cast steel boom weighs 20% less than the fabricated
component that it replaced, allowing an increase in payload. Product life is
increased due to greater corrosion resistance. Another customer replaced the
combination cast/fabricated body of a rock crusher with a one-piece casting,
reducing labor for cutting, welding and machining as a result.
The Company has established a Fabrication-to-Casting Design Center at its
Atchison, Kansas facility. The focus of the design center is to help customers
design new castings, especially those which can replace existing fabricated
assemblies.
MARKETS AND PRODUCTS
STEEL INDUSTRY. The steel industry uses rolls to form cast steel into
sheets, bars, rods, beams and plates, which are then used to make end
products such as car bodies, tin cans and bridges. Rolls are consumed as
steel is rolled, so there is a steady demand for rolls. Customers in this
market include British Steel and Nucor, among others. Sheffield Forgemasters
Rolls Ltd. ("Forgemasters Rolls") is one of the world leaders in cast and
forged rolls for the steel making industry. Steel products produced by the
Company accounted for 4.1%, 7.0% and 18.7% of the Company's net sales in
fiscal 1997, fiscal 1998 and fiscal 1999, respectively.
MINING AND CONSTRUCTION. ACC's castings are used in tractor-crawlers, mining
trucks, excavators, drag lines, wheel-loaders, rock crushers, diesel engines,
slurry pumps, coal mining machines and ore-processing equipment. Mining and
construction equipment customers include Caterpillar, Nordberg, Meritor
(formerly Rockwell International), Gardner Denver, John Deere, Komatsu and
Euclid, among others. Products supplied to the mining and construction industry
accounted for 31.4%, 23.1% and 18.0% of the Company's net sales in fiscal 1997,
fiscal 1998 and fiscal 1999, respectively.
RAILROAD. The Company supplies cast steel undercarriages for locomotives,
among other parts, for this market. GM is ACC's largest locomotive customer, and
has purchased locomotive castings from the Atchison/St. Joe Division for over 50
years. The Company further penetrated this market through the purchase of London
Precision. Rail products produced by the Company accounted for 5.2%, 6.6% and
11.4% of the Company's net sales in fiscal 1997, fiscal 1998 and fiscal 1999,
respectively. In fiscal 1999, General Motors accounted for more than 10% of net
sales.
ENERGY. The Company's products for the energy market include pumps, valves
and compressors for transmission and refining of petrochemicals, blow-out
preventers and mud pumps for drilling and work-over of wells, lifting hooks and
shackles for offshore installation of equipment, winch components for rig
positioning, nodes for platform construction, subsea components and other oil
field castings. Shell, Amoco, Aker-Verdal, Shaffer, Cooper Energy, Hydril,
Solar, Nordstrom, Ingersoll-Dresser Pumps and Amclyde are among the Company's
many energy-related customers. Energy products produced by the Company accounted
for 14.3%, 8.9% and 8.8% of the Company's net sales in fiscal 1997, fiscal 1998
and fiscal 1999, respectively.
AUTOMOTIVE. The automotive industry uses both iron and aluminum castings, as
well as aluminum die castings. ACC entered this market through the purchase of
Jahn Foundry Corp. ("Jahn Foundry") in Springfield, Massachusetts and Inverness
Castings Group, Inc. ("Inverness") in Dowagiac, Michigan. Customers in this
market include General Motors and DaimlerChrysler, among others. Automotive
products produced by the Company accounted for 1.6%, 10.4% and 8.7% of the
Company's net sales in fiscal 1997, fiscal 1998 and fiscal 1999, respectively.
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UTILITIES. Many of ACC's castings are used in products for the utility
industry, such as pumps, valves and gas compressors. ACC also makes steam, gas
and hydroelectric turbine castings, nuclear plant components, sewage treatment
parts and other castings for the utility industry. In addition, the Company
manufactures replacement products that are used when customers perform
refurbishments. Customers include Westinghouse, General Electric, GEC-Alsthom,
Sulzer, Siemens, Kvaerner, Goulds Pumps and Neles Controls. Utility products
produced by the Company accounted for 13.1%, 9.9% and 6.6% of the Company's net
sales in fiscal 1997, fiscal 1998 and fiscal 1999, respectively.
MILITARY. Weapons and equipment for the Army, Navy and Coast Guard employ
many different types of castings. The Company makes components for ships, battle
tanks, howitzers and other heavy weapons. The military casting market has
declined sharply, but ACC has been able to replace this volume by targeting new
products such as turbines, compressors, pumps and valves. Customers in this
market include General Dynamics, Litton, Bath Iron Works, Boeing, the U.S. Army
and Avondale Shipyards, among others.
TRUCKING. The Company manufactures components used on truck engines and
suspension systems. Many of ACC's castings are used in aftermarket products to
achieve better fuel economy or to enhance ride characteristics. Customers
include Horton Industries, Detroit Diesel and others.
FARM EQUIPMENT. ACC makes a variety of castings for farm tractors, baling
equipment, harvesters, sugar cane processors and other agricultural equipment
for customers such as John Deere, Caterpillar and New Holland.
PAPER-MAKING MACHINERY. The paper-making machinery industry uses a variety
of iron, steel and non-ferrous castings, both in original equipment and for the
aftermarket. ACC has been a minor supplier to this market since 1992. The
acquisition of the castings division of Beloit Corporation in July 1997 made ACC
a significant supplier of castings to this market.
MASS TRANSIT. ACC began making undercarriages for passenger rail cars in
1992 and is a leading casting supplier to the mass transit market. The Company's
castings are used on the BART system in San Francisco, METRA in Chicago, NCTD in
San Diego, MARTA in Atlanta, and in Miami and Vancouver. La Grange and Claremont
Foundry, Inc. ("Claremont") cast components used in subway cars in several
cities, including New York City, which is the largest user of subway cars in
North America.
OTHER. Other markets include process equipment such as rubber mixers,
plastic extruders, dough mixers, machine tools and a variety of general
industrial applications. With the acquisition of LA Die Casting, the Company
entered the consumer market. LA Die Casting supplies components used to make
recreational vehicles, computer peripherals, direct satellite receivers and pool
tables. Customers include California Amplifier, RC Design, Care Free of Colorado
and Printronix.
For financial information about geographic areas, see footnote 18 of the
notes to the Company's Consolidated Financial Statements.
SALES AND MARKETING
New foundry technologies and the new applications resulting therefrom
require a more focused and knowledgeable sales force. The Company pursues an
integrated sales and marketing approach that includes senior management,
engineering and technical professionals, production managers and
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others, all of whom work closely with customers to better understand their
specific requirements and improve casting designs and manufacturing
processes. The Company supplements its direct sales effort with participation
in trade shows, marketing videos, brochures, technical papers and customer
seminars on new casting designs.
The Company's engineering and technical professionals are actively involved
in marketing and customer service, often working with customers to improve
existing products and develop new casting products and applications. They
typically remain involved throughout the product development process, working
directly with the customer to design casting patterns, build the tooling needed
to manufacture the castings and sample the castings to ensure they meet
customers' specifications. The Company believes that the technical assistance in
product development, design, manufacturing and testing that it provides to its
customers gives it an advantage over its competition.
Customers tend to develop long-term relationships with foundries that can
provide high quality, machined castings delivered on a just-in-time basis that
do not require on-site inspection. Frequently, the Company is the only current
source for the castings that it produces. Maintaining duplicate tooling in
multiple locations is costly, so customers prefer to rely on one supplier for
each part number. Moving the tooling to another foundry is possible, however,
such a move entails considerable time and expense on the customer's part. In
addition, ACC is forming product development partnerships with a number of
customers to develop new applications for castings.
BACKLOG
The Company's backlog is based upon customer purchase orders that the
Company believes are firm and does not include purchase orders anticipated but
not yet placed. At June 30, 1999, the Company's backlog was approximately $178.9
million, as compared to backlog of approximately $198.2 million at June 30,
1998. The backlog is scheduled for delivery in fiscal 2000 except for
approximately $21.2 million, of which $14.7 million is scheduled for delivery in
fiscal 2001. The level of backlog at any particular time is not necessarily
indicative of the future operating performance of the Company. The Company
historically has not experienced cancellation of any significant portion of
customer orders.
COMPETITION
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; however, breadth of capabilities and customer
service have become increasingly important. The Company believes that it is able
to compete successfully in its markets by: (i) offering high quality, machined
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.
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 domestic 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.
10
ACC, and the foundry industry in general, competes with manufacturers of
fabrications in some application areas. The Company believes that the relative
advantages of castings, particularly in light of new casting design technology,
which reduces weight, cost and leadtime while improving casting quality, will
lead to increased replacement of fabrications by iron and steel castings. The
Company competes with foundries in Asia, Europe and North America.
MANUFACTURING
CASTINGS. Casting is one of several methods, along with forging and
fabricating, which shape metal into desired forms. Castings are made by pouring
or introducing molten metal into a mold and allowing the metal to cool until it
solidifies, creating a monolithic component. Some castings, such as die
castings, are made with a permanent metal mold which can be used repeatedly.
Others, such as sand castings, are made in a sand mold which is used only once.
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 may 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.
CASTING PROCESS. The steel casting manufacturing process involves melting
steel scrap in electric arc or induction furnaces, adding alloys, pouring the
molten metal into molds made of sand or iron 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. Castings
for rolls are sometimes made by rotating the mold while the liquid steel or iron
is being poured into it.
Steel scrap and alloys are melted in an electric arc furnace at
approximately 2,900 degrees Fahrenheit, and the molten metal is poured from a
ladle into 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 to reduce temperatures rapidly is also available for use in heat
treatment. The castings are shot blasted again and checked for dimensional
accuracy. Each casting undergoes a multi-stage quality control procedure before
being transported to one of the Company's or the customer's machine shops for
any required machining.
Iron castings are processed similarly in many respects to steel castings.
Melting and pouring temperatures for molten iron are approximately 2,400 degrees
Fahrenheit, and less cleaning and finishing is required for iron castings than
is typically required for steel castings. Iron and steel scrap may both be used
in making cast iron.
11
Die casting, as contrasted to sand casting, uses a permanent metal mold that
is reused. Melting and pouring temperatures for aluminum and zinc are less than
half that used for steel, and die castings normally require less cleaning than
iron or steel castings.
FORGING PROCESS. The forging process applies pressure by hitting or pressing
a heated ingot or wrought steel blank. The forged piece is then heat-treated and
machined much in the same manner as a steel casting.
MATERIALS. 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 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 other
ferrous metals. In addition, most of the beneficial properties of steel match or
exceed those of competing ferrous metals. The Company's first foundry, which
today forms the Atchison/St. Joe Division, produced carbon and low alloy steel
castings when it was acquired from Rockwell International in 1991. ACC added an
AOD vessel for making stainless steel in order to better supply the pump and
valve markets, which sometimes require stainless steel castings to be made from
the same patterns used for carbon steel castings. Also in 1994, ACC purchased
Quaker Alloy, which specialized in casting high alloy and stainless steels for
valves, pumps and other equipment. Sheffield, Canadian Steel and Canada Alloy
Castings, Ltd. ("Canada Alloy") also make high alloy and stainless castings,
further reinforcing ACC's market position and skill base concerning the casting
of stainless and specialty, high alloy steels.
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 stronger and more flexible than traditional cast iron, known as gray
iron, and is easier and less expensive to cast than steel. Due to these
qualities, the demand for ductile iron is increasing faster than for either
traditional gray cast iron or cast steel. In 1994, ACC initiated manufacturing
of gray and ductile iron through the acquisition of Prospect. ACC's presence in
ductile iron was increased through the subsequent purchases of La Grange, The
G&C Foundry Company ("G&C") and PrimeCast.
Aluminum castings (including die castings) generally offer lighter weight
than iron or steel, and are usually easier to cast because aluminum melts at a
lower temperature. These advantages, coupled with low prices for aluminum during
the last decade, have led to a substantial increase in the use of aluminum
castings, especially in motor vehicles. Aluminum's relative softness, lower
tensile strength and poor weldability limit its use in many applications where
iron and steel castings are currently employed. In 1996, ACC entered the
nonferrous market with the purchase of LA Die Casting, which die casts aluminum
and zinc.
Steel, unlike iron, can be forged as well as cast. Forging compresses steel,
and is preferred for some critical applications like nuclear vessels, turbine
shafts and pressure vessels, among others.
The ability to provide cast and forged components in a broad range of
materials allows ACC to present itself as a "one-stop shop" for some
customers and simplifies purchasing for others. Since customers in general
have a goal of reducing their total number of suppliers, a broader range of
materials and casting skills gives ACC an advantage over many other foundry
operations.
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 one thousandth of an inch.
12
Machining includes drilling, threading or cutting operations. The Company's
Sheffield, St. Joe, Amite, Inverness and London Precision machine shops have
a wide variety of machine tools, including CNC machine tools. The Company
also machines some of its castings at Canadian Steel, Quaker Alloy, Empire
Steel Castings, Inc. ("Empire") and Kramer. The ability to machine castings
provides a higher value-added product to the customer and improved quality.
Casting imperfections, which are typically located near the surface of the
casting, are usually discovered during machining and corrected before the
casting is shipped to the customer.
NON-DESTRUCTIVE TESTING. Customers typically specify the physical
properties, such as hardness and strength, which their castings are to possess.
The Company determines how best to meet those specifications. Regular testing
and monitoring of the manufacturing process are necessary to maintain high
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 teams assist
customers in designing castings and work with manufacturing departments to
determine the most cost effective manufacturing process. Among other
computer-aided design techniques, the Company uses three-dimensional solid
modeling and solidification software. This technology reduces the time required
to produce sample castings for customers by several weeks and improves the
casting design. The new Fabrication-to-Casting Design Center at its Atchison,
Kansas faciltiy is a leading example for the use and benefits of new casting
design technology.
CAPACITY UTILIZATION. The following table shows the type and the approximate
amount of available capacity, in tons, for each foundry and die caster. The
actual number of tons that a foundry can produce annually is dependent on
product mix. Complicated castings, such as those used for military applications
or in steam turbines, require more time, effort and use of facilities, than do
simpler castings such as those for the mining and construction market. Also,
high alloy and stainless steel castings generally require more processing time
and use of facilities than do carbon and low alloy steel castings.
TONS
SHIPPED
ESTIMATED* 12 MONTHS
ANNUAL ENDED ESTIMATED*
MANUFACTURING METALS CAST OR CAPACITY JUNE 30, CAPACITY
UNIT FORGED MAJOR APPLICATIONS IN NET TONS 1999 UTILIZATION
------------------ ---------------- -------------------------- ------------- --------------- ------------
Atchison/St. Joe Carbon, low Mining and construction, 30,000 25,946 86.5%
Division alloy and rail, military, valve,
stainless turbine and compressor
steel
Amite Carbon and low Marine, mining and 14,000 4,694 33.5%
alloy steel construction
Prospect Gray and Construction, 12,500 8,443 67.5%
ductile iron agricultural, trucking,
hydraulic, power
transmission and machine
tool
Quaker Alloy Carbon, low Pump and valve 6,000 1,566 26.1%
alloy and
stainless
steel
Canadian Steel Carbon, low Hydroelectric and steel 6,000 2,697 45.0%
alloy and mill
stainless steel
13
TONS
SHIPPED
ESTIMATED* 12 MONTHS
ANNUAL ENDED ESTIMATED*
MANUFACTURING METALS CAST OR CAPACITY JUNE 30, CAPACITY
UNIT FORGED MAJOR APPLICATIONS IN NET TONS 1999 UTILIZATION
------------------ ---------------- -------------------------- ------------- --------------- ------------
Kramer Carbon, low Pump impellers and 1,450 918 63.3%
alloy and casings
stainless
steel, gray
and ductile
iron
Empire Carbon and low Pump and valve 4,800 1,440 30.0%
alloy steel
and gray,
ductile and
nickel
resistant
iron
La Grange Gray, ductile Mining and construction 14,000 9,690 69.2%
and compacted and transportation
graphite iron
G&C Gray and Fluid power (hydraulic 12,000 7,432 61.9%
ductile iron control valves)
LA Die Casting Aluminum and Communications, 2,400 1,078 44.9%
zinc recreation and computer
Canada Alloy Carbon, low Power generation, pulp 2,500 1,632 65.3%
alloy and and paper machinery,
stainless steel pump and valve
Pennsylvania Carbon and Power generation, pump 3,700 1,496 40.4%
Steel Foundry stainless and valve
and Machine steel
Company
Jahn Foundry Gray iron Automotive, air 11,000 6,475 58.9%
conditioning and
agricultural
PrimeCast Gray and Paper-making machinery 19,840 10,795 54.4%
ductile iron
and stainless
steel
Inverness Aluminum Automotive, furniture 12,500 7,639 61.1%
and appliances
Forgemasters Iron and Steel Steel and aluminum 31,000 26,189 84.5%
Rolls rolling
14
TONS
SHIPPED
ESTIMATED* 12 MONTHS
ANNUAL ENDED ESTIMATED*
MANUFACTURING METALS CAST OR CAPACITY JUNE 30, CAPACITY
UNIT FORGED MAJOR APPLICATIONS IN NET TONS 1999 UTILIZATION
------------------ ---------------- -------------------------- ------------- --------------- ------------
Sheffield Iron and Steel Oil and gas, ingot, 113,000 42,403 37.5%
Forgemasters petrochemical, power
Engineering generation
Limited
Claremont Steel Mining and mass transit 6,000 1,968 32.8%
Autun Iron Heating and boiler 30,000 12,534 41.8%
castings
------------- --------------- ------------
Totals 332,690 175,035 52.6%
-------------- --------------- ------------
-------------- --------------- ------------
MACHINING
HOURS
ESTIMATED* 12 MONTHS
ANNUAL ENDED ESTIMATED*
MACHINING METALS MACHINING JUNE 30, CAPACITY
UNIT MACHINED MAJOR APPLICATIONS HOURS 1999 UTILIZATION
------------------ ---------------- -------------------------- ------------- --------------- --------------
London Precision Carbon, low Mining and construction, 156,000 183,000 117.3%
alloy, rail, military, valve,
stainless turbine and compressor
steel, iron
and aluminum
- --------
* Estimated annual capacity and utilization are based upon management's
estimate of the applicable manufacturing unit's theoretical capacity
assuming a certain product mix and assuming such unit operated five days a
week, three shifts per day and assuming normal shutdown periods for
maintenance. Actual capacities will vary, and such variances may be
material, based upon a number of factors, including product mix and
maintenance requirements.
15
RAW MATERIALS
The principal raw materials used by the Company include scrap iron and
steel, aluminum, zinc, 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 sources. From time to time
the Company has experienced fluctuations in the price of scrap steel, which
accounts for approximately 4% of net sales, and alloys, which account for less
than 2% of net sales. The Company has generally been able to pass on the
increased costs of raw materials and has escalation clauses for scrap 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
troubleshooting and process optimization.
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/St. Joe Division was
certified to ISO 9001 in August 1995, Sheffield Forgemasters Engineering Ltd.
("Forgemasters Engineering") has also been certified to ISO 9001, which
represents compliance with international standards for quality assurance. Quaker
Alloy, La Grange, Canada Alloy, Jahn Foundry, Pennsylvania Steel Foundry &
Machine Company ("Pennsylvania Steel"), Inverness, London Precision,
Forgemasters Rolls and Canadian Steel have each been certified to ISO 9002.
Other ACC foundries are preparing for ISO certification.
EMPLOYEE AND LABOR RELATIONS
As of June 30, 1999, the Company had approximately 4,500 full-time
employees. Since its inception, the Company has had one work stoppage. The
Company's hourly employees are covered by collective bargaining agreements
with several unions at fifteen of its locations. These agreements expire at
varying times over the next several years. The following table sets forth a
summary of the principal unions and term of the principal collective
bargaining agreements at the respective locations. Several of the contracts
at the Company's U.K. facilities have expired. The Company is not aware of
any threat of work stoppage at the present time. The labor laws of France
prevent the Company from learning the number of employees in the union at
Autun.
16
APPROXIMATE
NUMBER OF
MANUFACTURING DATE OF MEMBERS (AS
UNIT NAME OF PRINCIPAL UNION EFFECTIVE DATE EXPIRATION OF 06/30/99)
- -------------------- ----------------------------------- ------------------ ---------------- -----------------
Atchison/St. Joe United Steelworkers of America, 05/11/99 05/12/02 449
Local 6943
Prospect Glass, Molders, Pottery, 06/01/99 08/31/00 170
Plastics & Allied Workers
International, Local 63B
Quaker Alloy United Steelworkers of 05/15/99 07/15/03 132
America, Local 7274
Canadian Steel Metallurgistes Unis 02/12/96 02/12/01 112
d'Amerique, Local 6859
Empire United Steelworkers of 03/01/97 02/28/02 110
America, Local 3178
La Grange Glass, Molders, Pottery, 12/14/95 12/16/00 180
Plastics & Allied Workers
Union, Local 143
G&C United Electrical, Radio and 03/01/97 06/30/01 88
Machine Workers of America,
Local 714
LA Die Casting United Automobile, Aircraft, 12/13/97 12/08/00 47
Agricultural Implement
Workers of America, Local 509
Canada Alloy United Steelworkers of 04/04/97 04/03/02 75
America, Local 5699
Pennsylvania United Steelworkers of 10/24/98 10/24/01 64
Steel America, Local 6541
Jahn Foundry Glass, Molders, Pottery, 06/01/98 06/03/01 97
Plastics and Allied Workers
International, Local 97
PrimeCast Glass, Molders, Pottery, 08/04/96 08/04/00 112
Plastics and Allied Workers
International, Local 320
Inverness United Paperworker's 02/05/97 08/05/01 211
International, Local 7363
Sheffield Steel and Industrial Managers 7/1/97 12/31/98 4
Forgemasters Association
Engineering
Limited
Iron and Steel Trades 7/1/97 12/31/98 62
Confederation
Electrical, Engineering and 7/1/97 12/31/98 18
plumbing Trades Union
17
APPROXIMATE
NUMBER OF
MANUFACTURING DATE OF MEMBERS (AS
UNIT NAME OF PRINCIPAL UNION EFFECTIVE DATE EXPIRATION OF 06/30/99)
- -------------------- ----------------------------------- ------------------ ---------------- -----------------
Sheffield Manufacturing Science and Finance 7/1/97 12/31/98 39
Forgemasters
Engineering
Limited (cont.)
General Municipal and Boilermakers 7/1/97 12/31/98 61
Allied Engineering and Electrical 7/1/97 12/31/98 136
Union
Transport and General Workers 7/1/97 12/31/98 9
Union
Amalgamated Metal and 2/1/98 1/31/99 13
Steelworkers Union
Union of Construction, allied 7/1/97 12/31/98 3
Trades and Technicians
Forgemasters Amalgamated Engineering and
Rolls Electrical Union
- Sheffield 1/1/98 12/31/99 75
- Crewe 1/8/97 9/30/99 211
- Coatbridge 1/1/98 12/31/99 39
Iron and Steel Trades
Confederation
- Sheffield 1/1/98 12/31/99 11
General and Municipal Workers
Union
- Sheffield 1/1/98 12/31/99 1
Transport and General Workers
Union
- Sheffield 1/1/98 12/31/99 4
Manufacturing Science and Finance
- Crewe 1/1/98 9/30/99 24
18
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.......................... 55 Chairman of the Board, President, Chief Executive Officer
and Director
Thomas K. Armstrong, Jr................ 45 Chief Operating Officer - North America
David Fletcher......................... 53 Group Vice President - Europe
John R. Kujawa......................... 44 Group Vice President - Large Steel Castings Group
Donald J. Marlborough.................. 63 Group Vice President - Iron Castings Group
Kevin T. McDermed...................... 39 Vice President, Chief Financial Officer, Treasurer and
Secretary
James Stott............................ 57 Vice President
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 Partners, Inc., an investment firm located in Boston,
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.
THOMAS K. ARMSTRONG, JR. has been Chief Operating Officer - North America
since March 1999. From 1987 to 1999, Mr. Armstrong served as President of Texas
Steel Co., a Citation Corp. company. From 1979 to 1986, Mr. Armstrong held
positions at Texas Steel of Executive Vice President, Information Systems and
Engineering Manager. In addition, Mr. Armstrong served as Chief Executive
Officer of Southwest Steel Casting Corp., a Texas Steel subsidiary, from 1984
through 1989. Mr. Armstrong began his career as an engineer with E.I. DuPont
from 1976 through 1979. From 1997 to 1999 he has served as President of the
Steel Founders' Society of America.
DAVID FLETCHER has been Group Vice President and Chairman and CEO of
Atchison Casting UK Limited and the Sheffield Forgemasters Group since April
1998. Prior to this he was Chief Executive Officer of the Sheffield Forgemasters
Group in Sheffield, England, having joined the group in 1986 as the main board
director responsible for the Engineering group of companies comprising
Forgemasters Steel & Engineering Limited, River Don Castings Limited, Forged
Rolls (UK) Limited and British Rollmakers Corporation. From 1977 to 1986, Mr.
Fletcher was Managing Director of various subsidiaries of the Aurora Group,
including Darwin Alloy Castings, Edgar Allen Foundry, Willen Metals and Aurora
Steels.
19
JOHN R. KUJAWA has been Group Vice President - Large Steel Castings Group
since August 1999. Prior to this he was Group Vice President - Atchison/St. Joe
and Amite from November 1996 to August 1999 and Vice President-Atchison/St. Joe
from August 1994 to November 1996. 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 Group Vice President - Iron Castings Group
since August 1999. Prior to this he was Group Vice President-Canadian Steel, La
Grange and Canada Alloy from November 1996 to August 1999, Vice
President-Corporate Development and Canadian Steel from December 1994 to
November 1996 and Vice President-La Grange from December 1995 to November 1996.
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.
JAMES STOTT has been Vice President - Kramer since May 1998. He served as
Group Vice President Empire, Kramer, Pennsylvania Steel and Quaker Alloy from
November 1996 to May 1998 and Vice President - Kramer from January 1995 to
November 1996. He has 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 1999, warranty costs
amounted to less than one percent of the Company's net sales.
ENVIRONMENTAL REGULATIONS
Companies in the foundry industry must comply with numerous federal, state
and local (and, with respect Canadian, France and U.K. operations, federal,
provincial and local) environmental laws and regulations relating to air
emissions, solid waste disposal, stormwater runoff, 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. 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,
20
respectively. The Company believes that it is in material compliance with
applicable environmental laws and regulations and is not aware of any
material outstanding violations or citations with respect thereto at any of
its facilities, which would have a material adverse effect on the Company's
financial condition and results of operations.
A Phase 1 environmental site assessment has been performed at each of the
Company's facilities prior to acquisition, and no environmental condition has
been identified that the Company believes would cause a material adverse effect
on the Company's results of operations and financial condition. A Phase I
assessment includes an historical review, a public records review, a preliminary
investigation of the site and surrounding properties and the preparation and
issuance of a written report, but it does not include soil sampling or
subsurface investigations. There can be no assurance that these Phase I
assessments have identified, or could be expected to identify, all areas of
contamination. As the Company evaluates and updates the environmental compliance
programs at facilities recently acquired, the Company may become aware of
matters of noncompliance that need to be addressed or corrected. In addition,
there is a risk that material adverse conditions could have developed at 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 that are in the process of being
promulgated thereunder. The Company is currently in the process of obtaining
permits under the new regulations and estimating the cost of compliance with
these requirements and 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
nonhazardous foundry sand that is reclaimed for reuse in the foundries until it
becomes dust. The nonhazardous 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 to the Company's knowledge. Costs associated with the
future closure of the landfills according to regulatory requirements could be
material.
The Company also operates pursuant to regulations governing work place
safety. The Company samples its interior air quality to ensure compliance with
OSHA requirements. To the Company's knowledge, it currently operates in material
compliance with all OSHA and other regulatory requirements governing work place
safety, subject to Jahn Foundry's compliance with the settlement agreement with
OSHA in connection with the industrial accident at Jahn Foundry on February 25,
1999.
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.
21
ITEM 2. PROPERTIES
The Company's principal facilities are listed in the accompanying table,
together with information regarding their location, size and primary function.
The two landfills are used solely by the Company and contain nonhazardous
materials only, principally foundry sand. All of the Company's principal
facilities are owned.
The following table sets forth certain information with respect to the
Company's principal facilities.
FLOOR SPACE IN
NAME LOCATION PRINCIPAL USE SQ. FEET
- ------------------------------------ ------------------- ----------------------------- -------------------
Corporate Office Atchison, KS Offices 3,907
Atchison Foundry Atchison, KS Steel foundry 451,218
Atchison Pattern Storage Atchison, KS Pattern storage 159,711
St. Joe Machine Shop St. Joseph, MO Machine shop 142,676
Atchison Casting Landfill Atchison, KS Landfill for foundry sand N/A
Amite Amite, LA Steel foundry and machine 282,000
shop
Prospect Minneapolis, MN Iron foundry 133,000
Quaker Alloy Myerstown, PA Steel foundry & landfill 301,000
for foundry sand
Canadian Steel Montreal, Quebec, Steel foundry 455,335
Canada
Kramer Milwaukee, WI Steel foundry 23,000
Empire Reading, PA Iron and steel foundry 177,000
La Grange La Grange, MO Iron foundry 189,000
G & C Sandusky, OH Iron foundry 111,000
LA Die Casting Los Angeles, CA Aluminum and zinc die 35,000
casting
Canada Alloy Kitchener, Steel foundry 83,000
Ontario, Canada
Pennsylvania Steel Hamburg, PA Steel foundry 158,618
Jahn Foundry Springfield, MA Iron foundry 207,689
PrimeCast South Beloit, IL Iron foundry 325,000
and Beloit, WI
22
FLOOR SPACE IN
NAME LOCATION PRINCIPAL USE SQ. FEET
- ------------------------------------ ------------------- ----------------------------- -------------------
Inverness Dowagiac, MI Aluminum die casting 210,900
Forgemasters Rolls Sheffield and Iron and steel foundry 694,306
Crewe, England and machine shop
and Coatbridge,
Scotland
Sheffield Forgemasters Engineering Sheffield, England Iron and steel foundry, 1,225,247
Limited forge and machine shop
Claremont Claremont, NH Steel Foundry 110,000
London Precision London, Ontario, Machine Shop 63,000
Canada
Founderie d'Autun Autun, France Iron foundry 376,600
23
ITEM 3. LEGAL PROCEEDINGS
An accident, involving an explosion and fire, occurred on February 25, 1999,
at Jahn Foundry Corp., a wholly-owned subsidiary of the Company located in
Springfield, Massachusetts. Nine employees were injured and there have been
three fatalities. The damage was confined to the shell molding area and boiler
room. The other areas of the foundry are operational. Molds are currently being
produced at other foundries as well as Jahn Foundry while the repairs are made.
Although no lawsuits have been filed, a number of attorneys representing the
injured and deceased employees have contacted Jahn Foundry regarding possible
litigation. The Company carries insurance for property and casualty damages,
business interruption, general liability and worker's compensation for itself
and its subsidiaries. The Company, its property insurance carrier and its
insurance broker dispute the amount of property insurance available for property
damages suffered in this accident. If this dispute cannot be resolved amicably,
the Company would vigorously pursue its remedies against both parties. The
Company recorded a charge of $450,000 ($750,000 before tax) during the third
quarter of fiscal 1999, primarily reflecting the deductibles under the Company's
various insurance policies. At this time there can be no assurance that the
Company's ultimate costs and expenses resulting from the accident will not
exceed available insurance coverage by an amount which could be material to its
financial condition or results of operations.
Following the accident, the Occupational Safety and Health Administration
("OSHA") conducted an investigation of the accident. On August 24, 1999, OSHA
issued a citation describing violations of the Occupational Safety and Health
Act of 1970, which primarily related to housekeeping, maintenance and other
specific, miscellaneous items. Neither of the two violations specifically
addressing conditions related to the explosion and fire were classified as
serious or willful. Without admitting any wrongdoing, Jahn Foundry entered into
a settlement with OSHA that addresses the alleged work place safety issues and
agreed to pay $148,500 in fines.
24
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
PRICE RANGE OF COMMON STOCK
The Common Stock is traded on the New York Stock Exchange under the symbol
"FDY." The following table sets forth the high and low sales prices for the
shares of Common Stock on New York Stock Exchange for the periods indicated.
HIGH LOW
---- ---
Fiscal Year Ending June 30, 1998:
First Quarter......................................................... 22 16 3/4
Second Quarter........................................................ 21 9/16 15 5/8
Third Quarter......................................................... 17 3/16 15 3/8
Fourth Quarter........................................................ 20 1/8 15 3/8
Fiscal Year Ending June 30, 1999:
First Quarter......................................................... 18 1/2 9 1/2
Second Quarter........................................................ 10 8 3/8
Third Quarter......................................................... 10 15/16 7 7/8
Fourth Quarter........................................................ 12 1/8 7 1/2
Fiscal Year Ending June 30, 2000:
First Quarter (through September 9, 1999) ........................... 11 3/8 8 5/8
As of September 9, 1999, there were over 2,200 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. See Note 8 of Notes to Consolidated
Financial Statements.
25
UNREGISTERED SECURITIES TRANSACTIONS
In lieu of cash compensation for services rendered in their capacity as
Directors of the Company, Mr. David Belluck, Mr. Ray Witt, Mr. John Whitney and
Mr. Stuart Uram were each provided at their election 1,240, 620, 1,240 and 620
shares, respectively, of common stock on December 7, 1998, with a then-current
market value of $9.69 per share. Mr. David Belluck was provided at his election
805 shares of common stock on February 25, 1999, with a then-current market
value of $9.94 per share. Such transactions were exempt from registration under
the Securities Act of 1933, as amended (the "Act"), pursuant to Section 4(2) of
the Act.
ITEM 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, 1995, 1996, 1997, 1998 and 1999 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.
26
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
----------------------------------------------------------
FISCAL YEAR ENDED JUNE 30,
----------------------------------------------------------
STATEMENT OF OPERATIONS DATA: 1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
Net Sales............................................ $141,579 $185,081 $245,769 $373,768 $475,559
Cost of Sales........................................ 115,458 156,612 203,386 318,280 407,787
-------- -------- -------- -------- --------
Gross Profit.................................... 26,121 28,469 42,383 55,488 67,772
Operating Expenses:
Selling, General & Administrative............... 13,058 15,459 21,559 28,798 41,932
Amortization of Intangibles..................... 1,392 1,508 632 850 544
Other Income(1)................................. 6,370 26,957 - - -
-------- -------- -------- -------- --------
Operating Income............................. 18,041 38,459 20,192 25,840 25,296
Interest Expense.................................... 2,326 2,845 3,227 3,896 8,352
Minority Interest in Net Income of Subsidiaries..... 280 225 270 448 237
-------- -------- -------- -------- --------
Income Before Taxes............................. 15,435 35,389* 16,695* 21,496 16,707
Income Taxes........................................ 5,971 14,063 6,967 8,731 6,901
-------- -------- -------- -------- --------
Net Income...................................... $9,464 $21,326 $9,728 $12,765 $9,806
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Earnings Per Share:
Basic............................................. $1.73 $3.87 $1.68 $1.56 $1.26
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Diluted........................................... $1.73 $3.87 $1.67 $1.55 $1.26
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Net Income Per Share Excluding Other Income(1)
Basic............................................. $1.02 $0.92 $1.68 $1.56 $1.26
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Diluted........................................... $1.02 $0.92 $1.67 $1.55 $1.26
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Weighted Average Common Shares Outstanding
Basic............................................. 5,477,881 5,510,410 5,796,281 8,167,285 7,790,781
Diluted........................................... 5,484,745 5,516,597 5,830,695 8,218,686 7,790,781
SUPPLEMENTAL DATA:
Depreciation and Amortization....................... $6,067 $7,411 $8,667 $11,695 $13,400
Capital Expenditures(2)............................. 12,837 12,740 13,852 18,495 20,038
Number of Operating Units at Period End ............ 7 9 13 17 19
BALANCE SHEET DATA (AT PERIOD END):
Working Capital..................................... $27,727 $36,419 $57,231 $76,782 $85,636
Total Assets........................................ 130,287 162,184 213,408 346,139 375,766
Long-Term Obligations............................... 34,920 34,655 27,758 87,272 104,607
Total Stockholders' Equity.......................... 52,698 74,654 122,731 135,614 139,069
* Includes other income of $6.4 million and $27.0 million for fiscal 1995
and fiscal 1996, respectively, consisting primarily of insurance proceeds
related to the July 1993 Missouri River flood.
27
(1) Other income consists of $6.4 million and $27.0 million ($3.9 million and
$16.2 million net of tax or $0.71 and $2.95 per share), for fiscal 1995 and
fiscal 1996, respectively, consisting primarily of insurance proceeds
related to the July 1993 Missouri River flood. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations-General."
(2) During fiscal 1995, fiscal 1996, fiscal 1997, fiscal 1998 and fiscal 1999,
the Company made capital expenditures of $8.1 million, $1.8 million, $1.4
million, $589,000 and $791,000 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.
28
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 nineteen foundries since its inception. 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 first full
fiscal year ended June 30, 1992 to $475.6 million for the fiscal year ended June
30, 1999.
The Company is not currently contemplating any major acquisitions. The
Company's primary focus in fiscal 2000 will be on the integration and
improvement of existing operations.
Due to the large size of certain orders, the timing for deliveries of orders
and the number and types of castings produced, the Company's net sales and net
income may fluctuate materially from quarter to quarter. Generally, the first
fiscal quarter is seasonally weaker than the other quarters as a result of plant
shutdowns for maintenance at most of the Company's foundries as well as at many
customers' plants. See "-Supplemental Quarterly Information."
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, 1999 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1998
Net sales for fiscal 1999 were $475.6 million, representing an increase of
$101.8 million, or 27.2%, over net sales of $373.8 million in fiscal 1998. The
operations acquired by the Company since October 6, 1997 generated net sales of
$80.8 million and $213.8 million in fiscal 1998 and fiscal 1999, respectively,
as follows:
FY 1998 FY 1999
Operation Date Acquired Net Sales Net Sales
- ----------------------------------------------- ---------------- ------------------ -----------------
(In millions) (In millions)
Inverness..................................... 10/06/97 $41.9 $48.1
Sheffield..................................... 04/06/98 37.6 132.2
Claremont..................................... 05/01/98 1.3 7.1
London Precision.............................. 09/01/98 -- 21.9
Autun......................................... 02/25/99 -- 4.5
Excluding net sales attributable to the operations acquired since October 6,
1997, net sales for fiscal 1999 were $261.8 million, representing a decrease of
$31.2 million, or 10.6%, over net sales of $293.0 million in fiscal 1998. This
10.6% decrease in net sales was due primarily to decreases in net sales to the
offshore oil and gas, steel, mining, power generation, agriculture and
petrochemical markets, partially offset by an increase in net sales to the rail
market.
29
Gross profit for fiscal 1999 increased by $12.3 million, or 22.2%, to $67.8
million, or 14.3% of net sales, compared to $55.5 million, or 14.9% of net
sales, for fiscal 1998. The increase in gross profit was primarily due to
increased sales volume levels resulting from the acquisitions of Sheffield
Forgemasters Group Limited ("Sheffield") and London Precision Machine and Tool
Ltd. ("London Precision"). The contribution from London Precision and improved
results at the Amite Foundry and Machine, Inc. ("Amite") due to increased sales
volume levels, improved productivity and reduced employee turnover and training
positively impacted gross profit as a percentage of net sales. Offsetting these
factors were: (i) decreased absorption of overhead resulting from lower net
sales to the offshore oil and gas, mining, steel, power generation,
petrochemical and agricultural markets, (ii) delays in the scheduled delivery of
orders by customers in the mining, construction and rail markets, (iii)
continued productivity and scrap problems at Inverness Castings Group, Inc.
("Inverness") and Claremont Foundry, Inc. ("Claremont"), (iv) increased warranty
costs at Canada Alloy Castings, Ltd. ("Canada Alloy") and (v) increased training
costs, higher employee turnover and increased overtime due to the generally
tight labor markets. In addition, gross profit as a percentage of net sales was
impacted by (i) reduced productivity and excessive overtime due to power
curtailments under the Company's interruptible electricity contracts resulting
from the extreme heat during the first quarter and (ii) higher plant maintenance
shutdown costs at Atchison/St. Joe and Prospect Foundry, Inc. ("Prospect").
Selling, general and administrative expense ("SG&A") for fiscal 1999 was
$41.9 million, or 8.8% of net sales, compared to $28.8 million, or 7.7% of net
sales, in fiscal 1998. The increase in SG&A was primarily attributable to
expenses associated with the operations acquired by the Company in fiscal 1998
and fiscal 1999. The increase in SG&A as a percentage of net sales was primarily
due to higher average SG&A as a percentage of net sales at Sheffield. Following
the July 1993 Missouri River flood, insurance proceeds related to property
damage were reserved for estimated future repairs. During the fourth quarter,
the Company revised this estimate downward resulting in a non-recurring gain of
$3.5 million ($2.1 million, net of tax). Also included in SG&A was a charge of
$750,000 ($450,000, net of tax) related to an industrial accident at the
Company's subsidiary, Jahn Foundry Corp. ("Jahn") (see Liquidity and Capital
Resources). Excluding these non-recurring factors, SG&A for fiscal 1999 was
$44.7 million, or 9.4% of net sales.
Amortization of certain intangibles for fiscal 1999 was $544,000 or 0.1% of
net sales, compared to $850,000, or 0.2% of net sales, in fiscal 1998. The
intangible assets consist of goodwill recorded in connection with certain of the
Company's acquisitions. 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 acquisitions of Canadian Steel Foundries, Ltd. ("Canadian Steel") and
Founderie d'Autun ("Autun").
Interest expense for fiscal 1999 increased to $8.4 million, or 1.8% of net
sales, from $3.9 million, or 1.0% of net sales, in fiscal 1998 The increase in
interest expense primarily reflects an increase in the average amount of
outstanding indebtedness during fiscal 1999 primarily incurred to finance the
Company's acquisitions.
Income tax expense for fiscal 1999 and fiscal 1998 reflected the combined
federal, state and provincial statutory rate of approximately 41% and 40%,
respectively, which is higher than the combined federal, state and provincial
statutory rate because of the provision for the tax benefits at lower effective
rates on losses at certain subsidiaries. The Company's combined effective tax
rate reflects the different federal, state and provincial statutory rates of the
various jurisdictions in which the Company operates, and the proportion of
taxable income earned in each of those tax jurisdictions.
30
As a result of the foregoing, net income decreased from $12.8 million in
fiscal 1998 to $9.8 million in fiscal 1999.
FISCAL YEAR ENDED JUNE 30, 1998 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1997
Net sales for fiscal 1998 were $373.8 million, representing an increase of
$128.0 million, or 52.0%, over net sales of $245.8 million in fiscal 1997. The
operations acquired by the Company since the beginning of fiscal 1997 generated
net sales of $33.8 million and $163.0 million in fiscal 1997 and fiscal 1998,
respectively, as follows:
FY 1997 FY 1998
Operation Date Acquired Net Sales Net Sales
- ----------------------------------------------- ---------------- ------------------ -----------------
(In millions) (In millions)
LA Die Casting................................. 10/01/96 $ 7.1 $10.4
Canada Alloy................................... 10/26/96 6.4 10.0
Pennsylvania Steel............................. 10/31/96 14.9 15.8
Jahn........................................... 02/14/97 5.4 12.1
PrimeCast...................................... 07/01/97 -- 33.9
Inverness...................................... 10/06/97 -- 41.9
Sheffield...................................... 04/06/98 -- 37.6
Claremont...................................... 05/01/98 -- 1.3
Excluding net sales attributable to the operations acquired in fiscal 1997
and fiscal 1998, net sales for fiscal 1998 were $210.8 million, representing a
decrease of $1.2 million, or 0.6%, from net sales of $212.0 million in fiscal
1997. This 0.6% decrease in net sales was due primarily to decreases in net
sales to the energy, utility and military markets, partially offset by an
increase in net sales to the rail market.
Gross profit for fiscal 1998 increased by $13.1 million, or 30.9%, to $55.5
million, or 14.9% of net sales, compared to $42.4 million, or 17.2% of net
sales, for fiscal 1997. The increase in gross profit was primarily attributable
to the increase in net sales. The decrease in gross profit as a percentage of
net sales is primarily attributable to: (i) a decrease in the absorption of
overhead resulting from a reduction in net sales at PrimeCast, Inc.
("PrimeCast"), La Grange Foundry Inc. ("La Grange"), Canadian Steel and Canada
Alloy, (ii) above average training expenses associated with the startup of new
customer jobs at Amite and (iii) increased warranty costs at Pennsylvania Steel
Foundry and Machine, Inc. ("Pennsylvania Steel"). In addition to these factors
were non-recurring costs associated with the installation of a new sand system
at the Atchison / St. Joe Division and a new molding line at Prospect.
SG&A for fiscal 1998 was $28.8 million, or 7.7% of net sales, compared to
$21.6 million, or 8.8% of net sales, in fiscal 1997. The increase in SG&A was
primarily attributable to expenses associated with the operations acquired by
the Company in fiscal 1997 and fiscal 1998. The decrease in SG&A as a percentage
of net sales was primarily due to decreased expenses related to the Company's
management incentive bonus plans and decreased expenditures for outside
professional services.
31
Amortization of certain intangibles for fiscal 1998 was $850,000 or 0.2% of
net sales, compared to $632,000, or 0.3% of net sales, in fiscal 1997. The
intangible assets consist of goodwill recorded in connection with the
acquisitions of Prospect, Kramer International, Inc. ("Kramer"), Empire Steel
Castings, Inc. ("Empire"), The G&C Foundry Company ("G&C"), Los Angeles Die
Casting, Inc. ("LA Die Casting") and Inverness. 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.
Interest expense for fiscal 1998 increased to $3.9 million, or 1.0% of net
sales, from $3.2 million, or 1.3% of net sales, in fiscal 1997. The increase in
interest expense is primarily the result of an increase in the average amount of
indebtedness outstanding during fiscal 1998.
Income tax expense for fiscal 1998 and fiscal 1997 reflected the combined
federal, state and provincial statutory rate of approximately 40% and 41%,
respectively. The Company's combined effective tax rate reflects the different
federal, state and provincial statutory rates of the various jurisdictions in
which the Company operates, and the proportion of taxable income earned in each
of those tax jurisdictions.
As a result of the foregoing, net income increased from $9.7 million in
fiscal 1997 to $12.8 million in fiscal 1998.
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 1999
was $7.7 million, a decrease of $8.2 million from fiscal 1998. This decrease was
primarily attributable to other current asset balances primarily relating to
insurance claim receivables and cash advances to certain manufactures of
specialized equipment.
Working capital was $85.6 million at June 30, 1999, as compared to $76.8
million at June 30, 1998. The increase primarily resulted from net additional
working capital of $9.1 million associated with the acquisitions of London
Precision and Autun.
During fiscal 1999, the Company made capital expenditures of $20.0 million,
as compared to $18.5 million for fiscal 1998. Included in fiscal 1999 were
capital expenditures of $2.1 million on upgrading the 1,500 ton forging press to
2,500 tons at Sheffield. The balance of capital expenditures was used for
routine projects at each of the Company's facilities, primarily related to
productivity enhancing equipment, such as CNC pattern-cutting machines, machine
tools, sand reclamation systems and computer hardware and software modeling
systems. The Company expects to make approximately $24.0 million of capital
expenditures during fiscal 2000, including a new emission control system at the
Atchison/St. Joe Division, the modification of the mold line at Autun and
routine projects at each of the Company's facilities.
On August 12, 1998, the Company announced that its Board of Directors had
authorized a stock repurchase program of up to 1.2 million common shares of its
then outstanding 8.2 million common shares. The stock repurchases may be made
from time to time at prevailing prices in the open market or in privately
negotiated transactions, depending on market conditions, the price of Company's
common stock and other factors. The Company will make such stock repurchases
using internally generated funds and borrowings under its credit facility. The
Company's Note Purchase Agreement
32
allows repurchases of up to nearly $2.5 million of Company common stock
during fiscal 2000. Any share repurchases will be added to the Company's
treasury shares and will be available for reissuance in connection with the
Company's acquisitions, employee benefit plans or for other corporate
purposes. Through June 30, 1999, the Company had repurchased 586,700 shares
at a cost of $6.0 million.
On October 7, 1998, the Company and its lenders entered into the First
Amendment to the Amended and Restated Credit Agreement (the "Credit
Agreement"). The Credit Agreement consists of a $40 million term loan and a
$70 million revolving credit facility. This amendment permits the Company to
repurchase up to $24 million of its common stock, subject to a limitation of
$10 million in any fiscal year unless certain financial ratios are met, and
provides for an option to increase the revolving portion of the credit
facility to $100 million if the Company issues senior subordinated notes.
Proceeds from the issuance of any senior subordinated notes must be used to
permanently pre-pay the $40 million term loan portion of the credit facility.
On April 23, 1999, the Company and its lenders entered into the Second
Amendment to the Credit Agreement. This amendment provides that the Company
maintain a ratio of earnings before interest, taxes and amortization to fixed
charges ("Fixed Charge Coverage Ratio") of at least 1.10 increasing to 1.25 on
March 31, 2000 and 1.50 on March 31, 2001. The amendment also provides that the
Company must maintain a ratio of total senior debt to earnings before interest,
taxes, amortization and depreciation of not more than 3.2 prior to the issuance
by the Company of any subordinated debt, and not more than 3.0 after the
issuance of any subordinated debt. In addition, this amendment provides that the
Company may not make acquisitions prior to May 1, 2000 and, from and after May
1, 2000, the Company may not make acquisitions unless the Fixed Charge Coverage
Ratio is at least 1.50, among other existing restrictions. Loans under this
revolving credit facility will bear interest at fluctuating rates of either: (i)
the agent bank's corporate base rate or (ii) LIBOR plus 1.85% subject, in the
case of the LIBOR rate option, to a reduction of up to 0.50% (50 basis points)
if certain financial ratios are met. Loans under this revolving credit facility
may be used for general corporate purposes, permitted acquisitions and approved
investments.
The Company preciously announced that it is contemplating the issue of up to
$60 million aggregate principal amount of unsecured, senior subordinated notes
through a private placement. The Company has currently placed the issue on hold
due to unfavorable market conditions. If consummated, the Company would use the
net proceeds of the offering to retire its bank term loan and to reduce
outstanding borrowings under its revolving credit facility
Total indebtedness of the Company at June 30, 1999 was $113.4 million, as
compared to $93.3 million at June 30, 1999. This increase of $20.1 million
primarily reflects indebtedness incurred of $13.8 million to finance the
acquisition of London Precision and $6.0 million to repurchase 586,700 shares of
the Company's common stock. At June 30, 1999, $9.9 million was available for
borrowing under the Company's revolving credit facility.
Effective September 1, 1998, the Company purchased 90% of the outstanding
capital stock of London Precision for U.S. $13.8 million in cash and related
expenses. On June 16, 1999, the Company purchased the remaining 10% of the
outstanding capital stock of London Precision for U.S. $1.8 million in cash.
London Precision, located in London, Ontario, Canada, is an industrial machine
shop which serves the locomotive, mining and construction, pulp and paper
markets, among others. The Company financed this transaction with funds
available under its revolving credit facility.
33
On February 25, 1999, Founderie d'Autun, a subsidiary of Atchison Casting UK
Limited, a 95% owned subsidiary of the Company, purchased the foundry division
assets of Compagnie Internationale du Chauffage ("CICH") located in Autun,
France. The Company received U.S. $5.8 million in cash and U.S. $5.5 million in
inventory in exchange for the assumption of potential environmental and
employment liabilities if the facility is ever closed. CICH is a subsidiary of
Blue Circle Industries plc, headquartered in London, England. Autun specializes
in the manufacture of cast iron radiators and boiler castings.
An accident, involving an explosion and fire, occurred on February 25, 1999,
at Jahn Foundry Corp., a wholly-owned subsidiary of the Company located in
Springfield, Massachusetts. Nine employees were injured and there have been
three fatalities. The damage was confined to the shell molding area and boiler
room and other areas of the foundry are operational. Molds are currently being
produced at other foundries as well as Jahn Foundry while the repairs are made.
Although no lawsuits have been filed, a number of attorneys representing the
injured and deceased employees have contacted Jahn Foundry regarding possible
litigation. The Company carries insurance for property and casualty damages,
business interruption, general liability and worker's compensation for itself
and its subsidiaries. The Company, its property insurance carrier and its
insurance broker dispute the amount of property insurance available for property
damages suffered in this accident. If this dispute cannot be resolved amicably,
the Company would vigorously pursue its remedies against both parties. The
Company recorded a charge of $450,000 ($750,000 before tax) during the third
quarter of fiscal 1999, primarily reflecting the deductibles under the Company's
various insurance policies. At this time there can be no assurance that the
Company's ultimate costs and expenses resulting from the accident will not
exceed available insurance coverage by an amount which could be material to its
financial condition or results of operations.
Following the accident, the Occupational Safety and Health Administration
("OSHA") conducted an investigation of the accident. On August 24, 1999, OSHA
issued a citation describing violations of the Occupational Safety and Health
Act of 1970, which primarily related to housekeeping, maintenance and other
specific, miscellaneous items. Neither of the two violations specifically
addressing conditions related to the explosion and fire were classified as
serious or willful. Without admitting any wrongdoing, Jahn Foundry entered into
a settlement with OSHA that addresses the alleged work place safety issues and
agreed to pay $148,500 in fines.
The Company believes that its operating cash flow and amounts available for
borrowing under its revolving credit facility will be adequate to fund its
capital expenditure and working capital requirements for the next two years.
However, the level of capital expenditure and working capital requirements may
be greater than currently anticipated as a result of the size and timing of
future acquisitions, or as a result of unforeseen expenditures relating to
compliance with environmental laws or the accident at Jahn. Acquisitions have
been financed with borrowings under the Company's bank credit facilities and
occasionally with common stock.
MARKET RISK
The Company operates manufacturing facilities in the U.S., Canada and Europe
and utilizes fixed and floating rate debt to finance its global operations. As a
result, the Company is subject to business risks inherent in non-U.S.
activities, including political and economic uncertainty, import and export
limitations, and market risk related to changes in interest rates and foreign
currency exchange rates. The Company believes the political and economic risks
related to its foreign operations are mitigated
34
due to the stability of the countreis in which its largest foreign
operations are located.
In the normal course of business, the Company uses derivative financial
instruments including interest rate swaps and foreign currency forward exchange
contracts to manage its market risks. Additional information regarding the
Compan'ys financial instruments is contained in Notes 8 and 10 to the Company's
consolidated financial statements. The Company's objective in managing its
exposure to changes in interest rates is to limit the impact of such changes on
earnings and cash flow and to lower its overall borrowing costs. The Company's
objective in managing its exposure to changes in foreign currency exchange rates
is to reduce volatility on earnings and cash flow associated with such changes.
The Company's principal currency exposures are in the major European currencies
and the Canadian dollar. The Company does not hold derivatives for trading
purposes.
For 1999 and 1998, the Company's exposure to market risk has been estimated
using sensitivity analysis, which is defined as the change in the fair value of
a derivative or financial instrument assuming a hypothetical 10% adverse change
in market rates or prices. The Company believes that the sensitivity analysis is
a better portrayal of its value at risk and is more readily understood than the
tabular presentation used in 1998, and, as a result, has changed to the
sensitivity analysis presented. The Company used current market rates on its
debt and derivative portfolio to perform the sensitivity analysis. Certain items
such as lease contracts, insurance contracts, and obligations for pension and
other post-retirement benefits were not included in the analysis. The results of
the sensitivity analyses are summarized below. Actual changes in interest rates
or market prices may differ from the hypothetical changes.
The Company's primary interest rate exposures relate to its cash and
short-term investments, fixed and variable rate debt and interest rate swaps,
which are mainly exposed to changes in short-term interest rates (e.g., USD
LIBOR). The potential loss in fair values is based on an immediate change in the
net present values of the Company's interest rate-sensitive exposures resulting
from a 10% change in interest rates. The potential loss in cash flows and
earnings is based on the change in the net interest income/expense over a
one-year period due to an immediate 10% change in rates. A hypothetical 10%
change in interest rates would have a material impact on the Company's earnings
of approximately $200,000 in both fiscal 1999 and 1998.
The Company's exposure to fluctuations in currency rates against the pound
sterling and Canadian dollar result from the Company's holdings in cash and
short-term investments and its utilization of foreign currency forward exchange
contracts to hedge customer receivables and firm commitments. The potential loss
in fair values is based on an immediate change in the U.S. dollar equivalent
balances of the Company's currency exposures due to a 10% shift in exchange
rates versus the pound sterling and Canadian dollar (1999 only). The potential
loss in cash flows and earnings is based on the change in cash flow and earnings
over a one-year period resulting from an immediate 10% change in currency
exchange rates versus the pound sterling and Canadian dollar (1999 only). Based
on the Company's holdings of financial instruments at June 30, 1999 and 1998, a
hypothetical 10% depreciation in the pound sterling (1998 and 1999) and the
Canadian dollar (1999 only) versus all other currencies would have a material
impact on the Company's earnings of approximately $2.7 million and $3.6 million
in fiscal 1999 and 1998, respectively. The Company's analysis does not include
the offsetting impact from its underlying hedged exposures (customer receivables
and firm commitments). If the Company included these underlying hedged exposures
in its sensitivity analysis, these exposures would substantially offset the
financial impact of its foreign currency forward exchange contracts due to
changes in currency rates.
35
INFLATION
Management believes that the Company's operations have not been adversely
affected by inflation or changing prices.
YEAR 2000 COMPUTER ISSUES
The Company has conducted a comprehensive review of its hardware and
software systems to identify those systems that could be affected by the "Year
2000" issue and has developed an implementation plan to resolve the identified
issues. The Company believes that, with replacement or modification of its
existing computer systems, updates by vendors and conversion to new software,
the Year 2000 issue will not pose significant operational problems for the
Company's computer systems. The Company expects to complete implementation of
computer systems that are Year 2000 compliant in the first quarter of fiscal
2000, although testing may continue in the second quarter of fiscal 2000. Based
on its review of non-information technology systems to date, the Company does
not anticipate the need to develop an extensive contingency plan for such
systems or to incur material costs in that regard.
The Company relies on a number of customers and suppliers, including banks,
telecommunication providers, utilities, and other providers of goods and
services. The inability of these third parties to conduct their business for a
significant period of time due to the Year 2000 issue could have a material
adverse impact on the Company's operations. The Company is currently assessing
the Year 2000 compliance of its significant customers and suppliers. To date,
the Company has been advised by over two-thirds of its significant customers
that they will be Year 2000 compliant by the end of calendar 1999. There can be
no assurance that the systems of other companies that interact with the Company
will be sufficiently Year 2000 compliant. The Company's reliance on single
source suppliers, however, is minimal, and the Company seeks to limit sole
source supply relationships. The Company, however, has entered into national
service agreements for the supply of certain raw materials and freight service
from single sources. If the Company does not identify or fix all year 2000
problems in critical operations, or if a major supplier or customer is unable to
supply raw materials or receive the Company's product, the Company's results of
operations or financial condition could be materially impacted.
Year 2000 project expenditures to date total approximately $2.2 million. The
Company expects to incur an additional $600,000 of additional costs. The Company
presently anticipates that it will complete its Year 2000 assessment and
remediation by September 30, 1999. However, there can be no assurance that the
Company will be successful in implementing its Year 2000 implementation plan
according to the anticipated schedule due to the potential lack of availability
of trained personnel and their ability to identify relevant computer codes,
among other uncertainties.
FORWARD-LOOKING STATEMENTS
Statements above in the subsections entitled "General," "Liquidity and
Capital Resources," "Market Risk " and "Year 2000 Computer Issues" such as
"believes," "expects," "intends," "contemplating" and statements regarding
quarterly fluctuations, statements regarding the adequacy of funding for capital
expenditure and working capital requirements for the next two years and similar
expressions that are not historical are forward-looking statements that involve
risks and uncertainties. Such statements include the Company's expectations as
to future performance. Among the factors that could cause actual results
36
to differ materially from such forward-looking statements are the following:
the size and timing of future acquisitions, business conditions and the state
of the general economy, particularly the capital goods industry and the
markets served by the Company, the strength of the U.S. dollar, Canadian
dollar, British pound and the Euro, interest rates, inflation, the
availability of labor, the successful conclusion of contract negotiations,
the results of any litigation arising out of the accident at Jahn, the
competitive environment in the casting industry and changes in laws and
regulations that govern the Company's business, particularly environmental
regulations.
NEW ACCOUNTING STANDARDS
For a discussion of new accounting standards, see Note 1 of the Company's
Notes to Consolidated Financial Statements.
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 net sales and net income from quarter to quarter.
Generally, the first fiscal quarter is seasonally weaker than the other quarters
as a result of plant shutdowns for maintenance at most of the Company's
foundries as well as at many customers' plants. In addition, the Company's
operating results may be adversely affected in fiscal quarters immediately
following the consummation of an acquisition while the operations of the
acquired business are integrated into the operations of the Company.
The following table presents selected unaudited supplemental quarterly
results for fiscal 1998 and fiscal 1999.
FISCAL 1998 FISCAL 1999
QUARTERS ENDED QUARTERS ENDED
------------------------------------------ ----------------------------------------------
SEPT. DEC. MAR. JUNE SEPT. DEC. MAR. (1) JUNE (2)
----- ---- ---- ---- ----- ---- ----- -----
(unaudited) (unaudited)
(In thousands, except per share data)
Net Sales............. $68,796 $84,435 $91,623 $128,914 $116,576 $122,955 $119,533 $116,495
Gross Profit.......... 9,212 12,663 14,120 19,493 13,921 18,747 17,535 17,569
Operating Income...... 3,688 5,176 7,638 9,338 2,701 6,810 4,590 11,195
Net Income............ $ 1,825 $ 2,390 $ 3,913 $4,637 $337 $2,708 $1,265 $5,496
------- ------- ------- -------- --------- -------- -------- -------
------- ------- ------- -------- --------- -------- -------- -------
======================
Net Income Per Share
Basic.............. $ 0.22 $ 0.29 $ 0.48 $ 0.57 $0.04 $0.35 $0.17 $0.72
------- ------- ------- -------- --------- -------- -------- -------
------- ------- ------- -------- --------- -------- -------- -------
Diluted............ $ 0.22 $ 0.29 $ 0.48 $ 0.56 $0.04 $0.35 $0.17 $0.72
------- ------- ------- -------- --------- -------- -------- -------
------- ------- ------- -------- --------- -------- -------- -------
(1) The third quarter contains a charge recorded in connection with an
industrial accident that occurred on February 25, 1999 at the Company's
subsidiary, Jahn Foundry, which decreased net income by $450,000, or $.06
per share.
37
(2) The fourth quarter contains a revision to the flood damage reconstruction
reserve which increased net income by $2,086, or $.27 per share. The flood
damage reconstruction reserve related to the July 1993 Missouri River flood.
38
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated herein by reference to
the section entitled "Market Risk" in the Company's Management's Discussion and
Analysis of Results of Operations and Financial Condition in this Form 10-K.
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
39
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
1999 Annual Meeting of Stockholders 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 1999 Annual Meeting of Stockholders 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 1999 Annual Meeting of Stockholders
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 1999 Annual Meeting of Stockholders
to be filed pursuant to Regulation 14A.
40
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:
Independent Auditors' Report F-1
Consolidated Balance Sheets at June 30, 1998 and 1999 F-2
Consolidated Statements of Income For the Years F-4
Ended June 30, 1997, 1998 and 1999
Consolidated Statements of Comprehensive Income F-5
For the Years Ended June 30, 1997, 1998 and 1999
Consolidated Statements of Stockholders' Equity F-6
For the Years Ended June 30, 1997, 1998 and 1999
Consolidated Statements of Cash Flows For the Years F-7
Ended June 30, 1997, 1998 and 1999
Notes to Consolidated Financial Statements For the Years F-8
Ended June 30, 1997, 1998 and 1999
(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
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1999
(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).
41
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: Sept. 14, 1999
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 Board, Sept. 14, 1999
Hugh H. Aiken President, Chief Executive
Officer and Director
(Principal Executive Officer)
/s/ Stuart Z. Uram Director Sept. 10, 1999
Stuart Z. Uram
/s/ David L. Belluck Director Sept. 15, 1999
David L. Belluck
/s/ Ray H. Witt Director Sept. 10, 1999
Ray H. Witt
/s/ John O. Whitney Director Sept. 15, 1999
John O. Whitney
/s/ Kevin T. McDermed Vice President, Chief Sept. 14, 1999
Kevin T. McDermed Financial Officer, Treasurer
and Secretary (Principal
Financial Officer and Principal
Accounting Officer)
42
- -------------------------------------------------------------------------------
ATCHISON CASTING CORPORATION AND SUBSIDIARIES
----------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS AS OF
JUNE 30, 1998 AND 1999, AND FOR EACH OF THE
THREE YEARS IN THE PERIOD ENDED JUNE 30, 1999,
AND INDEPENDENT AUDITORS' REPORT
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
PAGE
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 1997, 1998 AND 1999:
Consolidated Balance Sheets - June 30, 1998 and 1999 F-2-F-3
Consolidated Statements of Income - Years Ended June 30, 1997, 1998 and 1999 F-4
Consolidated Statements of Comprehensive Income - Years Ended June 30, 1997, 1998 and 1999 F-5
Consolidated Statements of Stockholders' Equity - Years Ended June 30, 1997, 1998 and 1999 F-6
Consolidated Statements of Cash Flows - Years Ended June 30, 1997, 1998 and 1999 F-7
Notes to Consolidated Financial Statements F-8-F-33
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders 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, 1998 and
1999 and the related consolidated statements of income, comprehensive income,
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1999. 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, 1998
and 1999, and the results of its operations and its cash flows for each of
the three years in the period ended June 30, 1999 in conformity with
generally accepted accounting principles.
August 13, 1999
(August 24, 1999 with respect to the third paragraph of Note 21)
F-1
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
- -------------------------------------------------------------------------------
ASSETS 1998 1999
CURRENT ASSETS:
Cash and cash equivalents $ 9,336 $ 4,222
Customer accounts receivable, net of allowance for doubtful
accounts of $508 and $591 at June 30, 1998 and 1999, respectively 88,469 83,235
Inventories 62,146 68,777
Deferred income taxes 3,186 1,988
Other current assets 9,615 18,829
---------- ----------
Total current assets 172,752 177,051
PROPERTY, PLANT AND EQUIPMENT, Net 137,290 150,056
INTANGIBLE ASSETS, Net 25,424 32,846
DEFERRED FINANCING COSTS, Net 746 660
OTHER ASSETS 9,927 15,153
---------- ----------
TOTAL $ 346,139 $ 375,766
---------- ----------
---------- ----------
(Continued)
F-2
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND 1999
(Dollars in thousands, except share data)
- -------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1999
CURRENT LIABILITIES:
Accounts payable $ 37,259 $ 39,452
Accrued expenses 52,690 43,130
Current maturities of long-term obligations 6,021 8,833
---------- ----------
Total current liabilities 95,970 91,415
LONG-TERM OBLIGATIONS 87,272 104,607
DEFERRED INCOME TAXES 12,608 17,334
OTHER LONG-TERM OBLIGATIONS 3,670 3,969
EXCESS OF FAIR VALUE OF ACQUIRED NET ASSETS OVER
COST, Net of accumulated amortization of $882 and $1,776,
at June 30, 1998 and 1999, respectively 349 6,889
POSTRETIREMENT OBLIGATION OTHER
THAN PENSION 7,596 8,278
MINORITY INTEREST IN SUBSIDIARIES 3,060 4,205
---------- ----------
Total liabilities 210,525 236,697
---------- ----------
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; 8,226,570 and 8,259,603 shares issued
and outstanding at June 30, 1998 and 1999, respectively 82 83
Class A common stock (non-voting), $.01 par
value, 700,000 authorized shares; no shares
issued and outstanding
Additional paid-in capital 80,957 81,216
Retained earnings 55,205 65,011
Accumulated foreign currency translation adjustment (630) (1,193)
---------- ----------
135,614 145,117
Less common stock held in treasury, 36,002 and 622,702 shares
at June 30, 1998 and 1999, respectively (6,048)
---------- ----------
Total stockholders' equity 135,614 139,069
---------- ----------
TOTAL $ 346,139 $ 375,766
---------- ----------
---------- ----------
See notes to consolidated financial statements. (Concluded)
F-3
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
- -------------------------------------------------------------------------------
1997 1998 1999
NET SALES $ 245,769 $ 373,768 $ 475,559
COST OF GOODS SOLD 203,386 318,280 407,787
--------- --------- ---------
GROSS PROFIT 42,383 55,488 67,772
OPERATING EXPENSES:
Selling, general and administrative 21,559 28,798 41,932
Amortization of intangibles 632 850 544
--------- --------- ---------
Total operating expenses 22,191 29,648 42,476
--------- --------- ---------
OPERATING INCOME 20,192 25,840 25,296
INTEREST EXPENSE 3,227 3,896 8,352
MINORITY INTEREST IN NET INCOME OF
SUBSIDIARIES 270 448 237
--------- --------- ---------
INCOME BEFORE INCOME TAXES 16,695 21,496 16,707
INCOME TAXES 6,967 8,731 6,901
--------- --------- ---------
NET INCOME $ 9,728 $ 12,765 $ 9,806
--------- --------- ---------
--------- --------- ---------
NET INCOME PER COMMON AND
EQUIVALENT SHARES:
BASIC $ 1.68 $ 1.56 $ 1.26
--------- --------- ---------
--------- --------- ---------
DILUTED $ 1.67 $ 1.55 $ 1.26
--------- --------- ---------
--------- --------- ---------
WEIGHTED AVERAGE NUMBER OF COMMON
AND EQUIVALENT SHARES OUTSTANDING:
BASIC 5,796,281 8,167,285 7,790,781
--------- --------- ---------
--------- --------- ---------
DILUTED 5,830,695 8,218,686 7,790,781
--------- --------- ---------
--------- --------- ---------
See notes to consolidated financial statements.
F-4
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
(IN THOUSANDS)
- -------------------------------------------------------------------------------
1997 1998 1999
NET INCOME $ 9,728 $ 12,765 $ 9,806
OTHER COMPREHENSIVE INCOME, BEFORE TAX:
Foreign currency translation adjustments (152) (498) (563)
Minimum pension liability adjustment 480
--------- --------- --------
OTHER COMPREHENSIVE INCOME, BEFORE TAX 10,056 12,267 9,243
INCOME TAX EXPENSE (BENEFIT) RELATED TO ITEMS OF
OTHER COMPREHENSIVE INCOME -
Minimum pension liability adjustment (187)
--------- --------- --------
OTHER COMPREHENSIVE INCOME, NET OF TAX $ 9,869 $ 12,267 $ 9,243
--------- ---------- --------
--------- ---------- --------
See notes to consolidated financial statements.
F-5
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
OTHER COMPREHENSIVE INCOME
--------------------------------
ACCUMULATED
MINIMUM FOREIGN COMMON
ADDITIONAL PENSION CURRENCY STOCK
COMMON PAID-IN RETAINED LIABILITY TRANSLATION HELD IN
STOCK CAPITAL EARNINGS ADJUSTMENT ADJUSTMENT TREASURY TOTAL
--------- -------- --------- ---------- ------------ --------- -------
Balance, July 1, 1996 $ 56 $ 42,159 $ 32,712 $ (293) $ 20 $ 74,654
Issuance of 2,610,203 shares 25 38,080 38,105
Exercise of stock options (7,600 shares) 103 103
Minimum pension liability adjustment,
net of income tax expense of $187 293 293
Foreign currency translation adjustment
of investment in subsidiaries (152) (152)
Net income 9,728 9,728
---- -------- -------- ------ --------- --------
Balance, June 30, 1997 81 80,342 42,440 (132) 122,731
Issuance of 15,793 shares 227 227
Exercise of stock options (28,060 shares) 1 388 389
Foreign currency translation
adjustment of investment in subsidiaries (498) (498)
Net income 12,765 12,765
---- -------- -------- ------ --------- --------
Balance, June 30, 1998 82 80,957 55,205 (630) 135,614
Issuance of 33,033 shares 1 259 260
Purchase of 586,700 shares $(6,048) (6,048)
Foreign currency translation
adjustment of investment in subsidiaries (563) (563)
Net income 9,806 9,806
---- -------- -------- ------ --------- --------
Balance, June 30, 1999 $ 83 $ 81,216 $ 65,011 $ $ (1,193) $(6,048) $139,069
---- -------- -------- ------ --------- -------- --------
---- -------- -------- ------ --------- -------- --------
See notes to consolidated financial statements.
F-6
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
(DOLLARS IN THOUSANDS)
- -------------------------------------------------------------------------------
1997 1998 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 9,728 $ 12,765 $ 9,806
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation and amortization 8,667 11,695 13,400
Minority interest in net income of subsidiaries 270 448 236
Loss (gain) on disposal of capital assets 54 176 (190)
Deferred income taxes 1,816 1,394 4,151
Changes in assets and liabilities (exclusive of effects of acquired companies):
Receivables (349) 13,071 6,376
Inventories 1,231 (374) (1,017)
Other current assets 205 (719) (9,685)
Accounts payable 190 (6,854) 979
Accrued expenses 23 (16,472) (14,423)
Postretirement obligation other than pension 430 467 682
Other 36 265 (2,596)
--------- --------- --------
Cash provided by operating activities 22,301 15,862 7,719
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (13,852) (18,495) (20,038)
Proceeds from sale of capital assets 38 1,219 1,829
Payment for purchase of net assets of subsidiaries,
net of cash acquired (27,698) (74,299) (7,494)
Assets held for resale 840
(Advances) repayments under subordinated note receivable (800) 800
Payment for investments in unconsolidated subsidiaries (330) (150)
--------- --------- --------
Cash used in investing activities (41,802) (90,775) (25,853)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net of costs 38,208 616 260
Payments for repurchase of common stock (6,048)
Proceeds from sale (payments for purchase) of stock in subsidiaries 178 (64) (728)
Proceeds from issuance of long-term obligations 1,293
Payments on long-term obligations (1,343) (979) (6,528)
Capitalized financing costs paid (214) (409) (108)
Net borrowings (repayments) under revolving loan note (6,521) 65,519 26,675
--------- --------- --------
Cash provided by financing activities 31,601 64,683 13,523
--------- --------- --------
EFFECT OF EXCHANGE RATE ON CASH (12) (253) (503)
NET INCREASE (DECREASE ) IN CASH AND CASH
EQUIVALENTS 12,088 (10,483) (5,114)
CASH AND CASH EQUIVALENTS, Beginning of period 7,731 19,819 9,336
--------- --------- --------
CASH AND CASH EQUIVALENTS, End of period $ 19,819 $ 9,336 $ 4,222
--------- --------- --------
--------- --------- --------
See notes to consolidated financial statements.
F-7
ATCHISON CASTING CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED JUNE 30, 1997, 1998 AND
1999 (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Atchison Casting Corporation and subsidiaries
("ACC" or the "Company") was organized in 1991 for the purpose of
becoming a broad based manufacturer of metal castings, producing iron,
steel and non-ferrous castings ranging in size from a few ounces to
280 tons. A majority of the Company's sales are to U.S. customers,
however, the Company also has sales to Canadian, European and other
foreign customers.
PERVASIVENESS OF ESTIMATES - The preparation of 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 and its subsidiaries, Amite
Foundry and Machine, Inc. ("AFM"), Prospect Foundry, Inc. ("Prospect
Foundry"), Quaker Alloy, Inc. ("Quaker"), Canadian Steel Foundries,
Ltd. ("Canadian Steel"), Kramer International, Inc. ("Kramer"), Empire
Steel Castings, Inc. ("Empire"), La Grange Foundry Inc. ("La Grange
Foundry"), The G&C Foundry Company ("G&C"), Los Angeles Die Casting
Inc. ("LA Die Casting"), Canada Alloy Castings, Ltd. ("Canada Alloy"),
Pennsylvania Steel Foundry & Machine Company ("Pennsylvania Steel"),
Jahn Foundry Corp. ("Jahn Foundry"), PrimeCast, Inc. ("PrimeCast"),
Inverness Castings Group, Inc. ("Inverness"), Atchison Casting UK
Limited ("ACUK"), Claremont Foundry, Inc. ("Claremont") and London
Precision Machine & Tool Ltd. ("London Precision"). AFM, Quaker,
Kramer, Empire, La Grange Foundry, Canada Alloy, Pennsylvania Steel,
Jahn Foundry, PrimeCast, Claremont and London Precision are wholly
owned subsidiaries. The Company owns 91.8%, 95.7%, 93.9%, 90.6%, 96.1%
and 95.4% of the outstanding capital stock of Prospect Foundry,
Canadian Steel, G&C, LA Die Casting, Inverness and ACUK, respectively.
Sheffield Forgemasters Group, Ltd. ("Sheffield") and Fonderie d'Autun
SA ("Autun") are wholly-owned subsidiaries of ACUK. 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.
F-8
CUSTOMER ACCOUNTS RECEIVABLE - Approximately 17%, 18% and 17% of the
Company's business in 1997, 1998 and 1999, respectively, was with two
major customers in the automotive, locomotive and general industrial
markets. As of June 30, 1998 and 1999, 13% and 12%, respectively, of
accounts receivable were with these two 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.
INVENTORIES - Approximately 14% 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.
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, primarily goodwill,
are being amortized over their estimated lives of 25 years using the
straight-line method.
LONG-LIVED ASSETS - The Company periodically reviews the continuing
value of long-lived assets 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.
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.
At June 30, 1999, the Company has letters of credit aggregating $2,903
and a certificate of deposit of $200 which support claims for workers'
compensation benefits.
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.
STOCK PLANS - The Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 123,
"ACCOUNTING FOR STOCK-BASED COMPENSATION," in October 1995. SFAS No.
123 allows companies to continue under the approach set forth in
Accounting Principles Board Opinion ("APB") No. 25, "ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES," for recognizing stock-based compensation
expense in the financial statements, but encourages companies to adopt
provisions of SFAS No. 123 based on the estimated fair value of
employee stock options. Companies electing to retain the approach
under APB No. 25 are required to disclose pro forma net income and net
income per share in the notes to the financial statements, as if they
had adopted the fair value accounting method under SFAS No. 123. The
Company has elected to retain its current accounting approach under
APB No. 25.
F-9
EARNINGS PER SHARE - Basic earnings per share ("EPS") is computed by
dividing net income by the weighted-average number of common shares
outstanding for the year. Diluted EPS reflects the potential dilution
that could occur if dilutive securities, such as options, were
exercised.
NEW ACCOUNTING STANDARDS - SFAS No. 130, "REPORTING COMPREHENSIVE
INCOME," was issued in June 1997. This Statement established standards
for reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of
general-purpose financial statements. The Company adopted SFAS No. 130
in fiscal 1999 and has restated all prior years for the adoption of
this standard.
In June 1997, the FASB issued SFAS No. 131, "DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION". The Statement
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas and major
customers. The Company adopted SFAS No. 131 in fiscal 1999.
SFAS No. 132, "EMPLOYERS' DISCLOSURES ABOUT PENSION AND OTHER
POSTRETIREMENT BENEFITS," was issued by the FASB in February 1998.
This Statement revises employers' disclosures about pension and other
postretirement benefit plans, but does not change the measurement or
recognition of such plans. This Statement is effective for fiscal
years beginning after December 15, 1997, including restatement of
prior periods provided for comparative purposes. The Company adopted
SFAS No. 132 in fiscal 1999.
In June 1998, the FASB issued SFAS No. 133, "ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES." SFAS No. 133 requires companies
to record derivative instruments as assets or liabilities, measured at
fair value. The recognition of gains or losses resulting from changes
in the values of those derivative instruments is based on the use of
each derivative instrument and whether it qualifies for hedge
accounting. The key criterion for hedge accounting is that the hedging
relationship must be highly effective in achieving offsetting changes
in fair value or cash flows. The Company has not yet completed its
evaluation of the impact of SFAS No. 133 on the consolidated financial
statements. The Company will be required to adopt SFAS No. 133 on July
1, 2000.
2. ACQUISITIONS
On July 1, 1997, the Company purchased the Beloit Castings Division
("BCD") of Beloit Corporation for $8,209 in cash and $102 of related
expenses. BCD now operates under the name PrimeCast, as a subsidiary
of ACC. PrimeCast is a group of four foundries in Beloit, Wisconsin
and South Beloit, Illinois, including two iron foundries, a steel
foundry and a non-ferrous foundry, that produce castings for the
paper-machinery, pump, valve, mining and construction markets. The
Company financed this acquisition with available cash balances.
On October 6, 1997, the Company acquired approximately 91.5% of the
outstanding capital stock of Inverness, a Delaware corporation, for
$5,882 in cash and $202 of related expenses, in addition to the
assumption of $587 of outstanding indebtedness. Contemporaneous with
the consummation of this acquisition, the Company retired
approximately $11,602 of Inverness' outstanding indebtedness. The
remaining 8.5% of Inverness capital stock was retained by Inverness
management. During fiscal 1999, the Company purchased additional
shares from Inverness management. Inverness, located in Dowagiac,
Michigan, produces aluminum die castings for the automotive, furniture
and appliance markets. The Company financed this transaction with
available cash balances and funds available under its revolving credit
facility.
F-10
On April 6, 1998, ACUK, a subsidiary of the Company, acquired all of
the outstanding capital stock , consisting of 76,987,733 ordinary
shares of capital stock, of Sheffield, incorporated in England and
Wales, from the stockholders of Sheffield for approximately $54,931 in
cash, 1,040,000 ordinary shares of ACUK valued at $915 and $226 of
related expenses. The 1,040,000 ordinary shares, consisting of 5.0% of
the outstanding stock, of ACUK were issued to Sheffield management in
exchange for 1,267,477 shares of Sheffield instead of cash
consideration. Sheffield includes Forgemasters Steel & Engineering
Limited, River Don Castings Limited, Forged Rolls (UK) Limited and
British Rollmakers Limited, among other operating units. The
companies' products serve a variety of markets and end users,
including steel rolling mills, paper and plastic processing, oil and
gas exploration and production, fossil and nuclear electricity
generation and forging ingots. The Company financed this transaction
with funds available under its bank credit facility.
On May 31, 1996, the Company purchased approximately 21.0% of the
outstanding shares of capital stock of Claremont for $330 in cash and
$17 of related expenses. On November 29, 1996, the Company purchased
an additional 4.5% of the outstanding capital stock of Claremont for
$40 in cash. On May 1, 1998, the Company purchased the balance of
Claremont's outstanding capital stock for $1 in cash, the contribution
of equipment with a fair market value of $300, the forgiveness of a
subordinated note payable to the Company of $2,924 and related
expenses of $7. Contemporaneous with the consummation of this
acquisition, the Company retired $165 of Claremont's outstanding
indebtedness. Claremont, located in Claremont, New Hampshire, is a
foundry that produces steel castings for the mining and mass transit
industries, among others. The Company financed this transaction with
funds available under its revolving credit facility.
Effective September 1, 1998, the Company purchased 90% of the
outstanding shares of London Precision for U.S. $13,663 in cash and
$124 of related expenses. On June 16, 1999, the Company purchased the
remaining 10% of the outstanding shares of London Precision for U.S.
$1,847 cash. London Precision, located in London, Ontario, Canada, is
an industrial machine shop which serves the locomotive, mining and
construction, pulp and paper markets, among others. The Company
financed this transaction with funds available under its revolving
credit facility.
On February 25, 1999, Autun purchased the foundry division assets of
Compagnie Internationale du Chauffage ("CICH") located in Autun,
France. Autun received U.S. $5,847 in cash and U.S. $5,505 in
inventory in exchange for the assumption of potential environmental
and employment liabilities if the facility is ever closed. CICH is a
subsidiary of Blue Circle Industries plc, headquartered in London,
England. Autun specializes in the manufacture of cast iron radiators
and boiler castings.
The acquisitions have been accounted for by the purchase method of
accounting, and accordingly, the purchase price including the related
acquisition expenses has been allocated to the assets acquired based
on the estimated fair values at the date of the acquisitions. For the
Inverness and London Precision 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
Sheets. For the PrimeCast, Sheffield, Claremont and Autun
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 Fair
Value of Acquired Net Assets Over Cost" on the Consolidated Balance
Sheet. This amount is being amortized over 4 years.
F-11
The estimated fair values of assets and liabilities acquired in the
1997, 1998 and 1999 acquisitions are summarized as follows:
1997 1998 1999
Cash $ 142 $ 10,244 $ 6,501
Customer accounts receivable 7,835 61,669 2,748
Inventories 7,799 31,231 7,117
Property, plant and equipment 15,872 38,164 7,705
Intangible assets, primarily goodwill 4,336 4,666 8,427
Other assets 737 14,670 15
Accounts payable and accrued expenses (5,535) (75,775) (7,489)
Deferred income taxes (2,141) 6,731 (1,269)
Excess of fair value of acquired net assets over cost (7,872)
Other long-term obligations (705) (6,470) (1,888)
Long-term obligations (500) (587)
--------- --------- --------
27,840 84,543 13,995
Cash acquired (142) (10,244) (6,501)
--------- --------- --------
Cash used in acquisitions $ 27,698 $ 74,299 $ 7,494
--------- --------- --------
--------- --------- --------
The operating results of the acquired companies 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 occurred at July 1, 1997, after giving
effect to certain adjustments, including amortization of goodwill,
interest expense on the acquisition debt and related 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.
1998 1999
(unaudited)
Net sales $ 549,011 $ 494,580
Net income 17,021 12,583
Net income per common and equivalent shares:
Basic 2.08 1.62
Diluted 2.07 1.62
3. INVENTORIES
1998 1999
Raw materials $ 11,152 $ 10,414
Work-in-process 37,939 41,431
Finished goods 7,385 12,736
Deferred supplies 5,670 4,196
-------- --------
$ 62,146 $ 68,777
-------- --------
-------- --------
F-12
Inventories as of June 30, 1998 and 1999 would have been higher by $314
and $381, respectively, had the Company used the first-in, first-out
method of valuing those inventories valued using the last-in, first-out
method.
4. PROPERTY, PLANT AND EQUIPMENT
LIVES
(In Years) 1998 1999
Land $ 16,868 $ 15,686
Improvements to land 12-15 4,645 4,781
Buildings and improvements 35 29,298 31,817
Machinery and equipment 5-14 103,184 124,567
Automobiles and trucks 3 2,226 1,784
Office furniture, fixtures and equipment 5-10 4,756 5,675
Tooling and patterns 1.5-6 4,582 4,445
---------- ----------
165,559 188,755
Less accumulated depreciation 35,267 47,496
---------- ----------
130,292 141,259
Construction in progress 6,998 8,797
---------- ----------
$ 137,290 $ 150,056
---------- ----------
---------- ----------
Depreciation expense was $7,903, $10,656 and $12,647 for the years ended
June 30, 1997, 1998 and 1999, respectively.
5. INTANGIBLE ASSETS
LIVES
(In Years) 1998 1999
Goodwill 25 $ 28,580 $ 37,440
Less accumulated amortization 3,156 4,594
-------- --------
$ 25,424 $ 32,846
-------- --------
-------- --------
Amortization expense was $911, $1,108 and $1,429 for the years ended
June 30, 1997, 1998 and 1999, respectively.
6. DEFERRED FINANCING COSTS
LIVES
(IN YEARS) 1998 1999
Capitalized financing costs 3 to 10 $ 1,087 $ 1,045
Less accumulated amortization 341 385
------- -------
$ 746 $ 660
------- -------
------- -------
F-13
Amortization of such costs, included in interest expense, was $129, $188
and $194 for the years ended June 30, 1997, 1998 and 1999, respectively.
7. ACCRUED EXPENSES
1998 1999
Accrued warranty $ 16,339 $ 11,785
Payroll, vacation and other compensation 9,491 8,688
Accrued pension liability 2,983 3,089
Advances from customers 4,381 4,509
Reserve for flood repairs 5,932 1,197
Reserve for workers' compensation and employee
health care 3,570 2,570
Taxes other than income 541 395
Interest payable 1,076 1,145
Other 8,377 9,752
-------- --------
$ 52,690 $ 43,130
-------- --------
-------- --------
8. LONG-TERM OBLIGATIONS
On May 1, 1996, the Company's La Grange Foundry subsidiary entered into
a Loan Agreement with the Missouri Development Finance Board (the
"Board"), providing for a loan of $5,100 to La Grange Foundry 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, reconstructing,
improving and equipping certain additions and improvements to the
Company's La Grange Foundry manufacturing facilities. The Loan
Agreement terminates on November 1, 2011.
On April 3, 1998, the Company and the insurance company holding the
Company's $20,000 aggregate principal amount of unsecured, senior notes
entered into the Third Amendment to the Note Purchase Agreement (the
"Note Purchase Agreement") providing for an increase in permitted
subsidiary indebtedness from $3,500 to $8,000.
On April 3, 1998, the Company and Harris Trust and Savings Bank
("Harris"), as agent for the lenders, entered into the Amended and
Restated Credit Agreement (the "Credit Agreement") providing for an
increase in unsecured loans from $60,000 to $110,000 and an extension
of the maturity date to April 3, 2003. This Credit Agreement consists
of a $40,000 term loan and a $70,000 revolving credit facility. The
term loan began amortizing on March 31, 1999, with a final maturity of
April 3, 2003. Loans under the Credit Agreement will bear interest at
fluctuating rates of either: (i) the agent bank's corporate base rate
subject to a reduction of 0.25% (25 basis points) if certain financial
ratios are met or (ii) LIBOR plus 1.50% subject, in the case of the
LIBOR rate option, to a reduction of up to 0.50% (50 basis points) if
certain financial ratios are met. Loans under this revolving credit
facility may be used for general corporate purposes, acquisitions and
approved investments.
F-14
On October 7, 1998 the Company and Harris entered into the First
Amendment to the Credit Agreement. This amendment permits the Company
to repurchase up to $24,000 of its common stock, subject to a
limitation of $10,000 in any fiscal year unless certain financial
ratios are met, and provides for an option to increase the revolving
portion of the credit facility to $100,000 if the Company issues senior
subordinated notes. Proceeds from the issuance of any senior
subordinated notes must be used to permanently pre-pay the $40,000 term
loan portion of the credit facility.
As of April 23, 1999, the Company and Harris entered into the Second
Amendment to the Credit Agreement. This amendment provides that the
Company maintain a ratio of earnings before interest, taxes and
amortization to fixed charges ("Fixed Charge Coverage Ratio") of at
least 1.10, increasing to 1.25 on March 31, 2000 and 1.50 on March 31,
2001. The amendment also provides that the Company must maintain a
ratio of total senior debt to earnings before interest, taxes,
amortization and depreciation of not more that 3.2 prior to the
issuance by the Company of any subordinated debt, and not more than 3.0
after the issuance of any subordinated debt. In addition, this
amendment provides that the Company may not make acquisitions prior to
May 1, 2000 and, from and after May 1, 2000, the Company may not make
acquisitions unless the Fixed Charge Coverage Ratio is at least 1.50,
among other existing restrictions. Loans under this revolving credit
facility will bear interest at fluctuating rates of either: (i) Harris'
corporate base rate subject to a reduction of 0.25% (25 basis points)
if certain financial ratios are met or (ii) LIBOR plus 1.85% subject,
in the case of the LIBOR rate option, to a reduction of up to 0.50% (50
basis points) if certain financial ratios are met. Loans under this
revolving credit facility may be used for general corporate purposes,
permitted acquisitions and approved investments. At June 30, 1998 and
1999, $35,102 and $9,866, respectively, was available for borrowing
under this facility after consideration of outstanding advances of
$65,000 and $88,817 and letters of credit of $9,898 and $8,460,
respectively (see Note 10).
F-15
Long-term obligations consist of the following as of
June 30, 1998 and1999:
1998 1999
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 $ 17,143
Unsecured, revolving credit facility with Harris, maturing on
April 3, 2003, bearing interest at:
LIBOR plus 1.50%, $63,000 and $40,000 at weighted average rates of 7.15% and
6.47% at June 30, 1998 and 1999, respectively
LIBOR plus 1.85%, $37,142 at 7.18% at June 30, 1999 Prime, $2,000 and $11,675
at 8.50% and 7.75% at June 30, 1998
and 1999, respectively 65,000 88,817
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 5.00% 31
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 6.50% 2,608 2,380
Term loan between La Grange Foundry and the Missouri Development
Finance Board, secured by a letter of credit, maturing on November 1, 2011
bearing interest at 3.80% and 3.87%
at June 30, 1998 and 1999, respectively 5,100 5,100
Term loan between Inverness and the City of Dowagiac, Michigan,
secured by certain assets of Inverness, maturing on June 9, 1999,
bearing interest at 7.11% 554
---------- ----------
93,293 113,440
Less current maturities 6,021 8,833
---------- ----------
Total long-term obligations $ 87,272 $ 104,607
---------- ----------
---------- ----------
The Credit Agreement with Harris and the 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.
The amounts of long-term obligations outstanding as of
June 30, 1999 mature as follows:
2000 $ 8,833
2001 8,851
2002 8,869
2003 74,850
2004 3,196
Thereafter 8,841
F-16
The amounts of interest expense for the years ended June 30, 1997, 1998
and 1999 consisted of the following:
1997 1998 1999
Senior notes with an insurance company $ 1,688 $ 1,688 $ 1,467
Credit facility with Harris 1,236 2,020 6,194
Amortization of deferred financing costs 129 188 194
Other 174 497
-------- -------- --------
$ 3,227 $ 3,896 $ 8,352
-------- -------- --------
-------- -------- --------
9. INCOME TAXES
Income taxes for the years ended June 30, 1997, 1998 and 1999 are
comprised of the following:
1997 1998 1999
Current expense:
Federal $ 3,601 $ 4,298 $ 1,002
State and local 867 1,410 410
Foreign 683 913 1,578
-------- -------- --------
5,151 6,621 2,990
Deferred expense 1,816 2,110 3,911
-------- -------- --------
$ 6,967 $ 8,731 $ 6,901
-------- -------- --------
-------- -------- --------
1997 1998 1999
Items giving rise to the provision for deferred income taxes:
Postretirement (benefits) costs $ (167) $ 10 $ (97)
Accrued liabilities 350 555 294
Net operating loss carryforwards (190) 313 754
Pension costs (53) (397) (163)
Deferred gain on flood proceeds 560 975
Depreciation and amortization 978 1,776 2,006
Inventories 406 (430) 179
Valuation allowance 190 128 56
All other, net (258) 155 (93)
-------- -------- --------
$ 1,816 $ 2,110 $ 3,911
-------- -------- --------
-------- -------- --------
F-17
Following is a reconciliation between the total income taxes and the
amount computed by multiplying income before income taxes plus the
minority interest in net income of subsidiaries by the statutory federal
income tax rate:
1997 1998 1999
Amount % Amount % Amount %
--------- ------ --------- ------ --------- ------
Computed expected
federal income tax
expense $ 5,938 35.0 $ 7,680 35.0 $ 5,930 35.0
State income taxes,
net of federal benefit 717 4.2 1,139 5.2 743 4.4
Non - U.S. taxes (75) (0.3)
Permanent differences 310 1.8 344 1.6 475 2.8
Other, net 2 (357) (1.7) (247) (1.5)
--------- ------ --------- ------ --------- ------
$ 6,967 41.0 $ 8,731 39.8 $ 6,901 40.7
--------- ------ --------- ------ --------- ------
--------- ------ --------- ------ --------- ------
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, 1998 and 1999 are comprised of the following:
1998 1999
Deferred tax assets:
Postretirement benefits $ 2,839 $ 3,105
Accrued liabilities 2,773 2,368
Net operating loss carryforwards 18,655 18,115
General business tax credits 574 574
Pension costs 1,386 1,549
Flood wall capitalization 429 429
Other 349 206
---------- ----------
27,005 26,346
Valuation allowance (12,959) (13,410)
---------- ----------
Net deferred tax assets 14,046 12,936
---------- ----------
Deferred tax liabilities:
Depreciation and amortization (14,913) (18,258)
Deferred gain on flood proceeds (6,811) (7,786)
Inventories (1,160) (1,343)
Discharge of indebtedness (422) (422)
Other (162) (473)
---------- ----------
(23,468) (28,282)
---------- ----------
Total $ (9,422) $ (15,346)
---------- ----------
---------- ----------
F-18
SFAS No. 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.
An allowance of $12,959 and $13,410 had been recorded as of June 30,
1998 and 1999, respectively. The principal reason for the increase in
the valuation allowance is attributable to separate company net
operating losses which cannot be utilized for state income tax purposes.
In general, it is the practice and intention of the Company to reinvest
the earnings of its non - U.S. subsidiaries in those operations on a
permanent basis. Applicable U.S. federal taxes are provided only on
amounts actually or deemed to be remitted to the Company as dividends.
U.S. income taxes have not been provided on $1,470 and $9,505 of
cumulative undistributed earnings of ACUK and London Precision for 1998
and 1999, respectively. U.S. income taxes on such earnings, if
ultimately remitted to the U.S., might be recoverable as foreign tax
credits.
The Company has federal net operating loss carryforwards totaling
approximately $7,816 at June 30, 1999, which expire in the years 2007
through 2012. The federal net operating loss carryforwards were
acquired during the current year and are subject to the ownership
change rules defined by section 382 of the Internal Revenue code. As
the result of this event, the Company will be limited in its ability to
use such net operating loss carry forwards. The amount of taxable
income that can be offset by pre-change tax attributes in any annual
period is limited to approximately $500.
The Company has foreign net operating loss carryforwards totaling
approximately $48,036 at June 30, 1999, which have no expiration date.
The utilization of such net operating loss carryforwards are restricted
to the earnings of specific foreign subsidiaries.
10. FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, accounts receivable,
accounts payable, debt obligations, and derivative financial
instruments, including interest rate swap agreements, forward foreign
exchange contracts and a foreign currency swap agreement.
The derivative financial instruments are used by the Company to manage
its exposure to interest rate and foreign currency risk. The Company
does not intend to use such instruments for trading or speculative
purposes. The counterparties to these instruments are major financial
institutions with which the Company has other financial relationships.
The Company is exposed to credit loss in the event of nonperformance by
these counterparties. However, the Company does not anticipate
nonperformance by the other parties, and no material loss would be
expected from their nonperformance. The Company's financial instruments
also expose it to certain additional market risks as discussed below.
INTEREST RATE RISK - The Company's floating rate debt obligations (see
Note 8) expose the Company to interest rate risk, such that when LIBOR
or Prime rates increase or decrease, so will the Company's interest
expense. To manage this potential risk, the Company may use interest
rate swap agreements to limit the effect of increases in interest rates
on any of the Company's U.S. dollar floating rate debt by fixing the
rate without the exchange of the underlying principal or notional
amount. Net amounts paid or received are added to or deducted from
interest expense in the period accrued.
F-19
A June 30, 1998 and 1999, Company had $65,000 and $88,817,
respectively, of floating rate debt tied to LIBOR or Prime rates. In
April 1998, the Company entered into a $15,000 notional amount interest
rate swap agreement under which the Company will pay a fixed rate of
5.92% and receive a LIBOR floating rate (5.67188% and 5.0000% at June
30, 1998 and 1999, respectively). This agreement is a hedge against
$15,000 of the $65,000 and $88,817 outstanding on the Company's
unsecured revolving credit facility as of June 30, 1998 and 1999,
respectively. At June 30, 1998 and 1999, the fair value of this
agreement based on a quote received from the counterparty, indicating
the amount the Company would pay or receive to terminate the agreement,
is a payment of $77 and $67, respectively.
In September 1998, the Company entered into a $40 million notional
amount interest rate swap agreement under which the Company will pay a
fixed rate of 5.00% and receive a LIBOR floating rate (5.3275% at June
30, 1999). Under this agreement, the notional amount is amortized at
$1,429 per quarter beginning March 31, 1999. At June 30, 1999, this
agreement is a hedge against $37,142 of the $88,817 outstanding on the
Company's unsecured revolving credit facility. At June 30, 1999, the
fair value of this agreement based on a quote received from the
counterparty, indicating the amount the Company would pay or receive to
terminate the agreement, is a receipt of $965.
FOREIGN CURRENCY RISK - The Company's British subsidiary, Sheffield,
generates significant sales to customers outside of Great Britain
whereby Sheffield invoices and receives payment from those customers in
their local currencies. This creates foreign currency risk for
Sheffield as the value of such currencies in British Pound terms may be
higher or lower when such transactions are actually settled. To manage
this risk, Sheffield uses forward foreign exchange contracts to hedge
receipts and payments of foreign currencies related to sales to its
customers and purchases from its vendors outside of Great Britain. When
Sheffield accepts an order from a customer that will be invoiced in a
currency other than British Pounds (anticipated sales), it enters into
a forward foreign exchange contract to sell such currency and receive
British Pounds at a fixed rate during some specified future period that
is expected to approximate the customer's payment date. Upon shipment
of the product to the customer, the sale and receivable are recorded in
British Pounds in the amount of the contract. When Sheffield purchases
materials or equipment from a vendor that bills it in foreign currency,
Sheffield will also enter into a forward foreign exchange contract to
sell British Pounds and purchase that foreign currency to settle the
payable.
F-20
At June 30, 1998 and 1999, the Company's foreign subsidiaries, primarily
Sheffield, have the following net contracts to sell the following
currencies and has no significant un-hedged foreign currency exposure
related to sales and purchase transactions:
JUNE 30, 1998 JUNE 30, 1999
--------------------------------------- ---------------------------------------
APPROXIMATE APPROXIMATE
LOCAL CURRENCY VALUE(1) LOCAL CURRENCY VALUE(1)
(IN THOUSANDS) (IN THOUSANDS)
U.S. Dollars 28,239 $ 28,222 25,740 $ 25,060
Deutsche Marks 17,754 9,816 15,975 8,877
French Francs 20,792 3,429 38,225 6,133
Swiss Francs 13 9 496 320
Italian Lira 3,425,686 1,923 3,564,490 1,959
Canadian Dollars 4,805 3,270 560 362
Dutch Guilder 3,613 1,772 1,854 897
Swedish Krona 14,009 1,755 6,018 718
Spanish Pesata 224,713 1,464 72,463 464
Austrian Schilling 14,628 1,149 5,204 425
Japanese Yen 63,300 453 9,807 80
Danish Krona 2,556 371 1,519 216
Belgian Franc 66,123 1,773 8,601 231
Finish Marka 340 62 21 4
Irish Punt 251 349
Norwegian Kroner 3,609 451
Euro 653 712
---------- ----------
Total $ 55,817 $ 46,909
---------- ----------
---------- ----------
(1) The approximate value is the value of the local currencies
translated first into the foreign subsidiaries' functional
currency, at the June 30, 1998 and 1999 spot rates, respectively,
and then translated to U.S. dollars at the June 30, 1998 and 1999
spot rates.
The Company also has foreign currency exposure with respect to its net
investment in Sheffield. This exposure is to changes in the British
Pound and affects the translation of the investment into U.S. Dollars
in consolidation. To manage a portion of this exposure, the Company
entered into a combined interest rate currency swap ("CIRCUS") in April
1998. The CIRCUS is an amortizing principal swap that fixes the
exchange rate on the periodic and final principal cash exchanges and
initially requires the payment of interest on 24,002 British Pounds by
the Company at a fixed rate of 6.82% and the receipt of interest on
40,000 U.S. Dollars at a floating rate tied to LIBOR rates (5.67% at
June 30, 1998). At June 30, 1998, the foreign currency portion of the
CIRCUS is an effective hedge of a portion of the net investment in
Sheffield, has a carrying value of $7, and is recorded as an adjustment
to the cumulative translation adjustment account in other comprehensive
income and in other assets. The fair value of the foreign currency
portion of the CIRCUS, based on amounts that would be paid or received
by the Company to terminate the currency portion of the CIRCUS is a
payment of $90 at June 30, 1998. The interest portion of the CIRCUS
does not qualify for hedge treatment and therefore is required to be
marked-to-market through current earnings as other income or expense.
At June 30, 1998, the interest portion of the CIRCUS has a fair value
of $55 that is included in other assets and other income and represents
the amount the Company would receive on the interest portion if the
CIRCUS were terminated.
F-21
In September 1999, the Company terminated the CIRCUS and entered into a
separate interest rate swap (described in INTEREST RATE RISK above) and
a separate amortizing principal currency swap. The termination of the
CIRCUS resulted in a loss of $900 on the interest portion, which was
deferred and is being amortized to interest expense over the remaining
term of the underlying debt obligation to which it was originally
designated.
This currency swap entered into in September 1998, like the currency
portion of the CIRCUS, is an amortizing principal swap that fixes the
exchange rate on the periodic and final principal cash exchanges. The
currency swap initially requires the payment of interest on 24,002
British Pounds by the Company at a fixed rate of 6.82% and the receipt
of interest by the Company on 40,000 U.S. Dollars at a fixed rate of
5.00%. The currency swap is designated as an effective hedge of a
portion of the Company's net investment in Sheffield and is recorded as
an adjustment to the cumulative translation adjustment account and as a
component of other assets. At June 30, 1999, the currency swap has a
carrying value of $1,513 and a fair value, based on amounts that would
be paid or received by the Company to terminate the swap, of ($188).
FAIR VALUE OF FINANCIAL INSTRUMENTS - As of June 30, 1998 and 1999, the
carrying value of cash and cash equivalents approximates fair value of
those instruments due to their liquidity and short-term nature.
Based on borrowing rates currently available to the Company and the
remaining terms, the carrying value of debt obligations as of June 30,
1998 and 1999 approximates fair value.
The estimated fair values of the Company's financial instruments have
been determined by the Company using available market information and
appropriate valuation methodologies. However, considerable judgement 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.
11. STOCKHOLDERS' EQUITY
In August 1998, the Company announced that its Board of Directors had
authorized a stock repurchase program of up to 1,200,000 shares of the
Company's common stock. During the remainder of fiscal 1999, the Company
repurchased 586,700 shares under this program for $6,048. The Company
accounts for these shares as treasury stock and has recorded them at
cost. The Company's Credit Agreement and the Note Purchase Agreement
(see Note 8) each restrict certain payments by the Company, such as stock
repurchases, from exceeding certain limits.
F-22
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. At the annual meeting in
November 1997, the Company's stockholders approved increasing the number
of options available for grant under the Incentive Plan by 400,000. The
Incentive Plan allows the Company to grant stock options to employees to
purchase up to 700,000 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
Balance, June 30, 1996 212,200 $12.875-14.750
Issued 33,533 15.750-19.125
Exercised (7,600) 13.375-14.500
Surrendered (8,134) 13.375-14.500
---------
Balance, June 30, 1997 229,999 12.875-19.125
Issued 33,333 15.750-18.625
Exercised (18,060) 12.875-14.500
Surrendered (11,873) 13.375-14.500
---------
Balance, June 30, 1998 233,399 12.875-19.125
Issued 119,000 8.500-18.000
Surrendered (24,366) 9.875-18.625
Balance, June 30, 1999 328,033 8.500-19.125
---------
---------
Exercisable
June 30, 1999 191,633 12.875-19.125
---------
---------
At June 30, 1999, options to purchase 346,307 shares were authorized but
not granted.
The weighted average exercise price of options outstanding under the
Incentive Plan at June 30, 1997, 1998 and 1999 is $14.124, $14.536, and
$13.227, respectively. The weighted average remaining life of options
outstanding under the Incentive Plan at June 30, 1997, 1998 and 1999 is
7.5 years, 7.0 years, and 7.1 years, respectively.
F-23
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 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) 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,
1997, 1998 and 1999, 11,179, 15,793 and 33,033 common shares,
respectively, were purchased by employees under the Purchase Plan. At
June 30, 1999, 290,040 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
Balance, June 30, 1996 40,000 $ 13.375
--------
--------
Balance, June 30, 1997 40,000 13.375
--------
--------
Balance, June 30, 1998 40,000 13.375
--------
--------
Exercised (10,000) 13.375
--------
--------
Issued 10,000 19.125
--------
--------
Balance, June 30, 1999 40,000 13.375-19.125
--------
--------
At June 30, 1999, options to purchase 40,000 shares were authorized but
not granted.
The weighted average exercise price of options outstanding under the
Director Option Plan at June 30, 1997, 1998 and 1999 is $13.375, $14.813,
and $14.813, respectively. The weighted average remaining life of options
outstanding under the Director Option Plan at June 30, 1997, 1998 and
1999 is 6.8 years, 6.6 years, and 5.6 years, respectively.
F-24
The Company applies APB No. 25 in accounting for its stock option plans,
under which no compensation cost has been recognized for stock option
awards. Had compensation cost for the stock option plans been determined
in accordance with the fair value accounting method prescribed under SFAS
No. 123, the Company's net earnings per share on a pro forma basis would
have been as follows:
1997 1998 1999
Net income:
As reported $ 9,728 $ 12,765 $ 9,806
Pro forma 9,353 12,578 9,630
Net income per share:
As reported:
Basic 1.68 1.56 1.26
Diluted 1.67 1.55 1.26
Pro forma:
Basic 1.61 1.54 1.24
Diluted 1.60 1.53 1.24
The SFAS No. 123 fair value method of accounting is not required to be
applied to options granted prior to July 1, 1995, therefore, the pro
forma compensation cost may not be representative of that to be
expected in future years. Compensation cost for 1999 includes options
granted during the three-year period ended June 30, 1999.
For the purpose of computing the pro forma effects of stock option
grants under the fair value accounting method, the fair value of each
stock option grant was estimated on the date of the grant using the
Binomial Method pricing model. The weighted-average fair value of stock
options granted during 1997, 1998 and 1999 was $10.40, $10.07 and $6.87
per share, respectively. The following weighted average assumptions
were used for grants during the years ended June 30, 1997, 1998 and
1999:
1997 1998 1999
Risk-free interest rate 6.3% 5.2% 5.3%
Expected life 10 years 10 years 10 years
Expected volatility 37% 36% 36%
Dividend yield Nil Nil Nil
12. EARNINGS PER SHARE
In February 1997, the FASB issued SFAS No. 128, "EARNINGS PER SHARE".
This Statement established new standards for computing and presenting
earnings per share ("EPS") and applies to entities with publicly held
common stock or potential common stock. It replaces the presentation of
primary EPS with a presentation of basic EPS and also requires that
entities with simple capital structures, that is, those with only
common stock outstanding, shall present basic per-share amounts for
income from continuing operations and for net income on the face of the
statement of income. In addition the Statement requires dual
presentation of basic and diluted EPS on the face of the statement of
income for entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS
computation.
F-25
The Company was required to adopt SFAS No. 128 effective for the year
ended June 30, 1998. EPS for the prior periods have been restated
according to the new standard. Following is a reconciliation of basic
and diluted EPS for the years ended June 30, 1997, 1998 and 1999,
respectively.
1997 1998 1999
----------------------------- ----------------------------- -----------------------------
Weighted Earnings Weighted Earnings Weighted Earnings
Net Average Per Net Average Per Net Average Per
Income Shares Share Income Shares Share Income Shares Share
Basic EPS $ 9,728 5,796,281 $ 1.68 $ 12,765 8,167,285 $ 1.56 $ 9,806 7,790,781 $ 1.26
Effect of dilutive
securities - stock options 34,414 (0.01) 51,401 (0.01)
------- --------- ------ -------- --------- -------- ------- --------- ------
Diluted EPS $ 9,728 5,830,695 $ 1.67 $ 12,765 8,218,686 $ 1.55 $ 9,806 7,790,781 $ 1.26
------- --------- ------ -------- --------- -------- ------- --------- ------
------- --------- ------ -------- --------- -------- ------- --------- ------
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarterly financial information for the periods ended June 30, 1999 and
1998 are as follows:
YEAR ENDED JUNE 30, 1999
-----------------------------------------------------------
FIRST SECOND THIRD (1) FOURTH (2)
-------------- ------------- ------------- --------------
Net sales $ 116,576 $ 122,955 $ 119,533 $ 116,495
Gross profit 13,921 18,747 17,535 17,569
Operating income 2,701 6,810 4,590 11,195
Net income 337 2,708 1,265 5,496
Earnings per common share:
Basic 0.04 0.35 0.17 0.72
Diluted 0.04 0.35 0.17 0.72
YEAR ENDED JUNE 30, 1998
-----------------------------------------------------------
FIRST SECOND THIRD FOURTH
-------------- ------------- ------------- --------------
Net sales $ 68,796 $ 84,435 $ 91,623 $ 128,914
Gross profit 9,212 12,663 14,120 19,493
Operating income 3,688 5,176 7,638 9,338
Net income 1,825 2,390 3,913 4,637
Earnings per common share:
Basic 0.22 0.29 0.48 0.57
Diluted 0.22 0.29 0.48 0.56
(1) The third quarter contains a $750 charge recorded in connection with
an industrial accident that occurred on February 25, 1999 at the
Company's subsidiary, Jahn Foundry, which decreased net income by
$450 or $0.06 per share (see Note 21).
(2) The fourth quarter contains a $3,500 revision to the flood damage
reconstruction reserve which increased net income by $2,086 or $0.27
per share. The flood damage reconstruction reserve relates to the
July 1993 Missouri River Flood (see Note 20).
The aggregate total of the individual quarterly amounts may not equal the
amount reported for the fiscal year due to rounding.
F-26
14. 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 and employee earnings.
Pension expense for the defined benefit plans is presented below:
1997 1998 1999
Service costs $ 929 $ 1,018 $ 7,734
Interest costs 2,389 2,851 14,980
Actual return on net assets (3,308) (8,263) (15,272)
Net deferral items 810 5,141 (3,012)
------- -------- ---------
$ 820 $ 747 $ 4,430
------- -------- ---------
------- -------- ---------
The pension plans' assets (primarily U.S. Government securities, common
stock and corporate bonds) are deposited with a bank. A comparison of the
projected benefit obligation and plan assets at fair value as of June 30,
1998 and 1999 is presented below.
F-27
1998 1999
--------------------------------- -----------------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefit Assets
Change in Projected beneft obligation
Projected benefit obligation at $ (31,151) $ (6,489) $ (217,524) $(24,379)
beginning of year
Service Cost (761) (257) (7,066) (668)
Interest Cost (2,345) (506) (13,334) (1,646)
Actuarial (loss) gain (4,592) (517) 583 (107)
Plan Amendments (305) (673)
Foreign currency exchange rate changes 21 145 11,101 38
New acquisitions (197,823) (336)
Benefits paid 2,430 278 10,250 2,217
--------- --------- --------- ---------
Projected benefit obligation at end
of year (234,221) (7,682) (216,295) (25,218)
--------- --------- --------- ---------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning 30,578 5,783 228,851 19,910
of year
Actual return on plan assets 7,517 746 15,803 (531)
New acquisitions 205,501
Employer contribution 1,677 189 3,698 599
Foreign currency exchange rate changes (53) (190) (11,644) (37)
Benefits paid (2,430) (278) (10,250) (2,217)
Settlments (280)
--------- --------- --------- ---------
Fair value of plan assets at end of year 242,510 6,250 226,458 17,724
Projected benefit obligation in excess 8,289 (1,432) 10,163 (7,494)
of plan assets
Unrecognized prior service costs 105 74 422 699
Unrecognized net obligation 196 (190) 102 (113)
Unrecognized net (gain)/loss (809) 397 (1,570) 3,355
Additional liability (407) (828)
--------- --------- --------- ---------
Accrued Pension Asset (Liability) $ 7,781 $ (1,558) $ 9,117 $ (4,381)
--------- --------- --------- ---------
--------- --------- --------- ---------
THE ACTUARIAL VALUATION WAS PREPARED
ASSUMING:
Discount rate 6.75 % 7.00 %
Expected long-term rate of return
on plan assets 9.00 % 9.00 %
Salary increases per year 5.00 % 5.00 %
F-28
In accordance with SFAS No. 87, the Company has recorded an additional
minimum pension liability for underfunded plans of $407 and $828 at June
30, 1998 and 1999, 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 charges directly to stockholders'
equity.
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 $452, $535 and $519 for the years ended June
30, 1997, 1998 and 1999, respectively.
The Company's subsidiaries, Prospect Foundry, LA Die Casting and Jahn
Foundry contributed $274, $345 and $302 for the fiscal years ended June
30, 1997, 1998 and 1999, respectively, to multiemployer pension plans for
employees covered by a collective bargaining agreement. These plans are
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 plans' net assets is not available from the plans'
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, 1998), no withdrawal liabilities exist.
The Company also has various other profit sharing plans. Costs of such
plans charged against earnings were $553, $913 and $1,234 for the years
ended June 30, 1997, 1998 and 1999, respectively.
F-29
15. 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 Company funds these benefits on a
pay-as-you-go basis. The accumulated postretirement benefit obligation
and fair value of plan assets as of June 30, 1998 and 1999 is as follows:
1998 1999
CHANGE IN ACCUMULATED POSTRETIREMENT BENEFIT
OBLIGATION
Accumulated postretirement benefit obligation
at beginning of year $ 7,686 $ 9,643
Service cost 386 480
Interest cost 599 643
Actuarial (gain) loss 1,426 (455)
Benefits paid (454) (447)
--------- --------
Accumulated postretirement benefit obligation
at end of year 9,643 9,864
--------- --------
Fair value of plan assets at end of year
--------- --------
Accumulated postretirement benefit obligation
in excess of plan assets 9,643 9,864
Unrecognized net loss (2,894) (2,301)
Unrecognized prior service cost 847 715
--------- --------
Accrued Pension Asset (Liability) $ 7,596 $ 8,278
--------- --------
--------- --------
Net postretirement benefit cost for the years ended June 30, 1997, 1998
and 1999 consisted of the following components:
1997 1998 1999
Service cost - benefits earned during the year $ 289 $ 386 $ 480
Interest cost on accumulated benefit obligation 429 599 643
Amortization of prior service cost (132) (132) (132)
Amortization of loss 63 69 138
------ ------ --------
$ 649 $ 922 $ 1,129
------ ------ --------
------ ------ --------
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation for pre-age 65 benefits as of June 30,
1999 was 8.4% decreasing each successive year until it reaches 5.5% in
2019, 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 2019. 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, 1999 by approximately $1,497 (15.2%) and
the
F-30
aggregate of the service and interest cost components of the net
periodic postretirement benefit cost for the year then ended by
approximately $200 (17.8%). A one-percentage-point decrease in the assumed
health care cost trend rate for each year would decrease the accumulated
postretirement benefit obligation as of June 30, 1999 by approximately
$1,206 (12.2%) and the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost for the year
then ended by approximately $159 (14.2%). The assumed discount rate used
in determining the accumulated postretirement obligation as of June 30,
1997, 1998 and 1999 was 7.75%, 6.75% and 7.5%, respectively, and the
assumed discount rate used in determining the service cost and interest
cost for the years ended June 30, 1997, 1998 and 1999 was 7.5%, 7.75% and
7.5%, respectively.
16. 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 $657, $1,006 and $1,675 for
the years ended June 30, 1997, 1998 and 1999, respectively. Long-term,
noncancelable operating leases having an initial or remaining term in
excess of one year require minimum rental payments as follows:
2000 $ 2,365
2001 2,125
2002 1,910
2003 1,711
2004 1,570
17. MAJOR CUSTOMERS
Net sales to and customer accounts receivable from major customers are as
follows:
AMOUNT OF NET SALES
-------------------------------------------
1997 1998 1999
--------- -------- --------
Customer A $ 30,232 $ 27,713 $ 25,219
Customer B 12,165 39,999 53,276
--------- --------- --------
$ 42,397 $ 67,712 $ 78,495
--------- --------- --------
--------- --------- --------
CUSTOMER
ACCOUNTS
RECEIVABLE
-------------------------------
1998 1999
Customer A $ 4,283 $ 2,912
Customer B 7,249 7,189
--------- ---------
$ 11,532 $ 10,101
--------- ---------
--------- ---------
F-31
18. SEGMENT AND GEOGRAPHIC INFORMATION
Due to the nature of the Company's products and services, its production
processes, the type or class of customer for its products and services,
and the methods used to distribute products and provide services, the
Company is considered to have a single operating segment for reporting
purposes.
The Company operates in four countries, the United States, Great Britain,
Canada and France. Revenues from external customers derived from
operations in each of these countries for the years ended June 30, 1999,
1998 and 1997 are as follows:
UNITED GREAT
STATES BRITAIN CANADA FRANCE TOTAL
1999 $ 293,691 $ 132,154 $ 45,178 $ 4,536 $ 475,559
1998 310,235 37,607 25,926 373,768
1997 219,239 26,530 245,769
Long-lived assets located in each of these countries as of June 30, 1999
and 1998 are as follows:
UNITED GREAT
STATES BRITAIN CANADA FRANCE TOTAL
1999 $ 143,668 $ 29,045 $ 22,952 $ 181 $ 195,846
1998 142,807 24,460 5,367 172,634
19. ADDITIONAL CASH FLOWS INFORMATION
1997 1998 1999
Cash paid during the year for:
Interest $ 3,346 $ 3,915 $ 8,235
Income taxes 4,269 7,731 5,751
Supplemental schedule of noncash investing and financing
activities:
Minimum pension liability adjustment, net of income
tax expense of $187, $0 and $0, respectively,
recorded to stockholders' equity (293)
Recording of other asset related to pension liability (209) 365 421
Recording of additional pension liability 689 (365) (421)
Unexpended bond funds (679) (519)
20. FLOOD RESERVE
In 1996, the Company received an insurance settlement for losses incurred
as a result of the July 1993 Missouri River flood. At that time the
Company used a portion of the insurance proceeds to establish a reserve
to be used for future repairs due to flood damage. Since that time the
Company has been charging the reserve balance for costs incurred
resulting from those repairs.
F-32
During 1999, management updated its analysis of the required repairs by
performing its periodic reevaluation of the effects of the flood based
on current information. As a result, management committed to a revised
repair plan, which included several remaining projects. These projects
and their final estimated costs to complete represent the remaining
flood reserve balance that is necessary. The amount of the reserve
balance, over and above the estimated costs of such identified
projects, was considered to be excess and was reversed. Such excess
amounted to $3,500 and was included as a reduction of selling, general
and administrative expense in the fourth quarter of 1999. Any future
repairs outside the scope of the projects identified, if any, will be
charged to repairs and maintenance as incurred. As of June 30, 1998 and
1999, the Company has $5,932 and $1,197 recorded, respectively, as
reserves for future flood repairs, which have been classified as
accrued expenses.
21. CONTINGENCIES
An accident, involving an explosion and fire, occurred on February 25,
1999 at Jahn Foundry located in Springfield, Massachusetts. Nine
employees were injured and there have been three fatalities. The damage
was confined to the shell molding area and the boiler room. Other areas
of the foundry are operational. Molds are currently being produced at
other foundries until repairs are made.
Although no lawsuits have been filed, a number of attorneys
representing the injured and deceased employees have contacted Jahn
Foundry regarding possible litigation. The Company carries insurance
for property and casualty damages, business interruption, general
liability and worker's compensation for itself and its subsidiaries.
The Company, its property insurance carrier and its insurance broker
dispute the amount of property insurance coverage for property damages
suffered in this accident. If this dispute cannot be resolved amicably,
the Company would vigorously pursue its remedies against both parties.
The Company recorded a charge of $450 ($750 before tax) during the
third quarter of fiscal 1999, primarily reflecting the deductibles
under the Company's various insurance policies. At this time there can
be no assurance that the Company's ultimate costs and expenses
resulting from the accident will not exceed available insurance
coverage by an amount which could be material to its financial
condition, results of operations, or cash flows.
Following the accident, the Occupational Safety and Health
Administration ("OSHA") conducted an investigation of the accident. On
August 24, 1999, OSHA issued a citation describing violations of the
Occupational Safety and Health Act of 1970, which primarily related to
housekeeping, maintenance and other specific, miscellaneous items.
Neither of the two violations, specifically addressing conditions
related to the explosion and fire, were classified as serious or
willful. Without admitting any wrongdoing Jahn Foundry entered into a
settlement with OSHA that addresses the alleged work place safety
issues and agreed to pay $149 in fines.
The Company is a defendant in various matters and is exposed to claims
encountered in the normal course of business. In the opinion of
management, the resolution of these matters will not have a material
effect on the Company's financial position, results of operations, or
cash flows.
******
F-33
EXHIBIT INDEX
Exhibit
- -------
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(a) The Amended and Restated Credit Agreement dated as of April 3,
1998, among the Company, the Banks party thereto and Harris Trust
and Savings Bank, as Agent (incorporated by reference to Exhibit
4.1(a) of Form 8-K filed April 16, 1998)
4.1(b) Pledge and Security Agreement dated as of April 3, 1998, between
the Company and Harris Trust and Savings Bank, as Agent
(incorporated by reference to Exhibit 4.1(b) of Form 8-K filed
April 16, 1998)
4.1(c) First Amendment to Amended and Restated Credit Agreement dated as
of October 7, 1998, among the Company, the Banks party thereto and
Harris Trust and Savings Bank, as Agent (incorporated by reference
to Exhibit 4.1 of the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998)
4.1(d) Second Amendment to the Amended and Restated Credit Agreement dated
as of April 23, 1999, among the Company, the Banks party thereto,
and Harris Trust and Savings Bank, as Agent (incorporated by
reference to Exhibit 4 of the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999)
4.1(e) Third Amendment to the Amended and Restated Credit Agreement dated
as of August 20, 1999, 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)
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)
EXHIBIT INDEX
Exhibit
- -------
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 (incorporated by
reference to Exhibit 4.2(c) of the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1996)
4.2(d) Third Amendment dated as of April 3, 1998 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 Form 8-K filed April 16, 1998)
4.2(e) Waiver dated as of October 12, 1998 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 Quarterly Report on
Form 10-Q for the quarter ended September 30, 1998)
4.3 Specimen stock certificate (incorporated by reference to Exhibit
4.3 of Amendment No. 2 to Form S-2 Registration Statement No.
333-25157 filed May 19, 1997)
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)
10.1(c)* Amendment No.2 dated as of September 10, 1998 to Employment
Agreement between the Company and Hugh H. Aiken (incorporated by
reference to Exhibit 10.1 of the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1998)
10.2* 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)
10.3 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)
10.4* 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)
EXHIBIT INDEX
Exhibit
- -------
10.5* Plan for conversion of subsidiary 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)
10.6 The Share Exchange Agreement dated April 6, 1998 in respect of the
ordinary shares of Sheffield by and among David Fletcher and
others, ACUK and the Company (incorporated by reference to Exhibit
10.1 of Form 8-K filed April 16, 1998)
10.7(a)* Service Agreement between Sheffield and David Fletcher dated
November 1, 1988 (incorporated by reference to Exhibit 10.10(a) of
the Company's Annual Report on Form 10-K for the year ended June
30, 1998)
10.7(b)* Novation Agreement between Sheffield and David Fletcher dated May
2, 1996. (incorporated by reference to Exhibit 10.10(b) of the
Company's Annual Report on Form 10-K for the year ended June 30,
1998)
10.7(c)* Letter Agreement between Sheffield and David Fletcher dated May 2,
1996. (incorporated by reference to Exhibit 10.10(c) of the
Company's Annual Report on Form 10-K for the year ended June 30,
1998)
21.1 Subsidiaries of the Company
23.1 Consent of Deloitte & Touche LLP
27.1 Financial Data Schedule - Fiscal year ended FY 1999
* Represents a management contract or a compensatory plan or arrangement.