Securities Exchange Act of 1934 - Sections 13(a) and 15(d)
No Action, Interpretive and/or Exemptive Letter:
Atchison Casting Corporation
Response of the Office of Chief Counsel
Division of Corporation Finance
Re: Atchison Casting Corporation
Incoming letter dated September 5, 2003
Based on the facts presented, the Division is unable to provide the requested no-action relief regarding reports required to be filed with the Commission pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"). We note in this regard that the Company's Exchange Act reporting obligation does not cease as a result of being subject to the protection of the Bankruptcy Court. See Exchange Act Release No. 9660 (June 30, 1972) and Staff Legal Bulletin No. 2 (April 15, 1997).
This position is based on the representations made to the Division in your letter. Any different facts or conditions might require the Division to reach a different conclusion. Further, this response expresses the Division's position on enforcement action only and does not express any legal conclusion on the questions presented.
/s/ Carol M. McGee
Carol M. McGee
Gregory G. Johnson
Direct: (816) 374-3227
September 5, 2003
Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Atchison Casting Corporation
Ladies and Gentlemen:
On behalf of Atchison Casting Corporation, a Kansas corporation ( the "Company"), we hereby request, based upon the facts and circumstances discussed below, that the Staff of the Securities and Exchange Commission (the "Commission") indicate that it would not recommend enforcement action if the Company follows the modified reporting procedures set forth herein in lieu of filing regular periodic reports specified under Section 13(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules promulgated thereunder.
On August 4, 2003, the Company filed a petition for relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Western District of Missouri (the "Bankruptcy Court"), Case Number 03-50965 (the "Bankruptcy Filing"). The Bankruptcy Filing was reported on the Company's Current Report on Form 8-K filed on August 4, 2003.
The Company is currently managing its assets as a debtor in possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code. The Company primarily produces iron, steel and non-ferrous castings. As discussed below, the Company is in the process of conducting going concern sales for the benefit of its estate and creditors. The Company's filing does not include its non-U.S. subsidiaries, which the Company intends to continue to operate pending a going concern sale or sales. As of August 22, 2003, the Company had approximately 1270 full-time equivalent employees (excluding those employees working exclusively for non-U.S. subsidiaries). The Company is concentrating on attempting to preserve the value of its remaining assets while determining an appropriate strategy to realize the value of such assets, all in the context of going concern sales. As of August 22, 2003, the Company has only three employees that would have the experience necessary to prepare periodic reports under the Exchange Act. As disclosed in its two most recent Current Reports on Form 8-K, the Company does not anticipate that any proceeds from the disposition of its remaining assets will be distributed to its equity holders.
Continued filing of periodic reports will require unreasonable effort and expense due to the necessity of the Company to efficiently utilize its limited resources in connection with the Chapter 11 proceeding, including its on-going efforts to sell its remaining business and assets.
As a debtor in possession under the Bankruptcy Code, the Company is required to file monthly operating reports with the U.S. Trustee and the Bankruptcy Court (the "Bankruptcy Reports") until the confirmation of a plan of reorganization by the Bankruptcy Court. The Bankruptcy Reports provide an ongoing record of assets and liabilities of the Company's estate. In addition, records of cash receipts and disbursements are attached to such Bankruptcy Reports. At the conclusion of the Bankruptcy Court proceeding, the Company will be required to file a report (the "Final Report") with the Bankruptcy Court that sets forth the amount of liquidation payments and a final report on the liquidation of the Company that contains financial and other information similar in scope and breadth to that which will be provided in the Bankruptcy Reports.
Based on Exchange Act Release 9660 (June 30, 1972) (the "1972 Release") and Staff Legal Bulletin Number 2 (April 16, 1997) (the "Bulletin"), in lieu of continuing to file Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q under Section 13(a) of the Exchange Act, the Company proposes to file with the Commission, under cover of Form 8-K, copies of the Bankruptcy Reports and the Final Report that are required to be filed with the Bankruptcy Court no later than fifteen days after such filings are made, as well as other filings that may be required to be made on Form 8-K on a periodic basis. The Company will also file, under cover of Form 8-K, disclosure of material events relating to the liquidation and the likelihood of any liquidation payments being made to equity holders. This relief from Section 13 of the Exchange Act is requested while the Company is subject to the Bankruptcy Code or until completion of the liquidation of the Company. At the time the liquidation of the Company is complete, the Company will (a) file a final report on Form 8-K, (b) take appropriate steps to terminate the existence of the Company and (c) file a Form 15 to terminate its reporting obligations under the Exchange Act.
Rationale for Requested Relief
In the past, the Commission has agreed to the modification or suspension of the Exchange Act reporting requirements of certain issuers subject to proceedings under the Bankruptcy Code. The 1972 Release reflects the Commission's position that it will accept reports that differ in form or content from the quarterly or annual reports required by the Exchange Act where the issuer is subject to bankruptcy proceedings or has severely curtailed its operations so long as the modified reporting procedure provides adequate protection for investors and is not inconsistent with the public interest. The Bulletin indicates that issuers may request a "no-action" letter from the Commission that applies the positions in the 1972 Release to the issuer's facts. The Bulletin requires the issuer to present a clear demonstration of its inability to continue reporting, its efforts to inform its security holders and the market, and the absence of a market in its securities by responding to specific guidelines. The following paragraphs provide this response.
A. Information Regarding Disclosure of Financial Condition
1. Whether the issuer complied with its Exchange Act reporting obligations before its Bankruptcy Code filing.
The Bulletin requires that an issuer requesting relief be current in its Exchange Act reports for the 12 months before its bankruptcy filing. The Company timely filed its most recent Quarterly Reports on Form 10-Q on November 14, 2002, February 14, 2003, and May 15, 2003, for the quarters ended September 30, 2002, December 31, 2002, and March 31, 2003, respectively.
With regard to the Company's most recent Annual Report on Form 10-K for the fiscal year ended June 30, 2002 (the "2002 Form 10-K"), the Company filed a Form 12b-25 on October 1, 2002, disclosing that
"[t]he registrant is unable to file its Annual Report on Form 10-K for the fiscal year ended June 30, 2002 by the September 30, 2002 due date without undue effort or expense. The reason for the registrant's inability to complete its Annual Report by the due date relates to the lack of a consent from Deloitte & Touche LLP as required under Item 601(b)(23) of Regulation S-K of the Securities Act of 1933 (the "Act"). On October 1, 2002, the Company filed an application to dispense with consent under Rule 437 of the Act. As of the date of this filing, the Securities and Exchange Commission has not made a decision regarding the Company's application to dispense with consent. The registrant expects to meet the extended due date for its Form 10-K of October 15, 2002."
The Company's application to dispense with consent under Rule 437 of the Securities Act was denied.
As the Company disclosed in a Form 8-K filed April 23, 2002, the Company dismissed its former auditor, Deloitte & Touche LLP ("Deloitte"), as its auditor on April 16, 2002.
As the Company disclosed in a Form 8-K dated October 11, 2002, on October 9, 2002 Deloitte notified the Company that Deloitte's report dated September 28, 2001 on the consolidated financial statements of ACC and its subsidiaries as of June 30, 2001 and 2000 and for each of the three years in the period ended June 30, 2001 should no longer be relied upon or associated with those consolidated financial statements. Deloitte had issued an unqualified opinion in connection with its audit of ACC's financial statements for such years, except for a going concern modification related to fiscal year 2001. Deloitte indicated that such report was being withdrawn because information had come to its attention which, had it been known to Deloitte at the date of the report, would have affected Deloitte's report.
The Company filed its 2002 Form 10-K on October 16, 2002. The financial statements included therein that had been previously covered by Deloitte's opinion were labeled as unaudited. The Company's management believes that the Company's consolidated financial statements of ACC and its subsidiaries as of June 30, 2001 and for the years ended June 30, 2001 and June 30, 2000 present fairly, in all material respects, the financial position and results of operations of the Company and its subsidiaries as of and for those periods.
Prior to the withdrawal by Deloitte of its opinion, the Company ceased offering and selling securities, including offers and sales in all outstanding employee stock plans; no sales of securities have occurred subsequent to the withdrawal of Deloitte's audit opinion.
At the time of Deloitte's action, the Company asked KPMG LLP to re-audit its financial statements for the fiscal year ended June 30, 2001. The Company indicated in correspondence with the SEC that KPMG believed it could complete this re-audit by June 30, 2003, at which time the Company would amend the 2002 Form 10-K to include the re-audited financial statements. The re-audit was substantially completed, but, due to the Company's increasing financial difficulties, the amended 2002 Form 10-K was not filed.
The Company indicated in correspondence with the SEC that it did not believe that a re-audit of its financial statements for the fiscal year ended June 30, 2000 was in the best interests of the Company or its stockholders due to the cost and timing of conducting such a re-audit. The benefit of having audited financial statements for fiscal year 2000 was outweighed by the effect the added cost of such re-audit would have had on the Company. The Company's financial condition during this period of time was poor, and the Company could not afford fees of several hundred thousands of dollars to re-audit financial statements from years ago, especially when management believed the financial statements to be accurate. In addition, the Company had sold two subsidiaries and had closed, downsized or liquidated five subsidiaries since the second quarter of fiscal 2001, complicating KPMG's access to information and personnel. In light of the Company's litigation with Deloitte (which has only recently been settled) and Deloitte's withdrawal of its report, the Company did not expect any cooperation from its former auditors. Accordingly, the Company believed that a second re-audit of fiscal 2000 would likely have been more difficult, time-consuming and costly than the re-audit of fiscal 2001, and KPMG could not assure the Company that it could complete all of the procedures necessary to issue a report on fiscal 2000.
2. When the issuer filed its Form 8-K announcing its bankruptcy filing; whether the issuer made any other efforts to advise the market of its financial condition.
The Bulletin requires that an issuer requesting relief timely file a Form 8-K announcing its bankruptcy. A Form 8-K announcing an issuer's bankruptcy is due fifteen calendar days after a receiver has been appointed or bankruptcy jurisdiction is assumed by leaving the debtor in possession. Because the Company made the Bankruptcy Filing on August 4, 2003, the rules of the Commission required the Company to announce its bankruptcy on Form 8-K by August 20, 2003. The Company complied with this obligation by reporting the Bankruptcy Filing by filing its Current Report on Form 8-K on August 4, 2003.
The Bulletin also requires a discussion of any efforts other than the filing of the Form 8?K that the issuer made to inform its security holders and the market of its financial condition.
The Company's Quarterly Reports on Form 10?Q for the quarters ended March 31, 2003, December 31, 2002, and September 30, 2002 indicated in the Management's Discussion and Analysis section that (i) the Company was in default of its covenants under its credit facilities; (ii) if the Company were unable to amend its financial covenants on terms favorable to the Company, the Company would continue to be in default; (iii) if the Company were to continue in default, and the Company were unable to locate alternative sources of financing, the Company might be forced to seek protection under the federal bankruptcy laws. These disclosures show that the Company has made additional efforts besides giving notice of the Bankruptcy Filing to inform its investors and the market of its poor financial condition.
3. Whether the issuer is able to continue Exchange Act reporting; whether the information in modified reports is adequate to protect investors.
The Bulletin requires a discussion of the reasons why an issuer requesting relief cannot continue to comply with Exchange Act reporting. The discussion must include (i) whether the issuer has ceased its operations, (ii) why filing periodic reports would present an undue hardship to the issuer, (iii) why the issuer cannot comply with the disclosure requirements and (iv) why the issuer believes granting the request is consistent with the protection of investors.
Compliance with the periodic reporting requirements of the Exchange Act would cause the Company significant hardship and unreasonable burden in terms of expense and effort on the part of the Company and its remaining management. Since the Bankruptcy Filing, the efforts of the Company have been occupied by addressing the day?to?day needs of a Chapter 11 debtor, including obtaining approval of the Bankruptcy Court for the non?ordinary course activities and on?going?efforts to sell the Company's remaining business and assets. All of these activities have increased the duties and responsibilities of its employees. During the pendency of the Chapter 11 proceeding, it will be necessary to devote substantially all of the Company's limited resources to such proceeding and any negotiations relating to the sale of the Company's remaining assets in the Company's continuing effort to maximize its liquidation value for the benefit of its creditors. In addition, satisfying such reporting requirements would cause the Company to incur substantial additional legal and accounting fees as well as additional charges for support services, which the Company does not have the financial wherewithal to pay.
The relief requested is consistent with the protection of the Company's equity holders. As discussed above, the Company will file monthly Bankruptcy Reports and, at the conclusion of the Bankruptcy proceedings, will file the Final Report. The Bankruptcy Reports and the Final Report that the Company must file with U.S. Trustee and the Bankruptcy Court will become part of the public case file at the Bankruptcy Court and will be available through the filings with Commission and will provide both investors and creditors with accurate and updated information about the status of the Company's affairs. As a result, the Company's equity holders will continue to be kept informed as to the Company's financial condition.
Non-financial data, such as management information, that normally would be provided is not necessary under the circumstances for the protection of equity holders because neither management nor the board of directors of the Company intend to operate the Company in the future and they remain affiliated with the Company solely to complete the sale of the Company's remaining assets and business.
B. Information Regarding the Market for the Issuer's Securities
The Bulletin requires the issuer requesting relief to discuss in detail the market for its securities. The more active the market, the less likely that relief will be granted. If the issuer's securities are traded on a national securities exchange or the NASDAQ Stock Market, the Bulletin indicates that the Commission is unlikely to grant the requested relief. The information must demonstrate that there is minimal trading in the issuer's securities. The Bulletin also requires the issuer to provide the number of market makers for its securities and the number of trades per month for each of the three months before the issuer's Bankruptcy Code filing and each month after the filing.
The Company's stock is not listed on a national securities exchange or the NASDAQ Stock Market. The Company had approximately 576 common stockholders of record as of July 28, 2003. Trading in the Company's common stock has been available on the OTC Electronic Bulletin Board since June 26, 2002. As was disclosed in a press release and a Form 8-K, the Company's common stock was delisted from the New York Stock Exchange effective June 25, 2002. There are eleven market makers for the Company's common stock. In the months of May, June and July of 2003, there were 71,000, 172,000, and 541,900 shares, respectively, of the Company's common stock traded. Exhibit A attached hereto provides a detail of trading in the Company's common stock in August 2003.
C. The Timing of the Issuer's Request for Modification Reporting
The Bulletin indicates that an issuer should submit its request promptly after it has entered bankruptcy. A request is submitted promptly if it is filed before the date the issuer's first periodic report is due following the issuer's filing for bankruptcy. The Company's request for relief was filed on the date of this letter, in advance of its next required filing, an Annual Report on Form 10-K due on September 28, 2003. The Company will file with the Commission the Bankruptcy Reports on Form 8-K during the continued pendency of this request.
In view of the enormity of the task facing the Company's limited staff in preparing the Bankruptcy Reports and negotiating with the representatives of its creditors, (b) the extremely limited financial resources available to the Company, (c) the limited trading market in the Company's common stock and the likelihood that the Company's common equity holders will not receive any proceeds from the disposition of its remaining assets and (d) the abundance of public information regarding the Company that will be available to interested parties through the Company's filing with the Bankruptcy Court and the modified reporting procedure proposed herein, the Company believes that the modified reporting procedures set forth herein are appropriate.
For the foregoing reasons, we respectfully request that the Staff of the Commission confirm that it will not recommend enforcement proceedings if the Company files with the Commission, under cover of Form 8-K, all periodic financial reports and the final report that are required to be filed with the U.S. Trustee and the Bankruptcy Court in the Chapter 11 proceeding, in lieu of the Annual Reports on Form 10-K and the Quarterly Reports on Form 10?Q otherwise required to be filed after the date of this letter. The Company undertakes to file such Current Reports on Form 8-K within fifteen days after such periodic and financial reports are filed with the U.S. Trustee and the Bankruptcy Court. The Company also undertakes to file, under cover of Form 8-K, disclosure of material events relating to the Bankruptcy Filing.
If you have any questions regarding this matter or if you need additional information, please do not hesitate to contact me at (816) 374-3227 or T. J. Lynn at (816) 374-3352. If the Staff believes that it will be unable to respond affirmatively to this request, we would like the opportunity to discuss with you, in advance of your formal written response, possible alternative courses of action that the Company might pursue
Very truly yours,
Gregory G. Johnson
cc: Mr. Tom Armstrong
Mr. Kevin T. McDermed
Mr. William S. Romney
Mr. Mark Stingley
Mr. Jeff Haughey