---

---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D. C. 20549

---

FORM 10-K

(Mark One)

|ý | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -------------------------------------------------------------------------------------

For the fiscal year ended June 30, 2002 OR

|o | 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
incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|400 South Fourth Street
Atchison, Kansas                       |  | 66002                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

Registrant's
telephone number, including area code:(913) 367-2121

---

SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT:NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT: Common Stock, $0.01 par value, with attached Preferred Stock Rights

---

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 o    NO ý

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. o

The
aggregate market value of the Common Stock, par value $.01 per share, of the registrant held by nonaffiliates of the registrant as of October10, 2002 was $1,294,014.

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 October 10, 2002: 7,723,031 Shares

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Annual Proxy Statement for the Annual Meeting of Stockholders for Fiscal 2002 are incorporated by reference into Part III.

---

---

---



PART I

ITEM 1. BUSINESS

General

Atchison Casting Corporation ("ACC", "Atchison" or the "Company") 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, oil field equipment, reactor vessels for plastic manufacturing, and home appliances. Between June 1991 and
February 1999, Atchison completed nineteen acquisitions. 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 and aluminum as well as the ability to manufacture parts in a variety of sizes, ranging from small die cast components for the
automotive industry that weigh a few pounds 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 did not make any acquisitions in fiscal 2000, 2001 or 2002 and is not currently contemplating any acquisitions in fiscal 2003. The Company's primary focus in fiscal 2003 will
continue to be on the integration and improvement of existing operations and earnings and restructuring its financing arrangements.

Since
1991, the number of customers served by the Company has increased from 12 to more than 600, including companies such as Caterpillar, General Motors, General Electric, Siemens
Westinghouse, General Dynamics, Shell, British Steel, Nucor, GEC-Alstom, Flowserve, John Deere, DaimlerChrysler, Corus (formerly British Steel), Parker Hannifin, Weirton Steel, Case New
Holland, Babcock & Wilcox and Arvin 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 steel, as well as aluminum; (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.

Recent Developments



On October 9, 2002, the Company's former auditor, Deloitte & Touche LLP ("Deloitte"), notified the Company that Deloitte's report dated
September 28, 2001 on the consolidated financial statements of the Company and its subsidiaries as of June 30, 2001 and 2000 and for each of the years in the three year 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 the

2

---

Company'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.

In
the second quarter of fiscal 2001, the Company discovered accounting irregularities at its Quaker Alloy, Inc., Empire Steel Castings, Inc., and Pennsylvania Steel
Foundry & Machine Company subsidiaries (collectively referred to as the "Pennsylvania Foundry Group" or "PFG"). The Board of Directors authorized the Company's Audit Committee (the "Committee")
to conduct an independent investigation, with the assistance of special counsel and other professionals retained by the Committee. The Committee retained Jenner and Block, LLC as special counsel, and
Jenner & Block engaged PricewaterhouseCoopers LLP to assist in the investigation. As a result of that investigation, the Company has concluded that a small number of PFG employees violated
Company policies and procedures and used improper accounting practices, resulting in the overstatement of revenue, income and assets and the understatement of liabilities and expenses. Certain of
these same personnel also misappropriated Company funds, two of whom have pled guilty to a number of crimes. The Company believes that the accounting irregularities at PFG primarily resulted from a
scheme to cover-up such benefits and the actual operating results over four years at these three subsidiaries by manipulating many accounts incrementally, which increased and accumulated
over time.

As
previously announced, the Company dismissed Deloitte as its auditor on April 16, 2002. On July 26, 2002, the Company filed a complaint against Deloitte in Philadelphia
County, Pennsylvania for negligence, professional malpractice, negligent misrepresentation and breach of contract. The Company believes that Deloitte breached its duties to perform audit and
consulting services by failing to act with reasonable and ordinary care, with the ordinary skill and diligence of the accounting profession, and in conformity with the professional standards such as
generally accepted auditing standards and generally accepted accounting principles. Deloitte filed a counterclaim against the Company on September 13, 2002 alleging that the Company was aware
of information related to improper activities of certain employees at the Pennsylvania Foundry Group and failed to disclose such information to Deloitte. On September 24, 2002, Deloitte filed a
third party claim against certain officers and employees of the Company and others alleging, among other things, that such officers and employees withheld material information in connection with such
improper activities. The Company believes that Deloitte's claims against it and the Company's officers and employees have no merit and will vigorously defend itself.

Management
believes that the consolidated financial statements present fairly, in all material respects, the financial position of the Company and its subsidiaries as of June 30,
2001 and 2000, and the results of operations and cash flows for each of the years in the three year period ended June 30, 2001. The Company is considering its options with respect to
re-auditing the fiscal years in question.



Atchison Casting Corporation was formed in 1991 to make strategic acquisitions in the consolidating foundry industry and to implement new technology in the
foundries acquired. Over the years the Company has grown from approximately $50 million to nearly $400 million in annual sales.

Atchison
has become a world leader in steel castings, provides iron castings of high quality and service for industrial markets, and is growing its position in aluminum
die-castings for the automotive market.

On
June 19, 2002, the Company announced the business model that it intends to use to return to profitability and improve its financial condition.

Three
years of contraction in the capital goods markets, coupled with a number of other unfortunate events, have taken a toll on the Company. Atchison is not alone, as a number of our

3

---

competitors have closed. Despite all this, management believes that the Company has an opportunity to not only survive, but to do so profitably and increase market share in the markets it serves.

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



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

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

While
the Company believes this new business model represents a viable plan to achieve its financial objectives, there are no assurances that such plan can be executed as designed or
that execution thereof will result in achievement of the Company's financial objectives. In addition, the Company's potential contingent liabilities with respect to the Company's subsidiary located in
Autun, France, as described in note 4, may adversely impact the Company's ability to proceed with its plan if they become liabilities of the Company.



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

Autun
was acquired by the Company on February 25, 1999 at which time Autun specialized in the manufacture of cast iron radiators. The Company's strategy was to restructure the
foundry to make different products, principally automotive and appliance castings. Autun was successful in obtaining new customers and work in these markets. However, start up costs for the new
products and losses with some customers on Autun's historical cast iron radiator business, coupled with the inability to lower employment levels without significant severance costs, resulted in the
need for Autun to file for a plan of reorganization.

Autun
was initially granted local court approval to continue operating while it prepared a plan of reorganization. Autun was granted a six-month period during which it may
present such a plan. The court appointed administrator tried to sell Autun. After failing to sell Autun, the administrator recommended to the court that Autun be liquidated. On September 19,
2002, the court appointed a liquidator to begin the liquidation of Autun. During the fourth quarter of fiscal 2002, the Company recorded a charge of $567,000 to write off its remaining net investment
in Autun and a charge of $3.5 million relating to the Company's guarantee of Autun's obligations under certain lease agreements. The Company is no longer consolidating Autun's results into its
consolidated financial statements.

4

---

As
a result of the court's recent decision to liquidate the assets of Autun, it is estimated that charges for site cleanup could total up to $8 million. Should Autun not be able
to meet the cleanup obligations, the French government might be able to make a claim against the prior owner. The Company guaranteed payment of certain contingent liabilities of up to
100 million French francs (currently US$13.3 million) when it purchased Autun, for the cost of environmental restoration, if any, in the event Autun were closed and a claim was
successfully made against the prior owner. Such amount has not been recorded in the accompanying financial statements. These potential contingent liabilities may adversely impact the Company's ability
to proceed with its plans to achieve its financial objectives if they become liabilities of the Company.

For
the first nine months of fiscal 2002, Autun recorded net sales of $13.9 million and a net loss of $1.6 million. For fiscal 2001, Autun recorded net sales of
$17.4 million and a net loss of $88,000.



The Company is currently soliciting offers for the purchase of three subsidiary operations. ACC is marketing directly or has engaged investment bankers to obtain
offers on the following subsidiaries:



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

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

Kramer
International, located in Milwaukee, Wisconsin, specializes in the casting of iron, steel and non-ferrous pump impellers. Kramer currently employs approximately 90
people, and generated net sales of approximately $10.3 million in fiscal 2002.

The
G&C Foundry Company, located in Sandusky, Ohio, manufactures gray and ductile iron castings for hydraulic applications. G&C currently employs approximately 150 people, and generated
net sales of approximately $13.6 million in fiscal 2002.

Canada
Alloy, located in Kitchener, Ontario, Canada, manufactures stainless, carbon and alloy castings for a variety of markets. Canada Alloy currently employs approximately 130 people,
and generated net sales of approximately $13.6 million in fiscal 2002.



In September 2001, Atchison Casting UK Ltd ("ACUK"), a subsidiary of the Company, ACUK's subsidiaries, and Burdale Financial Limited entered into a
receivables program combined with a revolving credit facility (the "Facility Agreement"). This Facility Agreement provides for a facility of up to 25 million British pounds (approximately
$35 million US), subject to certain eligibility calculations, to be used to fund working capital requirements at Sheffield Forgemasters Group Limited ("Sheffield"), a subsidiary of ACUK, and up
to 1.0 million British pounds for working capital at Autun. In addition, the Facility Agreement provides security for Sheffield's foreign currency exchange contracts

5

---

and performance bond commitments and was used to repay $5.0 million of an intercompany working capital loan ($1.1 million of which was paid to certain of the lenders as principal
payments). This facility matures on September 17, 2004 and is secured by substantially all of Sheffield's assets in the U.K. Loans under this Facility Agreement bear interest at LIBOR plus
2.60% (6.725% at June 30, 2002). The Facility Agreement contains several covenants, which, among other things, require ACUK to maintain balances under certain eligibility levels. Management
believes ACUK is in compliance with those covenants. However, there can be no assurance that ACUK will continue in compliance with the covenants or that Burdale will not assert
non-compliance, in which case Burdale may exercise its right to demand payment of the debt.

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

The
Company is currently negotiating with new and existing lenders to extend its current arrangements while it attempts to establish a new credit facility with covenants that the Company
believes it will be able to satisfy and with additional borrowing capacity.



The Company substantially completed the closure of Empire Steel Castings, Inc. ("Empire") by December 31, 2001, and transferred as much work as
possible to other locations. Empire was closed as to commercial work, but continues to produce one product for the U.S. Government on an as-needed basis. For fiscal 2001 and 2002, Empire
recorded net sales of $10.1 million and $5.4 million respectively, and net losses of $2.6 million and $1.2 million, respectively. The Company terminated approximately 106
employees at Empire and recognized a charge for severance benefits of approximately $50,000 in fiscal 2002.

Following
losses in fiscal 2002, in September 2002 the Company's Board of Directors committed to a plan to downsize La Grange Foundry Inc. ("LaGrange Foundry") to a pattern
repair, maintenance and storage operation. Accordingly, the carrying amounts of La Grange Foundry's fixed assets were written down to the Company's estimate of fair value, which was based on
discounted future cash flows. The resulting impairment charge of $5.2 million to reduce the carrying amount of these fixed assets was recorded in the fourth quarter ended June 30, 2002.
Actual results could vary significantly from such estimate. Prior to the impairment charge, these assets had a carrying amount of $5.9 million. The Company plans to complete the downsizing of
La Grange Foundry during the second quarter of fiscal 2003.



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

6

---

the sale of approximately $40,000. For fiscal 2001, Jahn Foundry recorded a net loss of $2.4 million, excluding a non-recurring gain of $10.9 million recorded in the second
quarter relating to insurance claims resulting from an industrial accident at Jahn Foundry on February 25, 1999, on sales of $8.4 million. For fiscal 2002, Jahn Foundry recorded a net
loss of $1.4 million on sales of $2.9 million.

On
February 20, 2002, the Company completed the sale of substantially all of the net assets of LA Die Casting, Inc. ("LA Die Casting"). After post-closing
adjustments, the Company received approximately $3.5 million in cash and a note for the principal amount of $259,000 due in two years in exchange for assets and the assumption of liabilities by
the buyer. The note bears interest at the rate of 6.0% per year and requires quarterly payments of interest only during the two-year period. The Company recognized a loss on the sale of
approximately $169,000. For fiscal 2001 and 2002, LA Die Casting
recorded net sales of $8.2 and $4.3 million, respectively, and a net income (loss) of $61,000 and $(218,000), respectively.

Current Operations

The following table presents the Company's current operations and their primary strategic purpose.

|Manufacturing Unit                   |  | Date
Acquired |  | Strategic Purpose                                                                                                                                  
|------------------------------------ |  | ------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------
|Atchison Steel Casting & Machining   |  | 06/14/91      |  | Leader in carbon and low alloy, large, complex steel castings.                                                                                     
|Amite Foundry and Machine, Inc.      |  | 02/19/93      |  | Increase capacity to take on new projects with customers. Add-on to Atchison Steel Casting & Machining.                                            
|Prospect Foundry, Inc.               |  | 04/01/94      |  | Leader in gray and ductile iron castings.                                                                                                          
|Quaker Alloy, Inc.                   |  | 06/01/94      |  | Develop position in stainless and high alloy steel castings.                                                                                       
|Canadian Steel Foundries, Ltd.       |  | 11/30/94      |  | Access to hydroelectric and steel mill markets. Develop position in large castings.                                                                
|Kramer International, Inc.           |  | 01/03/95      |  | Leader in castings for pump industry.                                                                                                              
|The G&C Foundry Company              |  | 03/11/96      |  | Highly regarded in fluid power market. Build position in gray and ductile iron casting markets                                                     
|Canada Alloy Castings, Ltd.          |  | 10/26/96      |  | Build position in existing markets. Smaller castings than Canadian Steel, but similar markets and materials.                                       
|Inverness Castings Group, Inc.       |  | 10/06/97      |  | Expand in automotive and aluminum products.                                                                                                        
|Sheffield Forgemasters Group Limited |  | 04/06/98      |  | Enter European marketplace and add new product lines, including forgings. Gain strong position in steel industry and offshore oil and gas industry.
|London Precision Machine & Tool Ltd. |  | 09/01/98      |  | Enhance the Company's capability to machine castings, including finish machining.                                                                  



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.

7

---

One way in which ACC builds the marketing efforts of its foundries is to increase the number of sales personnel at its foundries. In addition to sales people added through acquisitions,
the Company has incrementally increased the sales force by 17%. 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, Case New Holland, Bombardier and Daimler Chrysler, among others.

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 plants and providing sales incentive opportunities.

Introduce Advanced Technology.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 finished castings. The Company is 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; (v) equipment for measuring
the nitrogen content of steel, which helps in casting quality improvement; (vi) CNC pattern making; (vii) new die casting machines; and (viii) automated testing cells using
resonate testing. ACC is one of the few foundry companies that use 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 Foundry 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. In addition, the Company has transferred a portion of the
work from operations that have been closed to other operations of the Company.

8

---

Achieve Purchasing Economies.ACC makes its volume purchasing programs available to its foundries. ACC has realized
meaningful cost savings by achieving purchasing efficiencies for its foundries.

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 to add technical, marketing or production experience, if needed.

Industry Trends

The American Foundry Society estimates that global casting production was 64.8 million metric tons in 2000 of which steel castings accounted for
approximately 6.4 million tons, iron castings for approximately 48.1 million tons and nonferrous castings for approximately 10.3 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 20% of the world market.

The
U.S. casting industry is estimated to have had shipments of approximately 13.1 million tons in 2000, of which steel castings accounted for approximately 1.2 million
tons, iron castings for approximately 9.2 million tons and non-ferrous castings for approximately 2.7 million tons. Metal casting shipments are forecast to grow at an annual
rate of 1.6% to 16.0 million tons by 2010. The Company has been able to
grow principally as a result of its strategy and due to key trends affecting the casting industry, including the following:



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 350 and 650 steel and iron foundries, respectively, in 2000. 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, Arvin Meritor (formerly Rockwell International), Ingersoll-Dresser, Gardner Denver, 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.

9

---



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 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 Corus (formerly
British Steel) and Nucor, among others. Sheffield Forgemasters Rolls Limited ("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 approximately 18.5%, 20.2% and 23.4% of the Company's net sales in fiscal 2000, fiscal 2001 and fiscal 2002 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, Arvin Meritor
(formerly Rockwell International), Gardner Denver, John Deere, Komatsu and Euclid, among others. Products supplied to the mining and construction industry accounted for approximately 16.5%, 15.9% and
17.3% of the Company's net sales in fiscal 2000, fiscal 2001 and fiscal 2002, 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 Inverness Castings Group, Inc. ("Inverness") in Dowagiac, Michigan. Customers in this market include General Motors and DaimlerChrysler, among others. Products
supplied to the automotive industry accounted for approximately 8.9%, 8.7% and 12.1% of the Company's net sales in fiscal 2000, fiscal 2001 and fiscal 2002, respectively.

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, Rolls Royce, Hydril, Solar Turbines, Nordstrom,
Flowserve and Amclyde are among the Company's many energy-related customers. Products supplied to the energy

10

---

industry accounted for approximately 6.7%, 8.5% and 10.3% of the Company's net sales in fiscal 2000, fiscal 2001 and fiscal 2002, 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 Atchison Steel Casting & Machining for over 60 years. The Company further penetrated this market through the
purchase of London Precision. Rail products produced by the Company accounted for approximately 10.5%, 10.9% and 9.4% of the Company's net sales in fiscal 2000, fiscal 2001 and fiscal 2002,
respectively.

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 Siemens Westinghouse, General Electric, Solar Turbines, GEC-Alsthom, Sulzer, Kvaerner, Goulds
Pumps and Neles Controls.

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 casts components used
in subway cars in several cities, including New York City, which is the largest user of subway cars in North America.

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 capabilities of Sheffield have allowed ACC to bid on a wider range of work for the U.S. Navy. 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, SEI, 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, Argo and New Holland.

Other.Other markets include process equipment such as rubber mixers, plastic extruders, dough mixers, machine tools and a
variety of general industrial applications.

For
financial information about geographic areas, see Note 19 to the 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 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.

11

---

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, 2002, the Company's backlog was approximately $189.7 million, as compared to backlog of approximately $206.8 million at June 30, 2001. The backlog is
scheduled for delivery in fiscal 2003 except for approximately $50.9 million, of which $43.7million is scheduled for delivery in fiscal 2004. 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 metal casters and machine shops 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.

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.

12

---

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 stirring 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.

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

13

---

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 Atchison Steel Casting & Machining, 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 specializes 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 Foundry, Inc. ("Prospect"). ACC's presence in ductile iron was increased through the subsequent purchase of The G&C Foundry Company ("G&C").

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.

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. 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 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.

14

---

Capacity Utilization.The following table shows the type and the approximate amount of available
capacity, in tons, for each
operating 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 less complex 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.

|Manufacturing Unit                         |        | Metals Cast or Forged                                        |  | Major Applications                                                                   |  | Estimated*
Annual
Capacity
in Net Tons |         | Tons
Shipped
12 Months
Ended
June 30,
2002 |         | Estimated*
Capacity
Utilization |     
|------------------------------------------ | ------ | ------------------------------------------------------------ |  | ------------------------------------------------------------------------------------ |  | -------------------------------------- | ------- | ------------------------------------------ | ------- | ------------------------------- | ----
|Atchison Steel Casting & Machining         |        | Carbon, low alloy and stainless steel                        |  | Mining and construction, rail, military, valve, turbine and compressor               |  | 36,000                                 |         | 22,694                                     |         | 63.0                            | %   
|Amite                                      |        | Carbon and low alloy steel                                   |  | Marine, mining and construction                                                      |  | 10.500                                 |         | 4,367                                      |         | 41.6                            | %   
|Prospect                                   |        | Gray and ductile iron                                        |  | Construction, agricultural, trucking, hydraulic, power transmission and machine tool |  | 12,500                                 |         | 6,097                                      |         | 48.8                            | %   
|Quaker Alloy                               |        | Carbon, low alloy and stainless steel                        |  | Pump and valve                                                                       |  | 6,000                                  |         | 2,534                                      |         | 42.2                            | %   
|Canadian Steel                             |        | Carbon, low alloy and stainless steel                        |  | Hydroelectric and steel mill                                                         |  | 4,500                                  |         | 2,861                                      |         | 63.6                            | %   
|Kramer                                     |        | Carbon, low alloy and stainless steel, gray and ductile iron |  | Pump impellers and casings                                                           |  | 1,450                                  |         | 805                                        |         | 55.5                            | %   
|G&C                                        |        | Gray and ductile iron                                        |  | Fluid power (hydraulic control valves)                                               |  | 12,000                                 |         | 8,688                                      |         | 72.4                            | %   
|Canada Alloy                               |        | Carbon, low alloy and stainless steel                        |  | Power generation, pulp and paper machinery, pump and valve                           |  | 3,000                                  |         | 2,450                                      |         | 81.7                            | %   
|Inverness                                  |        | Aluminum                                                     |  | Automotive, furniture and appliances                                                 |  | 12,500                                 |         | 9,422                                      |         | 75.4                            | %   
|Forgemasters Rolls                         |        | Iron and Steel                                               |  | Steel and aluminum rolling                                                           |  | 31,000                                 |         | 24,227                                     |         | 78.2                            | %   
|Sheffield Forgemasters Engineering Limited |        | Iron and Steel                                               |  | Oil and gas, ingot, petrochemical, power generation                                  |  | 88,200                                 |         | 64,699                                     |         | 73.4                            | %   
|                                           |        |                                                              |  |                                                                                      |  |                                        |         |                                            |         |                                 |     
|                                           | Totals |                                                              |  |                                                                                      |  |                                        | 217,650 |                                            | 148,844 |                                 | 68.4
|                                           |        |                                                              |  |                                                                                      |  |                                        |         |                                            |         |                                 |     

|Manufacturing Unit |        | Metals Machined                                       |  | Major Applications                                                     |  | Estimated*
Annual
Machining
Hours |         | Machining
Hours
12 Months
Ended
June 30,
2002 |         | Estimated*
Capacity
Utilization |     
|------------------ | ------ | ----------------------------------------------------- |  | ---------------------------------------------------------------------- |  | --------------------------------- | ------- | --------------------------------------------- | ------- | ------------------------------- | ----
|London Precision   |        | Carbon, low alloy, stainless steel, iron and aluminum |  | Mining and construction, rail, military, valve, turbine and compressor |  | 170,000                           |         | 141,926                                       |         | 83.5                            | %   
|                   |        |                                                       |  |                                                                        |  |                                   |         |                                               |         |                                 |     
|                   | Totals |                                                       |  |                                                                        |  |                                   | 170,000 |                                               | 141,926 |                                 | 83.5
|                   |        |                                                       |  |                                                                        |  |                                   |         |                                               |         |                                 |     

---

15

---



16

---



|Manufacturing Unit                         |  | Name of Principal Union                                                     |  | Effective Date      |  | Date of
Expiration               |  | Approximate
Number of
Members (As
of 6/30/02)
|------------------------------------------ |  | --------------------------------------------------------------------------- |  | ------------------- |  | -------------------------------- |  | ---------------------------------------------
|Atchison Steel Casting & Machining         |  | United Steelworkers of America, Local 6943                                  |  | 05/12/02            |  | 05/13/05                         |  | 360                                          
|Prospect                                   |  | Glass, Molders, Pottery, Plastics & Allied Workers International, Local 63B |  | 08/31/00            |  | 06/30/03                         |  | 144                                          
|Quaker Alloy                               |  | United Steelworkers of America, Local 7274                                  |  | 05/15/99            |  | 07/15/03                         |  | 185                                          
|Canadian Steel                             |  | Metallurgistes Unis d'Amerique, Local 6859                                  |  | 02/12/01            |  | 02/14/04                         |  | 79                                           
|Kramer                                     |  | United Steelworkers of
America, Local 1343                                  |  | 07/29/00            |  | 07/29/03                         |  | 81                                           
|G&C                                        |  | United Electrical, Radio and Machine Workers of America, Local 714          |  | 07/01/01            |  | 06/30/04                         |  | 120                                          
|Canada Alloy                               |  | United Steelworkers of America, Local 5699                                  |  | 04/04/02            |  | 04/03/05                         |  | 106                                          
|Inverness                                  |  | United Paperworker's International, Local 7363                              |  | 04/20/01            |  | 08/06/04                         |  | 215                                          
|Sheffield Forgemasters Engineering Limited |  | Steel and Industrial Managers Association                                   |  | 02/01/02            |  | 01/31/03                         |  | 4                                            
|                                           |  | Iron and Steel Trades Confederation                                         |  | 02/01/02            |  | 01/31/03                         |  | 62                                           
|                                           |  | Electrical Engineering and Plumbing Trades Union                            |  | 02/01/02            |  | 01/31/03                         |  | 17                                           
|                                           |  | Manufacturing Science and Finance                                           |  | 02/01/02            |  | 01/31/03                         |  | 26                                           
|                                           |  | Trades Associated to Steel and Sheetmakers                                  |  | 02/01/02            |  | 01/31/03                         |  | 4                                            
|                                           |  | Association of Professional and Executive Staff                             |  | 02/01/02            |  | 01/31/03                         |  | 6                                            
|                                           |  | General Municipal and Boilermakers                                          |  | 02/01/02            |  | 01/31/03                         |  | 6                                            
|                                           |  | Allied Engineering and Electrical Union                                     |  | 02/01/02            |  | 01/31/03                         |  | 149                                          
|                                           |  | Transport and General Workers Union                                         |  | 02/01/02            |  | 01/31/03                         |  | 10                                           
|                                           |  | Union of Construction, allied Trades and Technicians                        |  | 02/01/02            |  | 01/31/03                         |  | 4                                            
|Forgemasters Rolls                         |  | Amalgamated Engineering and Electrical Union
Sheffield
Crewe
Coatbridge  |  | 01/01/01

01/01/02 |  | 12/31/02
In negotiation
12/31/03 |  | 81
194
49                                    
|                                           |  | Iron and Steel Trades Confederation
Sheffield                               |  | 01/01/01            |  | 12/31/02                         |  | 9                                            
|                                           |  | General and Municipal Workers Union
Sheffield                              |  | 01/01/01            |  | 12/31/02                         |  | 1                                            
|                                           |  | Transport and General Workers Union
Sheffield                              |  | 01/01/01            |  | 12/31/02                         |  | 2                                            
|                                           |  | Manufacturing Science and Finance
Crewe
Sheffield                         |  | 08/01/02
01/01/01   |  | 07/31/03
12/31/02                |  | 17
10                                        
|London Precision                           |  | United Steelworkers of America, Local 2699                                  |  | 8/31/00             |  | 8/31/04                          |  | 81                                           

17

---



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                                             
|----------------------- |  | --- |  | ----------------------------------------------------------------------
|Thomas K. Armstrong, Jr |  | 48  |  | Chairman of the Board, President, Chief Executive Officer and Director
|Hugh H. Aiken           |  | 58  |  | Vice President and Director                                           
|Kevin T. McDermed       |  | 42  |  | Vice President, Chief Financial Officer, Treasurer and Secretary      
|John R. Kujawa          |  | 49  |  | Vice PresidentLarge Steel Castings                                   
|James Stott             |  | 61  |  | Vice President                                                        

Thomas K. Armstrong, Jr.has been the Chairman of the Board, President, Chief Executive Officer and a Director since
May 2002. From March 1999 to May 2002, Mr. Armstrong served as Chief Operating OfficerNorth America. Mr. Armstrong was appointed as a Director in
December 2001. From 1987 to 1999, Mr. Armstrong served as President of Texas Steel Co., a wholly owned subsidiary of Citation Corp.
From 1979 to 1986, Mr. Armstrong held positions of Executive Vice President, Information Systems and Engineering Manager at Texas Steel. 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.

Hugh H. Aikenhas been Vice President and Director since May 2002. From June 1991 to May 2002,
Mr. Aiken served as Chairman of the Board, President, Chief Executive Officer and a Director. 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.

Kevin T. McDermedhas 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.

John R. Kujawahas been Vice PresidentLarge Steel Castings since August 1999. Prior to this he was 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.

James Stottnb]1998. He served as 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.

18

---

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. In fiscal 2002, warranty costs amounted to less than two 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 to 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, respectively. The Company believes that it is in material
compliance with applicable environmental laws and regulations, other than violations or citations, the resolution of which would not have a material adverse effect on the Company's financial condition
and results of operations.

A
Phase I environmental assessment of each of the Company's facilities has been performed, and no significant or widespread contamination was identified at any Company facility that
would have 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 foundry
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. Groundwater testing confirmed that solvent and metals contamination is migrating off of a property owned by Inverness. Current estimates
suggest that corrective action costs could be in excess of $400,000.

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 has and will incur additional capital and operating costs to comply with additional regulations that are in the process of being promulgated under the Clean Air Act Amendments of 1990. 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. Nonhazardous
foundry dust waste is then disposed of in landfills, some of which are owned by the Company. No other parties are permitted to use the Company's landfills, which have operated in material compliance
with applicable regulations
to the Company's knowledge. Costs associated with the future closure of the landfills according to regulatory requirements could be material. In the event a foundry generates waste that is identified
as hazardous, then a hazardous waste permit is obtained and the Company complies in all material respects with its provisions for the collection, storage and disposal of hazardous waste.

19

---

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.

The
Company continues to evaluate its manufacturing processes and equipment 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.

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.

|Name                      |  | Location                                              |  | Principal Use                                  |  | Floor Space in Sq. Feet
|------------------------- |  | ----------------------------------------------------- |  | ---------------------------------------------- |  | -----------------------
|Corporate Office          |  | Atchison, KS                                          |  | Offices                                        |  | 3,907                  
|Atchison Foundry          |  | Atchison, KS                                          |  | Steel foundry                                  |  | 418,581                
|Atchison Pattern Storage  |  | Atchison, KS                                          |  | Pattern storage                                |  | 132,848                
|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 shop                 |  | 345,000                
|Prospect                  |  | Minneapolis, MN                                       |  | Iron foundry                                   |  | 133,000                
|Quaker Alloy              |  | Myerstown, PA                                         |  | Steel foundry & landfill for foundry sand      |  | 301,000                
|Canadian Steel            |  | Montreal, Quebec                                      |  | Steel foundry                                  |  | 455,335                
|Kramer                    |  | Milwaukee, WI                                         |  | Steel foundry                                  |  | 38,000                 
|Empire                    |  | Reading, PA                                           |  | Steel foundry (currently closed)               |  | 177,000                
|G & C                     |  | Sandusky, OH                                          |  | Iron foundry                                   |  | 111,000                
|Canada Alloy              |  | Kitchener, Ontario                                    |  | Steel foundry                                  |  | 83,000                 
|Inverness                 |  | Dowagiac, MI                                          |  | Aluminum die casting                           |  | 210,900                
|Forgemasters Rolls        |  | Sheffield and Crewe, England and Coatbridge, Scotland |  | Iron and steel foundry and machine shop        |  | 694,306                
|Forgemasters Engineering  |  | Sheffield, England                                    |  | Iron and steel foundry, forge and machine shop |  | 1,181,277              
|London Precision          |  | London, Ontario                                       |  | Machine Shop                                   |  | 63,000                 

20

---



ITEM 3. LEGAL PROCEEDINGS

An accident, involving an explosion and fire, occurred on February 25, 1999, at Jahn Foundry, located in Springfield, Massachusetts. Nine employees were
seriously injured and there were three fatalities. The damage was confined to the shell molding area and boiler room. The other areas of the foundry remained operational. Molds were being produced at
other foundries, as well as Jahn Foundry, while repairs were made. The new shell molding department became operational in November 2000.

The
Company carried insurance for property and casualty damages (over $475 million of coverage), business interruption (approximately $115 million of coverage), general
liability ($51 million of coverage) and workers' compensation (up to full statutory liability) for itself and its subsidiaries. The Company recorded charges of $750,000 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 and cash flows.

In
November 2000, the Company and its insurance carrier settled the Jahn Foundry property portion of the Company's claim. The settlement provided, among other things, for
(i) additional payments from the carrier in the amount of $2.6 million, (ii) that of the payments received to date, totaling $26.8 million, the insurance carrier will
allocate no more than $9.5 million for property damage, (iii) that the remaining proceeds of $17.3 millionwill be allocated to business interruption losses and will not be subject
to recovery by the insurance carrier and (iv) that the Company shall not be entitled to any additional payments unless it is determined by reference, appraisal, arbitration, litigation or
otherwise that the Company's business interruption losses exceed $17.3 million. The Company disagrees with the insurance carrier regarding the duration and amount of the business interruption
losses. The Company plans to seek additional insurance payments through arbitration. There can be no assurance that the Company will ultimately receive any additional insurance payments for business
interruption losses.

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

On
February 26, 2001, Borden filed a Third Party Complaint against the Company seeking contribution, under Massachusetts law, from the Company in the event that the plaintiffs
prevail against Borden. The Third Party Complaint alleges that the Company undertook a duty to oversee industrial hygiene, safety and maintenance at Jahn Foundry and that the Company designed,
installed and maintained equipment and machinery at Jahn Foundry, and that the Company's carelessness, negligence or gross negligence caused the explosion and resulting injuries. It is too early to
assess the potential liability for such a claim, which in any event the Company will aggressively defend.

On
March 30, 2001, the plaintiffs amended their complaint by adding the Company as a third party defendant. The plaintiffs allege that the Company undertook a duty to oversee
industrial hygiene, safety and maintenance at Jahn Foundry and that the Company's carelessness, negligence or gross

21

---

negligence caused the explosion and resulting injuries. The plaintiffs seek an unspecified amount of damages and punitive damages. It is too early to assess the potential liability to the Company for
such claims, which in any event the Company will aggressively defend. The Company has filed a cross-claim for contribution against Borden and J.R. Oldhan Company.

There
can be no assurance that the Company's ultimate liability with respect to this litigation arising out of the industrial accident at Jahn Foundry will not be material to its
financial condition, results of operations or cash flows.

The
Company, its chief executive officer, and its chief financial officer were named as defendants in five lawsuits filed following the Company's announcements concerning the discovery
of accounting irregularities at the Pennsylvania Foundry Group. The cases were consolidated before the U.S. District Court for the District of Kansas. An amended complaint filed after the
consolidation alleged, among other things, that the defendants intentionally or recklessly issued materially false and misleading financial statements in violation of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. That complaint sought certification of a class of purchasers of the Company's common stock between
December 10, 1997 and November 3, 2000 and asked for damages for the class in an unspecified amount. An agreement was reached to settle the case. The settlement called for the
establishment of a settlement fund consisting of $1.8 million, which has been paid by the Company's insurance carrier. All claims were dismissed without any admission of liability or
wrongdoing.

The
Company understands that on or about November 29, 2000 the Securities and Exchange Commission issued a formal order of investigation as a result of the events underlying the
Company's
earlier disclosure of certain accounting irregularities. The Company is cooperating with the investigation.

The
Company filed a complaint against Deloitte and Touche LLP ("Deloitte"), its former auditor and consultant, on July 26, 2002 in the Court of Common Pleas, Philadelphia County,
Pennsylvania for negligence, professional malpractice, negligent misrepresentation, and breach of contract. The Company engaged Deloitte to audit its consolidated financial statements for the fiscal
years 1996 through 2000, and late in 1999 engaged Deloitte to conduct an internal auditing project for the Company that involved, among other things, reviewing the Company's internal control
processes. The Company believes that Deloitte breached its duties in performing such services by failing to act with reasonable and ordinary care, with the ordinary skill and diligence of the
accounting profession, and in conformity with professional standards such as generally accepted auditing standards and generally accepted accounting principles. The Company also believes that had
Deloitte acted with the proper care, skill and diligence, the improprieties of two former officers of the Pennsylvania Foundry Group ("PFG"), who have pled guilty to federal criminal offenses, the
operating losses at PFG and the embezzlement of funds would have been discovered. The Company is seeking tens of millions of dollars in compensatory and punitive damages, and such other relief as the
Court deems necessary. There can be no assurance that the Company will be successful in this litigation or, if it is, that the damages awarded will be in the amount requested by the Company.

On
September 13, 2002, Deloitte filed its answer to the Company's complaint, and also filed a counterclaim against the Company alleging fraud, aiding and abetting fraud, negligent
misrepresentation, breach of contract, and breach of the covenant of good faith and fair dealing. Deloitte alleges that the Company was aware of information related to the improper activities of the
PFG officers and PFG employees and failed to disclose such information to it. Deloitte is seeking compensatory damages (including legal fees and costs associated with litigation), punitive damages and
such other relief as the Court deems necessary. The Company believes that Deloitte's counterclaims have no merit and will vigorously defend itself.

22

---

On
September 24, 2002, Deloitte filed a third party complaint against certain officers and employees of the Company and others alleging fraud, aiding and abetting fraud, negligent
misrepresentation, and contribution. Deloitte alleges, among other things, that the Company's officers and employees withheld material information from it in connection with the actions of the PFG
officers and PFG employees. Deloitte requests compensatory damages (including the amount of any losses that Deloitte sustains as a result of the Company's complaint against Deloitte, plus costs and
attorneys' fees), punitive damages, and such other relief as the Court deems appropriate. The Company believes that Deloitte's claims have no merit and the Company's officers and employees will
vigorously defend themselves.

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

Autun
was initially granted local court approval to continue operating while it prepares a plan of reorganization. Autun was granted a six-month period during which it may
present such a plan. The court appointed administrator tried to sell Autun. After failing to sell Autun, the administrator recommended to the court that Autun be liquidated. On September 19,
2002, the court appointed a liquidator to begin the liquidation of Autun. During the fourth quarter of fiscal 2002, the Company recorded a charge of $567,000 to write off its remaining net investment
in Autun and a charge of $3.5 million relating to the Company's guarantee of Autun's obligations under certain lease agreements. The Company is no longer consolidating Autun's results into its
consolidated financial statements.

As
a result of the court's recent decision to liquidate the assets of Autun, it is estimated that charges for site cleanup could total up to $8 million. Should Autun not be able
to meet the cleanup obligations, the French government might be able to make a claim against the prior owner. The Company guaranteed payment of certain contingent liabilities of up to
100 million French francs (currently US$13.3 million) when it purchased Autun, for the cost of environmental restoration, if any, in the event Autun were closed and a claim was
successfully made against the prior owner. Such amount has not been recorded in the accompanying financial statements. These potential contingent liabilities may adversely impact the Company's ability
to proceed with its plan to achieve its financial objectives if they become liabilities of the Company.

The
Occupational Safety and Health Administration ("OSHA") recently cited the Company for 95 violations of workplace safety laws at its Atchison, Kansas foundry. OSHA found 87 alleged
serious violations and eight lesser violations of rules designed to protect workers' safety and health and proposed a $250,000 penalty. The Company intends to participate in an informal conference
with the OSHA area director or contest the citations before the independent Occupational Safety and Health Review Commission. The Company expects to substantially reduce the proposed penalty, but no
assurance can be given in this regard.

In
addition to these matters, from time to time, the Company is the subject of legal proceedings, including employee matters, commercial matters, environmental matters and similar
claims. There are no other material claims pending. The Company maintains comprehensive general liability insurance, which it believes to be adequate for the continued operation of its business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

NOT APPLICABLE.

23

---

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

PRICE RANGE OF COMMON STOCK

The Common stock was traded on the New York Stock Exchange under the symbol "FDY" from December 12, 1996 until June 25, 2002 when it began trading
on the OTC Bulletin Board under the symbol "AHNC.OB." The following table sets forth the high and low sales prices for the shares of Common stock on the New York Stock Exchange or the OTC Bulletin
Board for the periods indicated.

High

LowFiscal Year Ended June 30, 2001:First Quarter

6.7500

3.0000Second Quarter

4.9375

2.4375Third Quarter

4.0000

2.6250Fourth Quarter

3.2000

2.2500Fiscal Year Ended June 30, 2002:First Quarter

4.0500

2.5200Second Quarter

3.2400

1.0200Third Quarter

2.3400

1.2700Fourth Quarter

1.6000

0.0500Fiscal Year Ending June 30, 2003:First Quarter

0.3500

0.2300Second Quarter (through October 10, 2002)

0.3500

0.1800


As
of October 10, 2002, 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 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 10 to the consolidated financial statements.

UNREGISTERED SECURITIES TRANSACTIONS

In lieu of cash compensation for services rendered in their capacity as Directors of the Company, Mr. William Bullard was provided at his election 20,870
shares of common stock at an average price of $0.31 per share purchased between August 6, 2002 and August 8, 2002, and Mr. Michael v.B. Nagel was provided at his election 10,130
shares of common stock at $0.32 per share purchased on August 8, 2002. Such transactions were exempt from registration under the Securities Act of 1993, as amended (the "Act"), pursuant to
Section 4(2) of the Act.

24

---

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 information below should be read in conjunction with the 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.

The
consolidated financial statements of the Company as of June 30, 2001 and 2000 and for each of the years in the three year period ended June 30, 2001 are unaudited. See
Item 1 "GeneralWithdrawal of Prior Audit Report."

|                                                                                                            |                                        | Fiscal Year Ended June 30,                                                 |        
|----------------------------------------------------------------------------------------------------------- | -------------------------------------- | -------------------------------------------------------------------------- | -------
|
|
|
|Statement of Operations Data:                                                                               |                                        |                                                                            |        
|Net Sales                                                                                                   |                                        | $                                                                          | 373,107
|Cost of Sales                                                                                               |                                        |                                                                            | 322,002
|                                                                                                            |                                        |                                                                            |        
|                                                                                                            |                                        | Gross Profit                                                               |        
|                                                                                                            | Operating Expenses:                    |                                                                            |        
|                                                                                                            |                                        | Selling, General & Administrative                                          |        
|                                                                                                            |                                        | Impairment and Restructuring Charges                                       |        
|                                                                                                            |                                        | Amortization of Intangibles                                                |        
|                                                                                                            |                                        | Other Income                                                               |        
|                                                                                                            |                                        |                                                                            |        
|Operating Income (Loss)                                                                                     |                                        |                                                                            | 21,409 
|Interest Expense                                                                                            |                                        |                                                                            | 3,896  
|Minority Interest in Net Income (Loss) of Subsidiaries                                                      |                                        |                                                                            | 448    
|                                                                                                            |                                        |                                                                            |        
|                                                                                                            |                                        | Income (Loss) Before Taxes                                                 |        
|Income Taxes (Benefit)                                                                                      |                                        |                                                                            | 6,823  
|                                                                                                            |                                        |                                                                            |        
|                                                                                                            |                                        | Income (Loss) before Cumulative Effect of a change in Accounting Principal |        
|Cumulative Effect on Prior Years of a change in Accounting for Derivative Financial Instruments, net of tax |                                        |                                                                            |       
|                                                                                                            |                                        |                                                                            |        
|                                                                                                            |                                        | Net Income (Loss)                                                          |        
|                                                                                                            |                                        |                                                                            |        
|Earnings (Loss) Per Share:                                                                                  |                                        |                                                                            |        
|                                                                                                            | Basic                                  |                                                                            | $      
|                                                                                                            |                                        |                                                                            |        
|                                                                                                            | Diluted                                |                                                                            | $      
|                                                                                                            |                                        |                                                                            |        
|Weighted Average Number of Common and Equivalent Shares Outstanding                                         |                                        |                                                                            |        
|                                                                                                            | Basic                                  |                                                                            |        
|                                                                                                            | Diluted                                |                                                                            |        
|Supplemental Data:                                                                                          |                                        |                                                                            |        
|                                                                                                            | Depreciation and Amortization          |                                                                            | $      
|                                                                                                            | Capital Expenditures                   |                                                                            |        
|                                                                                                            | Number of Operating Plants at Year End |                                                                            |        

25

---

|                                  |                                | 1998 |   | 1999    |  | 2000 |         | 2001 |   | 2002    | 
|--------------------------------- | ------------------------------ | ---- | - | ------- |  | ---- | ------- | ---- | - | ------- | 
|
|Balance Sheet Data (at year end): |                                |      |   |         |  |      |         |      |   |         | 
|                                  | Working Capital (Deficiency)   |      | $ | 73,755  |  | $    | 78,932  |      | $ | 5,730   | 
|                                  | Total Assets                   |      |   | 340,981 |  |      | 361,114 |      |   | 342,423 | 
|                                  | Long-Term Obligations          |      |   | 87,272  |  |      | 104,607 |      |   | 36,691  | 
|                                  | Total Stockholders' Equity (8) |      |   | 131,864 |  |      | 128,585 |      |   | 114,333 | 

---

26

---



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

Prior to fiscal 2000, the Company pursued an active acquisition program designed to take advantage of consolidation opportunities in the widely fragmented foundry
industry. The Company has acquired nineteen foundries, has closed four foundries, has sold two foundries and has placed one foundry into reorganization since its inception. The Company is currently in
the process of seeking offers on three additional foundries and is downsizing one foundry. The Company did not make any acquisitions in fiscal 2000, 2001 or 2002 and is not currently contemplating any
acquisitions in fiscal 2003. The Company's primary focus in fiscal 2003 will be on the integration and improvement of existing operations and the disposition of certain operations in order to reduce
debt and enter a long-term facility for working capital purposes.

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."

New Business Model

Atchison Casting Corporation was formed in 1991 to make strategic acquisitions in the consolidating foundry industry and to implement new technology in the
foundries acquired. Over the years the Company has grown from approximately $50 million to nearly $400 million in annual sales.

Atchison
has become a world leader in steel castings, provides iron castings of high quality and service for industrial markets, and is growing its position in aluminum
die-castings for the automotive market.

On
June 19, 2002, the Company announced the business model that it intends to use to return to profitability and improve its financial condition.

Three
years of contraction in the capital goods markets, coupled with a number of other unfortunate events, have taken a toll on the Company. Atchison is not alone, as a number of our
competitors have closed. Despite all of this, the Company has an opportunity to not only survive, but to do so profitably and increase market share in the markets it serves.

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



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

27

---

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

While
the Company believes this new business model represents a viable plan to achieve its financial objectives, there are no assurances that such plan can be executed as designed or
that execution thereof will result in achievement of the Company's financial objectives. In addition, the Company's potential contingent liabilities with respect to the Company's subsidiary located in
Autun, France, as described in note 4 to the consolidated financial statements, may adversely impact the Company's ability to proceed with its plan if they become liabilities of the Company.

Fonderie d'Autun

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

Autun
was acquired by the Company on February 25, 1999 at which time Autun specialized in the manufacture of cast iron radiators. The Company's strategy was to restructure the
foundry to make different products, principally automotive and appliance castings. Autun was successful in obtaining new customers and work in these markets. However, start up costs for the new
products and losses with some customers on Autun's historical cast iron radiator business, coupled with the inability to lower employment levels without significant severance costs, resulted in the
need for Autun to file for a plan of reorganization.

Autun
was initially granted local court approval to continue operating while it prepared a plan of reorganization. Autun was granted a six-month period during which it may
present such a plan. The court appointed administrator tried to sell Autun. After failing to sell Autun, the administrator recommended to the court that Autun be liquidated. On September 19,
2002, the court appointed a liquidator to begin the liquidation of Autun. During the fourth quarter of fiscal 2002, the Company recorded a charge of $567,000 to write off its remaining net investment
in Autun and a charge of $3.5 million relating to the Company's guarantee of Autun's obligations under certain lease agreements. The Company is no longer consolidating Autun's results into its
consolidated financial statements.

As
a result of the court's recent decision to liquidate the assets of Autun, it is estimated that charges for site cleanup could total up to $8 million. Should Autun not be able
to meet the cleanup obligations, the French government might be able to make a claim against the prior owner. The Company guaranteed payment of certain contingent liabilities of up to
100 million French francs (currently US$13.3 million) when it purchased Autun, for the cost of environmental restoration, if any, in the event Autun were closed and a claim was
successfully made against the prior owner. Such amount has not been recorded in the accompanying financial statements. These potential contingent liabilities may adversely impact the Company's ability
to proceed with its plan to achieve its financial objectives if they become liabilities of the Company.

For
the first nine months of fiscal 2002, Autun recorded net sales of $13.9 million and a net loss of $1.6 million. For fiscal 2001, Autun recorded net sales of
$17.4 million and a net loss of $88,000.

Solicitation of Offers on Three Subsidiary Operations

The Company is currently soliciting offers for the purchase of three subsidiary operations. ACC is marketing directly or has engaged investment bankers to obtain
offers on the following subsidiaries:



28

---



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

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

Kramer
International, located in Milwaukee, Wisconsin, specializes in the casting of iron, steel and non-ferrous pump impellers. Kramer currently employs approximately 90
people, and generated net sales of approximately $10.3 million in fiscal 2002.

The
G&C Foundry Company, located in Sandusky, Ohio, manufactures gray and ductile iron castings for hydraulic applications. G&C currently employs approximately 150 people, and generated
net sales of approximately $13.6 million in fiscal 2002.

Canada
Alloy, located in Kitchener, Ontario, Canada, manufactures stainless, carbon and alloy castings for a variety of markets. Canada Alloy currently employs approximately 130 people,
and generated net sales of approximately $13.6 million in fiscal 2002.

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.



Net sales for fiscal 2002 were $388.2 million, representing a decrease of $40.0 million, or 9.3%, from net sales of $428.2 million in of
fiscal 2001. Since the beginning of fiscal 2001, Atchison has completed the closure of four operations, the sale of two operations and placed one operation into liquidation. These operations generated
net sales of $64.6 million and $26.7 million in fiscal 2001 and fiscal 2002, respectively, as follows:

Operation

FY01
Net Sales

FY 02
Net SalesClosure of Claremont Foundry, Inc.

$
0.8 million


Closure of PrimeCast, Inc.


14.8 million


0.2 millionClosure of Pennsylvania Steel Foundry & Machine Company


4.9 million


Sale of Jahn Foundry Corp


8.4 million


2.9 millionClosure of Empire Steel Castings, Inc.


10.1 million


5.4 millionSale of Los Angeles Die Casting, Inc.


8.2 million


4.3 millionLiquidation of Fonderie d' Autun


17.4 million


13.9 million$
64.6 million

$
26.7 million


Much
of Pennsylvania Steel Foundry & Machine Company's ("Pennsylvania Steel") and Empire Steel Castings, Inc.'s ("Empire Steel") net sales were transferred to other Company
locations. Empire Steel was closed to commercial work, but does continue to produce one product for the U.S.

29

---

Government on an as-needed basis. As PrimeCast, Inc. ("PrimeCast") was the Company's only foundry that could produce large iron castings, only a portion of PrimeCast's work was
transferred to other operations of the Company. In addition, net sales of LaGrange Foundry Inc. ("LaGrange") decreased $6.4 million, or 30.3%, to $14.7 million in fiscal 2002.
This decrease is a result of reduced sales to LaGrange's largest customer, Gardner Denver Machinery, Inc. ("Gardner Denver").

Gross
profit for fiscal 2002 decreased $5.0 million, or 17.9%, to $22.9 million, or 5.9% of net sales, compared to $27.9 million, or 6.5% of net sales, for fiscal
2001. The decrease in gross profit and gross profit as a percentage of net sales was primarily due to a change in product mix toward products which have a lower gross profit as a percentage of net
sales. Also affecting gross profits were reduced gross profits at Sheffield Forgemasters Group Limited ("Sheffield"), La Grange and Autun. Partially offsetting these factors was the substantial
elimination of the gross losses incurred at the operations closed or sold since the beginning of fiscal 2001 and a decrease in fuel costs of approximately 3.2 million.

The
gross profit at Sheffield for fiscal 2002 decreased $3.5 million, to a gross profit of $6.2 million, or 5.7% of net sales, compared to a gross profit of
$9.7 million, or 9.0% of net sales, in fiscal 2001, primarily reflecting the impact of the strong British pound and the competitive environment of the markets served by Sheffield on quoted
margins. The gross profit at LaGrange in fiscal 2002 decreased $3.7 million, to a gross loss of $2.0 million, or 13.6% of net sales, compared to a gross profit of $1.7 million, or
8.0% of net sales, in fiscal 2001, reflecting the lower absorption of overhead resulting from reduced volumes from LaGrange's primary customer, Gardner Denver. The Company is in the process of
downsizing LaGrange. Reflecting the high start-up costs on new products and losses on some historical cast iron radiator business, the gross loss at Autun for the first nine months of
fiscal 2002 was $145,000, or 1.0% of net sales, compared to a gross profit of $813,000, or 4.7% of net sales, for fiscal 2001. Offsetting these factors was a decrease in the gross losses at Claremont
Foundry Inc. ("Claremont"), PrimeCast, Pennsylvania Steel, Empire Steel and Jahn Foundry, Corp. ("Jahn Foundry") by an aggregate of $9.4 million from the gross losses at these locations
in fiscal 2001.

During
fiscal 2002, the Company's reserve for warranty expense decreased to $8.0 million at June 30, 2002 from $9.0 million at June 30, 2001. The decrease in
the warranty reserve during fiscal 2002 primarily related to the Company's Sheffield subsidiary located in the United Kingdom. The Company maintains reserves for warranty charges based on specific
claims made by customers, for which management estimates a final settlement of the claim, and for expected claims not yet received. The estimate for claims not yet received is based on historical
results and is estimated monthly. During fiscal 2002, the Company's warranty reserve requirement declined primarily due to better than expected results relative to the historical estimates for cast
back-up rolls.

During
fiscal 2002, the Company's reserve for workers' compensation and employee health care increased to $5.9 million at June 30, 2002 from $4.0 million at
June 30, 2001. Workers' compensation and employee health care expense was $16.4 million for fiscal 2002, compared to $16.8 million in fiscal 2001. The increase in the reserve for
workers' compensation and employee health care primarily reflects changes in the amount and timing of actual payments.

Selling,
general and administrative expense ("SG&A") for fiscal 2002 was $37.9 million, or 9.8% of net sales, compared to $44.2 million, or 10.3% of net sales, in fiscal
2001. The reduction in SG&A expense is primarily due to reductions in staffing and related benefits, the reduction in SG&A expense at the facilities the Company has closed or sold since the beginning
of fiscal 2001 and the inclusion in fiscal 2001 of expenses relating to the investigation of the accounting irregularities at the Company's Pennsylvania Foundry Group of operations. SG&A expenses in
fiscal 2002 at Claremont, PrimeCast, Pennsylvania Steel, Empire Steel, Jahn Foundry and Los Angeles Die Casting Inc. ("LA Die Casting") decreased by an aggregate of $3.0 million from
SG&A expenses in fiscal 2001. Included in fiscal 2001 were expenses of approximately $800,000 relating to the investigation of the accounting irregularities at

30

---

the Pennsylvania Foundry Group. Also included in fiscal 2001 and fiscal 2002 were expenses of approximately $1.3 million and $1.7 million, respectively, incurred by the Company in
pursuing various options to refinance its bank credit facility. Partially offsetting these factors was a charge of $567,000 included in the fourth quarter of fiscal 2002 to write off the Company's net
investment in Autun and a charge of approximately $3.5 million in the fourth quarter of fiscal 2002 relating to the Company's guarantee of Autun's obligations under certain lease agreements.

Amortization
of certain intangibles for fiscal 2002 was $1.2 million, or 0.3% of net sales, compared to $1.4 million, or 0.3% of net sales, in fiscal 2001. The intangible
assets consist of goodwill recorded in connection with certain of the Company's acquisitions. The Company has also recorded a liability, consisting of the excess of acquired net assets over cost
("negative goodwill"), in connection with the acquisition of Autun. The amortization of negative goodwill was a credit to income in fiscal 2002 of $1.2 million, or 0.3% of net sales, as
compared to $1.6 million, or 0.4% of net sales, in fiscal 2001.

Impairment
and restructuring charges for fiscal 2002 were $9.2 million, consisting of a $5.2 million fixed asset impairment charge relating to the Company's downsizing of
La Grange Foundry, a charge of $567,000 to write off the Company's remaining net investment in Autun and a charge of approximately $3.5 million relating to the Company's guarantee of Autun's
obligations under certain lease agreements (See Fonderie d'Autun above). Following losses in fiscal 2002, in September 2002 the Company's Board
of Directors committed to a plan to downsize La Grange Foundry to a pattern repair, maintenance and storage operation. Accordingly, the carrying amounts of La Grange Foundry's fixed assets were
written down to the Company's estimate of fair value, which was based on discounted future cash flows. The resulting impairment charge of $5.2 million to reduce the carrying amount of these
fixed assets was recorded in the fourth quarter ended June 30, 2002. Actual results could vary significantly from such estimates. Prior to the impairment charge, these assets had a carrying
amount of $5.9 million. The Company plans to complete the downsizing of La Grange Foundry during the second quarter of fiscal 2003. The Company will terminate approximately 125 employees and
will recognize a charge for severance benefits of approximately $50,000 in the quarter ended December 31, 2002.

Impairment
charges for fiscal 2001 were $18.1 million, which consisted of a $1.6 million fixed asset impairment charge relating to the Company's closure of Empire Steel, a
$13.9 million fixed asset impairment charge relating to the sale of Jahn Foundry, and a $2.7 million intangible asset impairment charge relating to the Company's sale of LA Die Casting.

The
Company substantially completed the closure of Empire by December 31, 2001, and transferred as much work as possible to other locations. Empire was closed as to commercial
work, but continues to produce one product for the U.S. Government on an as-needed basis. For fiscal 2001 and 2002, Empire recorded net sales of $10.1 million and
$5.4 million, respectively, and net losses of $2.6 million and $1.2 million, respectively. The Company terminated approximately 106 employees at Empire and recognized a charge for
severance benefits of approximately $50,000 in fiscal 2002.

On
December 20, 2001, the Company completed the sale of substantially all of the net assets of Jahn Foundry. After post-closing adjustments, the Company received
approximately $300,000 cash, a minority ownership position in the buyer valued at $325,000 and a note (bearing interest at 6.0% per year) for the principal amount of $475,000 amortizing over ten years
in exchange for assets and the assumption of liabilities by the buyer. The Company recognized a loss on the sale of approximately $40,000. For fiscal 2001, Jahn Foundry recorded a net loss of
$2.4 million, excluding a non-recurring gain of $10.9 million recorded in the second quarter relating to insurance claims resulting from an industrial accident at Jahn
Foundry on February 25, 1999, on sales of $8.4 million. For fiscal 2002, Jahn Foundry recorded a net loss of $1.4 million on sales of $2.9 million.

On
February 20, 2002, the Company completed the sale of substantially all of the net assets of LA Die Casting. After post-closing adjustments, the Company received
approximately $3.5 million in cash and a note for the principal amount of $259,000 due in two years in exchange for assets and the

31

---

assumption of liabilities by the buyer. The note bears interest only during the two-year period. The Company recognized a loss on the sale of approximately $169,000. For fiscal 2001 and
2002, LA Die Casting recorded net sales of $8.2 million and $4.3 million, respectively, and a net income (loss) of $61,000 and $(218,000), respectively.

Other
income for fiscal 2001 primarily consisted of $10.9 million of non-recurring gains relating to the Jahn Foundry industrial accident, which occurred in 1999. This
gain consisted of a $3.7 million business interruption insurance gain and a $7.2 million property insurance gain. The property insurance gain primarily represents the difference between
the net proceeds received for the property damage and the property's net book value immediately before the accident (See Note 22 to the consolidated financial statements). See Liquidity and
Capital Resources.

Interest
expense for fiscal 2002 decreased to $10.8 million, or 2.8% of net sales, from $11.3 million, or 2.6% of net sales, in fiscal 2001. The decrease in interest
expense primarily reflects lower average interest rates.

The
Company recorded an income tax benefit of $7.0 million in fiscal 2002. Due to the Company's current income tax position, no income tax benefit was recorded in connection with
the losses incurred or in connection with the fixed asset impairment charge recorded in fiscal 2002. However, as a result of a tax law change enacted in March 2002, the Company was able to
carry back its prior period net operating losses an additional three years. This resulted in an income tax refund of approximately $5.5 million relating to such prior period losses and a
projected income tax refund of approximately $1.6 million with respect to losses incurred during fiscal 2002, which was recorded in the third quarter of fiscal 2002. Income tax expense of
$1.9 million was recorded in fiscal 2001. Due to the Company's income tax position, no income tax benefit was recorded in connection with the fixed asset impairment charges recorded in fiscal
2001. In addition, the Company recorded a $6.1 million valuation allowance related to certain foreign net operating loss carryforward. This valuation allowance reduces the deferred tax assets
to the amounts that management believes are more likely than not to be realized. The Company's income tax expense and benefit reflect the combined effective tax rates of the different federal, state
and provincial 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, the net loss decreased to $28.1 million in fiscal 2002 from a net loss of $37.0 million in fiscal 2001.



Net sales for fiscal 2001 were $428.2 million, representing a decrease of $32.9 million, or 7.1%, from net sales of $461.1 million in fiscal
2000. This 7.1% decrease in net sales was due primarily to decreases in net sales to the offshore oil and gas, military, mining, automotive and power generation markets. Net sales of Sheffield for
fiscal 2001 decreased $6.6 million from net sales in fiscal 2000. In addition to the weak market conditions, net sales have also been impacted by the bankruptcy and subsequent cessation of
operations of a major customer at the Company's PrimeCast, subsidiary. Through fiscal 2000, PrimeCast aggressively worked at replacing the volume lost from Beloit Corporation ("Beloit"), which filed
for bankruptcy in June 1999. During February 2000, Beloit was sold at auction, in parts, and as a result, the plants to which PrimeCast supplied castings subsequently ceased operations.
For fiscal 2001, PrimeCast's net sales decreased $9.7 million from net sales in fiscal 2000. In addition, the Company
closed Claremont in November 2000. Claremont's net sales for fiscal 2001 decreased $3.1 million from net sales in fiscal 2000.

Gross
profit for fiscal 2001 decreased by $13.9 million, or 33.3%, to $27.9 million, or 6.5% of net sales, compared to $41.8 million, or 9.1% of net sales, for
fiscal 2000. The decrease in gross profit and gross profit as a percentage of net sales was primarily due to lower net sales and reduced absorption of overhead at the Company's subsidiaries which
primarily serve the mining, offshore oil and gas,

32

---

automotive, power generation and military markets. In addition, increased fuel costs decreased gross profit by approximately $7.0 million in fiscal 2001 compared to fiscal 2000.

Gross
profit at Jahn Foundry in fiscal 2001 decreased $4.5 million, to a gross loss of $3.3 million, or 39.4% of net sales, compared to a gross profit of
$1.2 million, or 11.2% of net sales, in fiscal 2000. The negative impact to gross profits primarily resulted from the industrial accident in February 1999 that shut down the shell mold
department until the second quarter of fiscal 2001.

The
loss of Beloit as a major customer also had a negative effect on gross profit. PrimeCast's gross profit for fiscal 2001 decreased by $3.8 million to a gross loss of
$4.3 million, compared to a gross loss of $582,000 for fiscal 2000. The Company completed the closure of PrimeCast by March 31, 2001. As PrimeCast was the Company's only foundry that
could produce large iron castings, only a portion of PrimeCast's work was transferred to other operations of the Company.

During
fiscal 2001, the Company's reserve for warranty expense decreased to $9.0 million at June 30, 2001 from $9.8 million at June 30, 2000. The decrease in
the warranty reserve during fiscal 2001 primarily related to the Company's Sheffield subsidiary located in the United Kingdom. The Company maintains reserves for warranty charges based on specific
claims made by customers, for which management estimates a final settlement of the claim, and for expected claims not yet received. The estimate for claims not yet received is based on historical
results and is estimated monthly. During fiscal 2001, the Company's warranty reserve requirement declined primarily due to better than expected results relative to the historical estimates for cast
back-up rolls.

During
fiscal 2001, the Company's reserve for workers' compensation and employee health care increased to $4.0 million at June 30, 2001 from $3.8 million at
June 30, 2000. Workers' compensation and employee health care expense was $16.8 million for fiscal 2001, compared to $17.4 million in fiscal 2000. The increase in the reserve for
workers' compensation and employee health care primarily reflects changes in the amount and timing of actual payments.

Selling,
general and administrative expense ("SG&A") for fiscal 2001 was $44.2 million, or 10.3% of net sales, compared to $44.5 million, or 9.7% of net sales, in fiscal
2000. The increase in SG&A expense as a percentage of net sales is primarily due to the decrease in net sales. Included in SG&A in fiscal 2001
were expenses of approximately $1.3 million relating to fees and audit and appraisal expenses incurred by the Company in pursuing various options to refinance its bank credit facility. Also
included in fiscal 2001 were expenses of approximately $800,000, relating to the investigation of the accounting irregularities at the Company's Pennsylvania Foundry Group of operations.

Amortization
of certain intangibles for fiscal 2001 was $1.4 million, or 0.3% of net sales, compared to $1.5 million, or 0.3% of net sales, in fiscal 2000. The intangible
assets consist of goodwill recorded in connection with certain of the Company's acquisitions. The Company has also recorded a liability, consisting of the excess of acquired net assets over cost
("negative goodwill"), in connection with the acquisitions of Canadian Steel Foundries Ltd. ("Canadian Steel") and Fonderie d'Autun ("Autun"). The amortization of negative goodwill was a credit
to income in fiscal 2001 of $1.6 million, or 0.4% of net sales, as compared to $1.9 million, or 0.4% of net sales, in fiscal 2000. The liability recorded in connection with the
acquisition of Canadian Steel became fully amortized in the second quarter of fiscal 2000.

Impairment
charges for fiscal 2001 were $18.1 million, which consisted of a $1.6 million fixed asset impairment charge relating to the Company's closure of Empire, a
$13.9 million fixed asset impairment charge relating to the sale of Jahn Foundry, and a $2.7 million intangible asset impairment charge relating to the Company's sale of LA Die Casting.

Following
continued losses in fiscal 2001, the Company announced, on August 31, 2001, plans to close Empire. Accordingly, the carrying amounts of Empire Steel's fixed assets were
written down to the Company's estimate of fair value, which was based on discounted future cash flows. The resulting

33

---

impairment charge of $1.6 million to reduce the carrying amount of these fixed assets was recorded in the fourth quarter ended June 30, 2001. Actual results could vary significantly
from such estimates. Prior to the impairment charge, these assets had a carrying amount of $2.6 million. The Company closed Empire Steel by December 31, 2001, and transferred as much
work as possible to other Company locations. The Company terminated approximately 106 employees and recognized a charge for severance benefits of approximately $50,000 in fiscal 2002.

In
the fourth quarter of fiscal 2001, the Company recognized an impairment charge of $2.7 million to write-down the carrying value of the goodwill at LA Die Casting to
the Company's estimate of fair value. The Company considered its decision to realign its operations, resulting in its decision to dispose of LA Die Casting as the primary indicator of impairment.
Prior to the impairment charge, the goodwill had a carrying amount of $3.5 million. For fiscal years 1999, 2000 and 2001, LA Die Casting recorded net sales of $9.6 million,
$9.5 million and $8.2 million, respectively, and net income of $196,000, $280,000 and $61,000, respectively, excluding the impairment charge in the fourth quarter of fiscal 2001. On
February 20, 2002, the Company completed the sale of substantially all of the net assets of LA Die Casting.

In
the fourth quarter of fiscal 2001, the Company recognized an impairment charge of $13.9 million to write-down the carrying amount of the property, plant and
equipment at Jahn Foundry to the Company's estimate of fair value. The Company considered its decision to realign its operations, resulting in its decision to dispose of Jahn Foundry as the primary
indicator of impairment. Prior to the impairment charge, the property, plant and equipment had a carrying amount of $15.9 million. For fiscal years 1999, 2000 and 2001, Jahn Foundry recorded
net sales of $12.0 million, $10.7 million and $8.4 million, respectively, and net income (losses) of $124,000, $(113,000) and $(2.4) million, respectively, excluding the
impairment charge in the fourth quarter of fiscal 2001 and a non-recurring gain of $10.9 million recorded in the second quarter of fiscal 2001 relating to insurance claims resulting
from the industrial accident at Jahn Foundry on February 25, 1999. On December 20, 2001, the Company completed the sale of substantially all of the net assets of Jahn Foundry.

Other
income for fiscal 2001 primarily consisted of $10.9 million of non-recurring gains relating to the Jahn Foundry industrial accident, which occurred in 1999. This
gain consisted of a $3.7 million business interruption insurance gain and a $7.2 million property insurance gain. The property insurance gain primarily represents the difference between
the net proceeds received for the property damage and the property's net book value immediately before the accident (See Note 22 to the consolidated financial statements). See Liquidity and
Capital Resources. Other income for fiscal 2000 primarily consisted of non-recurring gains of $1.1 million on the termination of interest rate swap agreements. The net gains were
triggered by the Company's early retirement of a term loan.

Interest
expense for fiscal 2001 increased to $11.3 million, or 2.6% of net sales, from $9.5 million, or 2.0% of net sales, in fiscal 2000. The increase in interest expense
primarily reflects higher average interest rates on the Company's outstanding indebtedness.

The
Company recorded income tax expense of $1.9 million in fiscal 2001. Due to the Company's current income tax position, no income tax benefit was recorded in connection with the
fixed asset impairment charges discussed above. In addition, the Company recorded a $6.1 million valuation allowance related to certain foreign net operating loss carry forward. This valuation
allowance reduces the deferred tax assets to the amounts that management believes are more likely than not to be realized. Excluding the $7.8 million deferred income tax benefit discussed
below, the income tax benefit for fiscal 2000 reflected an effective rate of approximately 29%. The effective tax rate is lower than the combined federal, state and provincial statutory rates
primarily due to the impact of non-deductible goodwill and foreign dividends. The Company's income tax expense and benefit reflect the combined effective tax rates of the different
federal, state and provincial jurisdictions in which the Company operates, and the proportion of taxable income earned in each of those tax jurisdictions.

34

---

Effective July 1, 2000, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" and
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB Statement No. 133." SFAS Nos. 133 and 138 require 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.

At
July 1, 2000, the Company had derivatives in the form of foreign exchange contracts ("FX contracts") to buy and sell various currencies. The Company uses FX contracts as an
economic hedge of trade receivables and payables denominated in foreign currencies, as well as anticipated sales to foreign customers in the customers' local currency. On July 1, 2000, the
Company recorded its FX contracts at their fair value, which resulted in a charge to income of approximately $910,000 ($546,000 net of deferred income tax benefit). This is presented in the Company's
consolidated financial statements as the cumulative effect of a change in accounting principle.

On
June 30, 2001 the Company recorded its FX contracts at their fair value of approximately ($844,000). This resulted in a gain of approximately $66,000. Additionally, the
translation of the foreign denominated trade receivables resulted in a decrease in the value of the receivables and the Company recorded a currency translation loss of approximately $249,000.

As
a result of the foregoing, the net loss increased to $37.0 million in fiscal 2001 from a net loss of $11.7 million in fiscal 2000.

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 2002 was $3.4 million, an increase of $122,000 from fiscal 2001. This increase was primarily attributable to the accelerated
collection of trade receivable balances, a decrease in inventory balances and an increase in customer advance payments. Offsetting this was a reduction in trade payable balances.

Working
capital was a negative $51.9 million at June 30, 2002, as compared to a negative $52.9 million at June 30, 2001. The change in working capital levels
primarily reflect a reduction in trade payable balances and outstanding borrowings under the Company's bank credit facility, senior notes with an insurance company and term loan with General Electric
Capital Corporation, partially offset by a reduction in trade receivable and inventory balances. The working capital levels reflect the reclassification of $89.5 million and
$105.3 million of the Company's bank credit facility, term loan and senior notes with an insurance company as current at June 30, 2002 and June 30, 2001, respectively. The Company
has not been in compliance with certain financial covenants under the Credit Agreement, Note Purchase Agreement and the GE Financing, as defined below, and, accordingly, such amounts have been
classified as current liabilities.

During
fiscal 2002, the Company made capital expenditures of $4.2 million, as compared to $11.2 million for fiscal 2001. Included in fiscal 2001 were expenditures of
$4.1 million to rebuild the shell molding area and boiler room damaged in the industrial accident in 1999 at Jahn Foundry (see below). The balances of capital expenditures in both periods were
used for routine projects at each of the Company's facilities. The Company currently expects to make approximately $6.0 million of capital expenditures during fiscal 2003.

35

---

As
discussed above, during fiscal 2002 the Company closed Empire Steel and sold substantially all of the net assets of Jahn Foundry and LA Die Casting. Proceeds from these sales were
used primarily to reduce debt.

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

The
Credit Agreement, as amended, currently consists of a $69.1 million revolving credit facility. Asset sales and tax refunds have been used to reduce indebtedness. In addition
to the financial covenants, the Credit Agreement contains restrictions on, among other things, acquisitions, additional indebtedness, further investments in Autun and the use of net proceeds from the
sale of assets (other than inventory), insurance settlements and other non-recurring items. Secured by substantially all of the Company's North American assets and a pledge of ACUK's
stock, loans under this revolving credit facility bear interest at fluctuating rate of the agent bank's corporate base rate plus 2.0% (6.75% at June 30, 2002).

On
December 18, 2001, the Company entered into the Twelfth Amendment and Forbearance Agreement to the Credit Agreement and the Eighth Amendment and Forbearance Agreement to the
Note Purchase Agreement. These amendments, as modified, provided that, among other things, these lenders will forbear from enforcing their rights with respect to certain existing defaults through
July 31, 2002.

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

At
June 30, 2002, Notes with an aggregate principal amount of $10.2 million were outstanding with interest accruing at 10.44% per year. The Note Purchase Agreement provides
for annual principal payments of $2.9 million The Company did not make principal payments due on July 31, 2001 and July 31, 2002. During fiscal 2002, the Company reduced the
outstanding balance on the Notes by $1.2 million through proceeds from asset sales and tax refunds. The Notes are secured by the same assets that secure the Credit Agreement and contain similar
restrictions to those described above under the Credit Agreement.

At
June 30, 2002, the balance of the term loan under the GE Financing was $26.5 million. Through June 30, 2002, the Company had made all required monthly principal
payments of $291,667 plus accrued interest. The Company is negotiating with General Electric Capital Corporation to accept only interest payments throughout fiscal 2003. The GE Financing is secured by
certain of the Company's fixed assets, real estate, equipment, furniture and fixtures located in Atchison, Kansas and St. Joseph, Missouri, matures in December 2004 and bears interest at a
fixed rate of 9.05% per year.

36

---

In
September 2001, ACUK, a subsidiary of the Company, ACUK's subsidiaries, and Burdale Financial Limited entered into the Facility Agreement. This Facility Agreement provides for
a facility of up to 25 million British pounds (approximately $35 million US), subject to certain eligibility calculations, to be used to fund working capital requirements at Sheffield, a
subsidiary of ACUK, and up to 1.0 million British pounds for working capital at Autun. In addition, the Facility Agreement provides security for Sheffield's foreign currency exchange contracts
and performance bond commitments and was used to repay $5.0 million of an intercompany working capital loan ($1.1 million of which was paid to certain of the lenders as principal
payments). This facility matures on September 17, 2004 and is secured by substantially all of Sheffield's assets in the U.K. Loans under this Facility Agreement bear interest at
LIBOR plus 2.60% (6.725% at June 30, 2002). As of June 30, 2002, ACUK had drawn approximately $14.2 million under the Facility Agreement. The Facility Agreement contains several
covenants, which, among other things, require ACUK to maintain balances under certain eligibility levels. Management believes ACUK is in compliance with those covenants. However, there can be no
assurance that ACUK will continue in compliance with the covenants or that Burdale will not assert non-compliance, in which case Burdale may exercise its right to demand payment of the
debt.

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

Compliance
with certain financial covenants under the Credit Agreement, Note Purchase Agreement and the GE Financing is determined on a "trailing-twelve-month" basis. The results through
fiscal 2002 were below results needed to achieve compliance with these covenants under the Credit Agreement, Note Purchase Agreement and the GE Financing. Accordingly, the Company is currently
negotiating with new and existing financial institutions to extend its current arrangements while it attempts to establish a new credit facility with covenants that the Company believes it will be
able to satisfy with additional borrowing capacity. During the past several years, the Company has been able to negotiate operating flexibility with its lenders, although future success in achieving
any such renegotiations or refinancings, or the specific terms thereof, including interest rates, capital expenditure limits or borrowing capacity, cannot be assured. The Company believes that its
operating cash flow and amounts available for borrowing under its existing credit facility and the Facility Agreement will be adequate to fund its capital expenditure and working capital requirements
through October 17, 2002, the maturity date of the current forbearance agreements under the Credit Agreement and Note Purchase Agreement. The Company will need to refinance or extend these
agreements to satisfy its liquidity needs. However, the level of capital expenditure and working capital requirements may be greater than currently anticipated as a result of unforeseen expenditures
such as compliance with environmental laws and the accident at Jahn Foundry. If the Company fails to amend its financial covenants on terms favorable to the Company, the Company will continue to be in
default under such covenants. Accordingly, the lenders could accelerate the debt under the Credit Agreement, which, in

37

---

turn, would permit acceleration of the Notes under the Note Purchase Agreement and the indebtedness under the GE Financing. If the lenders accelerate their indebtedness and the Company is unable to
locate alternative sources of financing, the Company may be forced to seek protection under the federal bankruptcy laws.

The
liquidity position of Sheffield in the U.K. is just as tight as the Company's liquidity in North America. If market conditions and foreign currencies deteriorate or Sheffield's
lender continues to restrict availability under the Facility Agreement, Sheffield may not have sufficient liquidity and could be forced to consider all available strategic alternatives, including
selling all or portions of Sheffield, an orderly wind-down or liquidation, in which case the Company's investment in Sheffield would likely be lost.

Total
indebtedness of the Company at June 30, 2002 was $118.6 million, as compared to $121.5 million at June 30, 2001. This decrease primarily reflects
principal payments aggregating $12.4 million under the Credit Agreement, Note Purchase Agreement and the GE Financing and a reduction in outstanding balances under the Company's revolving
credit facility, partially offset by borrowings of $14.2 million under the Facility Agreement. At June 30, 2002, the Company had approximately $1.1 million available for borrowing
under its revolving credit facility under the Credit Agreement and there was approximately $3.3 million available for borrowing under the Facility Agreement.

At
June 30, 2002, the Company had the following contractual cash obligations and other commitments.

|                 |       | Total |       | Fiscal
2003 |   | Fiscal
2004 |       | Fiscal
2005 |     | Fiscal
2006 |   | Fiscal
2007 |      | Thereafter
|---------------- | ----- | ----- | ----- | ----------- | - | ----------- | ----- | ----------- | --- | ----------- | - | ----------- | ---- | ----------
|
|Long-term debt   |       | $     | 118.6 |             | $ | 98.0        |       | $           | .3  |             | $ | 14.5        |      | $         
|Operating leases |       |       | 16.8  |             |   | 4.9         |       |             | 4.2 |             |   | 3.6         |      |           
|Lease guarantees |       |       | 3.5   |             |   | 3.5         |       |             |    |             |   |            |      |           
|                 |       |       |       |             |   |             |       |             |     |             |   |             |      |           
|                 | Total |       | $     | 138.9       |   | $           | 106.4 |             | $   | 4.5         |   | $           | 18.1 |           
|                 |       |       |       |             |   |             |       |             |     |             |   |             |      |           

In
addition, the Company had $3.9 million of outstanding letters of credit as of June 1, 2002.

As
described in note 10 to the consolidated financial statements, the Company is in violation of various financial covenants of certain of its indebtedness. The Company has
entered into amendments and forbearance agreements, which expire in the near term, and, accordingly, such borrowings have been classified as current liabilities in the consolidated financial
statements and the table above. In addition, the Company guaranteed certain operating lease obligations of Autun. These guarantees have been called be the lessors and, accordingly, are included in the
2003 column above.

An
accident, involving an explosion and fire, occurred on February 25, 1999, at Jahn Foundry, located in Springfield, Massachusetts. Nine employees were seriously injured and
there were three fatalities. The damage was confined to the shell molding area and boiler room. The other areas of the foundry remained operational. Molds were being produced at other foundries, as
well as Jahn Foundry, while the repairs were made. The new shell molding department became fully operational in November 2000.

The
Company carried insurance for property and casualty damages (over $475 million of coverage), business interruption (approximately $115 million of coverage), general
liability ($51 million of coverage) and workers' compensation (up to full statutory liability) for itself and its subsidiaries. The Company recorded charges of $750,000 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

38

---

insurance coverage by an amount which could be material to its financial condition or results of operations and cash flows.

In
November 2000, the Company and its insurance carrier settled the Jahn Foundry property portion of the Company's claim. The settlement provided, among other things, for
(i) additional payments from the carrier in the amount of $2.6 million, (ii) that of the payments received to date, totaling $26.8 million, the insurance carrier will
allocate no more than $9.5 million for property damage, (iii) that the remaining proceeds of $17.3 million, will be allocated to business interruption losses and will not be
subject to recovery by the insurance carrier and (iv) that the Company shall not be entitled to any additional payments unless it is determined by reference, appraisal, arbitration, litigation
or otherwise that the Company's business interruption losses exceed $17.3 million. The Company disagrees with the insurance carrier regarding the duration and amount of the business
interruption losses.The Company plans to seek additional insurance payments through arbitration. There can be no assurance that the Company will
ultimately receive any additional insurance payments for business interruption losses.

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

On
February 26, 2001, Borden filed a Third Party Complaint against the Company seeking contribution, under Massachusetts law, from the Company in the event that the plaintiffs
prevail against Borden. The Third Party Complaint alleges that the Company undertook a duty to oversee industrial hygiene, safety and maintenance at Jahn Foundry and that the Company designed,
installed and maintained equipment and machinery at Jahn Foundry, and that the Company's carelessness, negligence or gross negligence caused the explosion and resulting injuries. It is too early to
assess the potential liability for such a claim, which in any event the Company will aggressively defend.

On
March 30, 2001, the plaintiffs amended their complaint by adding the Company as a defendant. The plaintiffs allege that the Company undertook a duty to oversee industrial
hygiene, safety and maintenance at Jahn Foundry and that the Company's carelessness, negligence or gross negligence caused the explosion and resulting injuries. The plaintiffs seek an unspecified
amount of damages and punitive damages. It is too early to assess the potential liability to the Company for such claims, which in any event the Company will aggressively defend. The Company has filed
a cross-claim for contribution against Borden and J.R. Oldhan Company.

There
can be no assurance that the Company's ultimate liability with respect to this litigation arising out of the industrial accident at Jahn Foundry will not be material to its
financial condition, results of operations or cash flows.

On
December 20, 2001, the Company completed the sale of substantially all of the assets of Jahn Foundry, as described above. However, the Company did not sell its right to any
proceeds from any insurance settlement, arbitration, litigation or any proceeding relating to the industrial accident discussed above, nor did the buyer assume any such liabilities.

39

---

On
April 9, 2002, the company's subsidiary, Fonderie d'Autun ("Autun"), a French corporation, filed a voluntary petition for reorganization with the local court in Chalons,
France.

Autun
was acquired by the Company on February 25, 1999 at which time Autun specialized in the manufacture of cast iron radiators. The Company strategy was to restructure the
foundry to make different products, principally automotive and appliance castings. Autun was successful in obtaining new customers and work in these markets. However, start up costs for the new
products and losses with some customers on Autun's historical cast iron radiator business, coupled with the inability to lower employment levels without significant severance costs, resulted in the
need for Autun to file for a plan of reorganization.

Autun
was initially granted local court approval to continue operating while it prepared a plan of reorganization. Autun was granted a six-month period during which it may
present such a plan. The court appointed administrator tried to sell Autun. After failing to sell Autun, the administrator recommended to the court that Autun be liquidated. On September 19,
2002, the court appointed a liquidator to begin the liquidation of Autun. During the fourth quarter of fiscal 2002, the Company recorded a charge of $567,000 to write off its remaining net investment
in Autun and a charge of $3.5 million relating to the Company's guarantee of Autun's obligations under certain lease agreements. The Company is no longer consolidating Autun's results into its
consolidated financial statements.

As
a result of the court's recent decision to liquidate the assets of Autun, it is estimated that charges for site cleanup could total up to $8 million. Should Autun not be able
to meet the cleanup obligations, the French government might be able to make a claim against the prior owner. The Company guaranteed payment of certain contingent liabilities of up to
100 million French francs (currently US$13.3 million) when it purchased Autun, for the cost of environmental restoration, if any, in the event Autun were closed and a claim was
successfully made against the prior owner. Such amount has not been recorded in the accompanying financial statements. These potential contingent liabilities may adversely impact the Company's ability
to proceed with its plan to achieve its financial objectives if they become liabilities of the Company.

For
the first nine months of fiscal 2002, Autun recorded net sales of $13.9 million and a net loss of $1.6 million. For fiscal 2001, Autun recorded net sales of
$17.4 million and a net loss of $88,000.

As
previously announced, the Company dismissed Deloitte as its auditor on April 16, 2002. On July 26, 2002, the Company filed a complaint against Deloitte in Philadelphia
County, Pennsylvania for negligence, professional malpractice, negligent misrepresentation and breach of contract. The Company believes that Deloitte breached its duties to perform audit and
consulting services by failing to act with reasonable and ordinary care, with the ordinary skill and diligence of the accounting profession, and in conformity with the professional standards such as
generally accepted auditing standards and generally accepted accounting principles. Deloitte filed a counterclaim against the Company on September 13, 2002 alleging that the Company was aware
of information related to improper activities of certain employees at the Pennsylvania Foundry Group and failed to disclose such information to Deloitte. On September 24, 2002, Deloitte filed a
third party claim against certain officers and employees of the Company and others alleging, among other things, that such officers and employees withheld material information in connection with such
improper activities. The Company believes that Deloitte's claims against it and the Company's officers and employees have no merit and will vigorously defend itself.

Management
believes that the consolidated financial statements present fairly, in all material respects, the financial position of the Company and its subsidiaries as of June 30,
2001 and 2000, and the results of operations and cash flows for each of the years in the three year period ended June 30, 2001. The Company is considering its options with respect to
re-auditing the fiscal years in question.

40

---

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 due to the stability of the
countries 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, although, at June 30, 2002, the Company had no outstanding interest rate swap agreements or foreign currency forward exchange contracts. Additional information regarding the Company's
financial instruments is contained in Note [12] 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
2002 and 2001, 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 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 and fixed and variable rate debt. 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 change 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 impact the
Company's earnings by approximately $700,000 and $900,000 in fiscal 2002 and 2001, respectively.

The
Company's exposure to fluctuations in currency rates against the British pound, Euro, and Canadian dollar result from the Company's holdings in cash and short-term
investments and its historical utilization of foreign currency forward exchange contracts to hedge customer receivables and firm commitments. The potential loss in fair values is based on an immediate
change in the U.S. dollar equivalent balances of the Company's currency exposures due to a 10% shift in exchange rates versus the British pound, Euro and Canadian dollar. The potential loss in cash
flows and earnings is based on the change in cash flow and earnings over a one-year period resulting from an immediate 10% change in currency exchange rates versus the British pound, Euro
and Canadian dollar. Based on the Company's holdings of financial instruments at June 30, 2002 and June 30, 2001, a hypothetical 10% change in the British pound, Euro and the Canadian
dollar versus all other currencies would have an impact on the Company's earnings before income tax of approximately $8,000 and $3.7 million in fiscal 2002 and fiscal 2001, respectively.

Inflation

Management does not believe that the Company's operations have been materially adversely affected by inflation or changing prices.

41

---



Critical Accounting Policies

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





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



When
it is determined that the carrying value of long-lived assets and goodwill may not be recoverable based upon the existence of one or more of the above indicators of
impairment, the Company projects the undiscounted cash flow expected to be derived from such asset. The carrying value of a long-lived asset or goodwill is considered impaired when the
anticipated undiscounted cash flow from such asset is less than its carrying value. The impairment is measured based on a projected discounted cash flow method using a discount rate, which
approximates the Company's incremental borrowing rate. Net long-lived assets and goodwill amounted to $94.2 million and $22.3 million, respectively, as of June 30,
2002. A change in events or circumstances resulting in an impairment to long-lived assets or goodwill could have a material impact on the Company's results of operations and financial
position.

On
July 1, 2002, Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets" will become effective for the Company. As a result,
the Company will cease to amortize its goodwill. For fiscal 2002 and fiscal 2001, the Company recorded amortization expense of $1.2 million and $1.4 million, respectively, relating to
the amortization of goodwill. In lieu of amortization, the Company is required to perform an initial impairment review of goodwill in fiscal 2003 and an annual impairment review thereafter. The
Company expects to complete its initial review during the first half of fiscal 2003.



The Company warrants that every product will meet a set of specifications, which is mutually agreed upon with each customer. The Company's warranty policy
provides for the repair or replacement of its products and excludes contingency costs. The Company maintains reserves for warranty charges based on specific claims made by customers, for which
management estimates a final settlement of the claim, and for expected claims not yet received based on historical results, which

42

---

management believes provides a reasonable indicator and basis for claims not yet received. Significant management judgments must be made and used in connection with establishing warranty reserves.
Unforeseen circumstances could result in revisions to these estimates that are material to the Company's financial statements. The provision for warranty expense was $8.0 million and
$9.0 million at June 30, 2002 and June 30, 2001, respectively.



The Company's U.S. operations primarily self-insure for workers' compensation and employee health care expense. The Company bases its reserves for
workers' compensation expense primarily on estimates provided by third-party administrators and its reserves for health care expense on historical claims experience. Significant management judgments
and estimates are made in establishing these reserves. The Company's reserve for workers' compensation and employee health care was $5.9 million and $4.0 million at June 30, 2002
and June 30, 2001, respectively. At July 1, 2002, the Company had letters of credit aggregating $4.0 million and a certificate of deposit of $500,000 which support claims for
workers' compensation benefits.



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



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

Significant
management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against deferred tax
assets. The Company has recorded a valuation allowance against its net deferred tax assets of approximately
$35.0 million and $31.0 million as of June 30, 2002 and June 30, 2001, respectively, due to uncertainties related to the Company's ability to utilize some of its deferred
tax assets, primarily consisting of certain net operating losses carried forward and foreign tax credits, before they expire. The valuation allowance is based on the Company's estimates of taxable
income by jurisdiction in which it operates and the period over which the deferred tax assets will be recoverable. In the event that actual results differ from these estimates or the Company adjusts
these estimates in future periods, the Company may need to establish an additional valuation allowance, which could materially impact the Company's financial position and results of operations.

43

---

The
net deferred tax liability as of June 30, 2002 and June 30, 2001 was approximately $1.2 million and $2.1 million, net of a valuation allowance of
$35.2 million and $30.6 million, respectively.

Forward-Looking Statements

Statements above in the subsections entitled "General," "Recent Developments", "Legal Proceedings," "New Business Model", "Liquidity and Capital Resources",
"Market Risk," and "Critical Accounting Policies", such as "expects," "intends," "contemplating" and statements regarding quarterly fluctuations, statements regarding the adequacy of funding for
capital expenditure and working capital requirements for the next twelve months and similar expressions that are not historical are forward-looking statements that involve risks and uncertainties.
Such statements include the Company's expectations as to future performance. Among the factors that could cause actual results to differ materially from such forward-looking statements are the
following: the results of litigation with Deloitte, the re-audit of any financial statements, costs of closing or selling foundries, business conditions and the state of the general
economy, particularly the capital goods industry, the strength of the U.S. dollar, British pound sterling and the Euro, interest rates, the results of the reorganization of the Company's wholly-owned
subsidiary Autun, the amount of any claims made against Autun's prior owner which are the subject of certain guarantees, the Company's ability to renegotiate or refinance its lending arrangements,
utility rates, the availability of labor, the successful conclusion of union contract negotiations, the results of any litigation arising out of the accident at Jahn Foundry, results of any litigation
or regulatory proceedings arising from the accounting irregularities at the Pennsylvania Foundry Group, the competitive environment in the casting industry and changes in laws and regulations that
govern the Company's business, particularly environmental regulations.

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.

The
selected unaudited supplemental quarterly results for fiscal 2001 and fiscal 2002 are included in Note 14 to the consolidated financial statements.

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 Financial Condition and Results of Operations in this Annual Report on 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. The financial statement
schedule required to be filed under Regulation S-X. is filed on page 54 of this report. On October 9, 2002, the Company's former auditor, Deloitte &
Touche LLP ("Deloitte"), notified the Company that Deloitte's report dated September 28, 2001 on the consolidated financial statements of the Company and its subsidiaries as of
June 30, 2001 and 2000 and

44

---

for each of the years in the three year period ended June 30, 2001 should no longer be relied upon or associated with those consolidated financial statements.

Selected
quarterly financial data required under this item is included in Note 14 to the consolidated financial statements.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On April 16, 2002, the Board of Directors of the Company, upon recommendation of the Audit Committee of the Company, adopted resolutions dismissing
Deloitte & Touche LLP ("Deloitte") as the Company's independent auditor and engaging KPMG LLP as the new independent auditor of the Company. The reports of Deloitte on the
consolidated financial statements of the Company for the years ended June 30, 2001 and 2000 did not contain any adverse opinion or disclaimer of opinion, nor were such reports qualified or
modified as to audit scope or accounting principles. Deloitte's audit report on the consolidated financial statements of the Company for the year ended June 30, 2001 included an explanatory
paragraph concerning the Company's ability to continue as a going concern. Deloitte's audit report on the restated consolidated financial statements of the Company for the year ended
June 30, 2000 included explanatory paragraphs emphasizing that the consolidated financial statements had been restated and that certain debt had been classified as current due to debt covenant
violations.

During
the years ended June 30, 2001 and 2000, and any subsequent interim period preceding April 16, 2002, there were no disagreements between the Company and Deloitte on
any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which would have caused Deloitte, if not resolved to the satisfaction of Deloitte, to
make a reference to the subject matter of the disagreements in connection with its reports.

Following
the completion of its audits of the consolidated financial statements of the Company for the years ended June 30, 2001 and 2000 (as restated), Deloitte reported to, and
discussed with, the Audit Committee of the Company that certain matters that it considered to be reportable conditions under standards established by the American Institute of Certified Public
Accountants were noted in the internal control of the Company. According to Deloitte, these conditions related to ineffective operation of established policies and procedures in place for the review
of foundry accounting and reporting information in the years ended June 30, 2001 and 2000, and to ineffective monitoring of the cash reconciliation process in the year ended June 30,
2000.

While
the Company does not believe that the matters considered to be reportable conditions by Deloitte are required to be disclosed under the rules and regulations promulgated by the
Securities and Exchange Commission, the Company has disclosed them at the request of Deloitte. The Company has authorized Deloitte to respond fully to inquiries from KPMG LLP, as the successor
independent auditor of the Company, concerning such matters.

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 2002 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.

45

---

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is incorporated herein by reference to the Registrant's Proxy Statement for the 2002 Annual Meeting of Stockholders to be
filed pursuant to Regulation 14A.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information called for by this item is incorporated herein by reference to the Registrant's Proxy Statement for the 2002 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 2002 Annual Meeting of Stockholders to be
filed pursuant to Regulation 14A.

ITEM 14. CONTROLS AND PROCEDURES

In fiscal 2002, the Company took a number of actions to improve its internal controls and financial reporting. An in-house internal audit function has
been created and is currently led by Mr. Joe Dougherty, the former CFO and President of Prospect Foundry, a subsidiary of the Company. Mr. Dougherty regularly visits each location to
complete on-site reviews and address issues identified in the monthly reports or other reviews. Among other things, Mr. Dougherty performs systematic monthly reviews of each
location's financial information. In addition, the Company receives monthly reports from each location that relate to matters such as significant variances in the financial information relative to
various bases (budget, prior year), the adequacy of reserve accounts, the status of significant contracts, unusual or one-time entries, any material contingent obligations, and the
reconciliation of bank accounts and ledger balances.

46

---



PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

Page
Number(1)

The following financial statements are included in Part II Item 8:Independent Auditors' Report

F-1Consolidated Balance SheetsJune 30, 2001 (unaudited) and June 30, 2002,

F-2Consolidated Statements of OperationsYears Ended June 30, 2000 (unaudited), June 30, 2001 (unaudited) and June 30, 2002

F-3Consolidated Statements of Comprehensive Income (Loss)Years Ended June 30, 2000 (unaudited), June 30, 2001 (unaudited) and June 30, 2002

F-4Consolidated Statements of Stockholders' EquityYears Ended June 30, 2000 (unaudited), June 30, 2001 (unaudited) and June 30, 2002

F-5Consolidated Statements of Cash FlowsYears Ended June 30, 2000 (unaudited), June 30, 2001 (unaudited) and June 30, 2002

F-6Notes to Consolidated Financial StatementsYears Ended June 30, 2000 (unaudited), June 30, 2001 (unaudited) and June 30, 2002

F-7(2)

Financial Statement SchedulesValuation and Qualifying Accounts Schedules

50(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.




47

---



48

---







49

---





Financial Statement SchedulesValuation and Qualifying Accounts Schedules
(in thousands)

ACCOUNTS RECEIVABLE ALLOWANCE

|                        |  | BEGINNING
BALANCE |     | ADDITIONS TO
EXPENSE |   | DEDUCTION FROM
WRITEOFFS |  | ENDING
BALANCE
|----------------------- |  | ----------------- | --- | -------------------- | - | ------------------------ |  | --------------
|Fiscal 2002             |  | $                 | 845 |                      | $ | 749                      |  | $             
|Fiscal 2001 (unaudited) |  |                   | 584 |                      |   | 1,089                    |  |               
|Fiscal 2000 (unaudited) |  |                   | 259 |                      |   | 855                      |  |               

RESERVE FOR FLOOD REPAIRS

|                        |  |   |       |  |   | DEDUCTIONS FROM |   |    
|----------------------- |  | - | ----- |  | - | --------------- | - | ---
|
|
|Fiscal 2002             |  | $ | 597   |  |  |                 | $ |   
|Fiscal 2001 (unaudited) |  |   | 645   |  |  |                 |   | 48 
|Fiscal 2000 (unaudited) |  |   | 1,197 |  |  |                 |   | 552

See
accompanying independent auditors report.

50

---

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this amended report to
be signed on its behalf by the undersigned, thereunto duly authorized.

|                        |  | ATCHISON CASTING CORPORATION
(Registrant)
|----------------------- |  | -----------------------------------------
|                        |  | By:                                      
|Dated: October 16, 2002 |  |                                          

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on
the dates indicated:

|Signature                                           |  | Title                                                                                                                           |  | Date            
|--------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------- |  | ----------------
|                                                    |  |                                                                                                                                 |  |                 
|/s/THOMAS K. ARMSTRONG, JR.Thomas K. Armstrong, Jr. |  | Chairman of the Board, President, Chief Executive Officer and Director (Principal Executive Officer)                            |  | October 16, 2002
|/s/HUGH H. AIKENHugh H. Aiken                       |  | Director                                                                                                                        |  | October 14, 2002
|/s/STANLEY B. ATKINSStanley B. Atkins               |  | Director                                                                                                                        |  | October 13, 2002
|William Bullard                                     |  | Director                                                                                                                        |  |                 
|/s/MICHAEL V.B. NAGELMichael v.B. Nagel             |  | Director                                                                                                                        |  | October 14, 2002
|Vladimir Rada                                       |  | Director                                                                                                                        |  |                 
|/s/KEVIN T. MCDERMEDKevin T. McDermed               |  | Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer and Principal Accounting Officer) |  | October 16, 2002

51

---



CERTIFICATIONS

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



Date:
October 16, 2002

| |  | /s/THOMAS K. ARMSTRONG, JR.Thomas K. Armstrong, Jr. Chief Executive
Officer
(principal executive officer)
| |  | ---------------------------------------------------------------------------------------------------------

I, Kevin T. McDermed, certify that:



Date:
October 16, 2002

| |  | /s/KEVIN T. MCDERMEDKevin T. McDermed Chief Financial Officer
(principal financial officer)
| |  | -------------------------------------------------------------------------------------------

52

---

ATCHISON CASTING CORPORATION  AND SUBSIDIARIES

Table of Contents

|                                   |                                                                                                                                           | Page
|---------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------- | ----
|Independent Auditors' Report       |                                                                                                                                           | F-1 
|Consolidated Financial Statements: |                                                                                                                                           |     
|                                   | Consolidated Balance SheetsJune 30, 2001 (unaudited) and June 30, 2002                                                                   |     
|                                   | Consolidated Statements of OperationsYears ended June 30, 2000 (unaudited), June 30, 2001 (unaudited) and June 30, 2002                  |     
|                                   | Consolidated Statements of Comprehensive Income (Loss)Years ended June 30, 2000 (unaudited), June 30, 2001 (unaudited) and June 30, 2002 |     
|                                   | Consolidated Statements of Stockholders' EquityYears ended June 30, 2000 (unaudited), June 30, 2001 (unaudited) and June 30, 2002        |     
|                                   | Consolidated Statements of Cash FlowsYears ended June 30, 2000 (unaudited), June 30, 2001 (unaudited) and June 30, 2002                  |     
|                                   | Notes to Consolidated Financial Statements                                                                                                |     

---



Independent Auditors' Report

Board
of Directors and Stockholders of
        Atchison Casting Corporation and Subsidiaries
Atchison, Kansas:

We
have audited the accompanying consolidated balance sheet of Atchison Casting Corporation and subsidiaries (the Company) as of June 30, 2002 and the related consolidated
statements of operations, comprehensive income (loss), stockholders' equity, and cash flows for the year then ended. 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 audit.

We
conducted our audit in accordance with auditing standards generally accepted in the United States of America. 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 audit provides 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, 2002 and the results of its
operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The
accompanying 2002 consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in note 10 to the consolidated
financial statements, at June 30, 2002 the Company was not in compliance with certain covenants of its loan agreements and has entered into various amendments and forbearance agreements with
its lenders. The Company is attempting to renegotiate the terms and covenants of the loan agreements and also is
seeking other sources of long-term financing, although there is no assurance such efforts will be successful. The Company's difficulties in meeting its loan covenants and financing needs,
its recurring losses from operations, and its negative working capital position discussed in note 23 raise substantial doubt about its ability to continue as a going concern. Management's plans
with regard to these matters are also described in note 23. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/
KPMG LLP

October 15,
2002
Kansas City, Missouri

F-1

---



ATCHISON CASTING CORPORATION  AND SUBSIDIARIES        Consolidated Balance Sheets        June 30, 2001 and 2002        (Dollars in thousands, except share data)

|                                                                                                                  |                                                                                                                                 | 2001                                       |         | 2002    |        
|----------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------- | ------- | -------
|
|Assets                                                                                                            |                                                                                                                                 |                                            |         |         |        
|Current assets:                                                                                                   |                                                                                                                                 |                                            |         |         |        
|                                                                                                                  | Cash and cash equivalents                                                                                                       |                                            | $       | 1,329   |        
|                                                                                                                  | Customer accounts receivable, net of allowance for doubtful accounts of $845 and $1,317 at June 30, 2001 and 2002, respectively |                                            |         | 83,010  |        
|                                                                                                                  | Income tax refund receivable                                                                                                    |                                            |         |        |        
|                                                                                                                  | Inventories                                                                                                                     |                                            |         | 58,617  |        
|                                                                                                                  | Deferred income taxes                                                                                                           |                                            |         | 1,345   |        
|                                                                                                                  | Other current assets                                                                                                            |                                            |         | 10,437  |        
|                                                                                                                  |                                                                                                                                 |                                            |         |         |        
|                                                                                                                  |                                                                                                                                 | Total current assets                       |         |         | 154,738
|Property, plant, and equipment, net                                                                               |                                                                                                                                 |                                            | 113,009 |         | 94,178 
|Goodwill, net                                                                                                     |                                                                                                                                 |                                            | 24,362  |         | 22,310 
|Deferred financing costs, net                                                                                     |                                                                                                                                 |                                            | 721     |         | 1,209  
|Other assets                                                                                                      |                                                                                                                                 |                                            | 13,043  |         | 17,110 
|                                                                                                                  |                                                                                                                                 |                                            |         |         |        
|                                                                                                                  |                                                                                                                                 | Total assets                               |         | $       | 305,873
|                                                                                                                  |                                                                                                                                 |                                            |         |         |        
|Liabilities and Stockholders' Equity                                                                              |                                                                                                                                 |                                            |         |         |        
|Current liabilities:                                                                                              |                                                                                                                                 |                                            |         |         |        
|                                                                                                                  | Accounts payable                                                                                                                |                                            | $       | 58,392  |        
|                                                                                                                  | Accrued expenses                                                                                                                |                                            |         | 34,377  |        
|                                                                                                                  | Current maturities of long-term debt                                                                                            |                                            |         | 114,894 |        
|                                                                                                                  |                                                                                                                                 |                                            |         |         |        
|                                                                                                                  |                                                                                                                                 | Total current liabilities                  |         |         | 207,663
|Long-term debt                                                                                                    |                                                                                                                                 |                                            | 6,648   |         | 20,662 
|Deferred income taxes                                                                                             |                                                                                                                                 |                                            | 3,460   |         | 3,443  
|Other long-term obligations                                                                                       |                                                                                                                                 |                                            | 898     |         | 264    
|Excess of fair value of acquired net assets over cost, net of accumulated amortization of $3,577 at June 30, 2001 |                                                                                                                                 |                                            | 2,543   |         |       
|Postretirement obligations other than pension                                                                     |                                                                                                                                 |                                            | 10,082  |         | 11,183 
|Minority interest in subsidiaries                                                                                 |                                                                                                                                 |                                            | 1,890   |         | 516    
|                                                                                                                  |                                                                                                                                 |                                            |         |         |        
|                                                                                                                  |                                                                                                                                 | Total liabilities                          |         |         | 233,184
|                                                                                                                  |                                                                                                                                 |                                            |         |         |        
|Stockholders' equity:                                                                                             |                                                                                                                                 |                                            |         |         |        
|                                                                                                                  | Preferred stock, $0.01 par value, participating, cumulative. Authorized 2,000,000 shares; no shares issued                      |                                            |         |        |        
|                                                                                                                  | Common stock, $0.01 par value. Authorized 19,300,000 shares; 8,312,049 shares issued at June 30, 2001 and 2002                  |                                            |         | 83      |        
|                                                                                                                  | Class A common stock (nonvoting), $0.01 par value. Authorized 700,000 shares; no shares issued                                  |                                            |         |        |        
|                                                                                                                  | Additional paid-in capital                                                                                                      |                                            |         | 81,517  |        
|                                                                                                                  | Retained earnings (deficit)                                                                                                     |                                            |         | 5,863   |        
|                                                                                                                  | Accumulated other comprehensive earnings (loss)                                                                                 |                                            |         | (8,726  | )      
|                                                                                                                  | Less common stock held in treasury, 622,702 and 589,018 shares at June 30, 2001 and 2002, respectively, at cost                 |                                            |         | (6,048  | )      
|                                                                                                                  |                                                                                                                                 |                                            |         |         |        
|                                                                                                                  |                                                                                                                                 | Total stockholders' equity                 |         |         | 72,689 
|                                                                                                                  |                                                                                                                                 |                                            |         |         |        
|                                                                                                                  |                                                                                                                                 | Total liabilities and stockholders' equity |         | $       | 305,873
|                                                                                                                  |                                                                                                                                 |                                            |         |         |        

See accompanying notes to consolidated financial statements.

F-2

---



ATCHISON CASTING CORPORATION  AND SUBSIDIARIES        Consolidated Statements of Operations        Years ended June 30, 2000, 2001, and 2002        (Dollars in thousands, except
share data)

|                                                                                                                         |                                      | 2000                                                                             |                    | 2001   |           | 2002    |          
|------------------------------------------------------------------------------------------------------------------------ | ------------------------------------ | -------------------------------------------------------------------------------- | ------------------ | ------ | --------- | ------- | ---------
|
|Net sales                                                                                                                |                                      | $                                                                                | 461,137            |        | 428,150   |         | 388,240  
|Cost of goods sold                                                                                                       |                                      |                                                                                  | 419,299            |        | 400,289   |         | 365,328  
|                                                                                                                         |                                      |                                                                                  |                    |        |           |         |          
|                                                                                                                         |                                      | Gross profit                                                                     |                    |        | 41,838    |         | 27,861   
|Operating expenses:                                                                                                      |                                      |                                                                                  |                    |        |           |         |          
|                                                                                                                         | Selling, general, and administrative |                                                                                  |                    | 44,526 |           | 44,172  |          
|                                                                                                                         | Impairment and restructuring charges |                                                                                  |                    | 16,414 |           | 18,139  |          
|                                                                                                                         | Amortization of intangibles          |                                                                                  |                    | (408   | )         | (255    | )        
|                                                                                                                         | Other income, net                    |                                                                                  |                    | (606   | )         | (10,920 | )        
|                                                                                                                         |                                      |                                                                                  |                    |        |           |         |          
|                                                                                                                         |                                      | Total operating expenses, net                                                    |                    |        | 59,926    |         | 51,136   
|                                                                                                                         |                                      |                                                                                  |                    |        |           |         |          
|                                                                                                                         |                                      | Operating loss                                                                   |                    |        | (18,088   | )       | (23,275  
|Interest expense                                                                                                         |                                      |                                                                                  | 9,452              |        | 11,329    |         | 10,848   
|Minority interest in net earnings (loss) of subsidiaries                                                                 |                                      |                                                                                  | 66                 |        | (57       | )       | (52      
|                                                                                                                         |                                      |                                                                                  |                    |        |           |         |          
|                                                                                                                         |                                      | Loss before income taxes                                                         |                    |        | (27,606   | )       | (34,547  
|Income tax expense (benefit)                                                                                             |                                      |                                                                                  | (15,927            | )      | 1,892     |         | (6,956   
|                                                                                                                         |                                      |                                                                                  |                    |        |           |         |          
|                                                                                                                         |                                      | Loss before cumulative effect of a change in accounting principle                |                    |        | (11,679   | )       | (36,439  
|                                                                                                                         |                                      |                                                                                  |                    |        |           |         |          
|Cumulative effect on prior years of a change in accounting for derivative financial instruments, net of $364 tax benefit |                                      |                                                                                  |                   |        | (546      | )       |         
|                                                                                                                         |                                      |                                                                                  |                    |        |           |         |          
|                                                                                                                         |                                      | Net loss                                                                         |                    | $      | (11,679   | )       | (36,985  
|                                                                                                                         |                                      |                                                                                  |                    |        |           |         |          
|Net loss per common and common equivalent shares:                                                                        |                                      |                                                                                  |                    |        |           |         |          
|                                                                                                                         | Basic and diluted:                   |                                                                                  |                    |        |           |         |          
|                                                                                                                         |                                      | Loss before cumulative effect of a change in accounting principle                |                    | $      | (1.53     | )       | (4.74    
|                                                                                                                         |                                      | Cumulative effect of a change in accounting for derivative financial instruments |                    |        |          |         | (0.07    
|                                                                                                                         |                                      |                                                                                  |                    |        |           |         |          
|                                                                                                                         |                                      |                                                                                  | Net loss per share |        | $         | (1.53   | )        
|                                                                                                                         |                                      |                                                                                  |                    |        |           |         |          
|Weighted average number of common and equivalent shares outstandingbasic and diluted                                    |                                      |                                                                                  | 7,648,616          |        | 7,685,339 |         | 7,716,479
|                                                                                                                         |                                      |                                                                                  |                    |        |           |         |          

See
accompanying notes to consolidated financial statements.

F-3

---



ATCHISON CASTING CORPORATION  AND SUBSIDIARIES        Consolidated Statements of Comprehensive Income (Loss)        Years ended June 30, 2000, 2001, and 2002        (Dollars in
thousands)

|                                   |                                          | 2000               |         | 2001   |         | 2002   |        
|---------------------------------- | ---------------------------------------- | ------------------ | ------- | ------ | ------- | ------ | -------
|
|Net loss                           |                                          | $                  | (11,679 | )      | (36,985 | )      | (28,080
|Other comprehensive income (loss): |                                          |                    |         |        |         |        |        
|                                   | Foreign currency translation adjustments |                    |         | (2,817 | )       | (4,716 | )      
|                                   | Minimum pension liability adjustments    |                    |         |       |         |       |        
|                                   |                                          |                    |         |        |         |        |        
|                                   |                                          | Comprehensive loss |         | $      | (14,496 | )      | (41,701
|                                   |                                          |                    |         |        |         |        |        

See
accompanying notes to consolidated financial statements.

F-4

---



ATCHISON CASTING CORPORATION  AND SUBSIDIARIES        Consolidated Statements of Stockholders' Equity        Years ended June30, 2000, 2001, and 2002        (Dollars in thousands)

|                                   |                                                                                   | Common
stock |    | Additional
paid-in
capital |        | Retained
earnings
(deficit) |         | Accumulated
other
comprehensive
income (loss) |        | Common
stock
held in
treasury |        | Total |        
|---------------------------------- | --------------------------------------------------------------------------------- | ------------ | -- | -------------------------- | ------ | --------------------------- | ------- | --------------------------------------------- | ------ | ----------------------------- | ------ | ----- | -------
|Balance, June 30, 1999 (Unaudited) |                                                                                   | $            | 83 |                            | 81,216 |                             | 54,527  |                                               | (1,193 | )                             | (6,048 | )     | 128,585
|                                   | Issuance of 36,371 shares (Unaudited)                                             |              |    |                           |        | 244                         |         |                                              |        |                              |        |      |        
|                                   | Foreign currency translation adjustment of investment in subsidiaries (Unaudited) |              |    |                           |        |                            |         |                                              |        | (2,817                        | )      |      |        
|                                   | Net loss (Unaudited)                                                              |              |    |                           |        |                            |         | (11,679                                       | )      |                              |        |      |        
|                                   |                                                                                   |              |    |                            |        |                             |         |                                               |        |                               |        |       |        
|Balance, June 30, 2000 (Unaudited) |                                                                                   |              | 83 |                            | 81,460 |                             | 42,848  |                                               | (4,010 | )                             | (6,048 | )     | 114,333
|                                   | Issuance of 16,075 shares (Unaudited)                                             |              |    |                           |        | 57                          |         |                                              |        |                              |        |      |        
|                                   | Foreign currency translation adjustment of investment in subsidiaries (Unaudited) |              |    |                           |        |                            |         |                                              |        | (4,716                        | )      |      |        
|                                   | Net loss (Unaudited)                                                              |              |    |                           |        |                            |         | (36,985                                       | )      |                              |        |      |        
|                                   |                                                                                   |              |    |                            |        |                             |         |                                               |        |                               |        |       |        
|Balance, June 30, 2001 (Unaudited) |                                                                                   |              | 83 |                            | 81,517 |                             | 5,863   |                                               | (8,726 | )                             | (6,048 | )     | 72,689 
|                                   | Issuance of 33,684 shares                                                         |              |    |                           |        | 96                          |         |                                              |        |                              |        |      |        
|                                   | Foreign currency translation adjustment of investment in subsidiaries             |              |    |                           |        |                            |         |                                              |        | 4,296                         |        |      |        
|                                   | Minimum pension liability adjustment                                              |              |    |                           |        |                            |         |                                              |        | (2,141                        | )      |      |        
|                                   | Net loss                                                                          |              |    |                           |        |                            |         | (28,080                                       | )      |                              |        |      |        
|                                   |                                                                                   |              |    |                            |        |                             |         |                                               |        |                               |        |       |        
|Balance, June 30, 2002             |                                                                                   | $            | 83 |                            | 81,613 |                             | (22,217 | )                                             | (6,571 | )                             | (6,048 | )     | 46,860 
|                                   |                                                                                   |              |    |                            |        |                             |         |                                               |        |                               |        |       |        

See
accompanying notes to consolidated financial statements.

F-5

---



ATCHISON CASTING CORPORATION  AND SUBSIDIARIES        Consolidated Statements of Cash Flows        Years ended June 30, 2000, 2001, and 2002        (Dollars in thousands)

|                                             |                                                                                 | 2000                                                      |                                               | 2001                                                 |         | 2002    |        
|-------------------------------------------- | ------------------------------------------------------------------------------- | --------------------------------------------------------- | --------------------------------------------- | ---------------------------------------------------- | ------- | ------- | -------
|
|Cash flows from operating activities:        |                                                                                 |                                                           |                                               |                                                      |         |         |        
|                                             | Net loss                                                                        |                                                           | $                                             | (11,679                                              | )       | (36,985 | )      
|                                             | Adjustments to reconcile net loss to net cash provided by operating activities: |                                                           |                                               |                                                      |         |         |        
|                                             |                                                                                 | Depreciation and amortization                             |                                               |                                                      | 14,198  |         | 13,584 
|                                             |                                                                                 | Minority interest in net earnings (loss) of subsidiaries  |                                               |                                                      | 66      |         | (57    
|                                             |                                                                                 | Impairment charges                                        |                                               |                                                      | 16,414  |         | 18,139 
|                                             |                                                                                 | Loss (gain) on disposal of property, plant, and equipment |                                               |                                                      | (486    | )       | 588    
|                                             |                                                                                 | Loss on the sale of subsidiary operations                 |                                               |                                                      |        |         |       
|                                             |                                                                                 | Write-off of remaining investment in Autun                |                                               |                                                      |        |         |       
|                                             |                                                                                 | Gain on termination of interest rate swap agreements      |                                               |                                                      | (1,083  | )       |       
|                                             |                                                                                 | Deferred income tax expense (benefit)                     |                                               |                                                      | (12,852 | )       | 1,364  
|                                             |                                                                                 | Changes in assets and liabilities:                        |                                               |                                                      |         |         |        
|                                             |                                                                                 |                                                           | Customer accounts receivable                  |                                                      |         | (5,848  | )      
|                                             |                                                                                 |                                                           | Income tax refund receivable                  |                                                      |         |        |        
|                                             |                                                                                 |                                                           | Inventories                                   |                                                      |         | 8,292   |        
|                                             |                                                                                 |                                                           | Other current assets                          |                                                      |         | 6,902   |        
|                                             |                                                                                 |                                                           | Accounts payable                              |                                                      |         | 2,119   |        
|                                             |                                                                                 |                                                           | Accrued expenses                              |                                                      |         | (1,887  | )      
|                                             |                                                                                 |                                                           | Postretirement obligations other than pension |                                                      |         | 921     |        
|                                             |                                                                                 |                                                           | Other                                         |                                                      |         | (81     | )      
|                                             |                                                                                 |                                                           |                                               |                                                      |         |         |        
|                                             |                                                                                 |                                                           |                                               | Cash provided by operating activities                |         |         | 14,996 
|                                             |                                                                                 |                                                           |                                               |                                                      |         |         |        
|Cash flows from investing activities:        |                                                                                 |                                                           |                                               |                                                      |         |         |        
|                                             | Capital expenditures                                                            |                                                           |                                               | (20,531                                              | )       | (11,182 | )      
|                                             | Proceeds from sale of property, plant, and equipment                            |                                                           |                                               | 3,408                                                |         | 2,228   |        
|                                             | Payments for purchases of minority interest in subsidiaries                     |                                                           |                                               | (2,737                                               | )       | (617    | )      
|                                             | Proceeds from sales of net assets of subsidiary operations                      |                                                           |                                               |                                                     |         |        |        
|                                             |                                                                                 |                                                           |                                               |                                                      |         |         |        
|                                             |                                                                                 |                                                           |                                               | Cash provided by (used in) investing activities      |         |         | (19,860
|                                             |                                                                                 |                                                           |                                               |                                                      |         |         |        
|Cash flows from financing activities:        |                                                                                 |                                                           |                                               |                                                      |         |         |        
|                                             | Proceeds from issuance of common stock                                          |                                                           |                                               | 244                                                  |         | 57      |        
|                                             | Proceeds from issuance of long-term debt                                        |                                                           |                                               | 35,000                                               |         | 1,065   |        
|                                             | Payments on long-term debt                                                      |                                                           |                                               | (42,010                                              | )       | (6,636  | )      
|                                             | Capitalized financing costs paid                                                |                                                           |                                               | (620                                                 | )       | (155    | )      
|                                             | Termination of interest rate swap agreements                                    |                                                           |                                               | 1,083                                                |         |        |        
|                                             | Net borrowings under revolving credit facilities                                |                                                           |                                               | 11,285                                               |         | 9,668   |        
|                                             |                                                                                 |                                                           |                                               |                                                      |         |         |        
|                                             |                                                                                 |                                                           |                                               | Cash provided by (used in) financing activities      |         |         | 4,982  
|                                             |                                                                                 |                                                           |                                               |                                                      |         |         |        
|Effect of exchange rate on cash              |                                                                                 |                                                           | (209                                          | )                                                    | (181    | )       | 51     
|                                             |                                                                                 |                                                           |                                               |                                                      |         |         |        
|                                             |                                                                                 |                                                           |                                               | Net increase (decrease) in cash and cash equivalents |         |         | (91    
|Cash and cash equivalents, beginning of year |                                                                                 |                                                           | 3,906                                         |                                                      | 3,815   |         | 1,329  
|                                             |                                                                                 |                                                           |                                               |                                                      |         |         |        
|Cash and cash equivalents, end of year       |                                                                                 | $                                                         | 3,815                                         |                                                      | 1,329   |         | 1,583  
|                                             |                                                                                 |                                                           |                                               |                                                      |         |         |        

See
accompanying notes to consolidated financial statements.

F-6

---



ATCHISON CASTING CORPORATION  AND SUBSIDIARIES        Notes to Consolidated Financial Statements        June 30, 2000, 2001, and 2002        (Dollars in thousands, except share data)
      (Information as of June 30, 2001 and for  the Years ended June 30, 2000 and 2001 is unaudited

(1) Summary of Significant Accounting Policies



F-7

---



F-8

---



F-9

---



F-10

---



F-11

---



(2) Plant Closures, Downsizing, and Asset Impairments



F-12

---



F-13

---







(3) Plant Sales and Asset Impairments



F-14

---



(4) Acquisition and Liquidation of Autun

On February 25, 1999, Autun purchased the foundry division assets of Compagnie Internationale du Chauffage (CICH) located in Autun, France. Autun received
certain assets of the foundry, including $5,847 in cash and $5,505 in inventory, in exchange for the assumption of potential environmental and employment liabilities if the facility is closed. Autun
specialized in the manufacture of cast iron radiators and boiler castings.

The
acquisition of Autun was accounted for by the purchase method of accounting, and accordingly, the purchase price, including the related acquisition expenses, was allocated to the
assets acquired based on the estimated fair values at the date of the acquisition. 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. The purchase of Autun resulted in remaining
excess fair value after allocation to long-term assets, which was recorded as negative goodwill and included in excess of fair value of acquired net assets over cost on the consolidated
balance sheets. Amortization of negative goodwill was $1,897, $1,607, and $1,199 for the years ended June 30, 2000, 2001, and 2002, respectively.

The
Company's strategy was to restructure the foundry to make different products, principally automotive and appliance castings. Autun was successful in obtaining new customers and work
in these markets. However, start-up costs for the new products and losses with some customers on Autun's historical cast iron radiator business, coupled with the inability to lower
employment levels without significant severance costs, resulted in the need for Autun to file for a plan of reorganization. As a result, on April 9, 2002, Autun, a French corporation, filed a
voluntary petition for reorganization with the local court in Chalons, France.

Autun
was initially granted local court approval to continue operating. The court-appointed administrator tried to sell Autun. However, after failing to sell Autun, the administrator
recommended to the court that Autun be liquidated. On September 19, 2002, the court appointed a liquidator to begin the liquidation of Autun. During the fourth quarter of fiscal 2002, the
Company recorded a charge of $567 to write off its remaining net investment in Autun. The Company also recorded, in the fourth quarter of fiscal 2002, a charge of approximately $3,462 relating to the
Company's guarantee of Autun's obligations under certain lease agreements. Such charges, aggregating $4,029, are included in impairment and restructuring charges in the 2002 consolidated statement of
operations. Effective April 1, 2002, the Company is no longer consolidating Autun's results into its consolidated financial statements.

The
French government might be able to make an environmental claim against CICH. The Company guaranteed payment of certain contingent liabilities of up to 100 million French
francs (currently $13.3 million) when it purchased Autun, for the cost of environmental restoration, if any, in

F-15

---

the event Autun was closed and a claim was successfully made against CICH. The Company estimates that environmental liabilities, if asserted, could amount to $8,000. The ultimate outcome of this
matter is not presently determinable. Should the Company ultimately be liable for all or a significant amount of such contingent liabilities, this matter would have a material adverse effect on the
Company's financial position, results of operations and cash flows and may adversely impact the Company's business plan. No accruals have been made in the accompanying 2002 consolidated financial
statements for the environmental guarantees.

In
the first nine months of fiscal 2002, Autun recorded net sales of $13,900 and a net loss of $1,600. For fiscal 2000 and 2001, Autun recorded net sales of $17,600 and $17,400 and a net
income (loss) of $230 and $(88), respectively.

(5) Inventories

2001

2002Raw materials

$
7,587

6,403Work-in-process


38,889

31,572Finished goods


10,138

10,758Supplies


2,003

1,982$
58,617

50,715


Inventories
as of June 30, 2001 and 2002 would have been higher by $710 and $555, respectively, had the Company used the FIFO method of valuing those inventories which are valued
using the LIFO method.

(6) Property, Plant, and Equipment

Lives
(in years)

2001

2002Land



$
13,332

12,924Improvements to land

12 - 15


2,587

2,820Buildings and improvements

35


31,258

25,702Machinery and equipment

5 - 14


122,819

114,413Automobiles and trucks

3


1,200

880Office furniture, fixtures, and equipment

5 - 10


5,996

5,998Tooling and patterns

1.5 - 6


4,376

5,066181,568

167,803Less accumulated depreciation




72,220

75,289109,348

92,514Construction in progress




3,661

1,664$
113,009

94,178


Depreciation
expense was $14,345, $13,489, and $10,751 for the years ended June 30, 2000, 2001, and 2002, respectively.

As
of June 30, 2002, property, plant, and equipment with a remaining net carrying value of $1,530 are related to the foundries discussed in note 2 and are included in the
amounts above.

F-16

---

(7) Goodwill

2001

2002Goodwill

$
31,021

29,317Less accumulated amortization


6,659

7,007$
24,362

22,310


Amortization
expense was $1,489, $1,345, and $1,206 for the years ended June 30, 2000, 2001, and 2002, respectively.

(8) Deferred Financing Costs

Lives
(in years)

2001

2002Deferred financing costs

3 - 10

$
1,510

2,293Less accumulated amortization




789

1,084$
721

1,209


Amortization
of such costs, included in interest expense, was $261, $357, and $946 for the years ended June 30, 2000, 2001, and 2002, respectively.

(9) Accrued Expenses

2001

2002Accrued warranty

$
9,001

7,952Payroll, vacation, and other compensation


7,978

6,514Accrued pension liability


1,993

2,266Advances from customers


7,849

10,433Reserve for flood repairs (note 21)


597

Reserve for workers' compensation and employee health care


4,009

5,942Taxes other than income


826

1,327Interest payable


1,030

392Accrued Autun lease obligations




3,462Other


1,094

5,849$
34,377

44,137


F-17

---

(10) Long-term Debt

Long-term debt consists of the following as of June 30, 2001 and 2002:

|                                                                                                                                                                                                                                                                                                                                                                        |                      | 2001 |         | 2002 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | ---- | ------- | -----
|Senior notes with an insurance company, secured by certain assets of the Company, maturing on July 30, 2004, subject to acceleration due to covenant violations, bearing interest at fixed rates of 10.19% and 10.44% at June
30, 2001 and 2002, respectively                                                                                                           |                      | $    | 11,429  |      
|Revolving credit facility with Harris, secured by certain assets of the Company, maturing on April 3, 2003, subject to acceleration due to covenant violations, bearing interest at:
        Prime plus 1.75%, $63,220 at 8.50% at June 30, 2001
        Prime plus 1.25%, $7,272 at 8.00% at June 30, 2001
        Prime plus 2.00%, $60,791 at 6.75% at June 30, 2002 |                      |      | 70,492  |      
|Term loan between the Company and GECC, secured by certain assets of the Company, maturing on December 29, 2004, subject to acceleration due to covenant violations, bearing interest at 9.05%                                                                                                                                                                          |                      |      | 29,750  |      
|Receivables program and revolving credit facility with Burdale Financial Limited, secured by certain assets of ACUK, maturing on September 17, 2004, bearing interest at LIBOR plus 2.60%, 6.725% at June 30, 2002                                                                                                                                                      |                      |      |        |      
|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%                                                                                                                                                |                      |      | 1,840   |      
|Term loan between La Grange Foundry and the Missouri Development Finance Board, secured by a letter of credit of approximately $5,200, maturing on November 1, 2011, bearing interest at 3.22% and 1.63% at June 30, 2001 and
2002, respectively                                                                                                                        |                      |      | 5,100   |      
|Revolving credit facility between Autun and Societe Generale, secured by trade receivables of Autun, bearing interest at EURIBOR plus 0.8%, 4.50% at June 30, 2001                                                                                                                                                                                                      |                      |      | 1,866   |      
|Term loan between the Company and Cananwill, Inc., secured by certain prepaid and unearned insurance premiums, maturing on March 14, 2002, bearing interest at 7.50%                                                                                                                                                                                                    |                      |      | 1,065   |      
|Term loan between the Company and A.I. Credit Corp., secured by certain prepaid and unearned insurance premiums, maturing on October 9, 2002, bearing interest at 8.61%                                                                                                                                                                                                 |                      |      |        |      
|                                                                                                                                                                                                                                                                                                                                                                        |                      |      |         |      
|                                                                                                                                                                                                                                                                                                                                                                        |                      |      | 121,542 |      
|Less amounts classified as current                                                                                                                                                                                                                                                                                                                                      |                      |      | 114,894 |      
|                                                                                                                                                                                                                                                                                                                                                                        |                      |      |         |      
|                                                                                                                                                                                                                                                                                                                                                                        | Total long-term debt |      | $       | 6,648
|                                                                                                                                                                                                                                                                                                                                                                        |                      |      |         |      

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

F-18

---

The
Credit Agreement and the Note Purchase Agreement, including certain of the financial and other covenants included therein, have been amended at various times since their
originations. The Company is in violation of virtually all of the financial covenants of the Credit Agreement and the Note Purchase Agreement. At various dates throughout and subsequent to fiscal
2002, the Company and these lenders have entered into amendments and forbearance agreements wherein the lenders have agreed to forbear from enforcing their rights with respect to certain events of
default under the debt agreements. These forbearance agreements currently expire on October 17, 2002, after which the lenders can exercise their rights to demand payment of the amounts due
under the debt agreements. The Company has also been in violation of certain financial covenants contained in the Master Security Agreement with GECC. GECC agreed to forbear from enforcing its rights
with respect to certain events of default under the Master Security Agreement through September 30, 2001. Although GECC has elected not to exercise its rights relating to the covenant defaults,
it can do so at any time. Accordingly, all of the debt under these agreements is classified as current in the accompanying 2001 and 2002 consolidated financial statements.

Virtually
all assets of the Company in North America are pledged as collateral under the various debt agreements and proceeds from the sales of assets other than inventory may only be
used by the
Company for purposes approved by these secured lenders. Terms of the Credit Agreement, the Note Purchase Agreement, and the Master Security Agreement, as amended, prohibit the Company from paying
dividends and incurring additional debt, except for the new debt as discussed below. As of June 30, 2002, the Company had approximately $1,100 available for borrowing under the Credit
Agreement.

In
September 2001, ACUK, a subsidiary of the Company, ACUK's subsidiaries, and Burdale Financial Limited, entered into the Facility Agreement. This Facility Agreement provides for
a facility of up to 25 million British pounds (approximately $35,000), subject to certain eligibility calculations, to be used to fund working capital requirements at Sheffield, a subsidiary of
ACUK, and up to 1.0 million British pounds for working capital at Autun. In addition, the Facility Agreement provides security for Sheffield's foreign currency exchange contracts and
performance bond commitments. $5,000 was paid to the Company in the United States as a partial repayment of an intercompany working capital loan, $1,100 of which was paid to certain of the other
lenders as principal payments. As of June 30, 2002, ACUK had approximately $3,300 available for borrowing under the Facility Agreement for Sheffield's operations. The Facility Agreement
contains several covenants which, among other things, require ACUK to maintain balances under certain eligibility levels. Management believes ACUK is in substantial compliance with those covenants at
June 30, 2002 and accordingly, has not classified the outstanding borrowings as current in the accompanying 2002 consolidated balance sheet. However, there can be no assurance that ACUK will
continue its compliance or that Burdale will not assert noncompliance, in which case Burdale may exercise its right to demand payment of the debt.

The
amounts of long-term debt outstanding as of June 30, 2002 are payable as follows, after giving effect to reclassification due to covenant violations:

AmountYear ended June 30:2003

$
97,9582004


3292005


14,5282006


3742007


331Thereafter


5,100Total

$
118,620


F-19

---

The
amounts of interest expense for the years ended June 30, 2000, 2001, and 2002 consisted of the following:

2000

2001

2002Senior notes with an insurance company

$
1,224

1,076

1,101Credit facility with Harris


6,071

6,851

4,831Term loan with GECC


1,520

2,951

2,576Credit facility with Burdale






829Amortization of deferred financing costs


261

357

946Other


376

94

565$
9,452

11,329

10,848


(11) Income Taxes

Earnings (loss) before income taxes is comprised of the following:

2000

2001

2002Domestic

$
(28,533
)
(35,946
)
(23,541
)Foreign


927

489

(11,495
)$
(27,606
)
(35,457
)
(35,036
)


Income
taxes for the years ended June 30, 2000, 2001, and 2002 are comprised of the following:

2000

2001

2002Current expense (benefit):Federal

$
(3,329
)


(7,146
)State and local


(201
)
173

Foreign


455

(9
)
1,112(3,075
)
164

(6,034
)Deferred expense (benefit):Federal


(10,654
)
(4,881
)
State and local


(1,558
)
(558
)
(922
)Foreign


(640
)
6,803

(12,852
)
1,364

(922
)$
(15,927
)
1,528

(6,956
)


F-20

---

|                                                                  |                                  | 2000 |         | 2001   |       | 2002   |     
|----------------------------------------------------------------- | -------------------------------- | ---- | ------- | ------ | ----- | ------ | ----
|Items giving rise to the deferred income tax provision (benefit): |                                  |      |         |        |       |        |     
|                                                                  | Deferred gain on flood proceeds  |      | $       | (7,786 | )     |       |     
|                                                                  | Impairment reserve               |      |         | (5,589 | )     | (5,516 | )   
|                                                                  | Depreciation and amortization    |      |         | 1,623  |       | 3,427  |     
|                                                                  | Net operating loss carryforwards |      |         | (916   | )     | (9,789 | )   
|                                                                  | Misappropriation                 |      |         | (695   | )     | 695    |     
|                                                                  | Flood wall capitalization        |      |         | 429    |       |       |     
|                                                                  | Postretirement benefits          |      |         | (419   | )     | (408   | )   
|                                                                  | Pension costs                    |      |         | 267    |       | 163    |     
|                                                                  | Inventories                      |      |         | 245    |       | (304   | )   
|                                                                  | Accrued expenses                 |      |         | 4      |       | (279   | )   
|                                                                  | Valuation allowance              |      |         | 4      |       | 13,427 |     
|                                                                  | Other, net                       |      |         | (19    | )     | (52    | )   
|                                                                  |                                  |      |         |        |       |        |     
|                                                                  |                                  | $    | (12,852 | )      | 1,364 |        | (922
|                                                                  |                                  |      |         |        |       |        |     

Following
is a reconciliation between total income taxes and the amount computed by multiplying earnings (loss) before income taxes (including the cumulative effect of the change in
accounting principle) plus the minority interest in net income of subsidiaries by the statutory Federal income tax rate:

|                                                                       |  | 2000 |         | 2001 |       | 2002 |  
|---------------------------------------------------------------------- |  | ---- | ------- | ---- | ----- | ---- | -
|
|Computed expected Federal income tax expense (benefit)                 |  | $    | (9,639  | )    | (35.0 | )    | $
|State income tax expense (benefit), net of Federal benefit             |  |      | (389    | )    | (1.4  | )    |  
|Non-U.S. taxes                                                         |  |      | 156     |      | 0.6   |      |  
|Foreign dividends                                                      |  |      | 780     |      | 2.8   |      |  
|Amortization of goodwill                                               |  |      | 709     |      | 2.6   |      |  
|Revision of estimate for deferred taxes associated with flood proceeds |  |      | (7,786  | )    | (28.3 | )    |  
|Other, net                                                             |  |      | 238     |      | 0.9   |      |  
|Change in valuation allowance                                          |  |      | 4       |      |      |      |  
|                                                                       |  |      |         |      |       |      |  
|                                                                       |  | $    | (15,927 | )    | (57.8 | )    | $
|                                                                       |  |      |         |      |       |      |  

F-21

---

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. The 2001 and 2002 deferred tax asset balances for net operating loss carryforwards, foreign tax credit, and AMT credit have been adjusted with an offsetting adjustment to the
valuation allowance. These adjustments have no net effect on the net deferred tax asset at June 30, 2001 and 2002. Deferred income taxes as of June 30, 2001 and 2002 are comprised of the
following:

|                          |                                  | 2001                    |         | 2002    |        
|------------------------- | -------------------------------- | ----------------------- | ------- | ------- | -------
|Deferred tax assets:      |                                  |                         |         |         |        
|                          | Net operating loss carryforwards |                         | $       | 30,838  |        
|                          | Impairment reserve               |                         |         | 11,104  |        
|                          | Postretirement benefits          |                         |         | 3,932   |        
|                          | Accrued expenses                 |                         |         | 2,987   |        
|                          | Pension costs                    |                         |         | 1,119   |        
|                          | General business tax credits     |                         |         | 529     |        
|                          | Foreign tax credit               |                         |         | 1,873   |        
|                          | AMT credit                       |                         |         | 918     |        
|                          | Other                            |                         |         | 497     |        
|                          |                                  |                         |         |         |        
|                          |                                  |                         | 53,797  |         | 57,150 
|Valuation allowance       |                                  |                         | (30,579 | )       | (35,177
|                          |                                  |                         |         |         |        
|                          |                                  | Net deferred tax assets |         |         | 23,218 
|                          |                                  |                         |         |         |        
|Deferred tax liabilities: |                                  |                         |         |         |        
|                          | Depreciation and amortization    |                         |         | (23,046 | )      
|                          | Inventories                      |                         |         | (1,216  | )      
|                          | Discharge of indebtedness        |                         |         | (422    | )      
|                          | Other                            |                         |         | (649    | )      
|                          |                                  |                         |         |         |        
|                          |                                  |                         | (25,333 | )       | (23,166
|                          |                                  |                         |         |         |        
|                          |                                  | Total                   |         | $       | (2,115 
|                          |                                  |                         |         |         |        

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 were not provided on $1,468 and $722 of cumulative undistributed earnings
from United Kingdom operations for 2001 and 2002, respectively. U.S. income taxes on such earnings, if ultimately remitted to the U.S., may be recoverable as foreign tax credits.

The
Company has federal net operating loss carryforwards that were acquired during previous years totaling approximately $7,225 at June 30, 2002, which expire in the years 2007
through 2012. These federal net operating loss carryforwards that were acquired during previous years are subject to the ownership change rules defined by Section 382 of the Internal Revenue
Code (the Code). As a result of this event, the Company will be limited in its ability to use such net operating loss carryforwards. 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 additional federal net operating loss carryforwards totaling approximately $22,800 at June 30, 2002, which will expire in the year 2022. The utilization of such
net operating loss carryforwards is restricted to the earnings of the U.S. consolidated group. The Company also has foreign net operating loss carryforwards totaling approximately $66,880 at
June 30, 2002, which have no
expiration date. The utilization of such net operating loss carryforwards is restricted to the earnings of specific foreign subsidiaries. As a result of such restrictions, the Company has established
a valuation

F-22

---

allowance of $30,579 and $35,177 in 2001 and 2002, respectively, related to the federal, state and foreign net operating loss carryforwards to reduce the deferred tax assets to the amounts that
management believes are more likely than not to be realized.

The
Company recorded a $7,786 deferred income tax benefit in fiscal year 2000 with respect to the reinvestment of certain flood insurance proceeds received in 1995 and 1996. The Company
recorded pretax gains of approximately $20,100 in 1995 and 1996 related to insurance proceeds resulting from flood damage to the Company's Atchison, Kansas foundry in July 1993. For Federal
income tax purposes, the Company treated the flood as an involuntary conversion event under the Code and related Treasury Regulations.

The
Code provides generally that if certain conditions are met, gains on insurance proceeds from an involuntary conversion are not taxable if the proceeds are reinvested in qualified
replacement property within two years after the close of the first taxable year in which any part of the conversion gain is realized. The Company believed that its treatment of certain foundry
subsidiary stock acquisitions as qualified replacement property was subject to potential challenge by the Internal Revenue Service (IRS) in 1996 (the first year in which involuntary conversion gain
was deferred for Federal income tax purposes). The Company recorded income tax expense on the insurance gains in 1996 pending review of its position by the IRS or the expiration of the statute of
limitations under the Code for the IRS to assess income taxes with respect to the Company's position.

The
Company's treatment of certain foundry subsidiary stock acquisitions as qualified replacement property creates differing bases in the foundry subsidiary stock for financial statement
and tax purposes. These differences have not been recognized as taxable temporary differences under SFAS No. 109 since the subsidiary basis differences can be permanently deferred through
subsidiary mergers or tax-free liquidations. On March 15, 2000, the statute of limitations for the IRS to assess taxes with respect to the Company's position expired. The deferred
taxes recorded in the consolidated financial statements in prior years were no longer required.

(12) Financial Instruments

The Company's financial instruments include cash and cash equivalents, customer accounts receivable, accounts payable, debt obligations, and derivative financial
instruments, including interest rate swap agreements, forward foreign exchange contracts, and foreign currency swap agreements.

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 counterparties, 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.



F-23

---



F-24

---



|                   |       | June 30, 2001
|------------------ | ----- | -------------
|
|U.S. dollars       |       | 45,734       
|Deutsche marks     |       | 7,605        
|French francs      |       | 5,244        
|Swiss francs       |       | 64           
|Italian lira       |       | 550,154      
|Canadian dollars   |       | 5,482        
|Dutch guilder      |       | 91           
|Swedish krona      |       | 14,728       
|Spanish pesetas    |       | 57,563       
|Austrian schilling |       | 3,978        
|Japanese yen       |       | 757          
|Danish krona       |       | 6,454        
|Finnish marka      |       | 426          
|Euro               |       | 15,721       
|                   |       |              
|                   | Total |              
|                   |       |              

---



F-25

---



(13) Stockholders' Equity

In fiscal year 2000, the Company's board of directors established a Stockholder Rights Plan and distributed to stockholders one preferred stock purchase right for
each outstanding share of common stock. Under certain circumstances, a right may be exercised to purchase one one-thousandth of a share of Series A Participating Cumulative
Preferred Stock at an exercise price of $30 per share, subject to adjustment. The rights become exercisable on the business day following the tenth business day after the commencement of a tender
offer for at least 20% of the Company's common stock or a public announcement that a party or group has acquired at least 20% of the Company's common stock. Generally, after the rights become
exercisable, the holders may purchase that number of preferred shares having a market value equal to twice the exercise price for an amount in cash equal to the exercise price. If the Company's board
of directors elects, it may exchange all of the outstanding rights for shares of common stock on a one-for-one basis. If the Company is a party to certain merger or business
combination transactions, or transfers 50% or more of its assets or earnings power, and certain other events occur, each right will entitle its holders, other than the acquiring person, to buy for the
exercise price a number of shares of common stock of the Company or of the other party to the transaction, having a value equal to twice the exercise price of the right. The rights expire on
March 28, 2010 and may be redeemed by the Company for $0.01 per right at any time until ten business days following the date of the public announcement of the acquisition of 20% or more of the
Company's common stock or the commencement date of a tender offer for at least 20% of the Company's common stock. The Company is authorized by the board of directors to issue 2,000,000 shares of
preferred stock, none of which have been issued. The Company has designated 10,000 shares of the preferred stock as Series A Participating Cumulative Preferred Stock for the purpose of the
Stockholder
Rights Plan. The Stockholder Rights Plan was ratified by stockholders at the Company's annual meeting on June 29, 2001.

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

F-26

---

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, 2000, 2001,
and 2002, 36,371, 16,075, and 0 common shares, respectively, were purchased by employees under the Purchase Plan. At June 30, 2002, 237,594 shares remained available for grant. After accounting
irregularities were discovered in the second quarter of fiscal 2001, purchases of shares under the Purchase Plan were suspended. The Purchase Plan was still frozen as of June 30, 2002.

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 value at the date of grant. The
options vest equally over a three-year period 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. Activity in the Incentive Plan for the three years ended June 30, 2002 is summarized in
the following table:

|                           |             | Shares under
option |          | Price range
per share |              | Weighted
average price
per share
|-------------------------- | ----------- | ------------------- | -------- | --------------------- | ------------ | --------------------------------
|Outstanding, June 30, 1999 |             | 328,033             |          | $                     | 8.50 - 19.13 |                                 
|                           | Issued      |                     | 66,500   |                       |              | 7.06 - 10.38                    
|                           | Surrendered |                     | (12,300  | )                     |              | 10.38 - 14.13                   
|                           |             |                     |          |                       |              |                                 
|Outstanding, June 30, 2000 |             | 382,233             |          |                       | 7.06 - 19.13 |                                 
|                           | Issued      |                     | 133,500  |                       |              | 2.30 - 6.25                     
|                           | Surrendered |                     | (10,000  | )                     |              | 6.25 - 10.38                    
|                           |             |                     |          |                       |              |                                 
|Outstanding, June 30, 2001 |             | 505,733             |          |                       | 2.30 - 19.13 |                                 
|                           | Issued      |                     | 200,500  |                       |              | 0.74 - 2.90                     
|                           | Surrendered |                     | (109,000 | )                     |              | 2.30 - 14.75                    
|                           |             |                     |          |                       |              |                                 
|Outstanding, June 30, 2002 |             | 597,233             |          |                       | 0.74 - 19.13 |                                 
|                           |             |                     |          |                       |              |                                 

As
of June 30, 2000, 2001, and 2002, there were 235,067, 266,733, and 330,567 options, respectively, exercisable under the Incentive Plan. The weighted average exercise price for
options exercisable at June 30, 2000, 2001, and 2002 were $13.91, $13.25, and $12.43, respectively. At June 30, 2002, options to purchase 77,107 shares were authorized but not granted.
The weighted average remaining contractual life of options outstanding under the Incentive Plan at June 30, 2000, 2001, and 2002 was 6.7 years, 6.5 years, and 6.6 years,
respectively.

F-27

---

On November 18, 1994, the Company's stockholders approved the Atchison Casting Nonemployee Director Option Plan (the Director Option Plan). The Director Option Plan provides that
each nonemployee director of the Company who served in such capacity on April 15, 1994 and each nonemployee 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 value at the date of grant. The options under this plan have a six-month
vesting period from the date of grant and remain exercisable for a term of not more than 10 years after the date of grant. Activity in the Director Option Plan for the three years ended
June 30, 2002 is summarized in the following table:

|                           |        | Shares under
option |        | Price range
per share |               | Weighted
average price
per share
|-------------------------- | ------ | ------------------- | ------ | --------------------- | ------------- | --------------------------------
|Outstanding, June 30, 1999 |        | 40,000              |        | $                     | 13.38 - 19.13 |                                 
|                           | Issued |                     | 10,000 |                       |               | 8.75                            
|                           |        |                     |        |                       |               |                                 
|Outstanding, June 30, 2000 |        | 50,000              |        |                       | 8.75 - 19.13  |                                 
|                           |        |                     |        |                       |               |                                 
|Outstanding, June 30, 2001 |        | 50,000              |        |                       | 8.75 - 19.13  |                                 
|                           | Issued |                     | 20,000 |                       |               | 0.86                            
|                           |        |                     |        |                       |               |                                 
|Outstanding, June 30, 2002 |        | 70,000              |        |                       | 0.86 - 19.13  |                                 
|                           |        |                     |        |                       |               |                                 

As
of June 30, 2000, 2001, and 2002, there were 40,000, 50,000, and 50,000 options exercisable, respectively, under the Director Option Plan. The weighted average exercise price
for options exercisable at June 30, 2000, 2001, and 2002 was $13.60. At June 30, 2002, options to purchase 10,000 shares were authorized but not granted. The weighted average remaining
contractual life of options outstanding under the Director Option Plan at June 30, 2000, 2001, and 2002 was 5.6 years, 4.6 years, and 5.4 years, respectively.

The
following table illustrates the range of exercise prices and the weighted average remaining contractual lives for options outstanding under both the Incentive Plan and Director
Option Plan as of June 30, 2002:

|  |               | Options outstanding |         | Options exercisable
|- | ------------- | ------------------- | ------- | -------------------
|
|$ | 13.38         |                     | 119,033 |                    
|  | 14.13 - 14.75 |                     | 41,000  |                    
|  | 15.75         |                     | 20,000  |                    
|  | 16.63 - 19.13 |                     | 40,200  |                    
|  | 9.88 - 18.06  |                     | 31,000  |                    
|  | 8.50 - 10.38  |                     | 103,500 |                    
|  | 5.75 - 8.75   |                     | 105,000 |                    
|  | 2.85 - 2.90   |                     | 137,500 |                    
|  | 0.74 - 0.86   |                     | 70,000  |                    
|  |               |                     |         |                    
|  |               |                     | 667,233 |                    
|  |               |                     |         |                    

F-28

---

The
Company applies APB No. 25 in accounting for its stock option and stock purchase plans, under which no compensation cost has been recognized for such awards. Had compensation
cost for the stock option and stock purchase plans been determined in accordance with the fair value accounting method
prescribed under SFAS No. 123, the Company's net loss and net loss per share on a pro forma basis would have been as follows:

|                                 |             | 2000         |         | 2001    |   | 2002    |  
|-------------------------------- | ----------- | ------------ | ------- | ------- | - | ------- | -
|Net loss:                        |             |              |         |         |   |         |  
|                                 | As reported |              | $       | (11,679 | ) | (36,985 | )
|                                 | Pro forma   |              |         | (12,004 | ) | (37,325 | )
|Net loss and net loss per share: |             |              |         |         |   |         |  
|                                 |             | As reported: |         |         |   |         |  
|                                 |             |              | Basic   |         |   | (1.53   | )
|                                 |             |              | Diluted |         |   | (1.53   | )
|                                 |             | Pro forma:   |         |         |   |         |  
|                                 |             |              | Basic   |         |   | (1.57   | )
|                                 |             |              | Diluted |         |   | (1.57   | )

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.

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 Black Scholes option pricing model. For the Incentive Plan, the weighted average grant-date fair value of stock options granted during fiscal years 2000, 2001, and 2002 was
$5.92, $5.23, and $2.23 per share, respectively. For the Director Option Plan, the weighted average grant-date fair value of stock options granted during fiscal years 2000 and 2002 was
$5.66 and $0.82 per share, respectively. No options were issued under the Director Option Plan in fiscal year 2001. The following weighted average assumptions were used for grants under both option
plans during the years ended June 30, 2000, 2001, and 2002:

2000

2001

2002Risk-free interest rate

5.9
%
6.0
%
5.2
%Expected life

10 years

10 years

10 yearsExpected volatility

41
%
85
%
115
%Dividend yield








For
the Purchase Plan, the weighted average grant-date fair value of options granted under the plan was $1.57 and $1.47, for the years ended June 30, 2000 and 2001,
respectively. No options were issued under the Purchase Plan in fiscal 2002. The following weighted average assumptions were used for grants under the Purchase Plan during the years ended
June 30, 2000 and 2001:

2000

2001Risk-free interest rate

5.2
%
6.0
%Expected life

3 months

3 monthsExpected volatility

41
%
85
%Dividend yield






During
fiscal 2002, the Company issued 33,684 shares to directors as compensation for services rendered. The fair value of such shares of $96,000 was charged to operations in fiscal
2002.

F-29

---

(14) Quarterly Financial Information (Unaudited)

|                                  |         | Three months ended
September 30 |        | Three months ended
December 31 |        | Three months ended
March 31 |         | Three months ended
June 30 |        
|--------------------------------- | ------- | ------------------------------- | ------ | ------------------------------ | ------ | --------------------------- | ------- | -------------------------- | -------
|
|Net sales                         |         | $                               | 99,208 |                                | 99,614 |                             | 105,809 |                            | 100,071
|Gross profit                      |         |                                 | 4,000  |                                | 7,425  |                             | 8,051   |                            | 8,165  
|Operating income (loss)           |         |                                 | (5,361 | )                              | (1,668 | )                           | 6,795   |                            | (2,640 
|Net earnings (loss)               |         |                                 | (5,866 | )                              | (4,483 | )                           | 1,856   |                            | (5,692 
|Earnings (loss) per common share: |         |                                 |        |                                |        |                             |         |                            |        
|                                  | Basic   |                                 |        | (0.76                          | )      | (0.58                       | )       | 0.24                       |        
|                                  | Diluted |                                 |        | (0.76                          | )      | (0.58                       | )       | 0.24                       |        

---

(15) Employee Benefit 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:

2000

2001

2002Service costs

$
6,824

6,055

6,242Interest costs


15,376

15,579

14,895Actual return on net assets


(40,543
)
21,265

(3,299
)Net deferral items


22,269

(41,172
)
(14,459
)$
3,926

1,727

3,379


F-30

---

The
pension plans' assets (primarily U.S. Government securities, common stock, and corporate bonds) are held by a bank. A comparison of the projected benefit obligation and plan assets
at fair value as of June 30, 2001 and 2002 is presented below.

|                                        |                                                                    | 2001                                        |   | 2002     |         
|--------------------------------------- | ------------------------------------------------------------------ | ------------------------------------------- | - | -------- | --------
|
|Change in projected benefit obligation: |                                                                    |                                             |   |          |         
|                                        | Projected benefit obligation at beginning of year                  |                                             | $ | (224,295 | )       
|                                        | Service cost                                                       |                                             |   | (5,519   | )       
|                                        | Interest cost                                                      |                                             |   | (13,439  | )       
|                                        | Curtailments                                                       |                                             |   |         |         
|                                        | Actuarial gain (loss)                                              |                                             |   | 21,439   |         
|                                        | Foreign currency exchange rate changes                             |                                             |   | 13,049   |         
|                                        | Participant contributions                                          |                                             |   | (1,559   | )       
|                                        | Benefits paid                                                      |                                             |   | 6,968    |         
|                                        |                                                                    |                                             |   |          |         
|                                        |                                                                    | Projected benefit obligation at end of year |   |          | (203,356
|                                        |                                                                    |                                             |   |          |         
|Change in plan assets:                  |                                                                    |                                             |   |          |         
|                                        | Fair value of plan assets at beginning of year                     |                                             |   | 249,374  |         
|                                        | Actual return on plan assets                                       |                                             |   | (22,329  | )       
|                                        | Participant contributions                                          |                                             |   | 1,559    |         
|                                        | Employer contribution                                              |                                             |   | 2,869    |         
|                                        | Foreign currency exchange rate changes                             |                                             |   | (14,893  | )       
|                                        | Benefits paid                                                      |                                             |   | (6,968   | )       
|                                        |                                                                    |                                             |   |          |         
|                                        |                                                                    | Fair value of plan assets at end of year    |   |          | 209,612 
|                                        | Plan assets in excess (deficiency) of projected benefit obligation |                                             |   | 6,256    |         
|                                        | Unrecognized prior service costs                                   |                                             |   | 403      |         
|                                        | Unrecognized net obligation                                        |                                             |   | 57       |         
|                                        | Unrecognized net loss                                              |                                             |   | 3,775    |         
|                                        | Additional liability                                               |                                             |   |         |         
|                                        |                                                                    |                                             |   |          |         
|                                        |                                                                    | Accrued pension asset (liability)           |   | $        | 10,491  
|                                        |                                                                    |                                             |   |          |         

2001

2002The actuarial valuations were prepared assuming:Discount rate

7.25
%
7.00
%Expected long-term rate of return on plan assets

9.00
%
9.00
%Salary increases per year

5.00
%
5.00
%


In
accordance with SFAS No. 87,Employers' Accounting for Pensions,the Company has recorded an additional minimum
pension liability for underfunded plans of $887 and $2,472 at June 30, 2001 and 2002, respectively, representing the excess of unfunded accumulated benefit obligations over previously recorded
pension cost liabilities. A corresponding amount is recognized as an intangible asset except to the extent that these additional liabilities exceed related unrecognized prior service cost and net
transition obligation, in which case the increase in liabilities is charged directly to stockholders' equity as a component of other comprehensive income. For 2002, $2,141 of the excess minimum
pension liability resulted in a charge to stockholders' equity.

F-31

---

In addition, the Company sponsors several defined contribution 401(k) benefit plans covering certain of its 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 Company's contribution was $1,387, $1,230,
and $1,251 for the years ended June 30, 2000, 2001, and 2002, respectively.

The
Company's subsidiaries, Prospect Foundry, LA Die Casting, and Jahn Foundry, contributed $320, $256, and $156 for the years ended June 30, 2000, 2001, and 2002, respectively,
to multiemployer pension plans for employees covered by collective bargaining agreements. 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 December 31, 2001, the
date of the most current unaudited information submitted by the plans' administrators, no withdrawal liabilities exist.

The
Company also has various other profit sharing plans. Costs of such plans charged against operations were $907, $862, and $394 for the years ended June 30, 2000, 2001, and
2002, respectively.

(16) Postretirement Obligations Other Than Pensions

The Company provides certain health care and life insurance benefits to certain of its retired employees. SFAS No. 106,Employers'
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 obligations and fair value of plan assets as of
June 30, 2001 and 2002 are as follows:

|                                                         |                                                                         | 2001                                           |   | 2002   |       
|-------------------------------------------------------- | ----------------------------------------------------------------------- | ---------------------------------------------- | - | ------ | ------
|Change in accumulated postretirement benefit obligation: |                                                                         |                                                |   |        |       
|                                                         | Accumulated postretirement benefit obligation at beginning of year      |                                                | $ | 11,171 |       
|                                                         | Service cost                                                            |                                                |   | 552    |       
|                                                         | Interest cost                                                           |                                                |   | 876    |       
|                                                         | Curtailments                                                            |                                                |   |       |       
|                                                         | Actuarial (gain) loss                                                   |                                                |   | 1,892  |       
|                                                         | Benefits paid                                                           |                                                |   | (529   | )     
|                                                         |                                                                         |                                                |   |        |       
|                                                         |                                                                         | Accumulated postretirement benefit obligations |   |        | 13,962
|                                                         | Plan assets                                                             |                                                |   |       |       
|                                                         |                                                                         |                                                |   |        |       
|                                                         | Accumulated postretirement benefit obligations in excess of plan assets |                                                |   | 13,962 |       
|                                                         | Unrecognized net loss                                                   |                                                |   | (4,331 | )     
|                                                         | Unrecognized prior service cost                                         |                                                |   | 451    |       
|                                                         |                                                                         |                                                |   |        |       
|                                                         |                                                                         | Accrued postretirement obligations             |   | $      | 10,082
|                                                         |                                                                         |                                                |   |        |       

F-32

---

Net
postretirement benefit expense for the years ended June 30, 2000, 2001, and 2002 consisted of the following components:

|                                                |  | 2000 |       | 2001 |       | 2002 |      
|----------------------------------------------- |  | ---- | ----- | ---- | ----- | ---- | -----
|Service costbenefits earned during the year    |  | $    | 516   |      | 552   |      | 641  
|Interest cost on accumulated benefit obligation |  |      | 744   |      | 876   |      | 995  
|Curtailment gain                                |  |      |      |      |      |      | (151 
|Amortization of prior service cost              |  |      | (132  | )    | (132  | )    | (186 
|Amortization of loss                            |  |      | 116   |      | 116   |      | 294  
|                                                |  |      |       |      |       |      |      
|                                                |  | $    | 1,244 |      | 1,412 |      | 1,593
|                                                |  |      |       |      |       |      |      

The
assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation for pre-age 65 and post-age 65 benefits as of
June 30, 2002 was 8.70%, decreasing each successive year until it reaches 5.25% in 2022, after which it remains constant. 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, 2002 by approximately $1,938 (14.4%) and the aggregate of the service and interest
cost components of the net periodic postretirement benefit cost for the year then ended by approximately $257 (16.8%). 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, 2002, by approximately $1,596 (11.8%) and the aggregate of the service and interest cost
components of the net periodic postretirement benefit cost for the year then ended by approximately $209 (13.7%). The assumed discount rates used in determining the accumulated postretirement benefit
obligation, the service costs, and interest costs as of and for the years ended June 30, 2000, 2001, and 2002 were 8.0%, 7.25%, and 7.0%, respectively.

(17) 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 $3,862,
$5,462, and $6,318 for the years ended June 30, 2000, 2001, and 2002, respectively. Long-term, noncancelable operating leases having an initial or remaining term in excess of one
year require minimum rental payments as follows, excluding Autun leases (see note 4):

AmountYear ended June 30:2003

$
4,9232004


4,2302005


3,5802006


2,3422007


1,119Thereafter


673$
16,867


F-33

---

(18) Major Customers

Net sales to and customer accounts receivable from major customers are as follows:

Amount of net sales2000

2001

2002Customer A

$
24,826

23,507

27,251Customer B


46,677

49,626

25,724$
71,503

73,133

52,975


Customer accounts receivable2001

2002Customer A



$
970

2,815Customer B




5,418

4,874$
6,388

7,689


(19) Segment and Geographic Information

Each of the Company's subsidiaries and its Atchison Steel Casting & Machining division is a separate operating segment. Due to the similarity 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
has aggregated these operating segments into a single reportable segment for reporting purposes. Due to the many casting products produced by the Company, it is not practicable to disclose revenues by
casting or forging product.

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, 2000, 2001, and 2002, and long-lived assets located in each of these countries as of June 30, 2001 and 2002 are as follows:

RevenuesUnited
States

Great
Britain

Canada

France

Total2000

$
289,010

114,183

40,238

17,706

461,1372001


261,895

107,596

41,258

17,401

428,1502002


224,281

109,364

40,659

13,936

388,240


Long-lived assetsUnited
States

Great
Britain

Canada

France

Total2001

$
99,903

29,474

19,989

1,048

150,4142002


82,404

32,966

18,228



133,598


F-34

---

(20) Additional Cash Flows Information

2000

2001

2002Cash paid during the year for:Interest

$
9,398

11,562

10,691Income taxes paid (refunded)


56

(1,804
)
(9,131
)Supplemental schedule of noncash investing and financing activities:Minimum pension liability adjustment recorded to stockholders' equity






2,141Recording of other asset-related to pension liability


(706
)
765

331Recording of additional pension liability


706

(765
)
(2,472
)


(21) 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
established a reserve to be used for future repairs due to long-term flood damage to the Company's foundry. Since that time, the Company has been charging the reserve balance for costs
incurred resulting from those repairs.

During
1999, management updated its analysis of the required repairs by performing its periodic re-evaluation 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 considered 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 in other income in the fourth quarter of fiscal year 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, 2001 and 2002, the Company had $597 as reserves for future flood repairs, which were classified as accrued expenses. During 2002, the remaining liability
was reversed and recorded as a reduction of operating expenses.

(22) Contingencies

An accident involving an explosion and fire occurred on February 25, 1999 at Jahn Foundry, located in Springfield, Massachusetts. Nine employees were
seriously injured and there were three fatalities. The damage was confined to the shell molding area and the boiler room. The other areas of the foundry remained operational. Molds were being produced
at other foundries, as well as Jahn Foundry, while the repairs were made. The new shell molding department became operational in November 2000.

The
Company carried insurance for property and casualty damages (over $475,000 of coverage), business interruption (approximately $115,000 of coverage), general liability ($51,000 of
coverage), and workers' compensation (up to full statutory liability) for itself and its subsidiaries. The Company
recorded charges of $750 ($450 after tax) during the third quarter of fiscal year 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 and cash flows.

In
November 2000, the Company and its insurance carrier settled the Jahn Foundry property portion of the Company's claim. The settlement provided, among other things, for
(i) additional payments from the carrier in the amount of $2,600 (ii) that of the payments received to date, totaling

F-35

---

$26,800, the insurance carrier will allocate no more than $9,500 for property damage, (iii) that the remaining proceeds of $17,300 will be allocated to business interruption losses and will
not be subject to recovery by the insurance carrier, and (iv) that the Company shall not be entitled to any additional payments unless it is determined by reference, appraisal, arbitration,
litigation, or otherwise that the Company's business interruption losses exceed $17,300. The Company disagrees with the insurance carrier regarding the duration and amount of the business interruption
losses. The Company is seeking additional insurance payments through arbitration. There can be no assurance that the Company will ultimately receive any additional insurance payments for business
interruption losses.

As
a result of the above settlement, the Company recorded a nonrecurring gain of $10,900 in the second quarter of fiscal 2001, which consisted of $3,700 business interruption insurance
gain and a $7,200 property insurance gain. The property insurance gain primarily represents the difference between the net proceeds received for the property damage and the property's net book value
immediately before the accident. These net proceeds were used to rebuild the damaged property and were accounted for as capital expenditures.

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

On
February 26, 2001, Borden filed a Third Party Complaint against the Company seeking a contribution, under Massachusetts law, from the Company in the event that the plaintiffs
prevail against Borden. The Third Party Complaint alleges that the Company undertook a duty to oversee industrial hygiene, safety, and maintenance at Jahn Foundry, that the Company designed,
installed, and maintained equipment and machinery at Jahn Foundry, and that the Company's carelessness,
negligence, or gross negligence caused the explosion and resulting injuries. It is too early to assess the potential liability for such a claim, which in any event the Company would aggressively
defend.

On
March 30, 2001, the plaintiffs amended their complaint by adding the Company as a third party defendant. The plaintiffs allege that the Company undertook a duty to oversee
industrial hygiene, safety and maintenance at Jahn Foundry and that the Company's carelessness, negligence, or gross negligence caused the explosion and resulting injuries. The plaintiffs seek an
unspecified amount of damages and punitive damages. It is too early to assess the potential liability to the Company for such claims, which in any event the Company would aggressively defend. The
Company has filed a cross-claim for contribution against Borden and J.R. Oldhan.

There
can be no assurance that the Company's ultimate liability with respect to this litigation arising out of the industrial accident at Jahn Foundry will not be material to its
financial condition, results of operations or cash flows.

The
Company understands that on or about November 29, 2000, the Securities and Exchange Commission issued a formal order of investigation as a result of the events underlying the
Company's earlier disclosure of certain accounting irregularities. The Company is cooperating with the investigation.

F-36

---

The Company dismissed Deloitte & Touche LLP as its auditor on April 16, 2002. On July 26, 2002, the Company filed a complaint against Deloitte in Philadelphia
County, Pennsylvania for negligence, professional malpractice, negligent misrepresentation and breach of contract. The Company believes that Deloitte breached its duties to perform audit and
consulting services by failing to act with reasonable and ordinary care, with the ordinary skill and diligence of the accounting profession, and in the conformity with the professional standards such
as generally accepted auditing standards and generally accepted accounting principles. Deloitte filed a counterclaim against the Company on September 13, 2002 alleging that the Company was
aware of information related to improper activities of certain employees at the Pennsylvania Foundry Group and failed to disclose such information to Deloitte. On September 24, 2002, Deloitte
filed a third party claim against certain officers and employees of the Company and others alleging, among other things, that such officers and employees withheld material information in connection
with such improper activities. The Company believes that Deloitte's claims against it and the Company's officers and employees have no merit and will vigorously defend itself.

The
Occupational Safety and Health Administration (OSHA) recently cited the Company for 95 violations of workplace safety laws at its Atchison, Kansas foundry. OSHA found 87 alleged
serious violations and eight lesser violations of rules designed to protect workers' safety and health and proposed a $250,000 penalty. The Company intends to participate in an informal conference
with the OSHA area director or contest the citations before the independent Occupational Safety and Health Review Commission. The Company expects to substantially reduce the proposed penalty, but no
assurance can be given in this regard.

In
addition to these matters, from time to time, the Company is the subject of legal proceedings, including employee matters, commercial matters, environmental matters, and similar
claims 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 condition or results of operations and
cash flows.

(23)    Financial Results and Management Plans

In fiscal 2000, fiscal 2001, and fiscal 2002, the Company incurred pretax losses of $27,606 ($11,192 excluding impairment charges of $16,414), $34,547 ($16,408
excluding impairment charges of $18,139), and $35,036 ($29,836 excluding impairment charges of $5,200), respectively, and has not been in compliance with certain financial covenants included in its
debt agreements (see note 10). These conditions have continued subsequent to June 30, 2002 and raise substantial doubt as to the Company's ability to continue as a going concern.

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



F-37

---



F-38

---





F-39

---



F-40

---



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     |     | Amended and Restated By-Laws of Atchison Casting Corporation, a Kansas corporation (incorporated by reference to Exhibit 3.2 of the Company's Current Report on Form 8-K filed May 19, 2000)                                                                                                                             
|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 the Company's Current Report on
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 (incorporated by reference to Exhibit 4.1(e) of the Company's
Form 10-K for the year ended June 30, 1999)                              
|4.1     | (f) | Fourth Amendment to the Amended and Restated Credit Agreement dated as of November 5, 1999, among the Company, the Banks party thereto, and Harris Trust and Savings Bank, as Agent (incorporated by reference to Exhibit 4.2 of the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1999)   
|4.1     | (g) | Fifth Amendment to the Amended and Restated Credit Agreement dated as of December 21, 1999, among the Company, the Banks party thereto, and Harris Trust and Savings Bank, as Agent (incorporated by reference to Exhibit 4.2 of the Company's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1999)    
|4.1     | (h) | Sixth Amendment to the Amended and Restated Credit Agreement dated as of February 15, 1999, 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 March 31, 2000)       
|4.1     | (i) | Seventh Amendment and Waiver to the Amended and Restated Credit Agreement dated as of May 1, 2000, among the Company, the Banks party thereto, and Harris Trust and Savings Bank, as Agent (incorporated by reference to Exhibit 4.3 of the
Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000)
|        |     |                                                                                                                                                                                                                                                                                                                          

---

|4.1 | (j) | Eighth Amendment and Waiver to the Amended and Restated Credit Agreement dated as of June 30, 2000, among the Company, the Banks party thereto, and Harris Trust and Savings Bank, as Agent (incorporated by reference to Exhibit 4.1(j) of the
Company's Annual Report on Form 10-K for the year ended June 30, 2000)                 
|--- | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.1 | (k) | Ninth Amendment and Waiver to the Amended and Restated Credit Agreement dated as of July 31, 2000, among the Company, the Banks party thereto, and Harris Trust and Savings Bank, as Agent (incorporated by reference to Exhibit 4.1(k) of the
Company's Annual Report on Form 10-K for the year ended June 30, 2000)                  
|4.1 | (l) | Tenth Amendment and Forbearance Agreement dated as of April 13, 2001 (the "Tenth Amendment"), among the Company, the Banks party thereto and Harris Trust and Savings Bank, as Agent (incorporated by reference to Exhibit 4.1 (l) of the
Company's Amended Report on Form 10-K/A filed on April 24, 2001)                             
|4.1 | (m) | Letter Agreement dated July 30, 2001 modifying the Tenth Amendment (incorporated by reference to Exhibit 4.1 (m) of the Company's Annual Report on Form 10-K for the year ended June 30, 2001)                                                                                                                                         
|4.1 | (n) | Letter Agreement dated August 20, 2001 further modifying the Tenth Amendment (incorporated by reference to Exhibit 4.1 (n) of the Company's Annual Report on Form 10-K for the year ended June 30, 2001)                                                                                                                               
|4.1 | (o) | Eleventh Amendment and Forbearance Agreement dated as of September 12, 2001 (the "Eleventh Amendment"), among the Company, the Banks party thereto and Harris Trust and Savings Bank, as agent (incorporated by reference to Exhibit 4.1
(o) of the Company's Annual Report on Form 10-K for the year ended June 30, 2001)             
|4.1 | (p) | Letter Agreement dated September 20, 2001 modifying the Eleventh Amendment (incorporated by reference to Exhibit 4.1 (p) of the Company's Annual Report on Form 10-K for the year ended June 30, 2001)                                                                                                                                 
|4.1 | (q) | Letter Agreement dated October 12, 2001 modifying the Eleventh Amendment (incorporated by reference to Exhibit 4 of the Company's Form 8-K filed October 17, 2001)                                                                                                                                                                     
|4.1 | (r) | Letter Agreement dated November 2, 2001 modifying the Eleventh Amendment (incorporated by reference to Exhibit 4 of the Company's Form 8-K filed November 6, 2001)                                                                                                                                                                     
|4.1 | (s) | Letter Agreement dated November 20, 2001 modifying the Eleventh Amendment (incorporated by reference to Exhibit 4 of the Company's Form 8-K filed November 20, 2001)                                                                                                                                                                   
|4.1 | (t) | Letter Agreement dated November 30, 2001 modifying the Eleventh Amendment (incorporated by reference to Exhibit 4 of the Company's Form 8-K filed December 3, 2001)                                                                                                                                                                    
|4.1 | (u) | Twelfth Amendment and Forbearance Agreement dated as of December 18, 2001 (the "Twelfth Amendment"), 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 Form 8-K filed December 21, 2001)                                               
|4.1 | (v) | Cash Collateral Use Agreement dated as of December 18, 2001 among the Company, as the borrower, its domestic subsidiaries, as guarantors, the Lenders party thereto, and Harris Trust and Savings Bank, as Bank Agent and Collateral Agent
(incorporated by reference to Exhibit 4.2 of the Company's Form 8-K filed December 21, 2001)
|4.1 | (w) | Letter Agreement dated January 31, 2002 modifying the Twelfth Amendment (incorporated by reference to Exhibit 4 of the Company's Form 8-K filed February 6, 2002)                                                                                                                                                                      
|4.1 | (x) | Letter Agreement dated March 31, 2002 modifying the Twelfth Amendment (incorporated by reference to Exhibit 4 of the Company's Form 8-K filed April 2, 2002)                                                                                                                                                                           
|    |     |                                                                                                                                                                                                                                                                                                                                        

---

|4.1  | (y)  | Letter Agreement dated May 1, 2002 modifying the Twelfth Amendment (incorporated by reference to Exhibit 4 of the Company's Form 8-K filed May 8, 2002)                                                                                                                                                                                                
|---- | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.1  | (z)  | Letter Agreement dated May 15, 2002 modifying the Twelfth Amendment (incorporated by reference to Exhibit 4 of the Company's Form 8-K filed May 21, 2002)                                                                                                                                                                                              
|4.1  | (aa) | Letter Agreement dated June 30, 2002 modifying the Twelfth Amendment (incorporated by reference to Exhibit 4 of the Company's Form 8-K filed July 2, 2002)                                                                                                                                                                                             
|4.1  | (bb) | Thirteenth Amendment and Forbearance Agreement dated as of July 31, 2002 (the "Thirteenth Amendment"), 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 Form 8-K/A filed August 12, 2002)                                                               
|4.1  | (cc) | Letter Agreement dated October 15, 2002 modifying the Thirteenth Amendment (incorporated by reference to Exhibit 4 of the Company's Form 8-K filed October 16, 2002)                                                                                                                                                                                   
|4.2  |      | 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)                                                                                                                                                                                           
|4.3  | (a)  | Rights Agreement, dated as of March 28, 2000 between Atchison Casting Corporation and American Stock Transfer & Trust Company, as Rights Agent (incorporated by reference to Exhibit 1 of the Company's Form 8-A Registration
Statement filed March 28, 2000)                                                                                          
|4.3  | (b)  | Amendment No. 1 to Rights Agreement dated as of November 17, 2000 between the Company and American Stock Transfer & Trust Company, as Rights Agent (incorporated by reference to Exhibit 4.3(b) of the Company's Amended Annual
Report on Form 10-K/A filed on April 24, 2001)                                                                         
|4.4  | (a)  | Facility Agreement dated as of September 17, 2001 ("Facility Agreement"), among Atchison Casting UK Limited, Sheffield Forgemasters Rolls Limited, Sheffield Forgemasters Engineering Limited and Burdale Financial Limited (incorporated by
reference to Exhibit 4.4 (a) of the Company's Annual Report on Form 10-K for the year ended June 30, 2001)
|4.4  | (b)  | Deed of Debenture dated as of September 17, 2001, among Atchison Casting UK Limited, its subsidiaries and Burdale Financial Limited (incorporated by reference to Exhibit 4.4 (b) of the Company's Annual Report on Form 10-K for the
year ended June 30, 2001)                                                                                        
|4.4  | (c)  | Letter Agreement dated March 26, 2002 modifying the Facility Agreement (incorporated by reference to Exhibit 4.1 of the Company's Form 8-K filed May 29, 2002)                                                                                                                                                                                         
|10.1 | *    | Employment Agreement dated as of July 1, 2002 between the Company and Hugh H. Aiken, as Vice President                                                                                                                                                                                                                                                 
|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)                                                                                                                                                                            
|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 | * | Compromise Agreement between Sheffield and David Fletcher dated October 17, 2001                                                                                                                                                         
|10.8 |   | Stock in lieu of cash compensation for non-employee directors is described in the Company's Proxy Statement under the heading "Compensation of Directors"                                                                                
|21.1 |   | Subsidiaries of the Company                                                                                                                                                                                                              
|23.1 |   | Consent of KPMG LLP and Report on Schedules                                                                                                                                                                                              
|99.1 |   | Certification of Chief Executive Officer                                                                                                                                                                                                 
|99.2 |   | Certification of Chief Financial Officer                                                                                                                                                                                                 

---

---

QuickLinks