-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HgYJFxZOJXwVLy6L8BLyeg8TqjaDbvn0SVkb6sW0gvYKIFVVxCB0Tytn70Ve7DZW lKKJAppmCEE7Lm9f33Qc1Q== 0000950124-01-502755.txt : 20010814 0000950124-01-502755.hdr.sgml : 20010814 ACCESSION NUMBER: 0000950124-01-502755 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010630 FILED AS OF DATE: 20010813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEENAH FOUNDRY CO CENTRAL INDEX KEY: 0001040599 STANDARD INDUSTRIAL CLASSIFICATION: GLASS, GLASSWARE, PRESSED OR BLOWN [3220] IRS NUMBER: 391580331 STATE OF INCORPORATION: WI FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-28751-03 FILM NUMBER: 1705665 BUSINESS ADDRESS: STREET 1: 2121 BROOKS AVE STREET 2: PO BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 BUSINESS PHONE: 9207257000 MAIL ADDRESS: STREET 1: 2121 BROOKS AVE STREET 2: PO BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 10-Q 1 c64461e10-q.txt FORM 10-Q FOR PERIOD ENDING JUNE 30, 2001 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 333-28751 NEENAH FOUNDRY COMPANY (Exact name of each registrant as it appears in its charter) Wisconsin 39-1580331 (State or other jurisdiction of (IRS Employer ID Number) incorporation or organization) 2121 Brooks Avenue, P.O. Box 729, Neenah, Wisconsin 54957 (Address of principal executive offices) (Zip Code) (920) 725-7000 (Registrant's telephone number, including area code) None (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Common Stock, Class A, $100 par value- 1,000 shares as of July 31, 2001 Common Stock, Class B, $100 par value- 0 shares as of July 31, 2001 Page 1 2 NEENAH FOUNDRY COMPANY Form 10-Q Index For the Quarter Ended June 30, 2001
PAGE ---- Part 1. Financial Information Item 1. Financial Statements Condensed consolidated balance sheets -- June 30, 2001 and September 30, 2000 3 Condensed consolidated statements of operations -- Three and nine months ended June 30, 2001 and 2000 4 Condensed consolidated statements of cash flows -- Nine months ended June 30, 2001 and 2000 5 Notes to condensed consolidated financial statements -- June 30, 2001 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of 15 Operations Item 3. Quantitative and Qualitative Disclosures About Market Risk 18 Part II. Other Information Item 1. Legal Proceedings 19 Item 2. Changes in Securities 19 Item 3. Defaults upon Senior Securities 19 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 19 Signatures 19
Page 2 3 NEENAH FOUNDRY COMPANY PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
June 30 September 30 2001 2000(1) --------- --------- (Unaudited) ASSETS Current assets: Cash and cash equivalents ............................... $ 3,393 $ 19,478 Accounts receivable, net ................................ 72,108 72,873 Inventories ............................................. 72,893 65,119 Refundable income taxes ................................. 2,108 167 Deferred income taxes ................................... 4,026 2,748 Other current assets .................................... 6,048 6,131 --------- --------- Total current assets ................. 160,576 166,516 Property, plant and equipment ............................. 307,849 295,562 Less accumulated depreciation ............................. 89,427 67,323 --------- --------- 218,422 228,239 Identifiable intangible assets, net ....................... 65,763 70,766 Goodwill, net ............................................. 187,404 191,557 Other assets .............................................. 6,552 9,140 --------- --------- $ 638,717 $ 666,218 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable ........................................ $ 33,356 $ 31,172 Accrued liabilities ..................................... 23,853 35,833 Current portion of long-term debt ....................... 27,280 11,280 Current portion of capital lease obligations ............ 2,239 2,151 --------- --------- Total current liabilities ............ 86,728 80,436 Long-term debt ............................................ 420,671 438,327 Capital lease obligations ................................. 8,484 10,143 Deferred income taxes ..................................... 65,770 66,046 Postretirement benefit obligations ........................ 6,066 6,118 Other liabilities ......................................... 6,230 6,630 --------- --------- Total liabilities .................... 593,949 607,700 Commitments and contingencies STOCKHOLDER'S EQUITY: Preferred stock, par value $100 per share -- authorized 3,000 shares no shares issued or outstanding ..... -- -- Common stock, par value $100 per share -- authorized 11,000 shares, issued and outstanding 1,000 shares 100 100 Additional paid in capital .............................. 51,317 51,317 Retained earnings (accumulated deficit) ................. (6,560) 7,190 Accumulated other comprehensive loss .................... (89) (89) --------- --------- Total stockholder's equity ........... 44,768 58,518 --------- --------- $ 638,717 $ 666,218 ========= =========
See notes to condensed consolidated financial statements. (1) The balance sheet as of September 30, 2000 has been derived from the audited financial statements as of that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements Page 3 4 NEENAH FOUNDRY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands)
Three Months Ended Nine Months Ended June 30, June 30, --------------------------- --------------------------- 2001 2000 2001 2000 --------- --------- --------- --------- (Unaudited) (Unaudited) Net sales ......................................... $ 128,123 $ 145,262 $ 355,277 $ 414,358 Cost of sales ..................................... 107,155 119,298 307,946 344,237 --------- --------- --------- --------- Gross profit ...................................... 20,968 25,964 47,331 70,121 Selling, general and administrative expenses ...... 8,274 10,089 25,489 28,947 Amortization of intangible assets ................. 2,905 2,729 8,715 8,162 Loss (gain) on disposal of equipment .............. (3) 26 (113) 26 --------- --------- --------- --------- Total operating expenses .......................... 11,176 12,844 34,091 37,135 --------- --------- --------- --------- Operating income .................................. 9,792 13,120 13,240 32,986 Net interest expense .............................. (12,000) (12,177) (36,245) (35,484) --------- --------- --------- --------- Income (loss) from continuing operations before income taxes ...................................... (2,208) 943 (23,005) (2,498) Income tax provision (benefit ..................... 453 927 (6,703) 1,112 --------- --------- --------- --------- Income (loss) from continuing operations .......... (2,661) 16 (16,302) (3,610) Gain on sale of discontinued operations, net of tax -- -- 2,552 -- Income from discontinued operations, net of tax ... -- 22 -- 147 --------- --------- --------- --------- Net income (loss) ................................. $ (2,661) $ 38 $ (13,750) $ (3,463) ========= ========= ========= =========
See notes to condensed consolidated financial statements. Page 4 5 NEENAH FOUNDRY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Nine Months Ended June 30, ------------------------------- 2001 2000 -------- -------- (Unaudited) OPERATING ACTIVITIES Net loss ....................................................... $(13,750) $ (3,463) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization ............................... 31,710 29,520 Amortization of deferred financing costs and premium on notes 881 812 Gain on sale of discontinued operations ..................... (2,552) -- Deferred income taxes ....................................... (1,762) (784) Changes in operating assets and liabilities ................. (18,811) (13,617) -------- -------- Net cash provided by (used in) operating activities ............................................. (4,284) 12,468 INVESTING ACTIVITIES Purchase of property, plant and equipment ...................... (13,177) (13,270) Acquisition of Gregg Industries, Inc., net of cash acquired .... -- (29,502) Proceeds from sale of Hartley Controls Corporation, net of fees 5,044 -- -------- -------- Net cash used in investing activities ............................................. (8,133) (42,772) FINANCING ACTIVITIES Proceeds from long-term debt ................................... 16,000 29,750 Payments on long-term debt and capital lease obligations ....... (18,761) (6,033) Debt issuance costs ............................................ (907) -- -------- -------- Net cash provided by (used in) financing activities ............................................. (3,668) 23,717 -------- -------- Decrease in cash and cash equivalents .......................... (16,085) (6,587) Cash and cash equivalents at beginning of period ............... 19,478 17,368 -------- -------- Cash and cash equivalents at end of period ..................... $ 3,393 $ 10,781 ======== ========
See notes to condensed consolidated financial statements. Page 5 6 NEENAH FOUNDRY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) June 30, 2001 (in thousands) NOTE 1 -- BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal and recurring adjustments ) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended June 30, 2001 are not necessarily indicative of the results that may be expected for the year ending September 30, 2001. For further information, refer to the consolidated financial statements and footnotes thereto included in Neenah Foundry Company's Annual Report on Form 10-K for the year ended September 30, 2000. NOTE 2 -- NEW ACCOUNTING PRONOUNCEMENTS In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, "Business Combinations", and No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company is currently evaluating when it will apply the new rules on accounting for goodwill and other intangible assets. Application of the nonamortization provisions of the Statement is expected to result in an increase in net income of $7,300 per year. The Company will perform the first of the required impairment tests of goodwill and indefinite lived intangible assets as of the date of adoption and has not yet determined what the effect of these tests will be on the earnings and financial position of the Company. NOTE 3 -- INVENTORIES The components of inventories are as follows:
June 30, September 30, 2001 2000 ------- ------- Raw materials ...................... $ 9,547 $10,333 Work in process and finished goods . 51,017 43,946 Supplies ........................... 12,329 10,840 ------- ------- $72,893 $65,119 ======= =======
If the FIFO method of inventory valuation had been used on all components, inventories would have been approximately $225 and $549 higher than reported at June 30, 2001 and September 30, 2000, respectively. Page 6 7 NOTE 4 -- ACQUISITIONS On November 30, 1999, the Company purchased Gregg Industries, Inc. ("Gregg"), a manufacturer of gray and ductile iron castings, for $23,002 (including direct costs of $735 and net of $403 of acquired cash). The acquisition of Gregg was financed through drawings under the Company's Acquisition Loan Facility. Additional purchase consideration of $6,500 was paid in April, 2000 based on Gregg's operating results for the calendar year ended December 31, 1999. Had the acquisition of Gregg occurred as of October 1, 1999, there would have been no material pro forma effect on net sales or net income (loss) for the three and nine months ended June 30, 2000. The acquisition of Gregg has been accounted for using the purchase method of accounting and, accordingly, the purchase price has been allocated on the basis of fair values to the underlying assets acquired and liabilities assumed. The excess of the cost of acquisition over the fair value of the net tangible and identifiable assets acquired has been allocated to goodwill. The operating results of Gregg are included in the consolidated statements of operations since the date of its acquisition. NOTE 5 -- SALE OF SUBSIDIARY On October 2, 2000, the Company sold all of the issued and outstanding shares of common stock of Hartley Controls Corporation ("Hartley") for a cash purchase price of $5,500, subject to adjustment as defined in the Stock Purchase Agreement. The disposition of Hartley resulted in a pretax gain of $4,252 which was recognized in the three months ended December 31, 2000. In accordance with the provisions of Accounting Principles Board Opinion No. 30, the results of operations of Hartley for the three and nine months ended June 30, 2000, have been reported separately as discontinued operations in the consolidated statements of operations. Revenues for Hartley for the three and nine months ended June 30, 2000 were $1,110 and $3,994, respectively. NOTE 6 -- GUARANTOR SUBSIDIARIES The following tables present condensed consolidating financial information for the three and nine month periods ended June 30, 2001 and 2000 for: (a) the Company and (b) on a combined basis, the guarantors of the Senior Subordinated Notes, which include all of the wholly owned subsidiaries of the Company (Subsidiary Guarantors). Separate financial statements of the Subsidiary Guarantors are not presented because the guarantors are jointly, severally and unconditionally liable under the guarantees, and the Company believes separate financial statements and other disclosures regarding the Subsidiary Guarantors are not material to investors. Page 7 8 NOTE 6 -- GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET JUNE 30, 2001
Subsidiary Company Guarantors Eliminations Consolidated ---------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 3,753 $ (360) $ -- $ 3,393 Accounts receivable, net 30,496 41,612 -- 72,108 Inventories 24,159 48,734 -- 72,893 Refundable income taxes (5,707) 7,815 -- 2,108 Deferred income taxes 2,069 1,957 -- 4,026 Other current assets 1,739 4,309 -- 6,048 --------------------------------------------------------------- Total current assets 56,509 104,067 -- 160,576 Investments in and advances to subsidiaries 276,197 (50,612) (225,585) -- Property, plant and equipment, net 88,600 129,822 -- 218,422 Identifiable intangible assets, net 29,346 36,417 -- 65,763 Goodwill, net 105,635 81,769 -- 187,404 Other assets 3,977 2,575 -- 6,552 --------------------------------------------------------------- $ 560,264 $ 304,038 $(225,585) $ 638,717 =============================================================== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable $ 7,647 $ 25,709 $ -- $ 33,356 Accrued liabilities 11,635 12,218 -- 23,853 Current portion of long-term debt 27,280 -- -- 27,280 Current portion of capital lease obligations -- 2,239 -- 2,239 --------------------------------------------------------------- Total current liabilities 46,562 40,166 -- 86,728 Long-term debt 420,671 -- -- 420,671 Capital lease obligations -- 8,484 -- 8,484 Deferred income taxes 39,823 25,947 -- 65,770 Postretirement benefit obligations 6,066 -- -- 6,066 Other liabilities 2,374 3,856 -- 6,230 Stockholder's equity 44,768 225,585 (225,585) 44,768 --------------------------------------------------------------- $ 560,264 $ 304,038 $(225,585) $ 638,717 ===============================================================
Page 8 9 NOTE 6 -- GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET SEPTEMBER 30, 2000
Subsidiary Company Guarantors Eliminations Consolidated ----------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 16,982 $ 2,496 $ -- $ 19,478 Accounts receivable, net 29,270 43,603 -- 72,873 Inventories 22,036 43,083 -- 65,119 Refundable income taxes 347 (180) -- 167 Deferred income taxes (885) 3,633 -- 2,748 Other current assets 1,391 4,740 -- 6,131 --------------------------------------------------------------- Total current assets 69,141 97,375 -- 166,516 Investments in and advances to subsidiaries 278,429 (32,318) (246,111) -- Property, plant and equipment, net 91,509 136,730 -- 228,239 Identifiable intangible assets, net 31,263 39,503 -- 70,766 Goodwill, net 107,846 83,711 -- 191,557 Other assets 3,831 5,309 -- 9,140 --------------------------------------------------------------- $ 582,019 $ 330,310 $(246,111) $ 666,218 =============================================================== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable $ 7,667 $ 23,505 $ -- $ 31,172 Accrued liabilities 21,493 14,340 -- 35,833 Current portion of long-term debt 11,280 -- -- 11,280 Current portion of capital lease obligations -- 2,151 -- 2,151 --------------------------------------------------------------- Total current liabilities 40,440 39,996 -- 80,436 Long-term debt 438,095 232 -- 438,327 Capital lease obligations -- 10,143 -- 10,143 Deferred income taxes 36,868 29,178 -- 66,046 Postretirement benefit obligations 5,724 394 -- 6,118 Other liabilities 2,374 4,256 -- 6,630 Stockholder's equity 58,518 246,111 (246,111) 58,518 --------------------------------------------------------------- $ 582,019 $ 330,310 $(246,111) $ 666,218 ===============================================================
Page 9 10 NOTE 6 -- GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS NINE MONTHS ENDED JUNE 30, 2001
Subsidiary Company Guarantors Eliminations Consolidated ---------------------------------------------------------------- Net sales $ 114,706 $ 244,443 $ (3,872) $ 355,277 Cost of sales 82,137 229,681 (3,872) 307,946 ---------------------------------------------------------------- Gross profit 32,569 14,762 -- 47,331 Selling, general and administrative expense 10,265 15,224 -- 25,489 Amortization of intangible assets 3,688 5,027 -- 8,715 Loss (gain) on disposal of equipment 280 (393) -- (113) ---------------------------------------------------------------- Operating income (loss) 18,336 (5,096) -- 13,240 Net interest expense (14,889) (21,356) -- (36,245) ---------------------------------------------------------------- Income (loss) from continuing operations before income taxes and equity in loss of subsidiaries 3,447 (26,452) -- (23,005) Income tax provision (benefit) 2,265 (8,968) -- (6,703) ---------------------------------------------------------------- 1,182 (17,484) -- (16,302) Equity in loss of subsidiaries (17,484) -- 17,484 -- ---------------------------------------------------------------- Loss from continuing operations (16,302) (17,484) 17,484 (16,302) Gain on sale of discontinued operations, net of tax 2,552 -- -- 2,552 ---------------------------------------------------------------- Net loss $ (13,750) $ (17,484) $ 17,484 $ (13,750) ================================================================
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS NINE MONTHS ENDED JUNE 30, 2000
Subsidiary Company Guarantors Eliminations Consolidated ---------------------------------------------------------------- Net sales $142,467 $277,065 $ (5,174) $ 414,358 Cost of sales 98,302 251,109 (5,174) 344,237 ---------------------------------------------------------------- Gross profit 44,165 25,956 -- 70,121 Selling, general and administrative expense 11,212 17,735 -- 28,947 Amortization of intangible assets 3,688 4,474 -- 8,162 Loss (gain) on disposal of equipment 37 (11) -- 26 ---------------------------------------------------------------- Operating income 29,228 3,758 -- 32,986 Net interest expense (15,869) (19,615) -- (35,484) ---------------------------------------------------------------- Income (loss) from continuing operations before income taxes and equity in loss of subsidiaries 13,359 (15,857) -- (2,498) Income tax provision (benefit) 6,027 (4,915) -- 1,112 ---------------------------------------------------------------- 7,332 (10,942) -- (3,610) Equity in loss of subsidiaries (10,942) -- 10,942 -- ---------------------------------------------------------------- Loss from continuing operations (3,610) (10,942) 10,942 (3,610) Income from discontinued operations, net of tax 147 -- -- 147 ---------------------------------------------------------------- Net loss $ (3,463) $ (10,942) $ 10,942 $ (3,463) ================================================================
Page 10 11 NOTE 6 -- GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2001
Subsidiary Company Guarantors Eliminations Consolidated ---------------------------------------------------------------- Net sales $ 45,136 $ 84,657 $ (1,670) $ 128,123 Cost of sales 30,583 78,242 (1,670) 107,155 ---------------------------------------------------------------- Gross profit 14,553 6,415 -- 20,968 Selling, general and administrative expense 3,454 4,820 -- 8,274 Amortization of intangible assets 1,229 1,676 -- 2,905 Loss (gain) on disposal of equipment 341 (344) -- (3) ---------------------------------------------------------------- Operating income 9,529 263 -- 9,792 Net interest expense (4,887) (7,113) -- (12,000) ---------------------------------------------------------------- Income (loss) before income taxes and equity in loss of subsidiaries 4,642 (6,850) -- (2,208) Income tax provision (benefit) 2,152 (1,699) -- 453 ---------------------------------------------------------------- 2,490 (5,151) -- (2,661) Equity in loss of subsidiaries (5,151) -- 5,151 -- ---------------------------------------------------------------- Net loss $ (2,661) $ (5,151) $ 5,151 $ (2,661) ================================================================
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2000
Subsidiary Company Guarantors Eliminations Consolidated ---------------------------------------------------------------- Net sales $ 51,754 $ 95,182 $ (1,674) $ 145,262 Cost of sales 34,494 86,478 (1,674) 119,298 ---------------------------------------------------------------- Gross profit 17,260 8,704 -- 25,964 Selling, general and administrative expense 3,907 6,182 -- 10,089 Amortization of intangible assets 1,229 1,500 -- 2,729 Loss (gain) on disposal of equipment 37 (11) -- 26 ---------------------------------------------------------------- Operating income 12,087 1,033 -- 13,120 Net interest expense (5,348) (6,829) -- (12,177) ---------------------------------------------------------------- Income (loss) from continuing operations before income taxes and equity in loss of subsidiaries 6,739 (5,796) -- 943 Income tax provision (benefit) 2,788 (1,861) -- 927 ---------------------------------------------------------------- 3,951 (3,935) -- 16 Equity in loss of subsidiaries (3,935) -- 3,935 -- ---------------------------------------------------------------- Income (loss) from continuing operations 16 (3,935) 3,935 16 Income from discontinued operations, net of tax 22 -- -- 22 ---------------------------------------------------------------- Net income (loss) $ 38 $ (3,935) $ 3,935 $ 38 ================================================================
Page 11 12 NOTE 6 -- GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS NINE MONTHS ENDED JUNE 30, 2001
Subsidiary Company Guarantors Eliminations Consolidated ---------------------------------------------------------------- OPERATING ACTIVITIES Net loss $(13,750) $(17,484) $ 17,484 $(13,750) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 10,078 21,632 -- 31,710 Amortization of deferred financing costs and premium on notes 881 -- -- 881 Gain on sale of discontinued operations (2,552) -- -- (2,552) Deferred income taxes (207) (1,555) -- (1,762) Changes in operating assets and liabilities (9,609) (9,202) -- (18,811) ---------------------------------------------------------------- Net cash provided by (used in) operating activities (15,159) (6,609) 17,484 (4,284) INVESTING ACTIVITIES Investments in and advances to subsidiaries 2,232 15,252 (17,484) -- Purchase of property, plant and equipment (3,481) (9,696) -- (13,177) Proceeds from sale of discontinued operations 5,044 -- -- 5,044 ---------------------------------------------------------------- Net cash provided by (used in) investing activities 3,795 5,556 (17,484) (8,133) FINANCING ACTIVITIES Proceeds from long-term debt 16,000 -- -- 16,000 Payments on long-term debt and capital lease obligations (16,958) (1,803) -- (18,761) Debt issuance costs (907) -- -- (907) ---------------------------------------------------------------- Net cash used in financing activities (1,865) (1,803) -- (3,668) ---------------------------------------------------------------- Decrease in cash and cash equivalents (13,229) (2,856) -- (16,085) Cash and cash equivalents at beginning of year 16,982 2,496 -- 19,478 ---------------------------------------------------------------- Cash and cash equivalents at end of year $ 3,753 $ (360) $ -- $ 3,393 ================================================================
Page 12 13 NOTE 6 -- GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS NINE MONTHS ENDED JUNE 30, 2000
Subsidiary Company Guarantors Eliminations Consolidated ---------------------------------------------------------------- OPERATING ACTIVITIES Net loss $ (3,463) $(10,942) $ 10,942 $ (3,463) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 9,988 19,532 -- 29,520 Amortization of deferred financing costs and premium on notes 812 -- -- 812 Deferred income taxes -- (784) -- (784) Changes in operating assets and liabilities (6,636) (6,981) -- (13,617) ---------------------------------------------------------------- Net cash provided by operating activities 701 825 10,942 12,468 INVESTING ACTIVITIES Investments in and advances to subsidiaries (31,568) 42,510 (10,942) -- Purchase of property, plant and equipment (3,621) (9,649) -- (13,270) Acquisition of business -- (29,502) -- (29,502) ---------------------------------------------------------------- Net cash provided by (used in) investing activities (35,189) 3,359 (10,942) (42,772) FINANCING ACTIVITIES Proceeds from long-term debt 29,750 -- -- 29,750 Payments on long-term debt and capital lease obligations (4,442) (1,591) -- (6,033) ---------------------------------------------------------------- Net cash provided by (used in) financing activities 25,308 (1,591) -- 23,717 ---------------------------------------------------------------- Increase (decrease) in cash and cash equivalents (9,180) 2,593 -- (6,587) Cash and cash equivalents at beginning of year 15,852 1,516 -- 17,368 ---------------------------------------------------------------- Cash and cash equivalents at end of year $ 6,672 $ 4,109 $ -- $ 10,781 ================================================================
Page 13 14 NOTE 7 -- SEGMENT INFORMATION The Company has two reportable segments, Castings and Forgings. The Castings segment manufactures and sells castings for the industrial and municipal markets, while the Forgings segment manufactures forged components for the industrial market. The Other segment includes machining operations and freight hauling.
Three months ended Nine months ended June 30, June 30, ------------------------------------------------------------------ 2001 2000 2001 2000 --------- --------- --------- --------- Revenues from external customers: Castings $ 117,389 $ 133,613 $ 324,989 $ 368,569 Forgings 7,150 8,987 19,540 26,763 Other 5,844 7,183 17,473 32,910 Elimination of intersegment revenues (2,260) (4,521) (6,725) (13,884) --------- --------- --------- --------- Consolidated $ 128,123 $ 145,262 $ 355,277 $ 414,358 ========= ========= ========= ========= Income (loss) from continuing operations: Castings $ (6,534) $ (3,846) $ (28,849) $ (11,582) Forgings (1,245) (1,203) (4,514) (3,265) Other (32) 1,150 (421) 441 Elimination of intersegment income 5,150 3,915 17,482 10,796 --------- --------- --------- --------- Consolidated $ (2,661) $ 16 $ (16,302) $ (3,610) ========= ========= ========= =========
June 30, September 30, 2001 2000 -------- -------- Identifiable Assets: Castings $ 791,609 $ 832,256 Forgings 49,830 57,933 Other 16,490 19,654 Elimination of intersegment assets (219,212) (243,625) -------- -------- Total consolidated assets $ 638,717 $ 666,218 ========= =========
Page 14 15 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Certain matters discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this annual report are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward looking statements can generally be identified as such because the context of the statement will include words such as the Company "believes," "anticipates," "expects" or words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which are described in close proximity to such statements and which may cause actual results to differ materially from those currently anticipated. The forward-looking statements made herein are made only as of the date of this report and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances. The following discussions compare the results of operations of the Company for the three and nine months ended June 30, 2001, to the results of the operations of the Company for the three and nine months ended June 30, 2000. RESULTS OF OPERATIONS (dollars in thousands) Three Months Ended June 30, 2001 and 2000 Net sales. Net sales for the three months ended June 30, 2001 were $128,123 which are $17,139 or 11.8% lower than the quarter ended June 30, 2000. The decrease in net sales resulted from continued significant weakness in the demand for industrial castings used for the heavy duty truck market and an overall slowing of demand for castings in the Company's other major markets. Gross profit. Gross profit for the three months ended June 30, 2001 was $20,968, a decrease of $4,996, or 19.2%, as compared to the quarter ended June 30, 2000. Gross profit as a percentage of net sales decreased to 16.4% for the three months ended June 30, 2001 from 17.9% for the quarter ended June 30, 2000. The decrease in gross profit resulted from lower sales volume noted above and an inability, at the lower production and sales levels, to sufficiently absorb the overhead costs necessary to effectively run the foundry operations. Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended June 30, 2001 were $8,274, a decrease of $1,815, or 18.0%, as compared to the $10,089 for the quarter ended June 30, 2000. The decrease was due to decreased corporate expense and the implementation of other cost cutting measures due to the decreased sales level. As a percentage of net sales, selling, general and administrative expenses decreased from 6.9% for the quarter ended June 30, 2000 to 6.5% for the three months ended June 30, 2001. Amortization of intangible assets. Amortization of intangible assets was $2,905 for the three months ended June 30, 2001, an increase of $176, or 6.5%, as compared to the $2,729 for the quarter ended June 31, 2000. The increase is due to the increased amortization of goodwill and identifiable intangible assets of Gregg, due to the additional purchase price paid for Gregg in April, 2000. Operating income. Operating income was $9,792 for the three months ended June 30, 2001, a decrease of $3,328, or 25.4%, from the quarter ended June 30, 2000. The decrease in operating income was caused by the reasons discussed above under gross profit, partially offset by decreased selling, general and administrative expenses. As a percentage of net sales, operating income decreased from 9.0% for the quarter ended June 30, 2000 to 7.6% for the three months ended June 30, 2001. Page 15 16 Net interest expense. Net interest expense was $12,000 for the three months ended June 30, 2001 compared to $12,177 for the quarter ended June 30, 2000. The decreased interest expense resulted from lower interest rates on the Company's Senior Bank Facilities, partially offset by the interest on capital leases entered into during the second half of fiscal 2000 and interest on borrowings outstanding on the Company's Revolving Credit Facility during the three months ended June 30, 2001. Provision for income taxes. The provision for income taxes for the three months ended June 30, 2001 and 2000 is higher than the amount computed by applying the statutory rate of approximately 40% to income before income taxes mainly due to the amortization of goodwill which is not deductible for income tax purposes. Nine Months Ended June 30, 2001 and 2000 Net sales. Net sales for the nine months ended June 30, 2001 were $355,277 which are $59,081 or 14.3% lower than the nine months ended June 30, 2000. The decrease in net sales resulted from continued significant weakness in the demand for industrial castings used for the heavy duty truck market and an overall slowing of demand for castings in the Company's other major markets. Gross profit. Gross profit for the nine months ended June 30, 2001 was $47,331, a decrease of $22,790, or 32.5%, as compared to the nine months ended June 30, 2000. Gross profit as a percentage of net sales decreased to 13.3% for the nine months ended June 30, 2001 from 16.9% for the nine months ended June 30, 2000. The decrease in gross profit resulted from lower sales volume noted above, significantly increased energy prices, and an inability, at the lower production and sales levels, to sufficiently absorb the overhead costs necessary to effectively run the foundry operations. Selling, general and administrative expenses. Selling, general and administrative expenses for the nine months ended June 30, 2001 were $25,489, a decrease of $3,458, or 12.0%, as compared to the $28,947 for the nine months ended June 30, 2000. The decrease was due to decreased corporate expense and the implementation of other cost cutting measures partially offset by the recognition of severance benefits payable to certain terminated employees and the inclusion of Gregg's operating expenses for the entire nine month period in 2001. As a percentage of net sales, selling, general and administrative expenses increased from 7.0% for the nine months ended June 30, 2000 to 7.2% for the nine months ended June 30, 2001. Amortization of intangible assets. Amortization of intangible assets was $8,715 for the nine months ended June 30, 2001, an increase of $553, or 6.8%, as compared to the $8,162 for the nine months ended June 30, 2000. The increase is due to the increased amortization of goodwill and identifiable intangible assets of Gregg, due to the additional purchase price paid for Gregg in April, 2000. Operating income. Operating income was $13,240 for the nine months ended June 30, 2001, a decrease of $19,746, or 59.9%, from the nine months ended June 30, 2000. The decrease in operating income was caused by the reasons discussed above under gross profit. As a percentage of net sales, operating income decreased from 8.0% for the nine months ended June 30, 2000 to 3.7% for the nine months ended June 30, 2001. Net interest expense. Net interest expense was $36,245 for the nine months ended June 30, 2001 compared to $35,484 for the nine months ended June 30, 2000. The increased interest expense resulted from the interest on the drawings under the Company's Senior Bank Facilities which were outstanding for the entire nine months ended June 30, 2001 as compared to seven months during the nine months ended June 30, 2000. These borrowings were used to finance the purchase of Gregg on November 30, 1999. Also, increased interest expense was incurred on capital leases entered into during the second half of fiscal 2000 and on borrowings outstanding on the Company's Revolving Credit Facility during the three months ended June 30, 2001. Provision for income taxes. The provision for income taxes for the nine months ended June 30, 2001 and 2000 is higher than the amount computed by applying the statutory rate of approximately 40% to income before income taxes mainly due to the amortization of goodwill which is not deductible for income tax purposes. Page 16 17 Discontinued operations. On October 2, 2000, the Company sold the common stock of Hartley. The disposition of Hartley resulted in a gain of $2,552, net of tax, which was recognized in the nine months ended June 30, 2001. The results of operations of Hartley for the three and nine months ended June 30, 2000 have been reported separately as discontinued operations. LIQUIDITY AND CAPITAL RESOURCES (dollars in thousands) The Company has outstanding $282.0 million principal of 11 1/8% Senior Subordinated Notes due 2007 (the "Senior Subordinated Notes"). In addition, the Company has a credit agreement (the "Senior Bank Facility" or "Credit Agreement") providing for term loans, an Acquisition Loan Facility, and a Revolving Credit Facility of up to $50.0 million. At June 30, 2001, there is $16.0 million outstanding on the Revolving Credit Facility, $20.4 million outstanding on the Acquisition Loan Facility and $125.8 million outstanding under the term loans. The Company's liquidity needs will arise primarily from debt service on the above indebtedness, working capital needs and funding of capital expenditures and additional acquisitions, if any. Borrowings under the Senior Bank Facilities bear interest at variable interest rates. The Senior Bank Facility imposes restrictions on the Company's ability to make capital expenditures. Both the Senior Bank Facility and the indentures governing the Senior Subordinated Notes limit the Company's ability to incur additional indebtedness. The covenants contained in the Senior Bank Facility also, among other things, restrict the ability of the Company and its subsidiaries to dispose of assets, incur guarantee obligations, prepay the Senior Subordinated Notes or amend the indentures, pay dividends, create liens on assets, enter into sale and leaseback transactions, make investments, loans or advances, make acquisitions, engage in mergers or consolidations, change the business conducted by the Company, make capital expenditures or engage in certain transactions with affiliates, and otherwise restrict corporate activities. In March 2001, the Credit Agreement was amended to provide temporary reductions of certain financial ratio covenants and to further restrict capital expenditure limits and permitted acquisitions. For the nine months ended June 30, 2001 and June 30, 2000, capital expenditures were $13,177 and $23,217, respectively, including capital expenditures of $9,947 for the nine months ended June 30, 2000 which were financed through capital lease obligations. The decrease in capital expenditures of $10,040 was the result of tighter spending controls placed on capital expenditures during the nine months ended June 30, 2001. The Company's principal source of cash to fund its liquidity needs will be net cash from operating activities and borrowings under its Senior Bank Facilities. Net cash used in operating activities for the nine months ended June 30, 2001 was $4,284, a decrease of $16,752 from cash provided by operating activities for the nine months ended June 30, 2000 of $12,468. The decrease in net cash from operating activities was the result of decreased operating income and slower collection of accounts receivable balances reflecting the overall weakness in the Company's industrial markets. The Company believes that cash generated from operations and existing revolving lines of credit under the Senior Bank Facilities will be sufficient to meet its normal operating requirements, including working capital needs and interest payments on the Company's outstanding indebtedness. Page 17 18 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk related to changes in interest rates. The Company does not use derivative financial instruments for speculative or trading purposes. Interest Rate Sensitivity. The Company's earnings are affected by changes in short-term interest rates as a result of its borrowings under the Senior Bank Facilities. If market interest rates for such borrowings change by 1% during the remainder of the fiscal year ended September 30, 2001, the Company's interest expense would increase or decrease by approximately $.4 million. This analysis does not consider the effects of changes in the level of overall economic activity that could occur due to interest rate changes. Further, in the event of an upward change of such magnitude, management could take actions to further mitigate its exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in the Company's financial structure. Page 18 19 NEENAH FOUNDRY COMPANY PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS None. Item 2. CHANGES IN SECURITIES None. Item 3. DEFAULTS UPON SENIOR SECURITIES None. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. Item 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits None. (b) Reports on Form 8-K None. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEENAH FOUNDRY COMPANY DATE: August 13, 2001 /s/ Gary LaChey -------------------------------- Gary LaChey Vice President-Finance, Secretary & Treasurer (Principal Financial Officer and Duly Authorized Officer) Page 19 -----END PRIVACY-ENHANCED MESSAGE-----