-----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, Ubh5mgqWhdQVvmfKyKG8ugJDzzVk71C9ijeZ2SQcX3wsmVwPuBSL7HLpqRL4D0MM XUNCZiSbW+RMCc9tgisQvQ== 0000950124-99-006618.txt : 19991229 0000950124-99-006618.hdr.sgml : 19991229 ACCESSION NUMBER: 0000950124-99-006618 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991228 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-K SEC ACT: SEC FILE NUMBER: 333-28751-03 FILM NUMBER: 99781270 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-K 1 FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the fiscal year ended September 30,1999. [ ] 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 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) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to section 12(g) of the Act: NONE (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate 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 November 30, 1999 Common Stock, Class B, $100 par value- 0 shares as of November 30, 1999 1 2 PART I Item 1. BUSINESS THE COMPANY (OTHER THAN THE ACQUIRED SUBSIDIARIES) Overview On April 30, 1997, pursuant to an Agreement and Plan of Reorganization (the "Merger Agreement") with NC Merger Company and NFC Castings, Inc., Neenah Corporation (the "Predecessor Company") was acquired by NFC Castings, Inc., a holding company and a wholly owned subsidiary of ACP Holding Company ("ACP Holdings") (the "Merger"). Prior to July 1, 1997, Neenah Foundry Company was one of three wholly owned subsidiaries of Neenah Corporation, a holding company with no significant assets or operations other than its holdings in the common stock of its three wholly owned subsidiaries. On July 1, 1997, Neenah Foundry Company merged with and into Neenah Corporation and the surviving company changed its name to Neenah Foundry Company (the "Company"). Unless otherwise stated in this document or unless the context otherwise requires, references herein to the "Company" include Neenah Foundry Company, Hartley Controls Corporation and Neenah Transport, Inc., and exclude Deeter Foundry, Inc. ("Deeter"), Mercer Forge Corporation ("Mercer"), Dalton Corporation ("Dalton"), Niemen Porter & Co. d/b/a Cast Alloys, Inc. ("Cast Alloys"), and their respective subsidiaries, each of which were acquired and Advanced Cast Products ("ACP") and its respective subsidiaries, whose capital stock was contributed to the Company by ACP Holdings. Deeter, Mercer, Dalton, Cast Alloys and ACP are referred to herein as the "Acquired Subsidiaries." The Company changed its fiscal year end to September 30 from March 31 effective September 30, 1997. The Company, founded in 1872, is one of the largest manufacturers of a wide range of high quality ductile and gray iron castings for the heavy municipal market and selected segments of the industrial market. The Company believes it is the largest manufacturer of heavy municipal iron castings in the United States with approximately a 19% market share in calendar year 1998. The Company's broad range of heavy municipal iron castings includes manhole covers and frames, storm sewer frames and grates, heavy duty airport castings, specialized trench drain castings, specialty flood control castings and ornamental tree grates. These municipal castings are sold throughout the United States to state and local government entities, utility companies, precast concrete manhole structure producers and contractors for both new construction and infrastructure replacement. The heavy municipal market generated approximately 44% of the Company's net sales for the year ended September 30, 1999. The Company believes it is also a leading manufacturer of a wide range of complex industrial castings, including castings for medium- and heavy-duty truck drive line components, a broad range of castings for the farm equipment industry and specific components for compressors used in heating, ventilation and air conditioning systems. The industrial market generated approximately 53% of the Company's net sales for the year ended September 30, 1999. In addition, the Company engineers, manufactures and sells customized sand control systems and related products, which are an essential part of the casting process, to other iron foundries. Sales of these sand control systems and related products represented approximately 3% of the Company's net sales for the year ended September 30, 1999. 2 3 The Company currently operates two modern foundries with an annual aggregate rated capacity of approximately 187,000 tons at a single site in Neenah, Wisconsin. From 1985 to 1998, the Company has invested heavily in its production facilities, with approximately $73 million invested in a major plant modernization program from 1985 to 1990. This plant modernization program was a critical part of a long-term strategy to produce higher volume, value-added castings for its existing industrial customers and to penetrate other selected segments of the industrial market, while preserving its position as the leader in the heavy municipal market. This modernization program entailed the closing of the Company's oldest foundry, Plant 1, and the updating of the Company's other two foundries, Plants 2 and 3, which enabled the Company both to produce higher volume, complex castings for selected industrial segments and to improve the Company's cost position in the heavy municipal market. Following the completion of the modernization program, the Company has steadily decreased its production of lower margin products such as axle covers and brake drums and increased the production of higher margin, more complex parts, such as transmission and axle housings. As a result of this strategy, the Company's ongoing improvements in its manufacturing process and increased demand for medium- and heavy-duty truck components have caused net sales and EBITDA to increase. Products, Customers and Markets The Company provides a variety of products to both the heavy municipal and industrial markets. The heavy municipal market is comprised of storm and sanitary sewer castings, manhole covers and frames, and storm sewer frames and grates. It also includes heavy airport castings, specialized trench drain castings, specialty flood control castings and ornamental tree grates. Customers for these products include state and local government entities, utility companies, precast concrete structure producers, and contractors. The industrial market is comprised of differential carriers and casings, transmission, gear and axle housings, calipers, yokes, planting and harvesting equipment parts, and compressor components. Customers for these products include medium and heavy-duty truck, farm equipment and heating, ventilating, and air-conditioning manufacturers. Heavy Municipal. Based on industry reported data, the Company believes it is the largest manufacturer of heavy municipal iron castings in the United States with an estimated 19% market share in calendar year 1998. The Company's broad heavy municipal product line consists of two general categories of castings, "standard" and "specialty" castings. Standard castings principally consist of storm and sanitary sewer castings that are consistent with pre-existing dimension and strength specifications established by local authorities. Standard castings are generally high volume items that are routinely used in new construction and infrastructure replacement. Specialty castings are generally lower volume, higher margin products which include heavy-duty airport castings, trench drain castings, flood control castings, special manhole and inlet castings and ornamental tree grates. These specialty items are frequently selected and/or specified from the Company's municipal product catalog and its tree grate catalog, which together encompass over 4,400 standard and specialty patterns. For many of these specialty products, the Company believes it is the only manufacturer with existing patterns to produce such a particular casting, although a competing manufacturer could elect to make the investment in patterns or equipment necessary to produce a similar casting. The Company's municipal castings are sold to state and local government entities, utility companies, pre-cast concrete manhole structure producers and contractors for both new construction and infrastructure replacement. The Company's 17,000 active municipal customers generally make purchase decisions based on a number of criteria, including acceptability of the product per local specification, quality, service, price and the customer's relationship with the foundry. Relative to customers in the industrial market, municipal market customers are less technically demanding and rely more on published product specifications to ensure product performance. 3 4 Industrial. The Company believes it is a leading manufacturer of a wide range of complex industrial castings, including castings for medium- and heavy-duty truck drive line components and farm equipment as well as castings for specific components for compressors used in heating, venting and air conditioning (HVAC) systems. The Company's industrial castings have increased in complexity since the early 1990's and are generally produced in higher volumes than municipal castings. Complexity in the industrial market is determined by the intricacy of a casting's shape, the thinness of its walls and the amount of processing by a customer required before a part is suitable for use by it. Original equipment manufacturers (OEMs) and their first tier suppliers have been demanding higher complexity parts principally to reduce labor costs in their own production processes by using fewer parts to manufacture the same finished product or assembly and by using parts which require less preparation before entering the production process. The Company's industrial castings are primarily sold to a limited number of customers with whom the Company has established a close working relationship. The Company has sold to certain industrial customers for over 20 years and currently has a multi-year arrangement with one of those customers. These customers make purchasing decisions based on, among other things, technical ability, price, service, quality assurance systems, facility capabilities and reputation. However, as in the municipal market, the Company's assistance in product engineering plays an important role in winning bids for industrial castings. The average industrial casting typically takes between 12 and 18 months to go from the design phase to full production and has an average product life cycle of approximately 8 to 10 years. The patterns for industrial castings, unlike the patterns for municipal castings, are owned by the Company's customers rather than the Company. However, such industrial patterns are not readily transferable to other foundries without, in most cases, significant additional investment. Although foundries, including the Company, do not design industrial castings, a close working relationship between a foundry and the customer during a product launch is critical to reduce potential production problems and minimize the customer's risk of incurring lost sales or reputation damage due to a delayed launch. Involvement by a foundry early in the design process generally improves the likelihood that the customer will design a casting within the manufacturing capabilities of such foundry and also improves the likelihood that such foundry will be awarded the casting for full production. The Company estimates that it has historically retained approximately 90% of the castings it has been awarded throughout the product life cycle, which is typical for the industry. The Company believes industrial customers will continue to seek out foundries with a strong reputation for performance who are capable of providing a cost-effective combination of manufacturing technology and quality. The Company's strategy is to further its relationships with existing customers by participating in the design and production of more complex industrial castings, while seeking out selected new customers who would value the Company's performance reputation, technical ability and high level of quality and service. 4 5 Sales and Marketing Heavy Municipal. Over its 70 years of heavy municipal market participation, the Company has emphasized sales and marketing and believes it has built a strong reputation for customer service. The Company believes that it is one of the leaders in U.S. heavy municipal casting production and that it has strong name recognition. The Company has the largest sales and marketing effort of any foundry serving the heavy municipal market, including 59 Company employees and 28 commissioned representatives. The dedicated sales force works out of regional sales offices to market the Company's municipal castings to contractors and state and local governmental entities throughout the United States. The Company operates ten regional distribution and sales centers and has two other sales offices in Oklahoma City, Oklahoma and Norwood, Pennsylvania. The Company believes this regional approach enhances its knowledge of local specifications and its position in the heavy municipal market. Industrial. The Company employs a dedicated industrial casting sales force of six people, five based in Neenah, Wisconsin and one based in Mansfield, Ohio. These six people consist of three account coordinators, who support the ongoing customer relationships and organize the scheduling and delivery of shipments, and three major account managers, who work with customers' engineers and procurement representatives, Company engineers, manufacturing management and quality assurance representatives throughout all stages of the production process to ensure that the final product consistently meets or exceeds customer specifications. This team approach, consisting of sales, marketing, manufacturing, engineering and quality assurance efforts is an integral part of the Company's marketing strategy. Manufacturing Process The Company operates two modern foundries with an annual rated capacity of approximately 187,000 tons at a single location in Neenah, Wisconsin. The Company's foundries manufacture gray and ductile iron and cast it into intricate shapes according to customer metallurgical and dimensional specifications. From 1985 to 1998, the Company has invested heavily in its production facilities, with approximately $73 million invested from 1985 to 1990 in plant modernization and new equipment. The Company also continually invests in the improvement of process controls and product performance and believes that these investments and its significant experience in the industry have made it one of the most efficient manufacturers of industrial and heavy municipal casting products. During the fiscal year ended September 30, 1999, the Company had a combined scrap rate of 2.5%. The casting process involves using metal, wood or urethane patterns to make an impression of a casting product in a mold made primarily of sand. Cores, also made primarily of sand, are used to make the internal cavities and openings in a casting product. Once the casting impression is made in the mold, the cores are set into the mold and the mold is closed. Molten metal is then poured into the mold, which fills the mold cavity and takes on the shape of the desired casting product. Once the iron has solidified and cooled, the mold is shaken from the casting and the sand is recycled. The selection of the appropriate casting method, pattern, core-making equipment and sand and other raw materials depends on the final product, including its complexity, specifications, and function as well as intended production volumes. Because the casting process involves many critical variables, such as choice of raw materials, design and production of tooling, iron chemistry and metallurgy, and core and molding sand properties, it is important to monitor the process parameters closely to ensure dimensional precision and metallurgical consistency. 5 6 The Company continually seeks to find ways to expand the capabilities of existing technology to improve manufacturing processes. An example of this expansion is the Company's integration of Disamatic molding machines into its operations. Disamatic molding machines are considered to be among the most efficient sand molding machines because of their ability to produce high quality molds at high production rates. Disamatic molding machines are also used by most of the Company's direct competitors. Although the Company was not the first foundry to acquire Disamatic molding machines, it has significantly enhanced the equipment's range of production by combining the equipment with core-setting capabilities which exceed those of most foundries. To further improve upon the productivity of the Disamatic molding machines, the Company has recently increased the length of two of its cooling lines, making each line among the longest lines in the world for comparable Disamatic equipment. This extension allows the Company to run its machines at higher production rates while providing sufficient in-mold cooling time prior to mold shakeout to facilitate the production of high quality castings. As a result of these and other similar efforts, the Company has been able to increase productivity as measured in the number of molds per hour. The Company also achieves productivity gains by improving upon the individual steps of the casting process such as reducing the amount of time required to make a pattern change to produce a different casting product. The reduced time permits it to profitably produce castings in medium volume quantities on high volume, cost-effective equipment such as the Disamatic molding machines. Additionally, extensive effort in real time process controls permits the Company to produce a consistent, dimensionally accurate casting product, which requires less time and effort in the final processing stages of production. This accuracy contributes significantly to the Company's manufacturing efficiency. Quality Assurance Continual testing and monitoring of the manufacturing process is important to maintain product quality. The Company has adopted sophisticated quality assurance techniques and policies for its manufacturing operations. During and after the casting process, the Company performs numerous tests, including tensile, proof-load, radiography, ultrasonic, magnetic particle and chemical analysis. The Company utilizes statistical process controls to measure and control significant process variables and casting dimensions. The results of this testing are documented in metallurgical certifications, which are provided with each shipment to most industrial customers. The Company strives to maintain systems that provide for continual improvement of operations and personnel, emphasize defect prevention and reduce variation and waste in all areas. Distribution The Company sells a substantial amount of its municipal castings through its network of two warehouses, ten distribution and sales centers and two other sales offices. Industrial castings are shipped direct to customers from the Company. For many municipal and a small portion of its industrial customers, castings are delivered by Neenah Transport, Inc., a wholly owned subsidiary of the Company ("Neenah Transport"), which operates a fleet of 28 tractors and 101 trailers that deliver products throughout the Midwest. For sales outside of the Midwest, increased transportation costs impact the ability of the Company to compete on a cost basis. Neenah Transport also backhauls raw materials for use by the Company on return trips. Neenah Transport is staffed with professional drivers who are trained in service standards and product knowledge as representatives of the Company. To the Company's knowledge, none the Company's major heavy municipal competitors have a captive transportation subsidiary. The Company believes Neenah Transport's service and drivers provide another differentiating factor in favor of the Company as compared to other major heavy municipal manufacturers. 6 7 Raw Materials The primary raw materials used by the Company to manufacture ductile and gray iron castings are steel scrap, pig iron, metallurgical coke and silica sand. While there are multiple suppliers for each of these commodities, the Company has single-source arrangements with its suppliers for each of these major raw materials, with the exception of pig iron. Due to long standing relationships with each of its suppliers, the Company believes that it will continue to be able to secure raw materials at competitive prices. The primary energy sources for the Company's operations, electricity and natural gas, are purchased through utilities. Although the prices of all raw materials used by the Company vary, the fluctuations in the price of steel scrap are the most significant to the Company. The Company has arrangements with most of its industrial customers which require the Company to adjust industrial casting prices to reflect scrap price fluctuations. In periods of rapidly rising or falling scrap prices, these adjustments will lag the current scrap price because they are generally based on average market prices for prior periods, which periods vary by customer but are generally no longer than six months. Castings are generally sold to the heavy municipal market on a bid basis and, after a bid is won, the price for the municipal casting generally cannot be adjusted for raw material price increases. However, in most cases the Company believes it has been successful in obtaining higher municipal casting unit prices in subsequent bids to compensate for rises in scrap prices in prior periods. Rapidly fluctuating scrap prices may have an adverse or positive effect on the Company's financial condition and results of operations. Competition The markets for the Company's products are highly competitive. Competition is based not only on price, but also on quality of product, range of capability, level of service and reliability of delivery. The Company competes with numerous independent and captive foundries, as well as with a number of foreign iron foundries, including certain foundries located in India. The Company also competes with several large domestic manufacturers whose products are made with materials other than ductile and gray iron, such as steel or aluminum. The industry consolidation that has occurred over the past 20 years has resulted in a significant reduction in the number of smaller foundries and a rise in the share of production by larger foundries, some of which have significantly greater financial resources than the Company. Competition from India has had a strong presence in the heavy municipal market and continues to be a factor, primarily in the western and eastern United States, due in part to costs associated with transportation. However, foreign companies have been, and continue to be, subject to antidumping and countervailing duty enforcement litigation which the Company believes has had a negative effect on foreign companies' ability to compete in the U.S. markets. There can be no assurance that these factors will continue to mitigate the impact of foreign competition, or that the Company will be able to maintain or improve its competitive position in the markets in which it competes. 7 8 Hartley Controls Corporation Hartley Controls Corporation, a wholly owned subsidiary of the Company ("Hartley Controls"), engineers, manufactures and sells customized sand control systems, which are an essential part of the casting process, to other iron foundries. The sand molding media used in all high production iron foundries is a critical element in determining mold quality. Exacting and consistent control of this sand with respect to moisture and chemical additives is an essential element for process control and relates directly to casting quality, scrap rate and the ability to produce complex molds for highly engineered castings. Harley Controls is a major U.S. supplier of sand control systems with over 300 installations since 1986. Harley Controls has made investments in process technology and has several patented technologies related to sand systems, including the "Automatic Moisture Controller," the "Even-Flo Bin," the "Automatic Compactibility Tester," the "Automatic Bond Determinator," the "Green Stand Reconditioner" and the "Sandman." Sales of these sand systems and related products represented approximately 3% of the Company's net sales for the year ended September 30, 1999. Employees As of September 30, 1999 the Company had 1,030 full time employees, of whom 805 were hourly employees and 225 were salaried employees. The Local 121B of the Glass, Molders, Pottery, Plastics and Allied Workers International Union AFL-CIO is the major bargaining agent for the representative of 726 of the Company's hourly employees. A collective bargaining agreement with Local 121B was reached on January 1, 1999 and expires on December 31, 2001. The Independent Patternmakers Union of Neenah, Wisconsin is the major bargaining agent for and representative of 36 of the Company's hourly employees. A collective bargaining agreement with the Independent Patternmakers Union was reached on January 1, 1998 and expires on December 31, 2000. The Company believes that it has a good relationship with its employees. Environmental Matters The facilities of the Company and Acquired Subsidiaries' are subject to federal, state and local laws and regulations relating to the protection of the environment and worker health and safety, including those relating to discharges to air, water and land, the handling and disposal of solid and hazardous waste and the cleanup of properties affected by hazardous substances. Such laws include the Federal Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), and the Occupational Health and Safety Act. The Company believes that its and each of the Acquired Subsidiaries' operations are currently in substantial compliance with applicable environmental laws, and that it has no liabilities arising under such environmental laws, except as would not be expected to have a material adverse effect on the Company's or any of the Acquired Subsidiaries' operations, financial condition or competitive position. However, some risk of environmental liability and other costs is inherent in each of the Company's and Acquired Subsidiaries' businesses. Any of the Company or the Acquired Subsidiaries might in the future incur significant costs to meet current or more stringent compliance, cleanup or other obligations pursuant to environmental requirements. Such costs may include expenditures related to remediation of historical releases of hazardous substances or clean-up of physical structures prior to decommissioning. Under the Federal Clean Air Act Amendments of 1990, the Environmental Protection Agency ("EPA") is directed to establish maximum achievable control technology ("MACT") standards for certain industrial operations that are major sources of hazardous air pollutants ("HAPs"). The iron foundry industry is not expected to be required to implement the MACT emission limits, control technologies or work practices until the year 2003 at the earliest. Although the Company cannot accurately estimate the costs to comply with the MACT standard until it is issued, the MACT standard, when implemented, and state laws governing the emission of toxic air pollutants may require that certain of the Company's or the Acquired Subsidiaries' facilities incur significant costs for air emission control equipment, air emission monitoring equipment or process modifications. 8 9 ACQUISITIONS On March 30, 1998, the Company acquired all the capital stock of Deeter for $24.3 million (excluding fees and expenses incurred in connection with the acquisition of $0.3 million), consisting of $20.4 million of cash and a $3.9 million seller note (the "Deeter Seller Note"). The Deeter Seller Note, which did not bear interest, was issued to the selling shareholders of Deeter by ACP Holdings and matured on March 30, 1999. The Company financed the cash portion of the consideration and all fees and expenses from cash on hand. Since 1945, Deeter has been producing gray iron castings for the heavy municipal market. Deeter's municipal casting product line includes manhole frames and covers, storm sewer inlet frames, grates and curbs, trench grating and tree grates. Deeter also produces a wide variety of special application construction castings. These products are utilized in waste treatment plants, airports, telephone and electrical construction projects. On April 3, 1998, the Company acquired all the capital stock of Mercer for $47.0 million in cash (excluding fees and expenses incurred in connection with the acquisition of $0.5 million). Concurrently with the acquisition of Mercer, the Company, ACP Holdings and the lenders party thereto amended and restated the Credit Agreement (the "Credit Agreement") dated April 30, 1997, as amended and restated on September 12, 1997. The Credit Agreement, as so amended and restated, provided availability of $75.0 million of term loans to the Company (consisting of $20.0 million of Tranche A Loans (as defined) and $55.0 million of Tranche B Loans (as defined) in addition to the Company's existing $50.0 million Revolving Credit Facility (as defined). On April 3, 1998, the Company borrowed $55.0 million of the Tranche B Loans, of which $48.6 million was used to finance the acquisition of Mercer, to pay fees and expenses incurred in connection with the acquisition and to pay financing costs. The available Tranche A Loans were not borrowed on April 3, 1998. Founded in 1954, Mercer is a leading producer of complex-shaped forged components for use in transportation, railroad, mining and heavy industrial applications. Mercer is also a leading producer of microalloy forgings. Mercer sells directly to OEMs, as well as to industrial end users. On September 8, 1998, the Company acquired all the capital stock of Dalton for $102.0 million in cash (excluding fees and expenses incurred in connection with the acquisition of $0.6 million). Dalton manufactures and sells gray iron castings for refrigeration systems, air conditioners, heavy equipment, engines, gear boxes, stationary transmissions, heavy duty truck transmissions and other automotive parts. On September 8, 1998, the capital stock of ACP was contributed to the Company by ACP Holdings. In connection with the contribution, the Company assumed $14.9 million of indebtedness of ACP, $14.6 million of which was refinanced with borrowings under the Senior Bank Facilities. ACP is a leading independent manufacturer of ductile and malleable iron castings that are produced through both traditional casting methods and through ACP's Evapcast lost foam casting process. ACP's production capabilities also include a range of finishing operations including austempering and machining. ACP sells its products primarily to companies in the heavy truck, construction equipment, railroad, mining, electrical fittings and automotive industries. In connection with the acquisition of Dalton and the contribution of the capital stock of ACP, the Company, ACP Holdings and the lenders party thereto amended and restated the Credit Agreement to provide availability of additional Tranche B Loans in an aggregate principal amount of $70.0 million and an Acquisition Loan Facility (as defined) in an aggregate principal amount outstanding at any one time not to exceed $50.0 million. In connection with the acquisition of Dalton and the contribution of the capital stock of ACP, the Company borrowed $29.0 million under the Acquisition Loan Facility, $20.0 million of Tranche A Loans and $70.0 million of Tranche B Loans. 9 10 On December 31, 1998, the Company purchased Niemin Porter & Co. d/b/a Cast Alloys, Inc. ("Cast Alloys"), a manufacturer of investment-cast titanium and stainless steel golf clubheads, for $40.1 million in cash (excluding fees and expenses incurred in connection with the acquisition of $1.2 million). The acquisition of Cast Alloys was financed out of a portion of the proceeds of the issuance of the Company's 11 1/8% Senior Subordinated Notes due 2007 issued on November 24, 1998. Currently, each of the Acquired Subsidiaries is operating as a separate subsidiary of the Company with independent operations under the direction of the management that was in place prior to its acquisition by the Company. Although the Company currently does not have plans to integrate the operations of the Company with the Acquired Subsidiaries, it may to some extent do so in the future. Each of the Deeter, Mercer, Dalton and Cast Alloys acquisitions were accounted for using the purchase method of accounting. The acquisition of ACP was accounted for at historical cost in a manner similar to that in pooling of interest accounting since the Company and ACP were under common control. The foregoing transactions are herein referred to as the "Acquisitions." The credit facilities available under the Credit Agreement are collectively referred to herein as the "Senior Bank Facilities". 10 11 DALTON CORPORATION Overview Dalton manufactures and sells gray iron castings for refrigeration systems, air conditioners, heavy equipment, engines, gear boxes, stationary transmissions, heavy duty truck transmissions and other automotive parts. Dalton's operating facilities have been structured to manufacture or machine specific components to customer specifications. Dalton specializes in using cold box and shell core products as well as precision high-pressure molds to manufacture gray iron castings. The majority of Dalton's castings range in size from one pound to 700 pounds. Products and Markets During fiscal year 1999, the nine months ended September 30, 1998, and calendar year 1997 Dalton produced 209,334, 159,728, and 192,495 tons of castings, respectively. As a result of being acquired in September, 1998 the figures for 1998 only include nine months of production. Dalton's revenues are generated from customers in several industries, however, refrigeration and air conditioning represent the largest concentration of tons shipped, which management estimates was approximately 45% of tons shipped in 1999.The next largest markets served include heavy truck at an estimated 16% and automotive/light truck at an estimated 10% of the tons shipped in 1999. Dalton serves primarily three markets: refrigeration and air conditioning, automotive/truck market and heavy equipment. Customers Dalton has over 100 customers across several industries, with four of Dalton's largest five customers operating in the refrigeration/air conditioning industry. Dalton's largest 10 customers accounted for approximately 70% of Dalton's 1999 net sales. Dalton's largest customer, Copeland Corporation, accounted for approximately 18% of Dalton's 1999 net sales. Raw Materials The primary raw materials used by Dalton to manufacture iron castings are steel scrap, pig iron, metallurgical coke and silica sand. By using steel scrap in its production process, Dalton becomes significant contributor to the recycling efforts being undertaken around the world. While there are multiple suppliers for each of these commodities, Dalton has sourcing arrangements with its suppliers for each of these major raw materials, with the exception of pig iron. Due to long standing relationships with each of its suppliers and the supply availability, Dalton management believes that it will continue to be able to secure raw materials from its suppliers at competitive prices. The primary energy sources for Dalton's operations, electricity and natural gas, are purchased through utilities. Although the prices of all raw materials used by Dalton vary, the fluctuations in the price of steel scrap are the most significant to Dalton. Dalton has arrangements with most of its industrial customers which require Dalton to adjust industrial casting prices to reflect fluctuations in scrap metal prices. In periods of rapidly rising or falling scrap prices, these adjustments will lag the current scrap price because they are generally based on average market prices for prior periods, which periods vary by customer but are generally no longer than six months. Rapidly fluctuating scrap prices may have a temporary adverse or positive effect on Dalton's results of operations. 11 12 Competition Dalton operates in the same industry as the Company and therefore faces the same competitive environment as the company. See "-The Company (other than the Acquired Subsidiaries) -Competition." Manufacturing Facilities Dalton currently operates four facilities. The main plant, located in Warsaw, Indiana ("Warsaw") was established in 1910. In 1992 Dalton acquired a second plant in Kendallville, Indiana ("Kendallville") and in 1995, Dalton acquired a third plant in Ashland, Ohio ("Ashland"). On September 30, 1999 Dalton announced the closure of the Ashland plant, with all manufacturing expected to be completed by December 31, 1999. In addition to the foundry operations, Dalton owns a machining facility in Stryker, Ohio ("Stryker"). Dalton has established a separate General Office for centralized finance and MIS operations along with executive management of Dalton. Employees At September 30, 1999, Dalton employed 1,668 individuals, consisting of 1,365 hourly employees and 303 salaried and clerical employees.Nearly all of Dalton's production employees are members of either the Steel Workers' Union or the Glass, Molders, Pottery, Plastics and Allied Workers International Union. A collective bargaining agreement is negotiated every three to five years. The current agreements expire as follows: Warsaw, April 5, 2003; Kendallville, June 28, 2002; and Ashland, April 27, 2002. Environmental Matters Dalton is subject to environmental, health and safety laws comparable to those governing the Company. See "-The Company (other than the Acquired Subsidiaries) -Environmental Matters." Status of Dalton's Air Emission Compliance In connection with Dalton's submission of draft operating permits for air emission sources at its facilities in Warsaw and Kendallville under Title V of the federal Clean Air Act Amendments of 1990 ("Title V"), the Indiana Department of Environmental Management ("IDEM") has asked Dalton to address several issues of concern: (i) alleged exceedances of particulate and volatile organic compound emission levels; (ii) the applicability of Prevention of Significant Deterioration ("PSD") permit review requirements; and (iii) alleged construction and operation of sources without the required permits. Depending on the results of ongoing discussions with IDEM and the course of developing regulations, the costs of addressing Dalton's air emission control issues could be material. Dalton has retained an environmental consultant to address the concerns identified by IDEM. IDEM may require Dalton to perform tests on various emission sources, install new or upgrade existing emission capture or control equipment, use substitute materials or modify production rates to reduce regulated emissions and/or perform PSD review for several sources. IDEM issued Notices of Violations ("NOVs") in 1999 to both facilities regarding the failure to permit equipment. Negotiations between IDEM and Dalton continue regarding the NOVs and the content of its air permits. Penalties will be assessed against Dalton for the failure to permit, but at this time IDEM has not set any penalties. IDEM could also assess penalties against Dalton for the other identified concerns. At this time, management believes that any penalties assessed by IDEM will not be material. 12 13 Warsaw Monofill NOVs On May 15, 1998, IDEM issued an NOV to Dalton regarding Dalton's operation of an authorized landfill used exclusively by the Warsaw facility to dispose of its foundry waste (the"monofill"). IDEM issued the NOV after Dalton notified the agency that it had disposed of materials outside the authorized landfill area. IDEM is currently reviewing Dalton's request to modify the landfill permit and allow the disposal of wastes in the overfilled locations. IDEM is seeking a civil penalty of $100,000 to $150,000 from Dalton to resolve the NOV. Dalton could be required to relocate the overfill material to an authorized off-site disposal location if IDEM denies the pending request for permit modification. ADVANCED CAST PRODUCTS, INC. Overview ACP produces its products through three principal facilities. The largest operation, Meadville, manufactures ductile iron castings through both the traditional green sand molding process and its proprietary Evapcast lost foam casting process. The Belcher operation manufactures malleable cast iron parts primarily for the electrical fittings industry. Finally, the Peerless operation produces bearing adapters for use in rail cars. Peerless is one of only three U.S. companies that manufacture railroad bearing adapters. Since 1990, ACP has generated gradually increasing sales and operating income primarily due to increased volume of products shipped. Products and Markets ACP is a leading independent manufacturer of ductile and malleable iron castings that are produced through both traditional casting methods and through ACP's Evapcast lost foam casting process. ACP's production capabilities also include a range of finishing operations including austempering and machining. ACP sells its products primarily to companies in the heavy truck, construction equipment, railroad, mining, electrical fittings and automotive industries. Evapcast and CasTuf are two of ACP's proprietary casting processes. Evapcast utilizes lost foam molding technology to produce near net-shape castings, which allow for tighter tolerances, a smoother surface and enhanced part complexity and require significantly less machining. CasTuf process produces austempered ductile iron castings with superior strength characteristics. CasTuf replaces more expensive steel castings, forgings and fabrications, providing increased design flexibility. Management believes that ACP is the first and only ductile foundry in the U.S. with its own in-house austemper furnace and is one of only two ductile iron foundries to have developed the lost-foam casting process. ACP is also a leading provider of in-house machined castings through its expanded machining capability, which utilizes state-of-the-art CNC machines. ACP's products and processes have enabled the development of long-term working relationships with many key customers. This has allowed ACP to retain existing customers, build on its customer base and obtain favorable pricing. Customers ACP serves a diverse base of approximately 400 customers. Freightliner Corporation, ACP's largest customer, accounted for more than 21% of ACP's net sales for its fiscal year ended September 30, 1999. ACP specializes in meeting the more difficult requirements of its largest customers such as Caterpillar, Freightliner and Dana. ACP has been presented supplier awards from each of these OEMs and has earned the ability to obtain new part awards as they become available. 13 14 ACP works closely with its customers from the beginning of the design process until the shipment of finished parts. Due to this level of customer service along with its products and services, ACP has been able to increase sales to existing customers as well as expand its customer base. ACP offers its customers a package, which includes casting, austempering, machining, painting and assembly. This combination of products and services reduces the risk of ACP customers moving their products to other manufacturers. Raw Materials The primary raw materials used by ACP to manufacture iron castings are steel scrap, alloys and silica sand. While there are multiple suppliers for each of these commodities, ACP has sourcing arrangements with its suppliers of each of these major raw materials. Due to long standing relationships with each of its suppliers, ACP believes that it will continue to be able to secure raw materials from its suppliers at competitive prices. The primary energy sources for ACP's operations, electricity and natural gas, are purchased through utilities and competitive third party bidding. Although the prices of all raw materials used by ACP vary over time, the fluctuations in the price of steel scrap are the most significant to ACP. ACP has arrangements with most of its industrial customers which allow ACP to adjust industrial casting prices to reflect scrap price fluctuations. Competition ACP operates in the same industry as the Company and therefore faces the same competitive environment as the Company. See "-The Company (other than the Acquired Subsidiaries) -Competition." Manufacturing Facilities ACP currently operates 3 facilities. Since 1989, ACP has spent over $31.2 million on capital equipment to expand production capacity, improve efficiency, add new production capabilities, replace equipment and improve the quality of its products. ACP investments have included, for example, state of the art Disamatic molding lines at both its Meadville and Belcher facilities and computer numerical controlled ("CNC") machining centers at Meadville. The new molding lines have increased capacity with the potential to reduce operating costs. In addition, new capital expenditures have been completed for Meadville that include an autopour unit for its current Disamatic line, a larger Disamatic molding line for larger castings, and additional CNC machines. Belcher's new capital expenditures also include an autopour unit in addition to a heat treat furnace. Employees ACP has approximately 101 salaried and approximately 425 hourly employees represented by the United Steelworkers of America. The collective bargaining agreement for Belcher and Meadville expires in June 2004 and in October 2004, respectively. Environmental Matters ACP is subject to environmental, health and safety laws comparable to those governing the Company. See "-The Company (other than the Acquired Subsidiaries) - -Environmental Matters." 14 15 Intellectual Property Meadville holds trademark rights on two advanced proprietary processes, Evapcast and CasTuf. ACP's Evapcast process utilizes a lost foam casting technique which produces near net shape castings. Evapcast eliminates the need for coring and reduces the need for machining resulting in significant cost savings to the customer. CasTuf is a process to produce a line of austempered ductile iron castings which have superior strength characteristics and are easier to cast than steel products, thus providing greater design freedom. Meadville is the only ductile iron casting company in North America with in-house austempering capabilities (CasTuf) and one of only two independent, ductile iron foundries with lost foam technology (EvapCast). Additionally, Meadville was one of the first foundry operations to provide completely finished parts through an integrated machining capability. MERCER FORGE CORPORATION Overview Founded in 1954, Mercer is a leading producer of complex-shaped forged components for use in transportation, railroad, mining and heavy industrial applications. Mercer is also a leading producer of microalloy forgings. Mercer sells directly to OEMs, as well as to industrial end users. Mercer's subsidiary, A&M Specialties, Inc.(A&M), machines forgings and castings for Mercer and other industrial applications. Until the mid-1980's, Mercer produced military tank parts, but successfully converted from a defense contractor to a commercial manufacturer and today is one of the leading suppliers to the heavy duty truck sector. Mercer produces approximately 500 individually forged components and has developed specialized expertise in forgings of microalloy steel which management estimates accounts for approximately 40% of its production. Products and Markets Mercer manufactures its products to customer specification with typical production runs of 1,000 or more units. Mercer currently operates eight mechanical press lines, from 1,300 tons to 4,000 tons. Mercer's principal plant is a 130,000 square foot facility located in Mercer, Pennsylvania. Key markets for Mercer include truck and automotive parts, railroad equipment and general industrial machinery. The following is a summary of Mercer's product capabilities, broken out by the principal customer categories it serves:
- ----------------------------------------------------------------------------------------------- INDUSTRY PRODUCTS - ----------------------------------------------------------------------------------------------- Truck Drive Train Components; Sector Shafts; Knuckles, Spindles; King Pins - ----------------------------------------------------------------------------------------------- Automotive Transmission Gears; Hubs, Front Wheel Universal Components; Drive Train Yokes; Spindles - ----------------------------------------------------------------------------------------------- Mining Equipment Shoes; Fight Bars; Gear Blanks; Hubs; Sleeves - ----------------------------------------------------------------------------------------------- Railroad Wheels; Draft Gear Components; Tank Car Valves; Piston Carries; Articulated Car Bearings; Connecting Rods - ----------------------------------------------------------------------------------------------- Off-Highway/ Yokes; Spindles; Flanges; Gear Blanks; Hubs; Track Links; Roller Agriculture Shafts; Drive Line Components - ----------------------------------------------------------------------------------------------- Industrial Gears; Bearings; Wheels; Cams - ----------------------------------------------------------------------------------------------- Military Ordnance Projectile Components; Missile Components; Center Guides; End Connectors; Tank Track Components - -----------------------------------------------------------------------------------------------
15 16 The Forged Components Market Demand for forged products for civilian application closely follows the general business cycles of the various market segments and the demand level for capital goods. While there is a more consistent base level of demand for the replacement parts portion of the business, the strongest expansions in the forging industry coincide with the periods of industrial segment economic growth. While the heavy truck segment remains relatively strong, there has been some weakness in the railroad car building components and mining equipment during recent months. Management attributes this to normal industrial cycles in these markets and adjustments to overbuilds in inventory levels. Mercer experienced a three month strike in 1999 which had an adverse impact on its volume levels and customers. After a five year settlement at the end of June of 1999, management is working to rebuild and restore its volume and customer base to pre-strike levels. Sales of military forgings, which was at one time Mercer's principal product, have been virtually eliminated and replaced with an industrial base of sales. Mercer operates two of its eight forge press lines under contracts with the U.S. Government, but no longer actively bids for defense contracts. During the 1990-92 Gulf War period, Mercer was active in producing ordnance components. Management anticipates, however, that military products will continue to account for a small portion of its business on an intermittent basis. Manufacturing Process Forgings and casting (together with a third process, fabrication) are the principal commercial metal working processes. In forging, metal is pressed, pounded or squeezed under great pressure, with or without the use of heat, into parts that retain the metal's original grain flow, imparting high strength, ductility and resistance properties. Forging itself usually entails one of four principal processes: impression die; open die; cold; and seamless rolled ring forging. Impression die forging, commonly referred to as "closed die" forging, is the principal process employed by Mercer, and involves bringing two or more dies containing "impressions" of the part shape together under extreme pressure, causing the forging stock to undergo plastic reformation. Because the metal flow is restricted by die containers, this process can yield more complex shapes and closer tolerances than the "open die" forging process. Impression die forging is used to produce products such as military and off-highway track and drive train parts; automotive and truck drive train and suspension parts; railroad engine, coupling and suspension parts; military ordinance parts and other items where close tolerances are required. Once a rough forging is produced, regardless of the forging process, it must generally still be machined. This process, known as "finishing" or "conversion", smoothes the component's exterior and mating surfaces and adds any required specification, such as groves, threads, bolt holes and brand name markings. The finishing process can contribute significantly to the value of the end product, in particular in certain custom situations where high value specialized machining is required. Machining can be performed either in-house by the forger, by a machine shop which performs this process exclusively or by the end-user. An internal staff of five engineers designs products to meet customer specifications incorporating computer assisted design (CAD) work stations for tooling design. Because its forged products are inherently less expensive and stronger, Mercer has been successful in replacing certain cast parts previously supplied by third party foundries. Management believes that Mercer is an industry leader in forging techniques using microalloy steel which produces parts which are lighter and stronger than those forged from conventional carbon steel. 16 17 Customers Mercer's in-house sales organization sells direct to end users and OEMs. A key element of Mercer's sales strategy is its ability to develop strong customer relationships through responsive engineering capability, dependable quality and just-in-time performance. Mercer currently serves approximately 40 individual customer accounts. Dana Corporation represents Mercer's largest customer and accounted for approximately 46% of Mercer's fiscal year ended September 30, 1999 sales. Raw Materials The principal raw materials used in Mercer's products are carbon and microalloy steel. Mercer purchases substantially all of its carbon steel from four principal sources. Mercer typically maintains 10 to 30 days supply on hand. Mercer buys approximately 25,000 tons of raw steel per year. While Mercer has never suffered an interruption of materials supply, management believes that, in the event of any disruption from any individual source, adequate alternative sources of supply are available within the immediate vicinity although there can be no assurance in this regard. Competition Mercer competes primarily in a highly fragmented industry which includes several dozen other press forgers and hammer forge shops. Hammer shops cannot typically match press forgers' for high volume, single component manufacturing, or close tolerance production. Competition in the forging industry has also historically been determined both by product and geography, with a large number of relatively small forgers across the country carving out their own product and customer niches. In addition, most end users manufacture some forgings themselves, often maintaining a critical minimum level of production in-house and contracting out the balance. The primary basis of competition in the forging industry is price, but engineering, quality and dependability are also important, particularly with respect to building and maintaining customer relationships. Some of Mercer's competitors have significantly greater resources than Mercer. There can be no assurance that Mercer will be able to maintain or improve its competitive position in the markets in which it competes. Mercer is not aware of any significant offshore competition within its current product categories. Due to the importance of customer relationships and engineering capabilities, most foreign producers are unable to compete. Manufacturing Facilities Mercer is located in northwest Pennsylvania, about 60 miles north and west of the Greater Pittsburgh airport. Mercer owns it principal forging facility, which occupies a twenty-one acre site, and consists of a 130,000 square foot manufacturing facility (which was partially rebuilt and expanded by 50,000 square feet in 1989) and an adjacent office complex. Mercer's subsidiary, A&M, also leases an 18,000 square foot machine shop facility located in Sharon, Pennsylvania, approximately ten miles from Mercer's headquarters. Mercer's main plant is able to forge complex components in runs from 500 to more than 10,000 units. Mercer manufactures approximately 500 individual products (SKUs) of which approximately half run throughout the production year. Heating capacity is 59,000 pounds per hour through eight induction heaters. Mercer's existing equipment can handle forging weights from 3 to 100 pounds and forging diameters ranging from 2 1/2 inches to 5 1/2 inches. Shear/saw production can handle up to 6 inch diameter billets. 17 18 Mercer presently operates eight press lines consisting of one 4,000 ton, two 3,000 ton, two 2,000 ton and three 1,300 ton press lines with billet loaders, induction furnaces, and trim presses. The plant uses four microalloy conveyors. Mercer is also equipped with saws and shearers to cut billets from round and square steel bars. Mercer maintains a fully equipped quality control facility, magniflux machine, shot cleaning equipment, complete die welding facility and die repair machine shop. A&M operates approximately 20 CNC lathes and mills as well as a high speed die machining operation utilizing 2 CNC mills. Employees Mercer currently employs approximately 140 full time hourly forging employees and A&M employs approximately 40 full time hourly machining employees, all of whom are represented by collective bargaining agreements with United Steel Workers of America. Following a three month strike ending June 28, 1999, Mercer has a five year contract ending in 2004. Management believes labor relations are stable and improving following the three-month strike. Environmental Matters Mercer is subject to environmental, health and safety laws comparable to those governing the Company. See "- The Company (other than the Acquired Subsidiaries) -Environmental Matters." DEETER FOUNDRY, INC. Overview Since 1945, Deeter has been producing gray iron castings for the heavy municipal market. Deeter's municipal casting product line includes manhole frames and covers, storm sewer inlet frames, grates and curbs, trench grating and tree grates. Deeter also produces a wide variety of special application construction castings. These products are utilized in waste treatment plants, airports, telephone and electrical construction projects. Deeter's centralized location in Lincoln, Nebraska allows it to service the majority of its geographical market area with overnight delivery. In addition, Deeter maintains 2 stockyards located in the midwest and western U.S. Products, Customers and Markets Deeter manufactures the same products, serves the same markets and sells to the same customer and market base as Neenah's heavy municipal line. See"-The Company (other than the Acquired Subsidiaries) -Products, Customers and Markets." Raw Materials The primary raw materials used by Deeter to manufacture iron castings are cast iron scrap, metallurgical coke and silica sand. While there are multiple suppliers for each of these commodities, Deeter has sourcing arrangements with its suppliers of each of these major raw materials. Due to long standing relationships with each of its suppliers, Deeter believes that it will continue to be able to secure raw materials from its suppliers at competitive prices. The primary energy sources for Deeter's operations, electricity and natural gas, are purchased through utilities. 18 19 Although the prices of all raw materials used by Deeter vary, the fluctuations in the price of steel scrap are the most significant to Deeter. Deeter builds to stock based on forecast sales during any given period and generally does not have any long term customer contracts. As a result, in periods of rapidly rising or falling scrap prices, prices charged to customers will relatively quickly reflect the current scrap price. Rapidly fluctuating scrap prices may have a temporary adverse or positive effect on Deeter's results of operations. Competition Deeter operates in the same industry as the Company and therefore faces the same competitive environment as the Company. See "-The Company (other than the Acquired Subsidiaries) -Competition." Manufacturing Facilities Deeter is located on an 10 acre site with 65,000 square feet of manufacturing area. Deeter operates three green sand molding lines with a current annual capacity of 24,000 net saleable tons. Deeter maintains stockyards located in Denver, Colorado and their primary distribution yard is located on site in Lincoln, Nebraska. Employees At September 30, 1999 Deeter had 97 full time hourly employees and 25 salaried employees. The workers are non-union and Deeter believes its relations with its employees are good. Environmental Matters Deeter is subject to environmental, health and safety laws comparable to those governing the Company. See " -Company (other than the Acquired Subsidiaries) -Environmental Matters." On May 30, 1997, prior to the Company's acquisition of Deeter, Deeter pleaded guilty to disposing of hazardous waste without a permit and agreed to pay a fine of $500,000, performed (by its president, Douglas E. Deeter) 300 hours of community service and provided certain information regarding its waste handling and disposal practices. Management believes that Deeter has complied with regulations and that the matter will result in no further liabilities. CAST ALLOYS INC. Overview Cast Alloys manufactures and sells titanium and stainless steel clubheads for the golf industry. Cast Alloy's operating facilities have been structured to manufacture and machine specific components to customer specifications. Cast Alloys uses an investment casting manufacturing process utilizing equipment which will allow the expansion into alternative commercial products. Products and Markets Cast Alloy's clubheads are generally used in premium-quality stainless steel and titanium golf clubs targeted at the high end of the market. These clubs must satisfy the requirements of highly-skilled amateur and professional golfers, including touring professionals. Cast Alloys' clubheads are included in a variety of leading metal woods, irons and putters. 19 20 Manufacturing Process Investment Casting. Investment-casting is highly specialized method of making metal products and has become the principal method for the manufacture of metal clubheads. Investment casting permits greater flexibility in the shape and weight distribution of clubheads than alternative methods such as forging and machining. Investment-casting facilitates perimeter weighting, hollow forms and the utilization of lighter and higher-performance alloys. It enhances manufacturing precision and uniformity which is critical in the manufacture of metal woods. Polishing and finishing process. Cast Alloys conducts golf clubhead polishing and finishing operations, including painting, at its facilities in Tijuana, Mexico. Finishing of the head for an iron or putter can require more than 50 separate steps and finishing of a head for a metal wood can involve as many as 100 separate steps. When the process is completed, a fully finished golf clubhead is delivered to the customer per their exact specifications. Metal Alloys. All of the clubheads manufactured by Cast Alloys are made of titanium or stainless steel alloys. Titanium clubheads have higher tensile strength than stainless steel with approximately one-half the weight of steel. Therefore, a larger oversized clubhead can be manufactured using titanium without increasing clubhead weight. Cast Alloys' Northridge facility is designed exclusively for high volume titanium casting operations. Quality Control. Cast Alloys believes that its success as a leading supplier of golf clubheads is largely attributable to its statistical quality control measures. Cast Alloys attempts to monitor every aspect of the engineering and manufacturing process to assure the quality of the clubheads manufactured. Particular attention is paid to the quality of raw materials (principally wax, ceramic and metal alloys), gating techniques employed in channeling the flow of molten metal into the ceramic shell in the casting process, and rigorous inspection standards to assure compliance with a customer's product specifications throughout the manufacturing process. Statistical process control is utilized to maintain consistency in manufacturing. Customers Substantially all of the clubheads manufactured by Cast Alloys are used by leading golf equipment companies in the production of high-quality, premium-priced golf clubs. Most golf club companies source the three principal components of a golf club--the clubhead, shaft, and grip--from independent suppliers like Cast Alloys, which manufacture these components to meet each customer's specifications. Cast Alloys is currently a major supplier of stainless steel and titanium clubheads to Callaway and Taylor Made. Cast Alloys believes that it has successfully established close working relationships with the leading golf club manufacturers. Cast Alloys' sales and marketing activities are conducted by a limited number of direct sales employees, as well as senior executives of Cast Alloys. Raw Materials All of the clubheads and other commercial/industrial parts manufactured by Cast Alloys are made of titanium or stainless steel alloys. Titanium clubheads have higher tensile strength than stainless steel with approximately one-half the weight of steel. Therefore, a larger oversized clubhead can be manufactured using titanium alloys from overseas and steel is procured domestically, both at very competitive prices with long term supply agreements. Competition Cast Alloys operates in a highly competitive market and competes primarily with four major golf clubhead manufacturers in the United States, including but not limited to Coastcast Corporation, Sturm Ruger, Inc., Selmet, Inc., and Hitchiner Manufacturing Co., Inc. 20 21 Manufacturing Facilities Cast Alloys' corporate and administrative offices and manufacturing facilities currently occupy an aggregate of 231,277 square feet in six separate locations. All of Cast Alloys' facilities are leased. Cast Alloys believes that each of these properties are in good condition and that these facilities are sufficient for current and anticipated needs. In June, 1999 Cast Alloys purchased an R&D facility from Callaway Golf which it will use for its manufacturing operations. Eventually, the facilities at Northridge and Chatsworth, CA. will be vacated. Employees At September 30, 1999, Cast Alloys had 377 full time employees at its U.S. locations and 1,923 full time employees at its three Mexican locations. The workers are non-union and Cast Alloys believes its relations with its employees are good. Environmental Matters None. Item 2. PROPERTIES The Company and the Acquired Subsidiaries maintain the following locations. All of the facilities are owned, with the exception of Cast Alloys' facilities, Mercer's machining facility and the Dublin, OH office facility, which are leased.
ENTITY LOCATION PURPOSE ------ -------- ------- ACP Holding Company Dublin, OH Office facility Neenah Foundry Company Neenah, WI 2 manufacturing facilities Office facility Dalton Corporation Warsaw, IN Manufacturing/office facility Kendallville, IN Manufacturing facility Ashland, OH Manufacturing facility Stryker, OH Machining facility Advanced Cast Products, Inc. Meadville, PA Manufacturing/office facility South Easton, MA Manufacturing facility Ironton, OH Manufacturing facility Mercer Forge Corporation Mercer, PA Manufacturing/office facility Sharon, PA Machining facility Deeter Foundry, Inc. Lincoln, NE Manufacturing/office facility Cast Alloys, Inc. Carlsbad, CA Office facility / R&D Center Northridge, CA Manufacturing facility Tijuana, B.C.N. Mexico Manufacturing facility Chatsworth, CA Storage facility
The principal equipment at the facilities consist of molding machines, presses, machining equipment, welding, grinding and painting equipment. The Company and its acquired subsidiaries regard its plant and equipment as well-maintained and adequate for its needs. In addition to the facilities above, the Company owns seven and leases seven distribution and sales centers. 21 22 Item 3. LEGAL PROCEEDINGS The Company and Acquired Subsidiaries are involved in routine litigation incidental to its business. Such litigation is not, in the opinion of management, likely to have a material adverse effect on the financial condition or results of operations of the Company, or the Acquired Subsidiaries. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the year ended September 30, 1999. 22 23 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. There is no public market for the common stock of the Company. There was one holder of record of the Company's common stock as of September 30, 1999. Item 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA The following table sets forth the selected historical consolidated financial and other data of the Company for the three years ended March 31,1997, the six months ended March 31, 1997, and the one month ended April 30, 1997 (the "Predecessor Company"), which have been derived from the Company historical consolidated financial statements before the Merger and the five months ended September 30, 1997 and the years ended September 30, 1998 and 1999, which have been derived from the Company's historical consolidated financial statements following the Merger. The information contained in the following table should also be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the Company's historical consolidated financial statements and related notes included elsewhere in this report.
Predecessor Company ------------------------------------------------------ Fiscal Year Ended ----------------- March 31, --------- Six Months One Month Five Months Fiscal Year Fiscal Year Ended Ended Ended Ended Ended --------- -------- -------- March 31, April 30, September 30, September 30, September 30, (Dollars in thousands) 1995 1996 1997 1997 1997 1997 1998 (1) 1999 (2) STATEMENT OF ---- ---- ---- ---- ---- ---- -------- -------- INCOME DATA: Net sales $160,621 $166,951 $165,426 $75,686 $17,276 $ 108,353 $ 303,414 $ 530,057 Cost of sales 120,981 121,631 116,736 53,749 11,351 77,444 222,451 432,437 ------------------------------------------------------------------------------------------------ Gross profit 39,640 45,320 48,690 21,937 5,925 30,909 80,963 97,620 Selling, general, and administrative expenses 16,673 16,983 17,547 8,247 1,752 8,642 23,192 35,855 Other expenses (3) - - - - - 10 38 7,502 Amortization expense - - - - - 3,900 7,727 11,696 ------------------------------------------------------------------------------------------------ Operating income 22,967 28,337 31,143 13,690 4,173 18,357 50,006 42,567 Interest expense (income), net 397 (481) (1,162) (726) (121) 9,991 27,203 42,395 ------------------------------------------------------------------------------------------------ Income before taxes & extraordinary item 22,570 28,818 32,305 14,416 4,294 8,366 22,803 172 Provision for income taxes 8,866 11,676 12,467 4,701 1,615 4,000 10,922 2,064 ------------------------------------------------------------------------------------------------ Income/(loss) 13,704 17,142 19,838 9,715 2,679 4,366 11,881 (1,892) before Extraordinary item Extraordinary item (4) - - - - - 1,630 392 - ------------------------------------------------------------------------------------------------ Net income/(loss) $13,704 $ 17,142 $19,838 $9,715 $ 2,679 $2,736 $ 11,489 $(1,892) ================================================================================================ =====================================================================================================================
23 24
Predecessor Company ---------------------------------------------------- Fiscal Year Ended Six Months One Month Five Months Fiscal Year Fiscal Year March 31, Ended Ended Ended Ended Ended --------- -------- -------- March 31, April 30, September 30, September 30, September 30, (Dollars in thousands) 1995 1996 1997 1997 1997 1997 1998 1999 ---- ---- ---- ---- ---- ---- ---- ---- - ------------------------------------------------------------------------------------------------------------------------ BALANCE SHEET DATA (AT END OF PERIOD): Cash and Cash $ 118 $ 238 $10,126 $22,403 $29,046 $20,346 $19,978 $17,368 Equivalents Working Capital 14,419 15,239 28,113 43,707 34,052 40,849 78,186 83,962 Total Assets 74,327 73,813 82,957 93,869 102,067 358,406 584,309 641,702 Total Debt 13,325 887 241 134 129 218,314 371,871 429,221 Total Stockholder's 37,929 43,198 54,970 68,857 74,458 47,407 67,922 63,750 Equity - ------------------------------------------------------------------------------------------------------------------------
(1) The amounts include the results of Deeter subsequent to March 30, 1998, the results of Mercer subsequent to April 3, 1998 and the results of Dalton subsequent to September 8, 1998. (2) The amounts include the results of Cast Alloys subsequent to December 31, 1998. (3) In 1999, this amount includes a $6.7 million charge related to the closure of Dalton's Ashland facility. (4) Extraordinary item includes the write off of unamortized deferred financing costs due to the early extinguishment of debt net of tax of $260 and $999, for the year ended September 30, 1998 and the five months ended September 30, 1997, respectively. 24 25 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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. On April 30, 1997, pursuant to the Merger Agreement, the Predecessor Company was acquired by NFC Castings, Inc. On July 1, 1997, Neenah Foundry Company, which was the principal operating subsidiary of Neenah Corporation, merged with and into Neenah Corporation and the surviving company changed its name to Neenah Foundry Company. The following discussion and analysis of the Company's financial condition and results of operations addresses the periods both before and after the Merger. The Merger has had a significant impact on the Company's results of operations and financial condition. The Merger resulted in the recording of goodwill and identifiable intangible assets totaling $148.8 million. These amounts are being amortized over their estimated useful lives, ranging from 5 to 40 years. The Merger has also resulted in a significant increase in the Company's interest expense as a result of an increased level of indebtedness. As a result of the Merger, the financial data presented herein for the Pro Forma Twelve Months Ended September 30, 1997 period represents the combination of financial data for the Predecessor Company's seven month period ended April 30, 1997 and the Company's five month period ended September 30, 1997 and does not include any financial data for the Recent Acquisitions, excluding ACP. The Pro Forma Twelve Months Ended September 30, 1997 data was prepared by adding together the respective amounts of each line item for such seven month and five month periods. No purchase accounting or other pro forma adjustments have been made. The following discussion includes the comparison of the results of operations of the Company for the fiscal year ended September 30, 1998 to the combined historical results of the operations of the Company and the Predecessor Company for the twelve months ended September 30, 1997. The Recent Acquisitions have had a significant impact on the Company's results of operations and financial condition. Each of the Recent Acquisitions (other than the ACP acquisition) was accounted for using the purchase method of accounting. These Recent Acquisitions resulted in the recording of goodwill and identifiable intangible assets totaling $129.3 million. These amounts are being amortized over their estimated useful lives, ranging from 5 to 40 years. The Recent Acquisitions have also resulted in a significant increase in the Company's interest expense as a result of a substantially increased level of indebtedness incurred to finance the Recent Acquisitions. The contribution of the capital stock of ACP was accounted for in a manner similar to a pooling of interests because the Company and ACP were under common control. The financial results for the period from inception, May 1, 1997 through September 30, 1997 have been restated to account for this transaction. The Company changed its fiscal year end to September 30 from March 31 effective September 30, 1997. On November 30, 1999, the Company acquired all of the capital stock of Gregg Industries, Inc., (Gregg) and all the assets of its affiliate, Environmental Sand Reclamation and Coating, Inc. for approximately $22.5 million, subject to adjustments as defined in the Agreement and Plan of Merger. Gregg is a manufacturer of gray and ductile iron castings for industrial and commercial use. The acquisition was financed through borrowings under the Company's Acquisition Loan Facility. 25 26 COMPARISON OF FISCAL YEAR ENDED SEPTEMBER 30, 1999 TO FISCAL YEAR ENDED SEPTEMBER 30, 1998 Net Sales. Net sales for the year ended September 30, 1999 were $530.1 million which was $226.7 million or 74.7% higher than the fiscal year ended September 30, 1998. The Acquired Subsidiaries accounted for an increase of $225.0 million in net sales. Net sales of municipal castings increased by $9.1 million or 11.7% due primarily to a strong economy in the upper Midwest and market share gains in strategic focus areas of the East and Southwest. Net sales of industrial castings decreased by $6.5 million or 5.2% as the continued strength of the heavy duty truck market was more than offset by sharply lower demand in the agricultural business. Gross Profit. Gross profit for the year ended September 30, 1999 was $97.6 million, an increase of $16.6 million or 20.5%, as compared to the fiscal year ended September 30, 1998. The increase of $14.8 million was from the inclusion of the operating results of the Acquired Subsidiaries excluding ACP after their acquisition. The remaining margin improvement was due to favorable pricing for certain raw materials and improved efficiency in plant operations. Gross profit as a percentage of net sales decreased to 18.4% during the year ended September 30, 1999 from 26.7% for the fiscal year ended September 30, 1998. Gross profit was negatively impacted by a strike at Mercer which began in April, 1999 and was settled in July, 1999. In addition, Cast Alloys had a negative gross margin for the first four months (January 1999 through April 1999) after its acquistion. Selling, General and Administrative Expenses. Selling, general and administrative expenses for the year ended September 30, 1999 were $35.9 million, an increase of $12.7 million over the $23.2 million for the fiscal year ended September 30, 1998. The majority of the increase in selling, general and administrative expense was due to the inclusion of $10.3 million of expenses from the Acquired Subsidiaries. The remainder of the increase was due to higher acquisition expenses. As a percentage of net sales, selling, general and administrative expenses decreased from 7.7% for the fiscal year ended September 30, 1998 to 6.8% for the year ended September 30, 1999. The percentage decrease was due to expenses being spread over a larger volume base with the inclusion of the Acquired Subsidiaries' operating results. Amortization of intangible assets. Amortization of intangible assets was $11.7 million for the year ended September 30, 1999, an increase of $4.0 million, or 51.9%, as compared to the $7.7 million for the fiscal year ended September 30, 1998. The increase is due to the increased amortization from goodwill and identifiable intangible assets from the Acquired Subsidiaries, excluding ACP. Other expenses. During the year ended September 30, 1999, a restructuring charge of $6.7 million was recorded to close Dalton's Ashland facility. The decision to close the facility was made due to recurring operating losses by the Ashland division over the past several years. Of the $6.7 million charge, $6.0 million is a non-cash charge for impairment of assets that will no longer be used and the remaining amount of $.7 million will be cash outlays for exit activity costs during the year ended September 30, 2000. The restructuring is expected to improve future operating results and liquidity, however, the amount of the improvement is undeterminable at this time. Also included in other expenses for the year ended September 30, 2000 is a loss of $.7 million for the disposal of assets in the ordinary course of business. Operating Income. Operating income was $42.6 million for the year ended September 30, 1999, a decrease of $7.4 million or 14.8% from fiscal year ended September 30, 1998. The decrease in operating income was caused by a $6.7 million charge related to the closing of Dalton's Ashland facility and increased amortization expense. This was partially offset by the inclusion of the operating results of the Acquired Subsidiaries. As a percentage of net sales, operating income decreased from 16.5% for the fiscal year ended September 30, 1998 to 8.0% for the year ended September 30, 1999. 26 27 Net Interest Expense. Net interest expense increased from $27.2 million for the fiscal year ended September 30, 1998 to $42.4 million for the year ended September 30, 1999. The increased interest expense resulted from the drawings under the Company's Senior Bank Facilities to finance the Mercer, Deeter, Dalton, and ACP acquisitions which were outstanding for the entire year ended September 30, 1999. In addition, interest was incurred on the Senior Subordinated Notes used to finance the Cast Alloys acquisition. Provision for Income Taxes. The provision for income taxes for the year ended September 30, 1999 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. Extraordinary Item. During the year ended September 30, 1998, the Company recorded an extraordinary loss of $0.4 million (which is net of an income tax benefit of $0.3 million) for the write-off of unamortized deferred financing costs in connection with the repayment in full of indebtedness of ACP prior to its scheduled maturity. COMPARISON OF FISCAL YEAR ENDED SEPTEMBER 30, 1998 TO PRO FORMA TWELVE MONTHS ENDED SEPTEMBER 30, 1997 Net Sales. Net sales for the year ended September 30, 1998 were $303.4 million which was $102.1 million or 50.7% higher than the pro forma twelve months ended September 30, 1997. The Acquired Subsidiaries excluding ACP accounted for an increase of $53.5 million in net sales. The inclusion of ACP for twelve months in 1998 versus five months in 1997 accounted for an increase of $33.7 million in net sales. Net sales of municipal castings increased by $3.1 million or 4.2 % due primarily to a strong economy in the upper Midwest and market share gains in strategic focus areas of the East and Southwest. Net sales of industrial castings increased by $11.7 million or 11.8% due to the overall strength of the heavy duty truck market coupled with high demand in the agricultural business. Gross Profit. Gross profit for the year ended September 30, 1998 was $81.0 million, an increase of $22.2 million or 37.8%, as compared to the pro forma twelve months ended September 30, 1997. Approximately $8.0 million of the increase was from the inclusion of the operating results of the Acquired Subsidiaries excluding ACP after their acquisition. The inclusion of ACP for twelve months in 1998 versus five months in 1997 accounted for an increase of $6.4 million in gross profit. The remaining margin improvement was due to the combined effect of spreading manufacturing overhead over a greater volume and improved efficiency in plant operations. Gross profit as a percentage of net sales decreased to 26.7% during the year ended September 30, 1998 from 29.2% for the pro forma twelve months ended September 30, 1997. The decline in gross profit percentage is attributable to the mix of industrial products and lack of seasoning from the Acquired Subsidiaries excluding ACP. Selling, General and Administrative Expenses. Selling, general and administrative expenses for the year ended September 30, 1998 were $23.2 million, an increase of $4.5 million or 24.4% over the $18.7 million for the pro forma twelve months ended September 30, 1997. The increase in selling, general and administrative expense was due to the inclusion of $2.7 million of expenses from the Acquired Subsidiaries, excluding ACP, after their acquisition. The inclusion of ACP for twelve months in 1998 versus five months in 1997 accounted for an increase of $3.0 million in expenses. As a percentage of net sales, selling, general and administrative expenses decreased from 9.3% for the pro forma twelve months ended September 30, 1997 to 7.7% for the year ended September 30, 1998. The percentage decrease was due to expenses being spread over a larger volume base with the inclusion of the Acquired Subsidiaries' operating results, excluding ACP. 27 28 Amortization of intangible assets. Amortization of intangible assets was $7.7 million for the year ended September 30, 1998, an increase of $3.8 million, or 97.4%, as compared to the $3.9 million for the pro forma twelve months ended September 30, 1997. The increase is due to the recording of twelve months of amortization during the period ended September 30, 1998 for the goodwill and identifiable intangible assets arising from the Merger versus five months of amortization during the period ended September 30, 1997 as well as increased amortization from goodwill and identifiable intangible assets from the Acquired Subsidiaries, excluding ACP. Operating Income. Operating income was $50.0 million for the year ended September 30, 1998, an increase of $13.8 million or 38.1% from the pro forma twelve months ended September 30, 1997. The improvement in operating income was achieved for the reasons discussed above under gross profit. As a percentage of net sales, operating income decreased from 18.0% for the pro forma twelve months ended September 30, 1997 to 16.5% for the year ended September 30, 1998. The decrease in operating income percentage was due to the factors discussed above under gross profit, as well as increased amortization of intangible assets. Net Interest Expense. Net interest expense increased from $9.1 million for the pro forma twelve months ended September 30, 1997 to $27.2 million for the year ended September 30, 1998. The increased interest expense resulted from the Company's Senior Subordinated Notes being outstanding for twelve months during the year ended September 30, 1998 and only five months during the period ended September 30, 1997 and the interest on the drawings under the Company's Senior Bank Facilities to finance the Recent Acquisitions. Provision for Income Taxes. The provision for income taxes for the year ended September 30, 1998 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. Extraordinary Item. During the year ended September 30, 1998, the Company recorded an extraordinary loss of $0.4 million (which is net of an income tax benefit of $0.3 million) for the write-off of unamortized deferred financing costs in connection with the repayment in full of indebtedness of ACP prior to its scheduled maturity. For the pro forma twelve months ended September 30, 1997, the Company recorded an extraordinary loss of $1.6 million (which is net of an income tax benefit of $1.0 million) for the write-off of unamortized deferred financing costs in connection with the repayment in full of the term indebtedness under the Company's Senior Bank Facilities. 28 29 LIQUIDITY AND CAPITAL RESOURCES In connection with the Merger, the Company issued $150.0 million principal amount of 11-1/8% Senior Subordinated Notes due 2007 (the Senior Subordinated Notes) and entered into a credit agreement providing for term loans of $45.0 million and a revolving credit facility of up to $30.0 million (the "Senior Bank Facilities.) On July 1, 1997, the Company issued an additional $45.0 million principal amount of 11-1/8% Senior Subordinated Notes and used the proceeds of $47.6 million to pay the term loans under the Senior Bank Facility, the accrued interest thereon and related fees and expenses. In addition, on September 12, 1997, the Company amended the revolving credit facility under the Senior Bank Facility to increase the borrowings available under the revolving credit facility from $30.0 million to $50.0 million and eliminate all borrowing base limitations. On April 3, 1998, in connection with the acquisition of Mercer, the Company, ACP Holdings and the lenders party thereto amended the Credit Agreement to provide availability of $75.0 million of term loans to the Company (consisting of $20.0 million of Tranche A Loans and $55.0 million of Tranche B Loans) in addition to the Company's existing $50.0 million Revolving Credit Facility. On September 8, 1998, in connection with the acquisition of Dalton and the contribution of the capital stock of ACP, the Company, ACP Holdings and the lenders party thereto amended and restated the Credit Agreement to provide for additional Tranche B Loans in an aggregate principal amount of $70.0 million and an Acquisition Loan Facility in aggregate principal amount outstanding at any one time not to exceed $50.0 million. On November 24, 1998, the Company sold $87.0 million principal amount of Senior Subordinated Notes, using $42.7 million of the total proceeds of $86.8 million (net of debt issuance costs) to finance the acquisition of Cast Alloys and $29.0 million of the proceeds to pay down borrowings under the Acquisition Loan Facility. The Company used the remaining proceeds for general corporate purposes. The Company's liquidity needs will arise primarily from debt service on the above indebtedness, working capital needs, the funding of capital expenditures and additional acquisitions. 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 and 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 its 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. For the fiscal year ended March 31, 1997, the pro forma twelve months ended September 30, 1997 and the fiscal years ended September 30, 1998 and 1999, capital expenditures were $4.5 million, $5.1 million, $13.1 million and $41.6 million, respectively. The capital expenditures for the year ended September 30, 1999 were primarily the result of planned enhancements to certain equipment in the manufacturing area and include expenditures of the Acquired Subsidiaries, excluding ACP, since their acquisition date. Beside normal capital expenditures at Neenah of $7.2 million, other significant capital expenditures were incurred for updating of molding machines, melt and sand systems and purchase of an R&D facility at certain subsidiaries during the fiscal year ended September 30, 1999. 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 from operating activities for the years ended September 30, 1999 and 1998 was $31.1 million and $24.2 million, respectively. The increase was due to increased operating income (before amortization and restructuring charges) from the inclusion of the operating results of the Acquired Subsidiaries. Net cash from operating activities for the pro forma twelve months ended September 30, 1997 was $37.4 million, an increase of $13.9 million from $23.5 million for the year ended March 31, 1997, primarily as a result of an increase in operating income. 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. 29 30 Amounts under the $50.0 million Revolving Credit Facility may be used for working capital and general corporate purposes, subject to certain limitations under the Senior Bank Facilities. Amounts under the Acquisition Loan Facility may be used to make acquisitions permitted under the Senior Bank Facilities. The Company believes that such resources, together with the potential future use of debt or equity financing, will allow the Company to pursue its strategic goal of making selective acquisitions. RAW MATERIALS Although the prices of all raw materials used by the Company vary, the fluctuations in the price of steel scrap are the most significant to the Company. The Company has arrangements with most of its industrial customers which require the Company to adjust industrial casting prices to reflect scrap price fluctuations. In periods of rapidly rising or falling scrap prices, these adjustments will lag the current scrap price because they are generally based on average market prices for prior periods, which periods vary by customer but are generally no longer than six months. Castings are generally sold to the heavy municipal market on a bid basis and, after a bid is won, the price for the municipal casting subject to the bid generally cannot be adjusted for raw material price increases. However, in most cases the Company has been successful in obtaining higher municipal casting unit prices in subsequent bids to compensate for rises in scrap prices in prior periods. Rapidly fluctuating scrap prices may have a temporary adverse or positive effect on the Company's results of operations. INFLATION The Company does not believe that inflation has had a material impact on its financial position or results of operations during the past three years. CYCLICALITY AND SEASONALITY The Company has historically experienced moderate cyclicality in the heavy municipal market. Sales of municipal products are influenced by, among other things, public spending. In the industrial market, the Company has experienced cyclicality in sales resulting from fluctuations in the medium- and heavy-duty truck market and the farm equipment market, which are subject to general economic trends. The Company experiences seasonality in its municipal business where sales tend to be higher during the construction season, which occurs during the warmer months, generally the third and fourth quarters of the Company's fiscal year. The Company maintains level production throughout the year in anticipation of such seasonality and does not experience production volume fluctuations as a result. The Company builds inventory in anticipation of the construction season with such inventories reaching a peak near the end of its second quarter in March. The Company has not historically experienced seasonality in industrial casting sales. YEAR 2000 The company and its subsidiaries have conducted an evaluation of the actions necessary in order to ensure that its computer systems will be able to function without disruption with respect to the application of dating systems in the year 2000. As a result of this evaluation, each company within the consolidated entity is engaged in the process of upgrading, replacing and testing certain of its information and other computer systems in order to operate without disruption due to the year 2000 issues. The following represents a summary of the status of information systems and non-information systems by subsidiary: Neenah Foundry Company Information Systems. As of September 30, 1999, we believe that our information systems are fully compliant with the year 2000. A local consulting firm has been engaged since March, 1998 to assess the adequacy of all Neenah's software and make whatever changes are necessary to be compliant with year 2000 issues. As of September 30, 1999, Neenah completed all assessment, remediation and testing of its software. 30 31 Non-Information Systems. With respect to date sensitive non-information systems, Neenah has completed the assessment phase and internal checking all computer programs and PC units, including embedded chip technology and microcontrollers, for year 2000 compliance. This phase was completed by September 30, 1999. Remediation began upon completion of the assessment phase and is scheduled to be completed before December 31, 1999 for material programs and equipment. Additionally, we are working with our insurance carrier to develop contingency plans in the event a system failure occurs in our holding furnaces and other equipment used in processing molten metal. Dalton Corporation Information Systems. The task force organized to address year 2000 issues at Dalton Corporation has completed all phases of its plan to ensure all critical systems are Year 2000 compliant. These efforts included full time dedication to the project by approximately six employees over the past 18 months. Total costs incurred during the project, including wages and benefits, are estimated at $500,000. Non-Information Systems. Virtually all of Dalton's non-information systems used in the operation of its facility are not date sensitive. All date sensitive non-information systems have been inventoried, assessed, remediated and tested and are believed to be Year 2000 compliant. Advanced Cast Products Information Systems. An internal task force has reviewed all financial and information systems currently in use and has determined that all existing systems are year 2000 compliant. Non-Information Systems. We believe all computer numeric controls and other controls within the operation are year 2000 compliant. Mercer Forge Corporation Information Systems. New year 2000 compliant software has been purchased for Mercer and A&M . Mercer's software has been installed and is fully operative. The same package has been installed at A&M and will be fully operative by December 15, 1999. Non-Information Systems. Older PC's are currently being replaced and custom programs have been reviewed and updated where necessary. Manufacturing programmable controllers and computer numeric controls have been analyzed for year 2000 problems and we believe no problems exist that will have any material adverse effect on the business. Deeter Foundry Information Systems. New year 2000 compliant software has been installed and is fully operational. Non-Information Systems. With respect to non-information systems, Deeter has just completed major renovations in the melting and sand system areas. As a result, all of these systems are compliant with year 2000 issues. Cast Alloys, Inc. Information Systems. Cast Alloys has assembled a year 2000 task force consisting of representatives from each company location to complete the assessment phase, conduct research, complete testing and create contingency plans at Cast Alloys. New year 2000 compliant financial software was installed in August, 1999 for approximately $25,000. This remediation phase is complete. Contingency plans will be completed prior to December 31, 1999 for those areas in which remediation is not feasible. 31 32 Non-Information Systems. With respect to non-information systems, Cast Alloys is in the assessment phase and is currently reviewing all critical systems internally as well as embedded chip technology and microcontrollers to make sure they are year 2000 compliant. The assessment and remediation phase is expected to be completed by December 31, 1999, and contingency plans will be completed for those areas in which remediation is not feasible. In summary, we believe that all out important critical vendors and customers either have or will have addressed any problems associated with the year 2000 issue such that there will be no significant deterioration in future business dealings due to this issue. Costs specifically associated with renovating software for year 2000 readiness are funded through operating cash flows and expensed as incurred. Year 2000 related costs have not had a material effect on the Company's financial position or results of operations. The Company and subsidiaries expect to incur total costs (capital and expense) in the range of $1.5 to $2.0 million on the year 2000 problem of which a total of approximately 5% to 10% is remaining to be incurred. Costs of replacing some of the systems with Year 2000 compliant systems (including both hardware and software) that have an extended useful life in excess of one year have been appropriately capitalized. Although there can be no assurance that the remedial actions being implemented by the Company and its subsidiaries will address every issue relating to the year 2000 issue, the Company believes it is unlikely that any disruptions resulting from the year 2000 issue would have any significant impact on its overall operations. Although it is highly unlikely that the Company will face year 2000 issues that significantly impact its overall operations, business continuity plans have been developed to handle potential contingencies regarding unforeseen year 2000 problems. Up to this point, no critical informational technology projects have been either delayed or curtailed due to year 2000 efforts. In addition, the Company and subsidiaries have not experienced any significant year 2000 problems to date. Item 7A. 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 averaged 1% more during the fiscal year ended September 30, 2000 than they did during fiscal 1999, the Company's interest expense would increase, and income before income taxes would decrease by approximately $4.0 million. This analysis does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of a 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. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and schedules are listed in Part IV Item 14 of this Form 10-K. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 32 33 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following sets forth certain information as of September 30, 1999, with respect to the persons who are members of the Board of Directors, key executive officers and certain other key employees of the Company.
Name Age Position ---- --- -------- James K. Hildebrand 63 Chairman of the Board and Chief Executive Officer William M. Barrett 52 President Gary W. LaChey 53 Vice President - Finance, Treasurer and Secretary Charles M. Kurtti 62 Vice President - Manufacturing and Engineering William J. Martin 52 President - Hartley Controls Corporation John Z. Rader 51 Vice President - Human Resources Timothy J. Koller 50 Vice President - Construction Products, Sales, and Engineering Frank C. Headington 50 Vice President - Marketing and Technology Brenton F. Halsey 70 Director David F. Thomas 49 Director John D. Weber 35 Director
Mr. Hildebrand is Chairman of the Board and Chief Executive Officer of ACP Holding Company, a position he has held since May 1, 1997. Mr. Hildebrand had been President and Chief Executive Officer of Advanced Cast Products, Inc. from 1988 to 1997. Previously, he served as President of the Cast Products Group of Amcast Industrial Corp. Mr. Barrett is President of the Company, a position he has held since October 1, 1998. Mr. Barrett joined the Company in 1992 serving as General Sales Manager - Industrial Castings until May 1, 1997. Mr. Barrett was Vice President and General Manager from May 1, 1997 to September 30, 1998. From 1985 to 1992, Mr. Barrett was the Vice President - Sales for Harvard Industries Cast Products Group. Mr. LaChey is Vice President - Finance, Treasurer and Secretary of the Company, a position he has held since May 1, 1997. Mr. LaChey joined the Company in 1971, serving in a variety of positions of increasing responsibility in the finance department. Mr. LaChey was most recently Vice President - Administration of the Company. Mr. Kurtti is Vice President - Manufacturing and Engineering, of the Company, a position he has held since 1991. Mr. Kurtti joined the Company in 1976 as a salesman. Mr. Kurtti has served as Director of Marketing, Director of Purchasing - Engineering and Director - Manufacturing and Engineering. Mr. Martin is President - Hartley Controls Corporation, a wholly owned subsidiary of the Company, a position he has held since 1998. From 1996 to September 30, 1998 Mr. Martin was Vice President and General Manager. Previously, Mr. Martin was Territory Sales Manager at Disamatic, Inc., a molding machine manufacturer, from 1986 to 1996. Mr. Rader is Vice President - Human Resources, a position he has held since 1990. Mr. Rader joined The Company in 1987, serving as Director - Personnel until 1989 and as Director - Human Resources until 1990. Mr. Rader resigned his position effective September 30, 1999. Mr. Koller is Vice President - Construction Products, Sales and Engineering for the Company. Mr. Koller joined the Company in 1978, serving in a variety of positions of increasing responsibility in the sales and marketing departments. 33 34 Mr. Headington is Vice President - Marketing and Technology, a position he has held since 1999. Mr. Headington joined the Company in 1989, as Manager - Technical Services, a position he held until 1991. Previously Mr. Headington served as Director - Product Reliability, from 1991 to 1999. Mr. Halsey is a director of the Company, a position he has held since May 1, 1997. Mr. Halsey was the founding Chief Executive Officer and Chairman of the James River Corporation from 1969 to 1990. He continued as Chairman until 1992 when he became Chairman Emeritus. Mr. Thomas is a director of the Company, a position he has held since May 1, 1997. Mr. Thomas has been a Managing Director of Citicorp Venture Capital, Ltd. for more than the past five years. Mr. Thomas is a director of Lifestyles Furnishings International Ltd., Galey & Lord, Inc., Anvil Knitwear, Inc. and a number of private companies. Mr. Weber is a director of the Company, a position he has held since May 1, 1997. Since 1994, Mr. Weber has been a Vice President at Citicorp Venture Capital, Ltd. Previously, Mr. Weber worked at Putnam Investments from 1992 through 1994. Mr. Weber is a director of Anvil Knitwear, Inc. and a number of private companies. Directors of the Company who are officers or employees of the Company or its affiliates are presently not expected to receive compensation for their services as directors. No determination has yet been made with respect to compensation for directors of the Company who are not officers or employees of the Company or any of its affiliates. Directors of the Company will be entitled to reimbursement of their reasonable out-of-pocket expenses in connection with their travel to and attendance at meetings of the board of directors or committees thereof. 34 35 ITEM 11. Executive Compensation The compensation of executive officers of the Company will be determined by the Board of Directors of the Company. None of the historical benefit or compensation plans of the Company are described herein because each were terminated with respect to the named officers and replaced as a group by a single compensation plan in connection with the Merger (with the exception of a 401(k) plan and a retirement plan for Mr. Kurtti). The following table sets forth information concerning compensation received by the five most highly compensated officers of the Company for services rendered in the fiscal year ended September 30, 1999, the fiscal year ended September 30, 1998, the five month period ended September 30, 1997 ("FM 1997"), the one month period ended April 30, 1997 ("OM 1997") and the fiscal year ended March 31, 1997.
Long-Term Compensation Annual Compensation ---------------------- Name and Principal Fiscal ------------------- Other Annual Options/ LTIP All Other Position Year Salary Bonus Compensation(1) SARs(#) Payouts Compensation -------- ---- ------ ----- --------------- ------- ------- ------------ James K. Hildebrand 1999 $ 500,000 $304,000 $36,605 -- -- -- Chairman and Chief 1998 120,000 84,000 34,107 Executive Officer FM 1997 50,000 -- 10,860 OM 1997 -- -- -- 1997 -- -- -- William M. Barrett 1999 240,629 140,000 30,271 -- -- -- Vice President and 1998 148,500 85,575 31,490 General Manager FM 1997 55,000 -- 11,430 OM 1997 8,225 -- 1,936 1997 98,700 20,000 26,030 Gary W. LaChey 1999 175,000 122,500 29,909 -- -- -- Vice President - 1998 145,345 86,980 31,469 Finance, Secretary FM 1997 59,175 -- 10,723 and Treasurer OM 1997 11,833 -- 2,081 1997 137,998 40,000 26,984 Charles M. Kurtti 1999 150,100 97,020 31,063 -- -- -- Vice President - 1998 137,500 80,850 34,510 Manufacturing and FM 1997 55,000 -- 11,430 Engineering OM 1997 11,000 -- 2,229 1997 127,750 45,000 32,230 John Z. Rader 1999 143,000 96,600 27,278 -- -- -- Vice President - 1998 137,000 80,850 31,303 Human Resources FM 1997 55,000 -- 11,430 OM 1997 11,000 -- 2,229 1997 127,750 40,000 29,725
(1) The named officers have participated in the Company's profit sharing, Company 401(k) contributions, and excess benefit programs. The aggregate payments made by the Company pursuant to such programs are listed as Other Annual Compensation. 35 36 MANAGEMENT INCENTIVE PLAN The Company provides performance-based compensation awards to executive officers and key employees for achievement during each year as part of a bonus plan. Such compensation awards may be a function of individual performance and consolidated corporate results. The qualitative and quantitative criteria will be determined from time to time by the Board of Directors of the Company. MANAGEMENT EQUITY PARTICIPATION In connection with the Merger, the then current Management Investors acquired units representing membership interests in ACP Products, L.L.C., which represent, in the aggregate, approximately a ten percent beneficial interest in the Company (the "Purchased Interests"). In addition, in connection with certain of the Recent Acquisitions, certain senior managers of certain of the Acquired Subsidiaries purchased common interests in ACP Products, L.L.C. The Management Investors and certain other employees of the Company may be given the opportunity to purchase additional Purchased Interests either in connection with future acquisitions or otherwise. Upon the termination of employment with the Company, an employee's Purchased Interests will be subject to certain repurchase provisions exercisable by ACP Products, L.L.C. or its designees. Any Purchased Interests issued in the future are expected to be subject to rights and restrictions similar to those of the Purchased Interests purchased in connection with the Merger. The price of the future Purchased Interests will be established by ACP Products, L.L.C. in consultation with the Board of Directors of the Company or a compensation committee thereof. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The Company's authorized capital stock consists of 11,000 shares of common stock, par value $100 per share (the "Common Stock"), 1,000 shares of which are issued and outstanding and owned by NFC Castings, Inc. and are pledged to the lenders under the Senior Bank Facilities. NFC Castings, Inc. is a wholly owned subsidiary of ACP Holdings which in turn is wholly owned by ACP Products, L.L.C. The outstanding common units of ACP Products, L.L.C. consist of 95,000 Class A-3 Common Units (the "Class A Common Units"), 936,735 Class B-3 Common Units (the "Class B Common Units") and 103,500 Class C-3 Common Units (the "Class C Common Units"), and together with the Class A "Common Units" and the Class B Common Units, the "Common Units"). Holders of Class A Common Units are entitled to one vote per Class A Common Unit on all matters to be voted upon by the holders of Class A Common Units. Holders of Class C Common Units are entitled to a number of votes per Class C Common Unit based on the total number of Class C Common Units outstanding, on all matters to be voted upon by the holders of Class C Common Units. Holders of Class B Common Units have no right to vote on any matters to be voted on by holders of Common Units. Holders of Class B Common Units may elect at any time to convert any or all of such Units into Class A Common Units, on a Common Unit-for-Common-Unit basis. 36 37 Set forth below is certain information regarding the beneficial ownership as of September 30, 1999 of Class A Common Units and Class C Common Units, respectively, by each person who beneficially owns 5.0% or more of the outstanding Class A Common Units or Class C Common Units, each director and Named Executive Officer and all directors and Named Executive Officers as a group. Except as indicated below, the address for each of the persons listed below is c/o Neenah Foundry Company, 2121 Brooks Avenue, Box 729, Neenah, Wisconsin 54957.
- ----------------------------------------------------------------------------------------------------------------------- Number of Number of Percentage Percentage Percentage Voting Class Voting Class of Voting of Voting of Voting NAME AND ADDRESS OF BENEFICIAL OWNER A Common C Common Class A Class C Common - ------------------------------------ Units Units Common Common Units Units Units - ------------------------------------------------------------------------------------------------------------------------ Citicorp Venture Capital, Ltd. (1) (2) 81,000 -- 85.26% -- 40.81% 399 Park Avenue New York, New York 10043 - ------------------------------------------------------------------------------------------------------------------------ Metropolitan Life Insurance Company (1) 5,000 -- 5.26% -- 2.52% One Madison Avenue New York, New York 10010 - ------------------------------------------------------------------------------------------------------------------------ Executive Officers (1) -- 93,000 -- 89.85% 46.86% - ------------------------------------------------------------------------------------------------------------------------ David F Thomas (1) (3) 84,167 -- 88.60% -- 42.40% - ------------------------------------------------------------------------------------------------------------------------ John D. Weber (1) (3) 81,169 -- 85.44% -- 40.89% - ------------------------------------------------------------------------------------------------------------------------ Directors and named executive officers as a group 89,336 93,000 94.04% 89.85% 91.86% - ------------------------------------------------------------------------------------------------------------------------
(1) Such persons disclaim beneficial ownership of the Common Stock. (2) Citicorp Venture Capital, Ltd. and its affiliates (collectively, "CVC") own 766,794 Class B Common Units representing 81.86% of the Class B Common Units outstanding. (3) Consists of the Class A Common Units held directly by Messrs. Thomas and Weber and the 81,000 held by CVC, which may be deemed to be beneficially owned by Messrs. Thomas and Weber. Messrs. Thomas and Weber disclaim beneficial ownership of Units held by CVC. Mr. Thomas is a managing director of CVC. Mr. Weber is a vice president of CVC. 37 38 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS RELATIONSHIP WITH ACP HOLDINGS ACP Products, L.L.C. holds all of the issued and outstanding shares of capital stock of ACP Holdings. ACP Holdings is the parent company of NFC Castings, Inc., and thus ACP Holdings indirectly owns 100% of the Common Stock of the Company. James K. Hildebrand, who serves as the Chairman of the Board and Chief Executive Officer of the Company, currently serves as President and Chief Executive Officer of ACP Holdings. SHAREHOLDER RELATIONSHIPS The Management Investors and certain institutional investors, including Citicorp Venture Capital, Ltd., are parties to the Fifth Amended and Restated Limited Liability Agreement of ACP Products, L.L.C. (the "L.L.C. Agreement"). The L.L.C. Agreement contains certain provisions with respect to the beneficial equity interests and corporate governance of the Company. The L.L.C. Agreement provides that the Investor Group and the Management Investors, as the only members of ACP Products, L.L.C. holding beneficial interests in the Company, have the right to direct all actions taken in respect of NFC Castings, Inc. and the Company, including, without limitation, appointing members of the Board of Directors of the Company and of NFC Castings, Inc.. CONTRIBUTION OF ACP CAPITAL STOCK On September 8, 1998, the capital stock of ACP was contributed to the Company by ACP Holdings. In connection with the contribution, the Company assumed $14.9 million of indebtedness of ACP, $14.6 of which was refinanced through borrowings of Tranche A Loans. In connection with the contribution of the capital stock of ACP to the Company, (i) NFC Castings, Inc. issued a $4.2 million senior subordinated note to CVC in exchange for a $4.2 million current pay obligation of ACP to CVC and (ii) $6.7 million of outstanding subordinated debt of ACP to ACP Holdings and NFC Castings, Inc. was contributed to the capital of ACP. REGISTRATION RIGHTS AGREEMENT The Company entered into a registration rights agreement (the "Registration Rights Agreement") with the Investor Group and the Management Investors. Pursuant to the terms of the Registration Rights Agreement, certain holders of the Company's Common Stock have the right to require the Company, at the Company's sole cost and expense and subject to certain limitations, to register under the Securities Act of 1933, as amended, or list on any recognized stock exchange all or part of the Common Stock beneficially owned by such holders (the "Registrable Securities"). All such holders will be entitled to participate in all registrations by the Company or other holders, subject to certain limitations. In connection with all such registrations, the Company agreed to indemnify all beneficial owners of Registrable Securities against certain liabilities, including liabilities under the Securities Act of 1933, as amended, and other applicable state or foreign securities laws. Registrations pursuant to the Registration Rights Agreement will be made, if applicable, on the appropriate registration form and may be underwritten registrations. EMPLOYMENT AGREEMENTS Prior to the Merger, the Predecessor Company entered into a consulting agreement with James P. Keating, Jr. a former Senior Vice President of the Company, that provided that Mr. Keating would be available to serve as a consultant to the Company from July 1, 1997 to June 30, 1999. During this term, Mr. Keating was paid $16,500 per month under such consulting agreement. 38 39 The Company, ACP, ACP Holdings and ACP Products, L.L.C. entered into an executive employment and consulting agreement with James K. Hildebrand dated as of September 15, 1998. Such agreement provides for (I) an initial term of employment until September 30, 2001 after which, barring termination by the Company under certain circumstances (including gross negligence, willful misconduct and commission of certain crimes), Mr. Hildebrand will serve as a consultant to the Company for a period of two years with automatic renewal, subject to earlier termination notice by either party, for successive one year periods up to an additional three years; (ii) a minimum base salary of $500,000 and a bonus to be calculated based on achieved EBITDA performance so long as Mr. Hildebrand is employed by the Company; (iii) severance benefits; (iv) non-competition, non-solicitation and confidentiality agreements; (v) an option to purchase certain common membership units of ACP Products L.L.C.; and (vi) other terms and conditions of Mr. Hildebrand's employment including health benefits. In connection with the Company's acquisition of all of the capital stock of Dalton, Dalton entered into an employment agreement with K.L. Davidson dated as of September 8, 1998 to serve as President of Dalton. Such agreement provides for (I) an initial one year term which shall be renewed automatically, subject to earlier termination notice by either party, for successive one year terms until Mr. Davidson attains the age of 65; (ii) a minimum base salary and bonus following the end of each fiscal year so long as Dalton employs Mr. Davidson; (iii) severance benefits; (iv) non-solicitation, non-compete and confidentiality agreements; and (v) other terms and conditions of Mr. Davidson's employment. On June 30, 1999, Mr. Davidson elected to retire as President of Dalton under the terms of the above employment agreement. 39 40 Part IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
Page ---- (a) (1) Consolidated Financial Statements of Neenah Foundry Company Report of Ernst & Young LLP, Independent Auditors 47 Consolidated Balance Sheets 48 Consolidated Statements of Operations 50 Consolidated Statements of Changes in Stockholder's Equity 51 Consolidated Statements of Cash Flows 52 Notes to Consolidated Financial Statements 54 Consolidated Financial Statements of Neenah Foundry Company (Predecessor) Report of Ernst & Young LLP, Independent Auditors 78 Consolidated Balance Sheets 79 Consolidated Statements of Income 81 Consolidated Statements of Changes in Stockholder's Equity 82 Consolidated Statements of Cash Flows 83 Notes to Consolidated Financial Statements 84 (2) Financial Statements Schedules Report of Ernst & Young LLP, Independent Auditors 96 Schedule II - Valuation and Qualifying Accounts of Neenah Foundry Company 97 Report of Ernst & Young LLP, Independent Auditors 98 Schedule II - Valuation and Qualifying Accounts of Neenah Foundry Company 99 (Predecessor)
The following schedules are omitted as not applicable or not required under the rules of regulation S-X: I, III, IV, and V. (b) Reports on Form 8-K. The Company filed no reports on Form 8-K during the quarter ended September 30, 1999. (c) Exhibits See Exhibit Index. 40 41 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Neenah, State of Wisconsin, on December 23, 1999. NEENAH FOUNDRY COMPANY -------------------------------------- (Registrant) /s/Gary W. LaChey -------------------------------------- Gary W. LaChey Vice President - Finance, Secretary and Treasurer (Principal Financial and Principal Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on December 23, 1999, by the following persons on behalf of the registrant and in the capacities indicated. /s/James K. Hildebrand /s/ Brenton F. Halsey -------------------------------------- -------------------------------------- James K. Hildebrand Brenton F. Halsey Chairman of the Board and Director Chief Executive Officer (Principal Executive Officer) /s/ David F. Thomas /s/ Gary W. LaChey - -------------------------------------- -------------------------------------- David F. Thomas Gary W. LaChey Director Vice President- Finance, Secretary and Treasurer (PrincipalFinancial and Principal Accounting Officer) /s/ John D. Weber - -------------------------------------- John D. Weber Director 41 42
EXHIBIT INDEX EXHIBITS 2.1 Agreement and Plan of Reorganization, dated November 20, 1996, by and among NFC Castings, Inc., NC Merger Company and Neenah Corporation. ** 2.2 First Amendment to Agreement and Plan of Reorganization, dated as of January 13, 1997, by and among NFC Castings, Inc., NC Merger Company and Neenah Corporation. ** 2.3 Second Amendment to Agreement and Plan of Reorganization, dated as of February 21, 1997, by and among NFC Castings, Inc., NC Merger Company and Neenah Corporation. ** 2.4 Third Amendment to Agreement and Plan of Reorganization, dated as of April 3, 1997, by and among NFC Castings, Inc., NC Merger Company and Neenah Corporation. ** 2.5 Merger Agreement, made as of July 1,1997, by and between Neenah Corporation and Neenah Foundry Company. ** 2.6 Stock Purchase Agreement for the acquisition of Deeter Foundry, Inc. dated as of March 26, 1998 by and among Neenah Foundry Company and the Selling Shareholders of Deeter Foundry, Inc. (incorporated by reference to the Company's Form 10-Q for the period ended March 31, 1998 filed on May 14, 1998.) 2.7 Stock Purchase Agreement for the acquisition of Mercer dated as of April 3, 1998 by and among Neenah Foundry Company, Mercer Forge Corporation and the Selling Shareholders of Mercer (incorporatedby reference to the Company's Form 8-K filed on April 14, 1998.) 2.8 Stock Purchase Agreement for the acquisition of Dalton dated as of August 7, 1998 by and among Neenah Foundry Company, Dalton Corporation and the Dalton Corporation Employee Stock Ownership Plan and Trust (incorporated by reference to the Company's Form 8-K filed on September 21, 1998.) 2.9 Stock Purchase Agreement dated as of December 3, 1998 among Niemin Porter & Co. d/b/a Cast Alloys, Inc., the Sellers as defined therein and Neenah Foundry Company. **** 2.10 First Amendment to the Stock Purchase Agreement dated December 30, 1998 among Niemin Porter & Co. d/b/a Cast Alloys, Inc., the Sellers as defined therein and Neenah Foundry Company. **** 3.1 Restated Articles of Incorporation of Neenah Foundry Company. ** 3.2 By-laws of Neenah Foundry Company. ** 3.3 (Intentionally omitted.) 3.4 (Intentionally omitted.) 3.5 Restated Articles of Incorporation of Hartley Controls Corporation. ** 3.6 By-laws of Hartley Controls Corporation. ** 3.7 Restated Articles of Incorporation of Neenah Transport, Inc.** 3.8 By-laws of Neenah Transport, Inc. ** 4.1 Indenture dated as of April 30, 1997 among NC Merger Company and United States Trust Company of New York. * 4.2 Purchase Agreement dated as of April 23, 1997 among NC Merger Company, Chase Securities Inc. and Morgan Stanley & Co. Incorporated. ** 4.3 Exchange and Registration Rights Agreement dated as of April 30, 1997 among Neenah Corporation, Neenah Foundry Company, Hartley Controls Corporation and Neenah Transport, Inc. and Chase Securities, Inc.** 4.4 First Supplemental Indenture, dated as of April 30, 1997 among Neenah Corporation, Neenah Foundry Company, Neenah Transport, Inc. and Hartley Controls Corporation and United States Trust Company of New York. ** 4.5 Letter Agreement, dated as of April 30, 1997 among Neenah Corporation, Neenah Foundry Company, Hartley Controls Corporation and Neenah Transport, Inc. and Chase Securities Inc. and Morgan Stanley & Co. Incorporated. ** 4.6 Form of Global Note relating to the Indenture dated as of April 23, 1997. **
42 43 4.7 Indenture dated as of July 1, 1997 among Neenah Corporation, Neenah Foundry Company, Neenah Transport, Inc., Hartley Controls Corporation and United States Trust Company of New York. ** 4.8 Purchase Agreement dated as of June 26, 1997 among Neenah Corporation, Neenah Foundry Company, Hartley Controls Corporation, Neenah Transport, Inc. and Chase Securities Inc. ** 4.9 Exchange and Registration Rights Agreement dated as of July 1, 1997 by and between Neenah Corporation, Neenah Foundry Company, Hartley Controls Corporation, Neenah Transport, Inc. and Chase Securities, Inc. ** 4.10 Form of Global Note related to the Indenture dated as of July 1, 1997. ** 4.11 Indenture dated as of November 24, 1998 among Neenah Foundry Company, Neenah Transport, Inc., Hartley Controls Corporation, the Guarantors and United States Trust Company of New York. **** 10.1 Master Lease Agreement between Neenah Foundry Company and Bank One Leasing Corporation dated December 14, 1992. ** 10.2 Agreement between Neenah Foundry Company and Rockwell International Corporation effective April 1, 1995. ** 10.3 Letter Agreement between Neenah Foundry Company and Eaton Corporation dated April 4, 1996.** 10.4 (Intentionally omitted). 10.5 1999-2001 Collective Bargaining Agreement between Neenah Foundry Company and Local 121B Glass, Molders, Pottery, Plastics and Allied Workers International Union AFL-CIO-CLC. * 10.6 1998-2000 Collective Bargaining Agreement between Neenah Foundry Company and The Independent Patternmakers Union of Neenah, Wisconsin. *** 10.7 Credit Agreement dated as of April 30, 1997 as Amended and Restated as of September 12, 1997, as of April 3, 1998, and as of September 8, 1998 by and among Neenah Foundry Company, NFC Castings, Inc., the Chase Manhattan Bank as Administrative Agent, Chase Securities, Inc. as Arranger and the other Lenders from time to time party thereto (incorporated by reference to the Company's Form 8-K filed on September 21, 1998.) 10.8 Employment Agreement dated September 9, 1994 between the Neenah Corporation, Neenah Foundry Company, Harley Controls Corporation, Neenah Transport, Inc. and James P. Keating, Jr.** 10.9 Consulting Agreement dated September 9, 1994 between the Neenah Foundry Company and the Guarantors and James P. Keating, Jr. ** 10.10 First Amendment to Employment Agreement, dated September 9, 1994, between Neenah Foundry Company, Neenah Corporation, Hartley Controls Corporation and James P. Keating, Jr. ** 10.11 Pledge Agreement dated as of April 30, 1997, among NC Merger Company, a Wisconsin Corporation, NFC Castings, Inc., a Delaware Corporation. ** 10.12 Subsidiary Guarantee Agreement dated as of April 30, 1997, among each of the subsidiaries listed of NC Merger Company, a Wisconsin corporation, and The Chase Manhattan Bank, a New York banking corporation, as collateral agent for the secured parties. ** 10.13 Parent Guarantee Agreement dated as of April 30, 1997, between NFC Castings, Inc., a Delaware corporation and The Chase Manhattan Bank, a New York banking corporation, as collateral agent for the secured parties. ** 10.14 Security Agreement dated as of April 30, 1997, among NC Merger Company, a Wisconsin corporation, each subsidiary of the borrower and The Chase Manhattan Bank, a New York banking corporation, as collateral agent for the secured parties. ** 10.15 Form of Mortgage. **
43 44 10.16 Amendment No. 1, Consent and Waiver, dated as of November 18, 1998, to the Credit Agreement dated as of April 30, 1997 as Amended and Restated as of September 12, 1997, as of April 3, 1998, and as of September 8, 1998 by and among Neenah Foundry Company, NFC Castings, Inc., the Lenders from time to time party thereto, and the Chase Manhattan Bank. *** 10.17 Cash Collateral Account Agreement dated as of November 24, 1998, between Neenah Foundry Company and the Chase Manhattan Bank. *** 10.18 Executive Employment and Consulting Agreement dated September 15, 1998 by and among Neenah Foundry Co., Advanced Cast Products, Inc., ACP Holding Co., ACP Products, LLC and James K. Hildebrand.*** 10.19 Dalton Corporation, KLDavidson Employment Agreement dated September 8, 1998. *** 10.20 Purchase Agreement dated November 19, 1998 among Neenah Foundry Company. Neenah Transport, Inc., Hartley Controls Corporation, the Guarantors and the Initial Purchasers. **** 10.21 Exchange and Registration Rights Agreement dated November 24, 1998 among Neenah Foundry Company, Neenah Transport, Inc., Hartley Controls Corporation, the Guarantors and the Initial Purchasers. **** 21.1 Subsidiaries of the Registrant. * 27.1 Financial Data Schedule. *
- ----- * Filed herewith ** Incorporated by reference to the Company's Form S-4 (Registration No. 333-28751) which became effective August 29, 1997. *** Incorporated by reference to the Company's Form 10-K (Registration No. 332-28751) which was filed December 23, 1998. **** Incorporated by reference to the Company's Form S-4 (Registration No. 333-72455) which became effective May 13, 1999. 44 45 CONSOLIDATED FINANCIAL STATEMENTS NEENAH FOUNDRY COMPANY For the twelve months ended September 30, 1999 and 1998 and for the period from inception, May 1, 1997, through September 30, 1997 45 46 Neenah Foundry Company Consolidated Financial Statements For the twelve months ended September 30, 1999 and 1998 and for the period from inception, May 1,1997, through September 30, 1997 CONTENTS Report of Independent Auditors...........................................................................1 Consolidated Balance Sheets..............................................................................2 Consolidated Statements of Operations....................................................................4 Consolidated Statements of Changes in Stockholder's Equity...............................................5 Consolidated Statements of Cash Flows....................................................................6 Notes to Consolidated Financial Statements...............................................................8
46 47 Report of Independent Auditors Board of Directors Neenah Foundry Company We have audited the accompanying consolidated balance sheets of Neenah Foundry Company (the Company) as of September 30, 1999 and 1998 and the related consolidated statements of operations, changes in stockholder's equity and cash flows for the twelve months ended September 30, 1999 and 1998 and for the period from inception, May 1, 1997, through September 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of September 30, 1999 and 1998, and the consolidated results of its operations and its cash flows for the twelve months ended September 30, 1999 and 1998 and for the period from inception, May 1, 1997, through September 30, 1997, in conformity with generally accepted accounting principles. November 5, 1999 47 48 Neenah Foundry Company Consolidated Balance Sheets (In Thousands, Except Share and per Share Amounts)
SEPTEMBER 30 1999 1998 --------------------------------- ASSETS Current assets: Cash and cash equivalents $ 17,368 $ 19,798 Accounts receivable, less allowance for doubtful accounts of $1,020 in 1999 and $853 in 1998 77,696 71,655 Inventories 56,387 40,841 Refundable income taxes - 375 Deferred income taxes 3,534 4,888 Other current assets 5,223 5,060 --------------------------------- Total current assets 160,208 142,617 Property, plant and equipment: Land 5,647 4,724 Buildings and improvements 24,653 19,954 Machinery and equipment 181,078 147,554 Patterns 26,950 26,439 Construction in progress 16,917 5,251 --------------------------------- 255,245 198,671 Less accumulated depreciation 46,441 18,134 --------------------------------- 208,804 180,537 Deferred financing costs, net of accumulated amortization of $2,781 in 1999 and $1,179 in 1998 10,451 8,818 Identifiable intangible assets, net of accumulated amortization of $10,700 in 1999 and $4,448 in 1998 62,852 61,086 Goodwill, net of accumulated amortization of $11,560 in 1999 and $6,268 in 1998 190,469 184,181 Other assets 8,918 7,070 --------------------------------- 272,690 261,155 --------------------------------- $641,702 $584,309 =================================
48 49
SEPTEMBER 30 1999 1998 --------------------------------- LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable $ 31,151 $ 29,920 Income taxes payable 1,129 - Accrued wages and employee benefits 14,560 13,005 Accrued interest 13,678 9,847 Other accrued liabilities 10,394 7,474 Current portion of long-term debt 5,334 4,185 --------------------------------- Total current liabilities 76,246 64,431 Long-term debt 423,887 367,686 Postretirement benefit obligations 5,641 5,220 Deferred income taxes 64,237 68,069 Other liabilities 7,941 10,981 --------------------------------- Total liabilities 577,952 516,387 Commitments and contingencies Stockholder's equity: Preferred stock, par value $100 per share; authorized 3,000 shares; no shares issued or outstanding - - Common stock, Class A (voting), par value $100 per share; authorized 1,000 shares; issued and outstanding, 1,000 shares 100 100 Common stock, Class B (nonvoting), par value $100 per share; authorized 10,000 shares; no shares issued or outstanding - - Capital in excess of par value 51,317 55,167 Retained earnings 12,333 14,225 Pension liability adjustment - (1,570) --------------------------------- Total stockholder's equity 63,750 67,922 --------------------------------- $641,702 $584,309 =================================
See accompanying notes. 49 50 Neenah Foundry Company Consolidated Statements of Operations (In Thousands)
FIVE MONTHS ENDED SEPTEMBER YEAR ENDED SEPTEMBER 30 30 1999 1998 1997 --------------------------------------------------------------- Net sales $530,057 $303,414 $108,353 Cost of sales 432,437 222,451 77,444 --------------------------------------------------------------- Gross profit 97,620 80,963 30,909 Selling, general and administrative expenses 35,855 23,192 8,642 Amortization expense 11,696 7,727 3,900 Restructuring charge 6,713 - - Loss on disposal of equipment 789 38 10 --------------------------------------------------------------- Operating income 42,567 50,006 18,357 Other income (expense): Interest expense (43,803) (28,096) (10,358) Interest income 1,408 893 367 --------------------------------------------------------------- Income before income taxes and extraordinary item 172 22,803 8,366 Provision for income taxes 2,064 10,922 4,000 --------------------------------------------------------------- Income (loss) before extraordinary item (1,892) 11,881 4,366 Extraordinary item, net of income tax benefit of $260 in 1998 and $999 in 1997 - (392) (1,630) --------------------------------------------------------------- Net income (loss) $ (1,892) $ 11,489 $ 2,736 ===============================================================
See accompanying notes. 50 51 Neenah Foundry Company Consolidated Statements of Changes in Stockholder's Equity (In Thousands)
Common Stock -------------------- Accumulated Capital in Other Preferred Excess of Par Retained Comprehensive Stock Class A Class B Value Earnings Income (Loss) Total --------- --------- --------- ------------- --------- ------------- -------- Balance at May 1, 1997 $ -- $ 100 $ -- $ 44,571 $ -- $ -- $ 44,671 Net income -- -- -- -- 2,736 -- 2,736 --------- --------- --------- ------------- --------- ------------- -------- Balance at September 30, 1997 -- 100 -- 44,571 2,736 -- 47,407 Additional capital contributions -- -- -- 10,596 -- -- 10,596 Components of comprehensive income (loss): Net income -- -- -- -- 11,489 -- 11,489 Pension liability adjustment, net of tax effect of $1,048 -- -- -- -- -- (1,570) (1,570) -------- Total comprehensive income 9,919 --------- --------- --------- ------------- --------- ------------- -------- Balance at September 30, 1998 -- 100 -- 55,167 14,225 (1,570) 67,922 Return of fiscal 1998 capital contribution -- -- -- (3,850) -- -- (3,850) Components of comprehensive income (loss): Net loss -- -- -- -- (1,892) -- (1,892) Pension liability adjustment, net of tax effect of $1,048 -- -- -- -- -- 1,570 1,570 -------- Total comprehensive income (322) --------- --------- --------- ------------- --------- ------------- -------- Balance at September 30, 1999 $ -- $ 100 $ -- $ 51,317 $ 12,333 $ -- $ 63,750 ========= ========= ========= ============= ========= ============= ========
See accompanying notes. 51 52 Neenah Foundry Company Consolidated Statements of Cash Flows (In Thousands)
YEAR ENDED SEPTEMBER 30 FIVE MONTHS ENDED ------------------------------------- SEPTEMBER 30 1999 1998 1997 --------------------------------------------------------- OPERATING ACTIVITIES Net income (loss) $ (1,892) $ 11,489 $ 2,736 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Extraordinary item - 652 2,629 Provision for impairment of assets 6,030 - - Depreciation 23,990 11,927 3,799 Amortization of identifiable intangible assets and goodwill 11,696 7,727 3,900 Amortization of deferred financing costs and premium on notes 1,011 713 342 Loss on sale of property, plant and equipment 789 38 10 Deferred income taxes (8,248) (2,437) (2,147) Other - 41 (20) Changes in operating assets and liabilities: Accounts receivable (2,977) (3,926) (4,696) Inventories (1,028) 812 5,648 Other current assets 684 (715) 152 Accounts payable (5,217) (158) 1,403 Income taxes 1,504 (5,050) 2,143 Accrued liabilities 4,452 4,198 9,099 Postretirement benefit obligations 421 341 141 Other liabilities (110) (1,416) 21 --------------------------------------------------------- Net cash provided by operating activities 31,105 24,236 25,160 INVESTING ACTIVITIES Acquisition of businesses, net of cash acquired (40,824) (169,109) (12,530) Purchase of property, plant and equipment (41,643) (13,117) (3,081) Other (780) 58 909 --------------------------------------------------------- Net cash used in investing activities (83,247) (182,168) (14,702)
52 53 Neenah Foundry Company Consolidated Statements of Cash Flows (continued) (In Thousands)
YEAR ENDED SEPTEMBER 30 FIVE MONTHS ENDED ------------------------------------- SEPTEMBER 30 1999 1998 1997 ---------------------------------------------------------- FINANCING ACTIVITIES Proceeds from long-term debt $ 90,405 $ 175,987 $ 47,588 Payments on long-term debt (33,607) (15,753) (47,888) Return of capital contribution (3,850) - - Debt issuance costs (3,236) (2,850) (1,356) ---------------------------------------------------------- Net cash provided by financing activities 49,712 157,384 (1,656) ---------------------------------------------------------- Increase (decrease) in cash and cash equivalents (2,430) (548) 8,802 Cash and cash equivalents at beginning of period 19,798 20,346 11,544 ---------------------------------------------------------- Cash and cash equivalents at end of period $ 17,368 $ 19,798 $ 20,346 ========================================================== Supplemental disclosures of cash flow information: Cash paid for: Interest $ 38,961 $ 25,994 $ 1,560 Income taxes 8,656 16,340 3,716
53 54 Neenah Foundry Company Notes to Consolidated Financial Statements September 30, 1999 (In Thousands) 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES On April 30, 1997, pursuant to an Agreement and Plan of Reorganization with NC Merger Company and NFC Castings, Inc., Neenah Corporation (Predecessor Company) was acquired by NFC Castings, Inc., a holding company and a wholly owned subsidiary of ACP Holding Company, using (i) $45,000 of cash equity contributed by NFC Castings, Inc., (ii) $45,000 of term loans, (iii) proceeds from the issuance of $150,000 of unsecured Series B Senior Subordinated Notes and (iv) cash of Neenah Corporation. The purchase price was $261,713 including a closing date net worth adjustment and direct costs of the acquisition. The acquisition has been accounted for using the purchase method of accounting. The purchase price has been allocated on the basis of fair values of the underlying assets acquired and liabilities assumed. The excess of the cost of acquisition over the fair value of the net tangible and identifiable intangible assets acquired has been allocated to goodwill. Prior to July 1, 1997, Neenah Foundry Company was one of three wholly owned subsidiaries of Neenah Corporation, a holding company with no significant assets or operations other than its holdings in the common stock of its subsidiaries. On July 1, 1997, Neenah Foundry Company merged into Neenah Corporation and the surviving company changed its name to Neenah Foundry Company (Neenah, and together with its subsidiaries, "the Company"). Neenah manufactures gray and ductile iron castings for sale to industrial and municipal customers. Industrial castings are custom-engineered and are produced for customers in several industries, including the medium and heavy-duty truck components, farm equipment, heating, ventilation, and air-conditioning industries. Municipal castings include manhole covers and frames, storm sewer frames and grates, trench drain systems, tree grates and specialty castings for a variety of applications and are sold principally to state and local government entities, utility companies and contractors. 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Neenah has the following subsidiaries, all of which are wholly owned: Neenah Transport, Inc. (Transport); Hartley Controls Corporation (Hartley); Deeter Foundry, Inc. (Deeter); Mercer Forge Corporation and subsidiaries (Mercer); Dalton Corporation and subsidiaries (Dalton); Advanced Cast Products, Inc. (ACP); and Cast Alloys, Inc. (Cast Alloys). Transport is a common and contract carrier licensed to operate in the continental 54 55 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) United States. The majority of Transport's revenues are derived from transport services provided to the Company. Hartley designs and manufactures customized sand control systems for the foundry industry. Deeter manufactures gray iron castings for the municipal market and special application construction castings which are used in waste treatment plants, airports, telephone and electrical construction projects. Mercer produces forged components for use in transportation, railroad, mining and heavy industrial applications and microalloy forgings for use by original equipment manufacturers and industrial end users. Dalton manufactures gray iron castings for refrigeration systems, air conditioners, heavy equipment, engines, gear boxes, stationary transmissions, heavy duty truck transmissions and other automotive parts. ACP manufactures ductile and malleable iron castings for use in various industrial segments, including heavy truck, construction equipment, railroad, mining and automotive. Cast Alloys manufactures investment-cast titanium and stainless steel golf club heads for the golf industry. The Company's sales generally are unsecured. The Company changed its fiscal year end to September 30 effective September 30, 1997. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Neenah and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 55 56 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents, consisting entirely of Euro-Dollar investments, totaled $15,500 and $16,500 at September 30, 1999 and 1998, respectively. The cost of these investments approximates fair value at September 30, 1999 and 1998. INVENTORIES Inventories are stated at the lower of cost or market. The cost of inventories for Neenah and Dalton is determined on the last-in, first-out (LIFO) method for substantially all inventories except for supplies, for which cost is determined on the first-in, first-out (FIFO) method. The cost of inventories for Deeter, Mercer, Cast Alloys and ACP is determined on the FIFO method. LIFO inventories comprise 45% and 67% of total inventories at September 30, 1999 and 1998, respectively. PROPERTY, PLANT AND EQUIPMENT Expenditures for additions and improvements to property, plant and equipment are capitalized at cost while replacements, maintenance and repairs which do not improve or extend the lives of the respective assets are expensed as incurred. Depreciation for financial reporting purposes is provided over the estimated useful lives of the respective assets, using the straight-line method. DEFERRED FINANCING COSTS Costs incurred to obtain long-term financing are amortized using the interest method over the term of the related debt. IDENTIFIABLE INTANGIBLE ASSETS Identifiable intangible assets are amortized on a straight-line basis over the estimated useful lives of 5 to 40 years. 56 57 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) GOODWILL Goodwill is amortized on a straight-line basis over 15 to 40 years. IMPAIRMENT OF LONG-LIVED ASSETS Property, plant and equipment, goodwill and other intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or group of assets. Such analyses necessarily involve significant judgment. REVENUE RECOGNITION Revenue is recognized upon shipment of product to the customer. ADVERTISING COSTS Advertising costs are expensed as incurred, and amounted to $854 and $662 for the years ended September 30, 1999 and 1998, respectively, and $292 for the five months ended September 30, 1997. INCOME TAXES Deferred income taxes are provided for temporary differences between the financial reporting and income tax basis of the Company's assets and liabilities and are measured using currently enacted tax rates and laws. 57 58 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FINANCIAL INSTRUMENTS The Company has a number of financial instruments, none of which are held for trading purposes. The following presents the carrying amounts and estimated fair values of such instruments:
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 ------------------------------------------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ------------------------------------------------------------- Cash and cash equivalents $ 17,368 $ 17,368 $ 19,798 $ 19,798 Accounts receivable 77,696 77,696 71,655 71,655 Accounts payable 31,151 31,151 29,920 29,920 Long-term debt 429,221 408,071 371,871 371,367
The fair value of the Senior Subordinated Notes is based on quoted market prices. RECLASSIFICATIONS Certain prior year amounts have been reclassified to conform to the current year presentation. COMPREHENSIVE INCOME Effective October 1, 1998, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," which establishes the standards for reporting and displaying comprehensive income and its components (revenues, expenses, gains and losses) as part of a full set of financial statements. The adoption of SFAS No. 130 had no impact on the Company's results of operations, financial position or cash flows. Comprehensive income (loss) has been included in the consolidated statement of changes in stockholders' equity. SEGMENT INFORMATION Effective September 30, 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes the standards for public enterprises to report financial and descriptive information about their 58 59 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) operating segments in annual and interim financial statements, and provide disclosures with respect to products and services, geographic areas of operations and major customers. The adoption of SFAS No. 131 did not affect the Company's results of operations, financial position or cash flows, but did affect the disclosure of segment information. PENSIONS AND OTHER POSTRETIREMENT BENEFITS Effective September 30, 1999, the Company adopted SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." The provisions of SFAS No. 132 revise employers' disclosures about pension and other postretirement benefit plans. This statement does not change the measurement or recognition of costs associated with these plans. In addition, SFAS No. 132 standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable. PENDING ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which was amended by SFAS No. 137. Provisions of these standards are required to be adopted in years beginning after June 15, 2000. Because of the Company's minimal use of derivatives, management does not anticipate that the adoption of SFAS No. 133 will have a significant effect on the results of operations or on the financial position of the Company. 2. ACQUISITIONS On March 30, 1998, Neenah purchased Deeter, a manufacturer of gray iron castings, for $20,759 in cash (including direct costs of $313) and a $3,850 note issued by ACP Holding Company payable to the selling shareholders of Deeter which was accounted for as a contribution to the capital of Neenah in fiscal 1998. During fiscal 1999, Neenah settled the note on behalf of ACP Holding Company which was accounted for as a return of capital. On April 3, 1998, Neenah purchased Mercer, a manufacturer of forged components, for $47,420 (including direct costs of $525 and net of $154 of acquired cash). The acquisition of Mercer was financed through borrowings under the Tranche B term loan. 59 60 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 2. ACQUISITIONS (CONTINUED) On September 8, 1998, Neenah purchased Dalton, a manufacturer of gray iron castings, for $100,930 (including direct costs of $601 and net of $1,679 of acquired cash). The acquisition of Dalton was financed through drawings under the Tranche B term loan and the Acquisition Loan Facility. On December 31, 1998, Neenah purchased Cast Alloys, a manufacturer of investment-cast titanium and stainless steel golf club heads, for $40,824 in cash (including direct costs of $1,206, and net of $488 of acquired cash). The acquisition of Cast Alloys was financed by a portion of the proceeds from the issuance of the Company's 11-1/8% Series F Senior Subordinated Notes. The acquisitions of Deeter, Mercer, Dalton and Cast Alloys have 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 intangible assets acquired has been allocated to goodwill. The operating results of Deeter, Mercer, Dalton and Cast Alloys are included in the consolidated statements of operations since the date of their respective acquisition. On September 8, 1998, the capital stock of ACP was contributed to Neenah by ACP Holding Company, the sole shareholder of ACP. ACP is a manufacturer of ductile and malleable iron castings. In connection with the merger, Neenah assumed $14,613 of indebtedness of ACP which was subsequently refinanced through borrowings under the Tranche A term loan. In addition, senior subordinated notes totaling $6,746 due by ACP to its shareholder were converted into the equity of ACP by its shareholder. The acquisition of ACP was accounted for in a manner similar to a pooling of interests because Neenah and ACP were under common control. 60 61 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 2. ACQUISITIONS (CONTINUED) Pro forma unaudited consolidated operating results of the Company, assuming Deeter, Mercer, Dalton and Cast Alloys had all been acquired as of October 1, 1998 and 1997, are summarized below:
YEAR ENDED SEPTEMBER 30 1999 1998 ---------------------------------- Net sales $544,671 $576,161 Income (loss) before extraordinary item (4,515) 999 Net income (loss) (4,515) 607
These pro forma results have been prepared for informational purposes only and include certain adjustments to depreciation expense related to acquired plant and equipment, amortization expense arising from goodwill and identifiable intangible assets, interest expense on acquisition debt, and the estimated related income tax effects of all such adjustments. The pro forma results do not purport to be indicative of the results of operations which would have resulted had the business combinations occurred on October 1, 1998 and 1997, or of the future results of operations of the consolidated entities. 3. INVENTORIES Inventories consist of the following as of September 30:
1999 1998 ---------------------------------- Raw materials $ 9,702 $ 4,550 Work in process and finished goods 37,654 28,141 Supplies 9,031 8,150 ================================== $ 56,387 $ 40,841 ==================================
If the FIFO method of inventory valuation had been used on all components, inventories would have been approximately $1,156 lower than reported at September 30, 1999 and $499 higher than reported at September 30, 1998. 61 62 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 4. IDENTIFIABLE INTANGIBLE ASSETS Identifiable intangible assets consist of the following as of September 30:
1999 1998 ---------------------------------- Customer lists $33,941 $30,341 Trade names 24,353 19,853 Assembled work force 8,842 8,142 Facilities in place 2,982 3,764 Other 4,343 3,434 ---------------------------------- 73,552 65,534 Less accumulated amortization 10,700 4,448 ================================== $62,852 $61,086 ==================================
5. LONG-TERM DEBT Long-term debt consists of the following as of September 30:
1999 1998 ---------------------------------- 111/8% Series B Senior Subordinated Notes $150,000 $150,000 111/8% Series D Senior Subordinated Notes, including unamortized premium of $1,995 in 1999 and $2,259 in 1998 46,995 47,259 111/8% Series F Senior Subordinated Notes, including unamortized premium of $2,717 89,717 - Term Loan Facilities 140,747 145,000 Acquisition Loan Facility - 29,000 Revolving Loan Facility - - Other 1,762 612 ---------------------------------- 429,221 371,871 Less current portion 5,334 4,185 ================================== $423,887 $367,686 ==================================
62 63 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 5. LONG-TERM DEBT (CONTINUED) The Series B, Series D and Series F Senior Subordinated Notes (collectively, the Notes) are unsecured and mature on May 1, 2007. Interest is payable semiannually on May 1 and November 1. The Notes are fully, unconditionally, jointly and severally guaranteed by Transport, Hartley, Deeter, Mercer, Dalton, Cast Alloys and ACP (Guarantor Subsidiaries). The Notes are subordinated to all existing and future senior indebtedness of the Company but rank equally in right of payment with any future senior subordinated indebtedness of the Company. The Notes contain covenants which restrict the Company from incurring additional indebtedness and prohibit dividend payments, stock redemptions and certain other transactions. The Company used the proceeds from the Series D Senior Subordinated Notes to repay the term loans used to finance the acquisition of the Company on April 30, 1997, accrued interest thereon and related fees and expenses. In connection with the prepayment in full of the term loans during the five months ended September 30, 1997, the Company recorded an extraordinary charge to write off the unamortized balance of the related deferred financing costs of $2,629. The Company has a Credit Agreement with a bank which provides a) Term Loan Facilities of $145 million, b) an Acquisition Loan Facility of $50 million and c) a Revolving Credit Facility of $50 million. The Term Loan Facilities consist of two tranches of term loans. The Tranche A term loans outstanding at September 30, 1999 and 1998, total $17 million and $20 million, respectively, and mature on September 30, 2003. The Tranche B term loans outstanding at September 30, 1999 and 1998 total $124 million and $125 million, respectively, and mature on September 30, 2005. Installments of the Tranche A term loans are due in aggregate principal amounts of $1,000 per quarter until September 30, 2002 and $1,250 per quarter from December 31, 2002 through September 30, 2003. Installments on $54 million of the Tranche B term loans are due in aggregate principal amounts of $250 per quarter until September 30, 2003 and $6,250 per quarter from December 31, 2003 through September 30, 2005. Installments on the remaining Tranche B term loans are due in aggregate principal amounts of $8,750 per quarter commencing on December 31, 2003 and continuing through September 30, 2005. Interest on the Tranche A and Tranche B term loans is at LIBOR (6.0% at September 30, 1999) plus 2.50% and 2.75%, respectively. 63 64 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 5. LONG-TERM DEBT (CONTINUED) Loans under the Acquisition Loan Facility may be paid and reborrowed at any time through September 8, 2000. Outstanding borrowing under the Acquisition Loan Facility on September 8, 2000 will be repaid quarterly beginning on such date through June 30, 2004. Interest on borrowings under the Acquisition Loan Facility is at LIBOR plus 2.50%. The Company is entitled to draw amounts under the Revolving Credit Facility for general corporate purposes, including permitted acquisitions, as defined. The Revolving Credit Facility includes a $15 million sub-limit for letters of credit and matures on April 30, 2002. Covenants contained in the Revolving Credit Facility restrict the payment of dividends, capital expenditures and certain other transactions and require the Company to maintain leverage, net worth and interest coverage ratios. The Company used the proceeds of the Tranche A term loan to repay the bank term loan, revolving credit note payable and equipment loan totaling $13,631 it assumed when the capital stock of ACP was contributed to the Company. In connection with the repayment in full of these obligations during the year ended September 30, 1998, the Company recorded an extraordinary charge to write off the unamortized balance of the related deferred financing costs of $652. During the year ended September 30, 1999, the Company financed purchases of property, plant and equipment totaling $1,143 by entering into capital leases. Scheduled maturities of long-term debt during fiscal years subsequent to September 30, 1999, are as follows: 2000 $ 5,334 2001 5,344 2002 5,317 2003 6,275 2004 60,224 Thereafter 342,015 ---------------------- $ 424,509 ======================
64 65 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 6. COMMITMENTS AND CONTINGENCIES The Company leases certain plants, warehouse space, machinery and equipment, office equipment and vehicles under operating leases. Rent expense under these operating leases for the years ended September 30, 1999 and 1998 and for the five-month period ended September 30, 1997 totaled $2,595, $1,485 and $515, respectively. Minimum rental payments due under these operating leases for fiscal years subsequent to September 30, 1999 are as follows: 2000 $2,549 2001 1,655 2002 916 2003 473 2004 220 Thereafter 303 ---------------------- $6,116 ======================
The Company is partially self-insured for workers compensation claims. An accrued liability is recorded for claims incurred but not yet paid or reported and is based on current and historical claim information. The accrued liability may ultimately be settled for an amount different than the recorded amount. Adjustments of the accrued liability are recorded in the period in which they become known. Approximately 52% of the Company's work force is covered by collective bargaining agreements. None of the current agreements are scheduled to expire within the next year. As of September 30, 1999, the Company had outstanding letters of credit of $350, which secure certain workers compensation and other obligations. The outstanding letters of credit reduce the availability under the Revolving Credit Facility. 65 66 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 7. RESTRUCTURING CHARGE During fiscal 1999, the Company recorded a restructuring charge of $6,713 to close one of their manufacturing facilities. Included in the restructuring charge in the consolidated statement of operations for the fiscal year ended September 30, 1999 are the following: Impairment and abandonment of assets that will no longer be used $6,030 Employee severance costs 328 Lease commitment and contractual obligations 130 Other exit activity costs, primarily facility closure expenses 225 ---------------- $6,713 ================
The fair value of assets that will no longer be used was determined based on an appraisal performed with consideration given to offers received from prospective buyers. Employee severance costs relate to 20 salaried employees and 146 bargaining unit employees and have been communicated in writing to the employees. No amounts were disbursed in the year ended September 30, 1999. It is expected that substantially all actions related to the Company's restructuring plan will be completed by September 30, 2000. For the year ended September 30, 1999 and from September 8, 1998, the date of acquisition, through September 30, 1998, net sales related to this manufacturing facility were $17,213 and $1,831, respectively, and the operating loss related to this manufacturing facility was $10,071 and $361, respectively, including the restructuring charge of $6,713 in 1999. 8. INCOME TAXES The provision for income taxes consists of the following:
SEPTEMBER 30 1999 1998 1997 -------------------------------------------------------- Current: Federal $ 8,615 $11,126 $ 5,835 State 1,697 2,233 1,236 -------------------------------------------------------- 10,312 13,359 7,071 Deferred (8,248) (2,437) (3,071) -------------------------------------------------------- $ 2,064 $10,922 $ 4,000 ========================================================
66 67 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 8. INCOME TAXES (CONTINUED) The provision for income taxes differs from the amount computed by applying the federal statutory rate of 34%, 35% and 34% as of September 30, 1999, 1998 and 1997, respectively, to income before income taxes and extraordinary item as follows:
TWELVE MONTHS ENDED FIVE MONTHS SEPTEMBER 30 ENDED SEPTEMBER 30 1999 1998 1997 ------------------------------------------------------- Provision at statutory rate $ 59 $ 7,981 $2,844 State income taxes, net of federal tax benefit 161 1,148 480 Amortization of goodwill 1,799 1,389 550 Other 45 404 126 ------------------------------------------------------ Provision for income taxes $ 2,064 $ 10,922 $4,000 ======================================================
Deferred income tax assets and liabilities consist of the following as of September 30:
1999 1998 -------------------------------------------- Deferred income tax liabilities: Book basis of assets in excess of tax basis: Inventories $ (2,879) $ (3,221) Property, plant and equipment (43,396) (46,447) Identifiable intangible assets (25,226) (24,476) Employee benefit plans (426) (590) Other (500) (572) ------------------------------------------- (72,427) (75,306) Deferred income tax assets: Employee benefit plans 5,898 6,919 Accrued vacation 2,278 1,989 Restructuring reserve 344 - Other accrued liabilities 2,784 2,667 State net operating loss carryforward 377 - Other 420 550 Valuation allowance (377) - ------------------------------------------- 11,724 12,125 ------------------------------------------- Net deferred income tax liability $ (60,703) $ (63,181) =========================================== Included in the consolidated balance sheet as: Current deferred income tax asset $ 3,534 $ 4,888 Noncurrent deferred income tax liability (64,237) (68,069) ------------------------------------------- $ (60,703) $ (63,181) ===========================================
67 68 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 8. INCOME TAXES (CONTINUED) As of September 30, 1999, Cast Alloys has a state net operating loss (NOL) carryforward for income tax purposes of $4,049 which expires in September 2004. A full valuation allowance has been provided against the deferred tax asset related to this state NOL carryforward. 9. EMPLOYEE BENEFIT PLANS DEFINED-BENEFIT PENSION PLANS AND POSTRETIREMENT BENEFITS The Company sponsors five defined-benefit pension plans covering the majority of its hourly employees. Retirement benefits under the pension plans are based on years of service and defined-benefit rates. The Company funds the pension plans based on actuarially determined cost methods allowable under Internal Revenue Service regulations. Plan assets consist primarily of mutual funds. The Company also sponsors unfunded defined-benefit postretirement health care plans covering substantially all salaried and hourly employees at Neenah and Hartley and their dependents. For Hartley and salaried employees at Neenah, benefits are provided from the date of retirement for the duration of the employee's life, while benefits for hourly employees at Neenah are provided from retirement to age 65. Retirees' contributions to the plans are based on years of service and age at retirement. The Company funds benefits as incurred. 68 69 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 9. EMPLOYEE BENEFIT PLANS (CONTINUED) The following table summarizes the funded status of the pension plans and postretirement benefit plans and the amounts recognized in the consolidated balance sheet at September 30, 1999 and 1998:
PENSION POSTRETIREMENT BENEFITS BENEFITS ------------------------------------------------------- 1999 1998 1999 1998 ------------------------------------------------------- Change in benefit obligation: Benefit obligation, October 1 $36,759 $22,909 $ 6,114 $ 4,894 Acquisition - 8,857 - - Service cost 1,263 749 202 152 Interest cost 2,533 1,716 419 366 Amendments 1,710 - - - Actuarial (gains) losses (2,280) 3,754 - 906 Benefits paid (1,779) (1,226) (233) (204) ------------------------------------------------------- Benefit obligation, September 30 $38,206 $36,759 $ 6,502 $ 6,114 ======================================================= Change in plan assets: Fair value of plan assets, October 1 $33,299 $26,419 $ - $ - Acquisition - 6,690 - - Actual return on plan assets 4,132 1,300 - - Company contributions 1,066 116 233 204 Benefits paid (1,779) (1,226) (233) (204) ------------------------------------------------------- Fair value of plan assets, September 30 $36,718 $33,299 $ - $ - ======================================================= Funded status of the plans: Benefit obligation in excess of plan assets $(1,488) $(3,460) $(6,502) $(6,114) Unrecognized prior service cost 2,002 313 716 760 Unrecognized net (gain) loss (1,321) 2,612 145 134 ------------------------------------------------------- $ (807) $ (535) $(5,641) $(5,220) ======================================================= Amounts recognized in the consolidated balance sheet at September 30 consist of: Accrued benefit liability $(3,221) $(5,142) $(5,641) $(5,220) Prepaid benefit cost 1,239 1,676 - - Intangible asset 1,175 313 - - Deferred tax asset - 1,048 - - Accumulated other comprehensive income - 1,570 - - -------------------------------------------------------- $ (807) $ (535) $(5,641) $(5,220) =======================================================
69 70 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 9. EMPLOYEE BENEFIT PLANS (CONTINUED) Amounts applicable to the Company's pension plans with accumulated benefit obligations and projected benefit obligations in excess of plan assets:
1999 1998 ------------------------------------ Projected benefit obligation $36,810 $35,415 Accumulated benefit obligation 36,810 35,415 Fair value of plan assets 35,176 32,079
Components of net periodic pension cost for the years ended September 30, 1999 and 1998, respectively, and the five months ended September 30, 1997 are as follows:
PENSION BENEFITS POSTRETIREMENT BENEFITS ---------------------------------- --------------------------------- 1999 1998 1997 1999 1998 1997 ---------------------------------- --------------------------------- Service cost $ 1,263 $ 749 $ 251 $202 $152 $ 58 Interest cost 2,533 1,716 688 419 366 148 Expected return on plan assets (2,488) (1,403) (802) - - - Amortization of prior service cost 22 (591) 49 45 - - Recognized net actuarial loss 10 - - - - - --------------------------------- ------------------------------- Net periodic benefit cost $ 1,340 $ 471 $ 186 $666 $518 $206 ================================= =============================== Assumptions as of September 30: Discount rate 7.25% to 6.75% to 6.75% to 7.75% 7.25% 7.25% 7.0% 7.0% 7.5% Expected long-term rate of 7.50% to 7.50% to 7.50% to return 9.50% 9.50% 9.50% - - -
For measurement purposes the healthcare cost trend rate was assumed to be 8.5% decreasing gradually to 4.5% in 2010 and then remain at that level thereafter. The healthcare cost trend rate assumption has a significant effect on the amounts reported. Increasing the healthcare cost trend rate by one percentage point would have the following effect: Effect on total of service and interest cost $ 170 Effect on postretirement benefit obligation 1,104
70 71 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 9. EMPLOYEE BENEFIT PLANS (CONTINUED) DEFINED-CONTRIBUTION RETIREMENT PLANS The Company sponsors various defined-contribution retirement plans (the Plans) covering substantially all salaried and certain hourly employees. The Plans allow participants to make 401(k) contributions in amounts ranging from 1% to 15% of their compensation. The Company matches between 35% and 50% of the participants' contributions, as defined. The Company may make additional voluntary contributions to the Plans as determined annually by the Board of Directors. Total Company contributions amounted to $1,759 and $994 for the years ended September 30, 1999 and 1998, respectively, and $423 for the five months ended September 30, 1997, respectively. OTHER EMPLOYEE BENEFITS The Company provides unfunded supplemental retirement benefits to certain active and retired employees at Dalton. At September 30, 1999, the present value of the current and long-term portion of these supplemental retirement obligations totaled $111 and $3,036 respectively. Certain of Dalton's hourly employees are covered by a multi-employer defined-benefit pension plan pursuant to a collective bargaining agreement. The Company's expense for the year ended September 30, 1999 was $567 and $53 from September 8, 1998, the date of acquisition, through September 30, 1998. The Company sponsors a noncontributory, multiemployer defined benefit pension plan for substantially all of the union employees at Mercer pursuant to a collective bargaining agreement. The Company's expense for the year ended September 30, 1999 was $166 and $107 from April 3, 1998, the date of acquisition, through September 30, 1998. 10. SEGMENT INFORMATION The Company has two reportable segments, Castings and Forgings. The Castings segment manufactures and sells iron castings for the industrial and municipal markets, while the Forgings segment manufactures forged components for the industrial market. The Other segment includes machining operations, manufacture of foundry equipment and freight hauling. 71 72 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 10. SEGMENT INFORMATION (CONTINUED) The Company evaluates performance and allocates resources based on the operating income before depreciation, amortization of goodwill and intangibles and restructuring charges of each segment. The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. Intersegment sales and transfers are recorded at cost plus a share of operating profit.
YEAR ENDED FIVE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 -------------------------------- ------------------- 1999 1998 1997 -------------------------------- ------------------- Revenues from external customers: Castings $ 475,412 $ 262,315 $104,013 Forgings 39,493 25,135 - Other 33,311 20,577 6,421 Elimination of intersegment revenues (18,159) (4,613) (2,081) -------------------------------- ---------------- Total revenues $ 530,057 $ 303,414 $108,353 ================================ ================ Income (loss) before extraordinary item: Castings $ (12,414) $ 13,793 $ 4,919 Forgings (2,650) 822 - Other 826 1,138 320 Elimination of intersegment profit (loss) 12,346 (3,872) (873) -------------------------------- ----------------- $ (1,892) $ 11,881 $ 4,366 ================================ ================= Assets: Castings $ 792,939 $ 698,638 $357,335 Forgings 57,321 65,104 - Other 19,127 16,962 6,387 Adjustments (225,273) (196,395) (5,316) -------------------------------- ----------------- Total consolidated assets $ 644,114 $ 584,309 $358,406 ================================ =================
72 73 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 10. SEGMENT INFORMATION (CONTINUED)
Castings Forgings Other Total ------------------------------------------------------------- Year ended September 30, 1999: Interest expense $38,849 $4,388 $ 586 $43,803 Interest income 1,303 33 72 1,408 Depreciation and amortization expense 30,420 3,277 1,989 35,686 Restructuring charge 6,713 - - 6,713 Expenditures for long-lived assets 39,725 855 1,513 41,643 Year ended September 30, 1998: Interest expense 27,785 4 307 28,096 Interest income 883 - 10 893 Depreciation and amortization expense 16,344 2,450 860 19,654 Expenditures for long-lived assets 12,573 58 486 13,117 Five months ended September 30, 1997: Interest expense 10,207 - 151 10,358 Interest income 333 - 34 367 Depreciation and amortization expense 7,557 - 142 7,699 Expenditures for long-lived assets 2,971 - 110 3,081
GEOGRAPHIC INFORMATION
Long-Lived Revenues Assets ------------------------------------- Year ended September 30, 1999: United States $512,940 $206,432 Foreign countries 17,117 2,372 =------------------------------------ Total $530,057 $208,804 ===================================== Year ended September 30, 1998: United States $293,037 $180,537 Foreign countries 10,377 - ------------------------------------- Total $303,414 $180,537 ===================================== Year ended September 30, 1997: United States $102,787 $112,624 Foreign countries 5,566 - ------------------------------------- Total $108,353 $112,624 =====================================
73 74 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 10. SEGMENT INFORMATION (CONTINUED) MAJOR CUSTOMERS There were no sales to individual customers in excess of 10% of net sales for the years ended September 30, 1999 and 1998. Sales to two customers totaled $21,879 of net sales for the five months ended September 30, 1997. 11. GUARANTOR SUBSIDIARIES All of the wholly owned subsidiaries of Neenah (Transport, Hartley, Deeter, Mercer, Dalton, ACP and Cast Alloys - collectively, Guarantor Subsidiaries) fully, unconditionally, jointly and severally guarantee the Notes. The following is summarized combined financial information of the Guarantor Subsidiaries. Net sales include net sales to Neenah of $7,306 and $4,613 for the year ended September 30, 1999 and 1998, respectively, and $2,048 for the five months ended September 30, 1997. Separate financial statements of the Guarantor Subsidiaries are not separately presented because, in the opinion of management, such financial statements are not material to investors.
SEPTEMBER 30 1999 1998 ------------------------------------------------- Current assets $ 63,153 $ 77,594 Noncurrent assets 236,185 191,793 Current liabilities 38,148 34,708 Noncurrent liabilities 30,570 32,405
YEAR ENDED SEPTEMBER 30 FIVE MONTHS ENDED 1999 1998 SEPTEMBER 30, 1997 ---------------------------------------------------------------------- Net sales $345,249 $118,449 $25,492 Gross profit 34,464 21,766 5,512 Net income (loss) (13,129) 3,355 897
74 75 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 12. SUBSEQUENT EVENT On November 30, 1999, the Company acquired all of the capital stock of Gregg Industries, Inc. ("Gregg") and all of the assets of its affiliate, Environmental Sand Reclamation and Coating, Inc. for approximately $22,500, subject to adjustments as defined in the Agreement and Plan of Merger. Gregg is a manufacturer of gray and ductile iron castings for industrial and commercial use. The acquisition was financed through borrowings under the Company's Acquisition Loan Facility. 75 76 CONSOLIDATED FINANCIAL STATEMENTS NEENAH FOUNDRY COMPANY (PREDECESSOR) Years ended March 31, 1996 and 1997 and one month ended April 30, 1997 76 77 Neenah Foundry Company (Predecessor) Consolidated Financial Statements Years ended March 31, 1996 and 1997 and one month ended April 30, 1997 CONTENTS Report of Independent Auditors.................................................. Consolidated Balance Sheets..................................................... Consolidated Statements of Income............................................... Consolidated Statements of Changes in Stockholders' Equity...................... Consolidated Statements of Cash Flows........................................... Notes to Consolidated Financial Statements...................................... 77 78 Report of Independent Auditors Board of Directors Neenah Foundry Company (formerly Neenah Corporation - see Note 1) We have audited the accompanying consolidated balance sheets of Neenah Foundry Company (the Company) as of March 31, 1996 and 1997, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the years then ended, and for the one month ended April 30, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 1996 and 1997, and the consolidated results of its operations and its cash flows for the years then ended, and for the one month ended April 30, 1997, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP June 4, 1997, except for Notes 1 and 10 as to which the date is July 1, 1997 78 79 Neenah Foundry Company (Predecessor) Consolidated Balance Sheets (In Thousands, Except Share and Per Share Amounts)
MARCH 31 1996 1997 --------------------------------- ASSETS Current assets: Cash and cash equivalents $ 10,126 $ 22,403 Accounts receivable, less allowance for doubtful accounts of $386 at March 31, 1996 and 1997 20,831 21,423 Inventories 13,324 13,956 Other current assets - 401 Deferred income taxes 2,253 2,325 -------------------------------- Total current assets 46,534 60,508 Property, plant and equipment: Land 847 847 Buildings and improvements 14,972 15,063 Machinery and equipment 97,749 101,655 -------------------------------- 113,568 117,565 Less accumulated depreciation 79,840 86,186 -------------------------------- 33,728 31,379 Other assets 2,695 1,982 --------------------------------- $ 82,957 $ 93,869 =================================
79 80
MARCH 31 1996 1997 --------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 8,124 $ 8,497 Dividends payable 2,220 - Income taxes payable 517 573 Accrued wages and employee benefits 5,516 5,545 Other accrued liabilities 1,937 2,052 Current portion of long-term debt 107 134 --------------------------------- Total current liabilities 18,421 16,801 Long-term debt 134 - Pension obligations 1,737 - Postretirement benefit obligations 5,300 5,667 Deferred income taxes 2,575 2,544 --------------------------------- Total liabilities 28,167 25,012 Commitments and contingencies (Note 5) Stockholders' equity: Preferred stock, par value $100 per share: Authorized 3,000 shares; no shares issued and outstanding - - Common stock, par value $100 per share: Class A (voting): Authorized 1,000 shares; issued and outstanding, 620 shares 62 62 Class B (nonvoting): Authorized 10,000 shares; issued and outstanding, 3,820 shares 382 382 Retained earnings 57,268 71,335 Notes receivable from owners to finance stock purchase (2,922) (2,922) --------------------------------- Total stockholders' equity 54,790 68,857 ================================= $ 82,957 $ 93,869 =================================
See accompanying notes 80 81 Neenah Foundry Company (Predecessor) Consolidated Statements of Income (In Thousands)
ONE MONTH ENDED YEAR ENDED MARCH 31 APRIL 30 1996 1997 1997 --------------------------------------------- Net sales $166,951 $165,426 $17,276 Cost of sales 121,631 116,736 11,351 --------------------------------------------- Gross profit 45,320 48,690 5,925 Selling, general and administrative expenses 16,983 17,547 1,752 --------------------------------------------- Operating income 28,337 31,143 4,173 Net interest income (expense) 481 1,162 121 --------------------------------------------- Income before income taxes 28,818 32,305 4,294 Provision for income taxes 11,676 12,467 1,615 ============================================= Net income $ 17,142 $ 19,838 $ 2,679 =============================================
See accompanying notes. 81 82 Neenah Foundry Company (Predecessor) Consolidated Statements of Changes in Stockholders' Equity (In Thousands, Except Share and Per Share Amounts)
Common Stock -------------------------------------- Notes Receivable Preferred Stock Class A Class B from Owners --------------------------------------------------------- Retained to Finance Shares Amount Shares Amount Shares Amount Earnings Stock Purchase Total ----------------------------------------------------------------------------------------------- Balance at April 1, 1995 - $-- 620 $ 62 3,820 $ 382 $ 45,676 $ (2,922) $ 43,198 Common dividends declared - $1,250 per share - -- -- -- -- -- (5,550) -- (5,550) Net income - -- -- -- -- -- 17,142 -- 17,142 --------------------------------------------------------------------------------------------- Balance at March 31, 1996 - -- 620 62 3,820 382 57,268 (2,922) 54,790 Common dividends declared - $1,300 per share - -- -- -- -- -- (5,771) -- (5,771) Net income - -- -- -- -- -- 19,838 -- 19,838 --------------------------------------------------------------------------------------------- Balance at March 31, 1997 - -- 620 62 3,820 382 71,335 (2,922) 68,857 Collection of notes receivable from owners - -- -- -- -- -- -- 2,922 2,922 Net income - -- -- -- -- -- 2,679 -- 2,679 --------------------------------------------------------------------------------------------- Balance at April 30, 1997 - $-- 620 $ 62 3,820 $ 382 $ 74,014 $ -- $ 74,458 =============================================================================================
See accompanying notes. 82 83 Neenah Foundry Company (Predecessor) Consolidated Statements of Cash Flows (In Thousands)
ONE MONTH ENDED YEAR ENDED MARCH 31 APRIL 30 1996 1997 1997 ------------------------------------------ OPERATING ACTIVITIES Net income $ 17,142 $19,838 $ 2,679 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 6,776 6,881 518 Deferred income taxes 1,863 (103) (120) Other 48 (103) - Changes in operating assets and liabilities: Accounts receivable 439 (592) (3,764) Inventories (603) (632) 495 Other current assets 27 (401) 401 Accounts payable (2,653) 373 1,308 Income taxes payable (585) 56 1,734 Accrued liabilities (1,261) 144 (185) Pension obligations 859 (2,349) 822 Postretirement benefit obligations 221 367 29 ------------------------------------------ Net cash provided by (used in) operating activities 22,273 23,479 3,917 INVESTING ACTIVITIES Purchase of property, plant and equipment (7,275) (4,546) (190) Proceeds from life insurance policy - 1,439 - Other (24) 3 (1) ------------------------------------------ Net cash used in investing activities (7,299) (3,104) (191) FINANCING ACTIVITIES Dividends paid (4,440) (7,991) - Redemption of stock - - - Proceeds from long-term debt 16,370 - - Payments on long-term debt (17,016) (107) (5) Collection of notes receivable from owners - - 2,922 ------------------------------------------ Net cash provided by (used in) financing activities (5,086) (8,098) 2,917 ------------------------------------------ Increase in cash and cash equivalents 9,888 12,277 6,643 Cash and cash equivalents at beginning of period 238 10,126 22,403 ------------------------------------------ Cash and cash equivalents at end of period $ 10,126 $22,403 $ 29,046 ========================================== Supplemental disclosures of cash flow information: Cash paid for: Interest $ 84 $ 39 $ 1 Income taxes 10,398 12,515 -
See accompanying notes. 83 84 Neenah Foundry Company (Predecessor) Notes to Consolidated Financial Statements Years ended March 31, 1996 and 1997 and one month ended April 30, 1997 (In Thousands) 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS Prior to July 1, 1997, Neenah Foundry Company was one of three wholly owned subsidiaries of Neenah Corporation, a holding company with no significant assets or operations other than its holdings in the common stock of its subsidiaries. On July 1, 1997, Neenah Foundry Company merged into Neenah Corporation and the surviving company changed its name to Neenah Foundry Company (the Company). The Company operates in one business segment for financial reporting purposes: the manufacture of gray and ductile iron castings. The Company manufactures castings for sale to industrial and municipal customers throughout the United States and several foreign countries. Industrial castings are custom-engineered and are produced for customers in several industries, with a concentration in the medium and heavy-duty truck components, farm equipment, and heating, ventilation, and air-conditioning industries. Municipal castings include manhole covers and frames, storm sewer frames and grates, trench drain systems, tree grates and specialty castings for a variety of applications. Industrial castings are generally sold to large, well-established companies, with two customers accounting for 17% and 9% of net sales in fiscal 1996, 16% and 10% of net sales in fiscal 1997 and 29% and 24% of net sales for the one month ended April 30, 1997. Combined receivables from these two customers totaled $4,974 and $6,651 at March 31, 1996 and 1997, respectively. Municipal castings are sold to a large number of customers. The Company's accounts receivable generally are unsecured. The Company has two wholly owned subsidiaries--Neenah Transport, Inc. (Transport) and Hartley Controls Corporation (Hartley). Transport is a common and contract carrier licensed to operate in the continental United States. The majority of Transport's revenues are derived from transport services provided to the Company. Hartley designs and manufactures customized sand control systems for the foundry industry, which are sold and serviced throughout the United States and several foreign countries. Hartley and Transport each account for less than 10% of consolidated net sales, net income and total assets. 84 85 Neenah Foundry Company (Predecessor) Notes to Consolidated Financial Statements (continued) (In Thousands) 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Transport and Hartley. All significant intercompany accounts and transactions have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS For purposes of the consolidated statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash equivalents, consisting principally of investments in commercial paper, totaled $11,598 and $23,028 at March 31, 1996 and 1997, respectively. The cost of these debt securities, which are considered as "available for sale" for financial reporting purposes, approximates fair value at both March 31, 1996 and 1997. There were no realized gains or losses recognized on these securities during the years ended March 31, 1996 and 1997 or the one month ended April 30, 1997. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined on the last-in, first-out (LIFO) method for substantially all inventories except for supplies, for which cost is determined on the first-in, first-out (FIFO) method. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are recorded at cost. Expenditures for additions and improvements are capitalized while replacements, maintenance and repairs which do not improve or extend the lives of the respective assets are expensed as incurred. 85 86 Neenah Foundry Company (Predecessor) Notes to Consolidated Financial Statements (continued) (In Thousands) 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Depreciation for financial reporting purposes is provided over the estimated useful lives of the respective assets, using accelerated and straight-line methods. Depreciation expense includes amortization of machinery and equipment recorded under capitalized leases. REVENUE RECOGNITION Revenue from the sale of castings and sand control systems is recognized upon shipment to the customer. ADVERTISING COSTS Advertising costs are expensed as incurred, and amounted to $527, $524 and $55 for the years ended March 31, 1996 and 1997 and one month ended April 30, 1997, respectively. INCOME TAXES Deferred income taxes are provided for temporary differences between the financial reporting and income tax basis of the Company's assets and liabilities and are measured using currently enacted tax rates and laws. FINANCIAL INSTRUMENTS The Company has a number of financial instruments, none of which are held for trading purposes. The Company estimates that the fair value of all financial instruments at March 31, 1996 and 1997 does not differ materially from the carrying value of such instruments recorded in the accompanying consolidated balance sheets, as follows:
MARCH 31 1996 1997 ----------------- ---------------- Cash and cash equivalents $10,126 $22,403 Accounts receivable 20,831 21,423 Accounts payable 8,124 8,497 Long-term debt 241 134
86 87 Neenah Foundry Company (Predecessor) Notes to Consolidated Financial Statements (continued) (In Thousands) 1. NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NEW ACCOUNTING STANDARDS The Company adopted FASB Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Assets to Be Disposed Of," and SFAS No. 123, "Accounting for Stock-Based Compensation," on April 1, 1996, SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," on January 1, 1997, and Statement of Position 96-1, "Environmental Remediation Liabilities," on April 1, 1997. The adoption of these statements did not have any effect on the Company's consolidated financial statements. In accordance with SFAS No. 121, the Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. 2. INVENTORIES Inventories consist of the following:
MARCH 31 1996 1997 ---------------------------- Raw materials $ 2,214 $ 2,017 Work in process and finished goods 13,957 14,324 Supplies 4,886 4,860 ---------------------------- Inventories at FIFO cost 21,057 21,201 Excess of FIFO cost over LIFO cost (7,733) (7,245) ---------------------------- $ 13,324 $ 13,956 ============================
3. LONG-TERM DEBT Long-term debt consists of the following:
MARCH 31 1996 1997 ---------------------------- Capital lease obligations $241 $134 Less current portion 107 134 ---------------------------- $134 $ - ============================
87 88 Neenah Foundry Company (Predecessor) Notes to Consolidated Financial Statements (continued) (In Thousands) 3. LONG-TERM DEBT (CONTINUED) The Company has a revolving credit agreement (the Agreement) with a bank that provides for borrowings up to $25,000 through July 31, 1998. Interest is payable monthly on outstanding borrowings at the bank's Reference Rate (8.25% at March 31, 1997). The Agreement contains an option that allows the Company to designate a portion (minimum of $2,000) of the borrowings to bear a fixed rate of interest for a specified period of time. Borrowings under the Agreement are unsecured and a quarterly fee is charged by the bank on the unused portion of the facility. The capital lease obligations consist of leases for a propane system and semi-tractors and trailers. Included in machinery and equipment is $567 and $397, and included in accumulated depreciation is $272 and $179 at March 31, 1996 and 1997, respectively, related to these capital leases. 4. NOTES RECEIVABLE FROM OWNERS The notes receivable from owners of $2,922 were repaid by the owners prior to the consummation of the plan of reorganization described in Note 10. The proceeds of the notes receivable were used to purchase 1,461 shares of Company Class B common stock from other shareholders, and were secured by such common stock. 5. COMMITMENTS AND CONTINGENCIES The Company leases warehouse space, machinery and equipment, office equipment and vehicles under operating leases. Rent expense under these operating leases for the years ended March 31, 1996 and 1997 and one month ended April 30, 1997 amounted to $996, $1,088 and $85, respectively. Minimum rental payments due under these operating leases for subsequent fiscal years are as follows: 1998 $ 736 1999 586 2000 287 2001 115 ------------------- $1,724 ===================
88 89 Neenah Foundry Company (Predecessor) Notes to Consolidated Financial Statements (continued) (In Thousands) 5. COMMITMENTS AND CONTINGENCIES (CONTINUED) The Company is involved in a number of product liability claims, none of which, in the opinion of management, is expected to have a material adverse effect on the consolidated financial statements. The Company is partially self-insured for workers compensation claims. An accrued liability is recorded for claims incurred but not yet paid or reported, with such accrual based on current and historical claim information. The accrual may ultimately be settled for an amount greater or lesser than the recorded amount. Adjustments of the accrual are recorded in the period in which they are determined. As of March 31, 1997, the Company had outstanding letters of credit in the aggregate amount of $595, which secure certain workers compensation and other obligations. 6. INCOME TAXES The provision for income taxes consists of the following:
ONE MONTH ENDED YEAR ENDED MARCH 31 APRIL 30 1996 1997 1997 ------------------------------------------- Current: Federal $ 9,147 $11,554 $1,460 State 666 1,016 275 ------------------------------------------- 9,813 12,570 1,735 Deferred 1,863 (103) (120) ------------------------------------------- $ 11,676 $12,467 $1,615 ===========================================
The difference between the provision for income taxes and income taxes computed using the statutory U.S. federal income tax rate of 35% is as follows:
ONE MONTH ENDED YEAR ENDED MARCH 31 APRIL 30 1996 1997 1997 ------------------------------------------ Provision at statutory rate $10,086 $11,307 $1,503 State income taxes, net of federal tax benefit 1,126 1,318 112 Other 464 (158) - ------------------------------------------ Provision for income taxes $11,676 $12,467 $1,615 ==========================================
89 90 Neenah Foundry Company (Predecessor) Notes to Consolidated Financial Statements (continued) (In Thousands) 6. INCOME TAXES (CONTINUED) The components of the Company's deferred income tax assets and liabilities are as follows:
MARCH 31 1996 1997 ------------------------------ Deferred income tax liabilities: Tax depreciation in excess of book depreciation $(5,621) $(5,156) Employee benefit plans (602) (441) Other (437) (127) ------------------------------ (6,660) (5,724) Deferred income tax assets: Inventories 560 560 Employee benefit plans 3,316 3,128 Accrued vacation 825 855 Other accrued liabilities 672 790 State tax credit carryforwards 676 - Other 289 172 ------------------------------ 6,338 5,505 ------------------------------ Net deferred income tax liability $ (322) $ (219) ============================== Included in the consolidated balance sheets as: Current deferred income tax asset $ 2,253 $ 2,325 Noncurrent deferred income tax liability (2,575) (2,544) ------------------------------ $ (322) $ (219) ==============================
The Company has not recorded a valuation allowance with respect to any deferred tax assets at March 31, 1996 or 1997. 7. EMPLOYEE BENEFIT PLANS DEFINED BENEFIT PENSION PLANS The Company sponsors two defined benefit pension plans covering substantially all hourly employees and previously sponsored a defined benefit supplemental executive retirement plan (SERP) which covered certain salaried employees. During the year ended March 31, 1997, the Company purchased nonparticipating annuity contracts to settle the vested benefit obligations under the SERP. Retirement benefits for the pension plans are based on years of credited service and defined benefit rates while retirement benefits for 90 91 Neenah Foundry Company (Predecessor) Notes to Consolidated Financial Statements (continued) (In Thousands) 7. EMPLOYEE BENEFIT PLANS (CONTINUED) the SERP were based on compensation levels. The Company funds the pension plans based on an actuarially determined cost method allowable under Internal Revenue Service regulations. The SERP was unfunded. The following table reconciles the funded status of the pension plans, as of December 31, 1995 and 1996 (the Company uses a measurement date as of December 31), to the amounts included in the consolidated balance sheets at March 31, 1996 and 1997:
1996 1997 ----------------------------------------------------------- Underfunded Overfunded Underfunded Overfunded Plans Plan Plan Plan ----------------------------------------------------------- Accumulated benefit obligations $(3,944) $(19,805) $(845) $(20,150) Effect of assumed increases in compensation on SERP (2,593) - - - ----------------------------------------------------------- Projected benefit obligations (6,537) (19,805) (845) (20,150) Plan assets at fair value (consisting principally of pooled investment funds and an investment contract with an insurance company) 697 21,110 735 22,169 ----------------------------------------------------------- Projected benefit obligations less than (in excess of) plan assets (5,840) 1,305 (110) 2,019 Unrecognized net loss (gain) 2,055 (1,940) (8) (2,966) Unrecognized prior service cost 259 4,833 160 4,452 Unrecognized net transition obligation (asset) 782 (2,695) (21) (2,411) Adjustment to recognize additional minimum liability (503) - (131) - ----------------------------------------------------------- Prepaid (accrued) pension obligation, at December 31, 1995 and December 31, 1996, respectively (3,247) 1,503 (110) 1,094 Contributions between January 1 and March 31, 1996 and 1997, respectively 7 - - - ----------------------------------------------------------- Prepaid (accrued) pension obligations $(3,240) $ 1,503 $(110) $ 1,094 =========================================================== Net pension asset (obligation) included in the consolidated balance sheets $(1,737) $ 984 =============== ===============
91 92 Neenah Foundry Company (Predecessor) Notes to Consolidated Financial Statements (continued) (In Thousands) 7. EMPLOYEE BENEFIT PLANS (CONTINUED) Components of net periodic pension cost are as follows:
ONE MONTH ENDED YEAR ENDED MARCH 31 APRIL 30 1996 1997 1997 ---------------------------------------------- Service cost - benefits earned during the year $ 880 $ 820 $ 38 Interest cost on projected benefit obligations 1,545 1,742 125 Actual return on plan assets (1,450) (1,531) (132) Net amortization and deferral 203 220 (1) ---------------------------------------------- $ 1,178 $ 1,251 $ 30 ==============================================
As a result of the settlement of the SERP, the Company recognized a curtailment gain of $1,317 and a settlement loss of $878 during the year ended March 31, 1997. The discount rate used in estimating the projected benefit obligations and in determining the interest cost component of pension expense for the following year was 7.5% for both years. The annual rate of compensation increase assumed for the SERP in estimating the projected benefit obligations was 6.5% for both years. The assumed long-term rate of return on plan assets used in determining pension expense was 7.5% for both years. PROFIT-SHARING AND SAVINGS RETIREMENT PLAN The Company sponsors a Profit-Sharing and Savings Retirement Plan covering substantially all salaried employees. The plan allows participants to make 401(k) contributions in an amount from 1% to 5% of their compensation. The Company matches 50% of the participants' contributions. The Company may make additional voluntary contributions to the plan as determined annually by the Board of Directors. Total Company contributions amounted to $891, $915 and $82 for the years ended March 31, 1996 and 1997 and one month ended April 30, 1997, respectively. POSTRETIREMENT BENEFITS The Company sponsors defined benefit postretirement health care plans covering substantially all salaried employees and their dependents. Benefits are provided from the date of retirement for the duration of the employee's life up to a maximum of $1 million per individual. Retirees' contributions to the plans are based on years of service and age at retirement. The Company funds benefits as incurred. 92 93 Neenah Foundry Company (Predecessor) Notes to Consolidated Financial Statements (continued) (In Thousands) 7. EMPLOYEE BENEFIT PLANS (CONTINUED) The following table reconciles the funded status of the postretirement benefit plans to the amounts included in the consolidated balance sheets at March 31:
1996 1997 ------------------------------ Accumulated postretirement benefit obligations: Retirees $2,047 $1,830 Fully eligible active participants 654 810 Other active participants 2,534 2,784 ------------------------------ 5,235 5,424 Plan assets - - ------------------------------ 5,235 5,424 Unrecognized net gain 65 243 ------------------------------ Accrued postretirement benefit obligations $5,300 $5,667 ==============================
Components of net periodic postretirement benefit cost are as follows:
ONE MONTH ENDED YEAR ENDED MARCH 31 APRIL 30 1996 1997 1997 --------------------------------------------- Service cost $176 $193 $11 Interest cost on accumulated postretirement benefit obligations 361 370 27 Net amortization and deferral (4) (5) (7) --------------------------------------------- $533 $558 $31 =============================================
The weighted-average discount rate used in determining the accumulated postretirement benefit obligations was 7.5% for both years, and the healthcare cost trend rate was projected to have annual increases of 8.5%. The healthcare cost trend rate assumption has a significant effect on the amounts reported. Increasing the healthcare cost trend rate by one percentage point would increase the accumulated postretirement benefit obligations as of March 31, 1997 by $1,014 and would increase postretirement benefit expense for the year ended March 31, 1997 by $131. 93 94 Neenah Foundry Company (Predecessor) Notes to Consolidated Financial Statements (continued) (In Thousands) 8. STOCKHOLDERS' EQUITY The Company has a Restrictive Stock Transfer Agreement with certain of its stockholders which permits the transfer of its stock held by such stockholders to permitted transferees, as defined. In the event a stockholder wishes to sell stock to a third party who is not a permitted transferee, the stock must first be offered for sale to the Company. If the Company accepts the offer of sale, the purchase price is based on a formula, as defined. The purchase price will be financed by a promissory note payable in ten equal annual installments with interest at the prime rate less 1%. The Restrictive Stock Transfer Agreement was terminated concurrently with the consummation of the plan of reorganization described in Note 10. 9. UNAUDITED QUARTERLY RESULTS
YEAR ENDED MARCH 31, 1996 Quarter 1 Quarter 2 Quarter 3 Quarter 4 ---------------------------------------------------------------------- Net sales $46,277 $44,454 $39,015 $37,205 Gross profit 12,976 12,243 10,199 9,902 Net income 5,325 5,024 3,839 2,954 YEAR ENDED MARCH 31, 1997 Quarter 1 Quarter 2 Quarter 3 Quarter 4 ---------------------------------------------------------------------- Net sales $44,309 $45,430 $37,815 $37,872 Gross profit 13,140 13,613 10,825 11,112 Net income 5,178 5,558 4,635 4,467
10. SUBSEQUENT EVENT On April 30, 1997, pursuant to an Agreement and Plan of Reorganization with NC Merger Company and NFC Castings, Inc., Neenah Corporation was acquired by NFC Castings, Inc. using (i) $45,000 of cash equity contributed by NFC Castings, Inc., (ii) $45,000 of term loans, (iii) proceeds from the issuance of $150,000 of unsecured Senior Subordinated Notes in a Rule 144A private placement and (iv) Company cash. The consideration for the acquisition is subject to a closing date net worth adjustment. On July 1, 1997, the Company issued $45,000 of unsecured Senior Subordinated Notes in a Rule 144A private placement and used the proceeds to repay the term loans. 94 95 Neenah Foundry Company (Predecessor) Notes to Consolidated Financial Statements (continued) (In Thousands) 10. SUBSEQUENT EVENT (CONTINUED) As described in Note 1, on July 1, 1997, Neenah Foundry Company, the principal operating subsidiary of Neenah Corporation, merged into Neenah Corporation. Transport and Hartley, wholly owned subsidiaries of the Company, fully, unconditionally, jointly and severally guarantee the Senior Subordinated Notes issued in the private placement discussed above. The following is summarized combined financial information of the wholly owned subsidiaries. Net sales includes net sales to Neenah Foundry Company of $4,090, $4,012 and $365 for the years ended March 31, 1996 and 1997 and one month ended April 30, 1997, respectively. Separate financial statements of the guarantor subsidiaries are not separately presented because, in the opinion of management, such financial statements are not material to investors.
MARCH 31 1996 1997 ------------------------------- Current assets $1,494 $1,867 Noncurrent assets 1,661 1,918 Current liabilities 941 1,006 Noncurrent liabilities 401 453 ONE MONTH ENDED YEAR ENDED MARCH 31 APRIL 30 1996 1997 1997 -------------- --------------- --------------- Net sales $9,795 $9,971 $703 Gross profit 3,165 3,247 169 Net income (loss) 651 513 (15)
95 96 Report of Ernst & Young LLP, Independent Auditors We have audited the consolidated financial statements of Neenah Foundry Company as of September 30, 1999 and 1998, and for the years then ended, and for the period from inception, May 1, 1997, through September 30, 1997, and have issued our report thereon dated November 5, 1999 (included elsewhere in this Annual Report on Form 10-K). Our audits also included the financial statement schedule listed in the index at Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Milwaukee, Wisconsin ERNST & YOUNG LLP November 5, 1999 96 97 Schedule II NEENAH FOUNDRY COMPANY VALUATION AND QUALIFYING ACCOUNTS Years ended September 30, 1999 and 1998 and for the period from inception, May 1, 1997, through September 30, 1997 (Dollars in Thousands)
BALANCE AT PURCHASE ADDITIONS BEGINNING ACCOUNTING CHARGED TO BALANCE AT DESCRIPTION OF PERIOD ADJUSTMENTS EXPENSE DEDUCTIONS END OF PERIOD - ---------------------------------------------------------------------------------------------------------------- Allowance for doubtful accounts receivable: 1997 $ 483 $ - $ 44 $ 36 (A) $ 491 ======= ======= ===== ======= ====== 1998 $ 491 $ 325 $ 180 $ 143 (A) $ 853 ======= ======= ===== ======= ====== 1999 $ 853 $ 90 $ 266 $ 189 (A) $1,020 ======= ======= ===== ======= ======
(A) Uncollectible accounts written off, net of recoveries 97 98 Report of Ernst & Young LLP, Independent Auditors We have audited the consolidated financial statements of Neenah Foundry Company (formerly Neenah Corporation) as of March 31, 1997 and 1996, and for the years then ended, and for the one month ended April 30, 1997, and have issued our report thereon dated June 4, 1997, except for Notes 1 and 10 as to which the date is July 1, 1997 (included elsewhere in this Annual Report on Form 10-K). Our audits also included the financial statement schedule listed in the index at Item 14(a). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Milwaukee, Wisconsin ERNST & YOUNG LLP June 4, 1997 98 99 Schedule II NEENAH FOUNDRY COMPANY (PREDECESSOR) VALUATION AND QUALIFYING ACCOUNTS Years ended March 31, 1996 and 1997 and for the One month ended April 30, 1997 (Dollars in Thousands)
BALANCE AT ADDITIONS BEGINNING CHARGED TO BALANCE AT DESCRIPTION OF PERIOD EXPENSE DEDUCTIONS END OF PERIOD - ----------------------------------------------------------------------------------------------------------- Allowance for doubtful Accounts receivable: 1996 $ 386 $ 233 $ 233 (A) $ 386 ===== ======= ======= ====== 1997 $ 386 $ 175 $ 175 (A) $ 386 ===== ======= ======= ====== April 30, 1997 $ 386 $ 14 $ 14 (A) $ 386 ===== ======= ======= ======
(A) Uncollectible accounts written off, net of recoveries. 99 EX-10.5 2 1999-2001 COLLECTIVE BARGAINING AGREEMENT 1 EXHIBIT 10.5 NEENAH FOUNDRY COMPANY 1999-2001 COLLECTIVE BARGAINING AGREEMENT WITH LOCAL 121B GLASS, MOLDERS, POTTERY, PLASTICS AND ALLIED WORKERS INTERNATIONAL UNION AFL - CIO - CLC 2 REMEMBER THIS NUMBER! 725-7049 A Direct Line for Absence Reporting Any absence which is not arranged in advance must be reported on the Company's CALL-IN TELEPHONE LINE - (920)725-7049 prior to the start of the employee's scheduled shift. Employees whose shift starts after 4:00 P.M. are requested to report unscheduled absences no later than 4:00 P.M. to enable supervisors to schedule their operations. 3 TABLE OF CONTENTS
Article Page Attendance reporting Inside front cover Parties to agreement Non-discrimination 5 Article 1 - Recognition 1.1 Recognition of Union..............................................................................5 1.2 New Wisconsin Foundry Provision...................................................................6 1.3 Union Membership..................................................................................6 1.4 Checkoff..........................................................................................6 Article 2 - Hours of Work 2.1 Basis of Overtime.................................................................................7 2.2 Overtime..........................................................................................7 2.3 Saturday Work.....................................................................................7 2.4 Sunday Work.......................................................................................7 2.5 Lunch Time........................................................................................8 2.6 Early Starting....................................................................................8 2.7 Federal Laws......................................................................................8 2.8 Reporting Pay.....................................................................................8 2.9 Call-in Pay.......................................................................................9 2.10 Overtime Notification.............................................................................9 Article 3 - Vacations 3.1 Eligibility.......................................................................................9 3.2 Anniversary......................................................................................10 3.3 Basis Period.....................................................................................10 3.4 Vacation Pay Computation.........................................................................10 3.5 Scheduling.......................................................................................11 3.6 Vacation Preference..............................................................................11 3.7 Less Than One Year's Service.....................................................................12 3.8 Layoff, Military Leave, Retirement, Death........................................................12 3.9 Return from Military Leave, Layoff...............................................................13 Article 4 - Seniority 4.1 Reduction in Force...............................................................................13 4.2 Probationary Period..............................................................................14 4.3 Student Workers..................................................................................14 4.4 Part-time Workers................................................................................14 4.5 Layoff, Student and Part-time Workers............................................................14 4.6 Hiring During Layoff Periods.....................................................................15 4.7 Vacancies on a Shift.............................................................................15 4.8 Recall from Layoff...............................................................................15 4.9 Layoff Notifications.............................................................................16 4.10 Superseniority...................................................................................16 4.11 Loss of seniority................................................................................16
4 4.12 Short Work Week Procedure....................................................................... 17 4.13 Short-Term Shutdown Procedure....................................................................18 Article 5 - Grievances 5.1 Discussion With Supervisor...................................................................... 19 5.2 Grievance Procedure ............................................................................20 5.3 Shop and Company Committees .....................................................................21 5.4 Time Limits.................................................................................... 21 5.5 Agreements Binding...............................................................................22 5.6 Selection of Arbitrator..........................................................................22 5.7 Arbitrator's Authority...........................................................................22 5.8 Decisions of Arbitrator..........................................................................22 5.9 Arbitrator's Charges.............................................................................23 5.10 Payment of Union Officials.......................................................................23 Article 6 - Discharge and Discipline 6.1 Procedures.......................................................................................23 6.2 Discharge Grievances.............................................................................23 6.3 Time Limits, Discharge Grievances................................................................24 6.4 Three Day Absenteeism............................................................................24 6.5 Absence of Less Than Three Days..................................................................24 6.6 Expiration of Written Warnings...................................................................24 Article 7 - Wages 7.1 Minimum Rates....................................................................................24 7.2 Shift Premium....................................................................................25 7.3 Pay Days.........................................................................................25 7.4 Exhibit "A" Rates................................................................................25 7.5 Establishing Incentive Plans.....................................................................25 7.6 Agreement on Standards...........................................................................25 7.7 Paid Holidays....................................................................................26 Article 8 - Transfers, Job Postings and Promotions 8.1 Transfers, Non-Incentive Employees...............................................................27 8.2 Transfers, Employee's Request....................................................................27 8.3 Transfers, Incentive Employees...................................................................28 8.4 Transfers, Other Than Temporary..................................................................28 Departments......................................................................................31 Work Sections....................................................................................32 8.5 Job Posting Procedure............................................................................33 8.6 Vacancies Not Filled by Posting..................................................................34 8.7 Employees Not Selected...........................................................................34 8.8 Request Transfers, Other Than Temporary..........................................................34 8.9 Apprenticeship...................................................................................35 8.10 Transfers Out of the Bargaining Unit.............................................................35 Article 9 - Leaves of Absence 9.1 Personal Leave...................................................................................36 9.2 Union Service Leave..............................................................................37 9.3 Union President Time Off.........................................................................37 Article 10 - Management Rights 10.1 Management Rights Clause.........................................................................37 Article 11 - No Strike - No Lockout 11.1 No Strike - No Lockout Clause....................................................................37 11.2 Expiration of Contract Provision.................................................................38 Article 12 - Funeral Leave
5 12.1 Immediate Family.................................................................................38 12.2 Spouse/Child.....................................................................................38 12.3 Other Relatives..................................................................................38 12.4 Qualifications for Funeral Leave.................................................................39 12.5 Funeral Leave Pay Computation....................................................................39 Article 13 - General 13.1 Bulletin Boards..................................................................................39 13.2 Union Representatives - Access...................................................................39 13.3 Sick Pay.........................................................................................39 13.4 Safety...........................................................................................40 13.5 Seniority List...................................................................................40 13.6 Union Shop Committee.............................................................................40 13.7 Company Bargaining Committee.....................................................................40 13.8 Furnished Meals..................................................................................41 13.9 Laws and Regulations.............................................................................41 13.10 Bargaining Unit Work.............................................................................41 13.11 Jury Duty Pay....................................................................................41 13.12 Maintenance Tool Allowance.......................................................................41 13.13 Safety Shoe Reimbursement........................................................................41 13.14 Safety Glass Reimbursement.......................................................................41 Article 14 - Pensions 14.1 Pension Program..................................................................................42 14.2 Surviving Spouse Benefit.........................................................................43 14.3 Mandatory Retirement.............................................................................43 14.4 Disability Eligibility...........................................................................43 14.5 Application to Previous Employees................................................................43 Article 15 - Insurance 15.1 Health and Welfare Plan Agreements...............................................................43 15.2 Premium Sharing..................................................................................44 15.3 Sickness and Accident Benefits...................................................................45 15.4 Accidental Death and Dismemberment...............................................................45 15.5 Dental Plan......................................................................................45 15.6 Work Connected Death - Continuance of Coverage...................................................45 15.7 Life Insurance............................ ......................................................46 15.8 Insurance Continuation - Layoff..................................................................46 15.9 Eligibility for Coverage.........................................................................47 15.10 Insurance Governed by Contract............................ ......................................47 Article 16 - Trucking 16.1 Over-the-Road Drivers............................................................................46 16.2 Exhibit "D" Established..........................................................................46 Article 17 - Termination Clause Exhibit "A" Minimum Wages...............................................................................47 Exhibit "B" Drug & Alcohol Abuse Policy ................................................................50 Exhibit "C" Supplemental Incentive Agreement............................................................55 Exhibit "D" Trucking....................................................................................59 Basic Rules.............................................................................................65
6 1999-2001 AGREEMENT THIS AGREEMENT is made and entered into between the NEENAH FOUNDRY COMPANY, NEENAH, WISCONSIN, party of the first part, and LOCAL 121B of the GLASS, MOLDERS, POTTERY, PLASTICS, and ALLIED WORKERS INTERNATIONAL UNION, affiliated with the AFL-CIO-CLC, party of the second part. The Company and the Union will comply with all applicable Federal and State Statutes concerning discrimination in employment. Wherever the words he, him, his or other such male gender references appear in this Agreement, such references shall include and will apply equally to the female gender. ARTICLE 1 - RECOGNITION 1.1 The Company recognizes Local 121B of the Glass, Molders, Pottery, Plastics, and Allied Workers International Union, AFL-CIO-CLC, as the sole bargaining agency for all employees of the Company's Plants 2 and 3 and any truck terminals established now or during the period of this Agreement, relative to wages, hours, and working conditions as provided by the National Labor Relations Act, as amended, but excluding office-clerical, office janitors, watchmen, patternmakers and supervisors as defined by the National Labor Relations Act. The Company's Plants 2 and 3 shall be considered as a single bargaining unit for purposes of this Labor Agreement. A. It is understood that this Agreement will apply to any Bargaining Unit employee assigned to perform work at Plant 1. 1.2 In the event the Company erects a new foundry facility in the State of Wisconsin, the Company will voluntarily recognize the Union as the bargaining representative of the appropriate bargaining unit of employees consisting of production, maintenance, shipping and receiving and truck driver employees. A. In the event that the foregoing paragraph may not be lawfully applied, then in that event, the Company will voluntarily recognize the Union for the appropriate bargaining unit, as described above, upon a proper showing of majority representation as demonstrated by a lawful card check conducted under the authority of the NLRB. 1.3 All present employees and all new employees shall join and become members of the Union no later than their 31st day of employment or no later than 31 days after the execution of this Agreement, whichever is later, and shall, as a condition of employment, maintain their membership in the Union in good standing for the duration of this contract, subject to the provisions of the Labor Management Act, as amended. 7 1.4 The Company agrees to check off the Initiation Fees and Union Dues of such employees who authorize the same, in writing, in proper legal form. The Company will remit the International Union's portion of all dues so collected the first payday of each month and the Local Union's portion of all dues so collected the first payday of each month, to the parties designated by the Union by the 12th day of each month. The written authorization for check-off of dues by any employee will not be effective for any dues or fees owing by such employee prior to the date of the signed authorization executed by him and delivered to the Company and will be effective the first payday of the month following the delivery of such signed authorization to the Company. ARTICLE 2 - HOURS OF WORK 2.1 Eight (8) hours shall constitute a day's work and there shall be a recognized starting and quitting time which shall determine the overtime, if any. 2.2 Except as hereinafter provided, all time in excess of eight (8) hours in any one day or forty (40) hours in any one week, shall be paid for at the rate of one and one-half times the regular hourly earnings computed on the basis of the average straight time weekly earnings excluding overtime premium of any kind and pay received for hours not worked. Such overtime shall be paid for time in excess of eight (8) hours in any one day or forty (40) hours in any one week, whichever is greater but not for both, so that payment of overtime rates shall not be duplicated for the same hours worked. A. Where eight (8) hours appears in Article 2.2, it shall be changed to ten (10) hours for employees working on automated production system operations when they are scheduled for four, ten-hour days in a week. B. When employees are scheduled for four ten-hour shifts in a week on the BMD and the Disamatic Systems there will be a scheduled start up time before the ten hour shift of up to 40 minutes. C. The scheduled wind down on the BMD and the Disamatic Systems, when working a four ten-hour shift will be up to 40 minutes. D. The scheduled start up and wind down time on the BMD and the Disamatic System as stated in B and C above will not affect the overtime provision of Art. 2, 2.2(A). E. It should be understood that unforeseen circumstances may require casual or emergency overtime which will not affect the overtime provisions for B or C as defined in D. 2.3 SATURDAY WORK is to be paid at the rate of one and one-half times the regular rate. However, if the shift begins on Friday and extends into Saturday the regular rate shall be paid. 2.4 SUNDAY WORK - All work performed from 12:00 A.M. Sunday to midnight Sunday shall be paid at the rate of double the regular rate. 8 2.5 All employees will be allowed a paid ten (10) minute lunch period at an established time during each scheduled shift. The dinner period shall be a minimum of one-half (1/2) hour, unpaid. A. For automated and/or continuous production systems, including BMD and Disamatic Operations as well as continuous shifts such as melting operations, employees will be provided twenty (20) minutes of total paid break time during each shift if an unpaid dinner period is not provided. B. For automated production systems with a schedule of four, ten-hour shifts, an additional ten (10) minute break period will be provided. C. All employees scheduled for ten (10) hours or more and who are provided with 20 minutes of total paid break time instead of an unpaid dinner period will be provided an additional ten (10) minute break period. 2.6 Any employee who is required to start his work shift before his regular starting time shall be permitted to work until his regular quitting time. 2.7 It is mutually agreed that the working hours and overtime schedule provided for in this Agreement shall be governed by all applicable Federal laws. 2.8 REPORTING PAY - When employees are required to report to work or have not been advised at the end of the previous day that there will be no work, they shall be given a minimum of four (4) hours employment or a minimum of four (4) hours pay at their regular straight time hourly earnings, before being dismissed for the day, provided, however, that the Company shall not be liable under this section for unavoidable breakdowns of machinery, power failure, Acts of God, or conditions beyond the control of the Management. 2.9 CALL-IN PAY - If an employee is notified after he has punched out for the work day, that he is to report for work at any time earlier than the scheduled start time of his next shift, he shall be paid two (2) hours straight time call-in pay at his regular base rate, in addition to pay at the appropriate rate for his actual time worked. A. An employee on Company premises prior to his scheduled shift start time who volunteers and is permitted to perform work before the shift start time will not qualify for call-in pay. 2.10 OVERTIME NOTIFICATION - Notice of scheduled Saturday or Sunday overtime will be given to the employee(s) affected by no later than the end of his (their) scheduled shift on Thursday preceding the weekend. A. When the schedule of a department is to be changed, the Company shall notify the department employee(s) affected prior to the end of his (their) shift on the preceding day. 9 B. Employees may be notified by bulletin board notice and/or personal communication. Employees so scheduled to work will be expected to work as scheduled unless excused in advance by their supervisor. Should the Company fail to provide such advance notice of weekend or department schedule changes, the employee or employees affected are free to reject the opportunity to work at the time it is offered. C. It is understood that the preceding paragraphs are not applicable to casual or emergency overtime on a daily basis. ARTICLE 3 - VACATIONS 3.1 The Company will grant paid vacations to employees covered by this contract during each year as follows: A. Except as hereinafter provided, each employee on the active payroll on June 1 in any year who has completed one (1) year or more of continuous service shall be granted a paid vacation. 1 Employees with one year but less than three years of service on June 1 will be entitled to one week of vacation. 2. Employees with three years but less than eight years of service on June 1 will be entitled to two weeks of vacation. 3. Employees with eight years but less than fourteen years of service on June 1 will be entitled to three weeks of vacation. 4. Employees with fourteen years but less than twenty years of service on June 1 will be entitled to four weeks of vacation. 5. Employees with twenty years but less than twenty-eight years of service on June 1 will be entitled to five weeks of vacation. 6. Employees with twenty-eight years or more of service on June 1 will be entitled to six weeks of vacation. 3.2 June 1 shall be the anniversary date for all employees for the purpose of determining vacation eligibility. Employees hired on or after June 1 and before November 1 shall have June 1 as an anniversary date for purposes of becoming eligible for more than one week of vacation. 3.3 The vacation pay basis period shall be the last fifty-two (52) week period ending before May 18. 10 3.4 Each week of vacation shall be one calendar week. Each week of vacation pay shall be two percent (2%) of the employee's gross earnings in the basis period. However, an employee who has worked l500 hours or more during the basis period shall have the option of receiving forty (40) hours of pay at his regular straight time base rate for each week of vacation. Time lost as a result of compensable injury incurred while on duty at Neenah Foundry Company shall be included in hours worked, at the rate of eight (8) hours per work day, for purposes of determining vacation pay eligibility. 3.5 The vacation year shall be June 1 through May 31. The Company reserves the right to establish a vacation shutdown period of up to two weeks in any vacation year for any or all of its operations. The Company shall notify the Union of its selection prior to April 1 of each year. All employees affected must schedule at least one week of their vacation during the first vacation shutdown. A. It is understood that if the plant closes, a certain amount of maintenance and/or production work may be carried on during the shutdown. The Company will arrange with employees who are to work during the shutdown period. B. Those employees who are entitled to more than one week vacation shall arrange for the additional vacation time by agreement with the Plant Manager. No employee entitled to two weeks or more vacation shall have his remaining vacation scheduled immediately before or after the scheduled vacation shutdown period except by mutual agreement with the Company. C. Employees eligible for three or more weeks of vacation shall have the option of accepting vacation pay only for weeks over two, instead of taking time off, by mutual agreement with the Company and the Union President. 3.6 Vacation requests shall be considered on the basis of Company seniority, providing normal operations of the Company are not impaired. There will be a vacation sign-up period each year January 1 through January 15 for the vacation year commencing the next June 1. Vacation requests received during this sign-up period, after approval, are not subject to change through exercise of seniority by other employees. Vacation requests made after the sign-up period shall be submitted to the Company in writing at least thirty (30) days prior to the requested vacation period. To insure normal operations, the Company shall have the right to limit the number of employees taking vacation simultaneously. A. During the sign-up period, each employee in each vacation group will be asked, in Company seniority order, to submit his vacation request. Any employee failing to submit his vacation request at the time he is asked will not be eligible to use the vacation sign-up period for that vacation year. 11 EMPLOYEES WITH LESS THAN ONE YEAR'S SERVICE 3.7 Any employee who has been continuously employed for three months or more and who is on the active payroll on June 1 shall be granted vacation pay, which shall be two percent (2%) of his gross earnings as vacation pay for such period, as computed above. LAYOFF, MILITARY LEAVE, RETIREMENT, DEATH 3.8 In the event any employee who was eligible for vacation pay on June 1 is laid off, enters military service, retires, or dies during the vacation year, he shall receive his unused vacation plus pro-rata vacation pay in the amount of two percent (2%) of his gross earnings up to and including the date of termination, for each week of vacation for which he would otherwise have qualified. EMPLOYEES RETURNING FROM MILITARY LEAVE OR LAYOFF 3.9 Any employee who returns from Military Leave or Layoff and who is on the active payroll June 1 shall be entitled to a vacation computed the same as any other employee on the active payroll June 1. ARTICLE 4 - SENIORITY 4.1 Seniority of employees shall be on the basis of length of employment. In the event of scarcity of work necessitating reduction in the size of the total work force, the last man hired shall be the first laid off, and such layoffs shall be in accordance with straight seniority until the work force has been reduced to two thirds of the average employment for the twelve (12) months preceding the last layoff. After such layoffs according to seniority, the Company may deviate from straight seniority if by following the rule of straight seniority the efficient operation of the plant(s) would be impaired. If the Company proposes to deviate, it will discuss all such deviations with the Union Business Committee and if agreement is reached, deviations shall be as agreed upon. If no agreement is reached, the Company will be at liberty to make such deviations and in any event all employees affected by such deviations shall have the right of grievance pursuant to the grievance procedure outlined in the contract. A. The above is applicable to Maintenance Department employees, Electrical Maintenance Department employees, and Over-the-Road Drivers only if the layoff of the employees would exceed sixty (60) days. 4.2 All new employees shall serve a probationary period of sixty (60) days worked. Probationary employees shall have no seniority rights and may be released at any time prior to the expiration of their probationary period. However, the Company may not discharge or discipline for the purpose of evading this Agreement or for the purpose of discriminating against Union members. If they are retained at the expiration of their probationary period, their Company seniority shall be from the date of hire. 12 Departmental seniority will begin at the completion of the probationary period. The Union may represent such probationary employees on wages, hours and conditions of employment, but it is agreed that the termination of employment of such employees during the probationary period shall not be subject to the grievance procedure or arbitration. 4.3 Student workers hired for the purpose of working during school vacation period shall not be required to join the Union and shall not be eligible for any fringe benefits and will accumulate no seniority. When a student becomes a regular full-time employee, his seniority begins as of the date of change in his work status. 4.4 Part-time workers who are employed on a regular basis throughout the year but are normally scheduled for short hour weeks shall be required to join the Union pursuant to Article 1 and shall acquire seniority only as it relates to other part-time workers and shall be entitled to eligibility for vacations on a percentage of pay basis only and paid holidays on a pro-rata basis and excluded from all other fringe benefits. In the event a part-time worker becomes a regular full-time employee he shall be entitled to one week of retroactive seniority for each 40 hours of work employed on a part-time basis. 4.5 Prior to laying off any regular employees, students and probationary employees shall be laid off first and part-time employees shall be laid off next if additional layoffs are necessary. 4.6 Under no conditions shall new employees be added to the payroll before those on layoff are notified to return to work. New employees shall not be added to the payroll during short work weeks. 4.7 When a vacancy occurs, prior to posting such vacancy, available employees qualified to fill the vacancy who are within that department and plant will be given the opportunity to change their shift, by virtue of department seniority. It is understood, so as not to impair normal operations, that from time to time it may be necessary to reassign senior employees temporarily to other shifts or temporarily delay the above shift change assignment pending the training of employees. 4.8 On recall to work the most senior employee on active layoff will be the first called to work and the remainder of the employees on the active recall list will be recalled in the same manner. A. The Company may deviate from recalling employees on a straight seniority basis by recalling people qualified to perform necessary work for Maintenance Mechanics, Maintenance Electricians, and Over-the-Road Drivers (in their seniority order) if by following the rule of straight seniority the efficient operation of the plant(s) would be impaired. If the Company proposes to deviate, it will discuss all such deviations with the Union Business Committee and if agreement is reached, deviations shall be as agreed upon. If no agreement is reached, the Company will be at liberty to make such deviations and in any event all employees affected by such deviations shall have the right of grievance pursuant to the grievance procedure outlined in the contract. 13 4.9 In the event of layoff or layoffs due to lack of work, the employees affected and the Union Business Committee Chairman shall be given written notice of at least two (2) days prior to such layoffs. A. When an employee can no longer perform the essential functions of their assigned job, due to permanent medical restrictions, and they are placed on medical leave, the Company will notify the Union President, in writing, within two (2) working days of such leave. 4.10 Members of the Union, who hold positions that require part of their functions to perform in the capacity of "Steward-like Duties," shall be granted Super Seniority in the case of lay-off. Super Seniority shall be limited to thirty (30) members or 5% of the average bargaining unit employment for the previous six (6) months, whichever is greater. It shall be the responsibility of the Union Recording Secretary to notify the Company, in writing, as to who shall be granted Super Seniority. LOSS OF SENIORITY 4.11 An employee shall lose his seniority for the following reasons only: A. If he shall quit. B. If he shall have been discharged for just cause. C. If a laid-off employee or employees on leave of absence shall fail to report for work within five (5) working days after notice was sent by the Company to his last known address, unless a satisfactory reason for failure to report is given. A copy of such notice to report to work is to be given to the Union President. D. If an employee has been laid off for a period equal to his length of service with the Company. However, the minimum shall be one (1) year and the maximum three (3) years. SPECIAL PROCEDURE TO FOLLOW DURING SHORT WORK WEEKS 4.12 The purpose of this procedure is to afford senior qualified employees an opportunity to replace students, probationary, and part-time employees on those days when the work week schedule is reduced to less than five (5) days due to economic conditions. The number of senior qualified employees given this opportunity must be consistent with production requirements. A. When the Company determines it is necessary to reduce the work schedule to less than five (5) days (excluding holiday weeks) in a department or a plant for two consecutive weeks or more, the following procedure will be followed: 1. The Company shall meet with the Union Business Committee on the day following the decision to implement the short weeks, and notice of the short work weeks shall be posted no later than Wednesday preceding the first short work week. 14 2. Beginning with the first week of the reduced work schedule, a list of jobs occupied by student, probationary, and part-time employees will be prepared. A senior employee who is on the reduced work schedule in his own department or plant will be asked to work a listed job on the day or days when he is not scheduled in his own department or plant. Selection will be by seniority, experience, and ability. The number of senior qualified employees selected shall be limited to the number of student, probationary, and part-time jobs. The student, probationary, or part-time employee so replaced will then work the reduced schedule in his own department or plant. 3. Beginning with the second consecutive week of the reduced work week schedule, part-time employees will be offered regular full-time work, if available. If the part-time employee declines the offer or full-time work is not available, he shall be terminated. 4. A senior qualified employee who agrees to work shall be paid the higher of his regular base rate or the base rate of the job to which he is assigned, plus incentive, if any. If such employee fails to report for work without just cause, the absence shall be treated as an unauthorized absence. 5. During the fourth consecutive week of the reduced work schedule, Management and the Union Business Committee shall meet for the purpose of reviewing the reduced work week schedule, and to discuss the future outlook. 6. The foregoing is not a guarantee expressed, implied or otherwise, that the Company will operate on a five-day work schedule or 40 hour work schedule. SPECIAL PROCEDURE TO FOLLOW DURING SHORT-TERM SHUTDOWNS OF ONE OR MORE PLANTS OR PARTS OF ONE OR MORE PLANTS 4.13 The purpose of this section is to set forth the procedure to be followed when all or part of one or more of the Company's plant operations are scheduled to be shut down due to economic conditions for one week or two consecutive weeks, excluding vacation shutdown periods. A. The Company shall inform the Union Business Committee of the decision to schedule as indicated above on the day following the day the decision is made. B. The Company shall schedule the employees needed in the plant(s) that is shut down according to the following procedure: 1. Schedule the necessary work. 2. Schedule the job(s) necessary to accomplish the scheduled work. 3. Schedule the people who normally perform the job(s) that is scheduled. 4. Replace all summer, part-time and probationary employees with regular full-time employees. 15 5. If all the people who normally perform the jobs scheduled are not needed, then schedule employees who have the most Company seniority who normally perform those jobs. 6. If more people are needed than normally perform the scheduled job, then schedule the employee(s) assigned to that plant most qualified to perform that job. If two or more employees are equally qualified, then schedule the employee(s) who has the most Company seniority within that plant. C. When the Company determines it is necessary to extend the shutdown or partial operations in a plant for more than two consecutive weeks (excluding vacation shutdown periods) it will follow the provisions of Article 4.1. D. The intent of this procedure is to provide work to as many employees as we have work available for, rather than having to shut down additional operations in order to meet the deviation requirements provided for in Article 4.1. ARTICLE 5 - GRIEVANCES 5.1 It is recognized that from time to time, incidents may occur or events may take place which question the interpretation of the provisions of this Agreement. It is the intent of the parties to this Agreement to promptly investigate and resolve differences of opinion or job-related problems. Accordingly, each employee is encouraged to discuss with his supervisor any problem that may arise in connection with his work. The Company will not discriminate against any employee for thereafter referring the problem as a grievance through the grievance procedure. 5.2 Should differences arise between the Company and its employees, either individually or collectively, as to the meaning and application of this Agreement, an earnest effort shall be made to settle any such differences at the earliest possible time by use of the following grievance procedure: Step 1. a. As soon as possible but not more than ten (10) working days of the occurrence of the incident or condition giving rise to any grievance, an aggrieved employee shall present his grievance to his supervisor, accompanied by his Committeeman or Steward. If a settlement is not reached within two (2) working days from the time the grievance is presented, then; b. It shall be reduced to writing within two (2) working days, signed by the aggrieved employee or his representative, and presented to the supervisor, who will provide a written answer within three (3) working days of the receipt of the written grievance. Should this procedure not result in settlement, then; Step 2. Within two (2) working days of receipt of the Supervisor's Step 1 written answer, the grievance shall be presented by a member of the Shop Stewards Committee to the Plant Manager or his representative, who will schedule a grievance hearing to be held within three (3) working days following receipt of the Step 2 grievance, and who will within three (3) working days of such meeting, provide his written answer to the grievance. If such answer does not result in settlement of the grievance, then; 16 Step 3. Within two (2) working days of the receipt of the Step 2 written answer, the grievance shall be referred to the Union Business Committee and the Company Committee, who will meet on a date satisfactory to both parties, within ten (10) working days following receipt of the Step 3 grievance to resolve the issue. Either or both parties may be represented at this meeting by outside representatives of their own choosing. Within three (3) working days of such meeting, the Company will provide a written answer to the grievance. Within the times outlined above, the meetings will be scheduled on a date satisfactory to both parties. In the event that this procedure does not result in settlement of the grievance, then; Step 4. Within forty (40) days from the date of the Step 3 answer, the grievance may be referred by either party to arbitration by serving written notice on the other. If either party fails to refer an unresolved grievance to arbitration within the forty (40) day period, the grievance shall be considered withdrawn and not arbitrable. 5.3 The Union Business Committee and the Company Committee referred to above in Step 3 shall consist of a maximum of nine (9) employees each, designated respectively by the Union and the Company. 5.4 The time limits referred to above may be accelerated, or extended, or any step of the procedure may be continued upon mutual agreement of the parties to this Agreement. If the Union fails to comply with the time requirements in Steps 1b, 2, or 3, the grievance shall be automatically dropped. If the Company fails to comply with the time requirements in Steps 1b, 2, or 3, the grievance shall be automatically granted. 5.5 An agreement reached between the committees shall be final and binding on the Company, the Union and the employees involved. SELECTION OF ARBITRATOR 5.6 The Arbitrator for the purpose of this contract, shall be selected in the following manner, to wit: A. In the event a grievance has not been resolved under Step 3 of this Article, either party may notify the Federal Mediation and Conciliation Service of the dispute and request a panel of seven arbitrators. If the panel is not acceptable to either party, then either party shall request a second panel, prior to striking any names from the first panel. The parties will select one arbitrator, by alternately striking from the panel a total of six arbitrators. The Arbitrator chosen by this procedure will then arbitrate the grievance. More than one grievance may, by mutual agreement, be submitted simultaneously to the same Arbitrator. 17 5.7 The Arbitrator shall have no authority to change or modify the terms of this Agreement, but he shall have authority to apply or interpret the meaning of the terms of this Agreement, and resolve all grievances referred to him under the terms of this Agreement. 5.8 Within a reasonable time after the hearing the Arbitrator shall tender to the parties his disposition of the grievance(s) involved. Such disposition shall be final and binding upon both parties. 5.9 The Arbitrator's charge and expense in connection with any grievance submitted to arbitration shall be borne by the party losing the arbitration. 5.10 The Company shall compensate Union officers and members of the Business and Shop Stewards committees at their average straight time hourly earnings, and individual aggrieved employees at the straight time hourly base rates at which they are then employed, for all time actually spent with representatives of the Company in collective bargaining negotiations and grievance adjustments pursuant to this Agreement, when the officers, committeemen and employees so engaged otherwise would be at work. Time spent in negotiations and grievance adjustments handled outside of the normal working day will not be paid by the Company. Negotiations and grievance adjustment meetings will be scheduled by the Company and may be held during regular working hours. The number of employees in attendance at bargaining and grievance meetings shall be scheduled to the extent that the number of employees attending such meetings shall not interfere with normal production. ARTICLE 6 - DISCHARGE AND DISCIPLINE 6.1 The Company agrees not to discharge or suspend any of its employees except for just cause. In the event of discharge or suspension, the Company agrees to give the Shop Stewards Assistant written notice of such discharge or discipline, stating the reason therefor. Such notice shall be delivered to the Union within twenty-four (24) hours of the occurrence of such event. Any employee who is discharged or suspended under the provisions of this contract shall have the right of grievance as provided herein. 6.2 Grievances involving discharge shall enter the grievance procedure at Step 3. 6.3 It is further agreed that in all cases of discharge or suspension, if the employee or employees affected desire to file a grievance, he must file a written grievance immediately or at least within ten (10) days of such discharge or discipline. In the event it is decided that an employee was unjustly discharged or suspended, he shall be reinstated to his former position without loss of seniority and reimbursed for all time lost while under discharge or suspension, unless some other agreement is reached between the Company and the Union Business Committee. 6.4 Unexcused absence for three (3) or more consecutive working days shall be considered grounds for discharge or discipline. 18 6.5 Employees who receive three written warning notices on unexcused absences for periods less than indicated in Section 6.4 above, within twelve (12) consecutive months, shall be given a three-day suspension from duty without pay. More than three written warning notices on unexcused absences, for periods less than indicated above in Section 6.4 within twelve (12) consecutive months, shall be considered just cause for discharge or discipline. As a written warning notice is issued, one copy shall be delivered to the employee and one copy to the Union Shop Steward Assistant within 24 hours of the time such warning is issued. 6.6 Written warning notices for any disciplinary reasons shall remain in effect for twelve (12) months from date of issuance. Written warning notices more than twelve (12) months old shall not be used against the employee in future progressive discipline. ARTICLE 7 - WAGES 7.1 The Company and the Union hereby agree that the minimum wage rates for each job classification are as set forth in the attached schedules marked Exhibit "A" entitled "Minimum Rates" and Exhibit "D" entitled "Trucking" and will be effective for the periods indicated during the term of this Agreement. 7.2 For shift premium pay purposes only, the hours of the first shift will be 6:00 A.M. to 2:00 P.M.; the second shift will be from 2:00 P.M. to 10:00 P.M.; and the third shift will be from 10:00 P.M. to 6:00 A.M. The employee will be paid the shift premium applicable to the shift on which he works the majority of hours. Shift premiums will be $.35 per hour for the second shift and $.45 per hour for the third shift. 7.3 All employees shall be paid weekly on Thursday during their regular shift. If a Holiday occurs, the payday may be advanced or delayed within the same work week, Saturday excluded. 7.4 The Contract rates shown in Exhibits "A" and "D" are minimum rates, and are guaranteed. WAGE INCENTIVE PROVISIONS 7.5 The Company agrees to establish incentive plans on the basis of fairness and equity consistent with the quality of workmanship, efficiency of operations and reasonable working capacities of normal operators working at incentive pace. 7.6 Other matters pertaining to production standards or incentives shall be contained in a supplementary agreement. Such agreement, attached to this contract as Exhibit "C," shall become a part of this contract and a part of each individual incentive plan. 19 PAID HOLIDAYS 7.7 Effective during the life of this contract the Company will pay holiday pay for the following holidays: New Year's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, Day following Thanksgiving Day, Christmas Eve Day, Christmas Day, a "floating holiday" to be scheduled by the Company annually, and New Year's Eve Day. Such pay is to be eight (8) hours at the average straight time hourly earnings, and all employees covered by this Agreement, performing service, except those who have not completed their probationary period, will be entitled to paid holidays. A. The Company will pay ten (10) hours (in lieu of 8) holiday pay at average straight time hourly earnings to all employees who are working four, ten-hour shifts on all automated systems the week before and/or the week after and the week of the holiday(s). When a holiday(s) falls during a scheduled vacation shutdown week, the Company will pay ten (10) hours holiday pay to all employees who are working four, ten-hour shifts on all automated systems the week before and/or the week after the holiday(s). B. All work performed on any of the holidays recognized in 7.7 or on the day celebrated in lieu thereof, such as when a holiday falls on Sunday and is celebrated on Monday, shall be paid for at the rate of double (2) time. If a shift starts during a holiday and extends into a non-holiday period, all hours worked on such shift shall be paid for at double time. The above premium pay for time worked shall be in addition to holiday pay. C. To qualify for holiday pay an employee who is scheduled to work must have worked his last scheduled work shift prior to and his first scheduled work shift after such holiday unless excused by Personnel for personal compelling reasons. Employees who are absent on only the day before or only the day after consecutive holidays and haven't been excused by Personnel for personal compelling reasons, will lose holiday pay for one holiday only. Employees who are absent the day before and/or the day after consecutive holidays and have been seen by a medical doctor, nurse practitioner or chiropractor on that day will be paid for all holidays. D. Employees who have been laid off because of lack of work within fifteen (15) days immediately prior to the date of the holiday, or who after having been laid off are recalled to work within fifteen (15) days after the date of the holiday shall be eligible for holiday pay. 20 ARTICLE 8 - TRANSFERS, JOB POSTINGS, AND PROMOTIONS TEMPORARY TRANSFERS 8.1 When any employee is temporarily transferred by the Company for a period of one week or less, he shall be paid the base rate of his regular job or the base rate of the temporary job, whichever is higher, plus any applicable shift premium. If the employee is not returned to his regular job after one week, and his temporary transfer is renewed, he will continue to be paid the base rate of his regular job or the base rate of the temporary job, whichever is higher, plus any applicable shift premium. While on temporary transfer, the employee will continue to accrue seniority in his home department. 8.2 When any employee is temporarily transferred at his own request, he shall be paid the base rate of the temporary job, plus any applicable shift premium. 8.3 For the purpose of protecting the earnings of senior incentive employees who are temporarily transferred by the Company, the following procedures will be used: A. When any incentive employee is temporarily transferred to another department while any employee with less departmental seniority performs incentive work in the department (defined in 8.4, E below) of the transferred employee, such transferred employee will be paid his average earnings or his earnings on the temporary job, whichever are higher. B. When any incentive employee is temporarily transferred within his department to another Work Section (defined in 8.4, F below) while any employee with less departmental seniority performs incentive work in the Work Section of the transferred employee, the transferred employee will be paid his average earnings or his earnings on the temporary job, whichever are higher. C. However, if any incentive employee is temporarily transferred as a result of machinery breakdown which occurs during his scheduled shift, he will be paid base rate of his regular job or the base rate of the temporary job, whichever is higher, plus any applicable shift premium, but not average earnings. TRANSFERS OTHER THAN TEMPORARY 8.4 In the event an employee is transferred as provided for below, he shall be paid the rate of the job to which he is transferred, effective on the date of transfer. A. When it is necessary to reduce the number of employees in a department, the last man assigned to the department shall be the first selected for transfer. Such employee transferred out of the department shall have the right to transfer back to his last department, except he shall not replace any employee in his former department who has greater departmental seniority. If his last department is not open to him by application of departmental seniority, he will be assigned to available work within the Company. 21 B. Any employee who is displaced from his department as a result of the foregoing procedure shall also have the right to transfer back to his former department in the same manner. C. When the department or departments increase the number of employees required in such department, the employees transferred out by the operation of the above paragraphs shall be first entitled to transfer back to the original departments from which they were transferred. If employees elect not to exercise their department seniority rights in the application of this paragraph (8.4, C), they will lose seniority rights in all departments and will be assigned to available work within the Company. D. Whereas the above paragraphs consider the usual and normal transfer procedures, it is recognized that from time to time unforeseen or unusual conditions may occur which may require deviations. Deviations proposed by either party, shall be discussed between the Company and the Union Business Committee and shall include such factors as employee's ability and efficiency of operation. If no agreement is reached, the Company will be at liberty to make such deviations, and in any event all employees affected by such deviation shall have the right of grievance pursuant to the grievance procedure outlined in this contract. E. For purpose only of administration of the above, departments are defined, but not restricted, to the following: Plant Plant 2 3 1. Hydro Slinger Molders........................ X 2. BMD.......................................... X 3. BMD Finishing................................ X 4. Pourers...................................... X 5. Other Molding Indirect....................... X 6. Chippers, Grinders, Fitters.................. X 7. Bore, Mill and Drill Operators............... X 8. All Cleaning Indirect........................ X 9. Shipping..................................... X *10. Maintenance.................................. X X *11. Electrical Maintenance....................... X X 12. Over-the-Road Drivers........................ Transport 13. Pattern Storage.............................. X *14. Receiving and Stores......................... X 15. Inspection................................... X 16. Utility Truck Drivers........................ Transport 17. All Others................................... X X 18. Disamatic System............................. X 19. Casting Processing........................... X 20. Quality Assurance............................ X 21. Core Support................................. X X 22. Core Operations.............................. X X 34. Melt......................................... X X *Combined all plants
22 F. For the purpose of administering temporary transfers, each incentive employee is assigned to one of the Work Sections listed below. Departmental Seniority shall be used to determine Work Section seniority, in the employee's regularly assigned Work Section, to establish the relative seniority of the transferred employee. WORK SECTIONS PLANT 2 1. Hydro Slinger Molders 4. Pourers Other Molding Indirect: 5. Shakeout 6a. Chippers, Grinders 6b. Fitters 7a. Bore, Mill Operators 7b. Radial Drill Operators 9. Shipping JOB POSTING 8.5 All vacancies or new jobs are to be filled by the job posting procedure with the following exceptions: Leadman, Janitor Labor, Core Room Labor, Yard and General Labor, and Cleaning Room General. A vacancy occurs when a new job is created and defined or an established job requires filling to meet manpower planning requirements. A. The Company will post the notice of the vacancy on the bulletin board within three (3) work days from the date the vacancy becomes official. B. The vacancy will remain posted for three (3) work days during which time interested employees who have passed their probationary period may apply. C. The Company shall make its selection within five (5) work days after the posting is closed except in the cases of truck drivers and maintenance and electrical maintenance employees. The employee selected and the Union Shop Stewards Committee Assistants will be notified promptly in writing, normally within two (2) working days, after selection is made. D. The selected employee shall be transferred within one (1) week from date of notification of selection, or receive the higher base rate of his present or new job. E. The employee's date of notification of selection shall be the date the employee begins to accrue seniority in the new department. 23 F. The Company will post on the bulletin board weekly the names of the previous week's successful bidders, their seniority dates and the jobs for which they were selected. G. Employees shall be limited to one (1) successful lateral or downward bid each year from date of selection. There shall be no limit on bids for promotions to higher base rate jobs. H. If the Company selects an employee or employees for such job from the bargaining unit such selection shall be made on the basis of experience and ability. Where these factors are relatively equal, seniority shall govern. 8.6. In the event a job or jobs are posted pursuant to 8.5 and no application is made within the period set forth, the Company is at liberty to fill the vacancy as it sees fit. The Company will advise the Union Shop Stewards Assistants and President of the fact that no applications were filed. A. If applications are made as herein provided and after investigation the Company finds that the applicants are qualified or have qualifications for the posted job, selection will be made from the applicants whose applications are on file for the job, as provided in 8.5 hereof. Selection shall be made within five (5) days after the expiration of posting. If, however, the Company is satisfied that none of the applicants is qualified for the job in question then it may fill such job by selection outside of the bargaining unit. The Company shall give the Chairman of the Union Business Committee a list of all the applicants who applied and the name of the employees selected to fill the posted job or jobs within two (2) working days after selection is made, whether the selection is made from the bargaining unit or not. B. When an employee is involuntarily selected by the Company in accordance with its right in the above paragraphs such employee will retain and accumulate seniority in his prior department for all time worked in the job to which he was involuntarily placed. C. When an employee through job posting enters a new department as defined in 8.4, E, he shall retain his departmental seniority in immediate prior department until he has worked thirty (30) days. If for any reason, it is necessary to return the employee to his former job during this period, he will then do so with continued accumulated departmental seniority. The employee shall lose all seniority in his former department the day after he completes thirty (30) days worked in the new department, except in the application of Section 8.4. New department seniority shall then be retroactive to the first day of assignment to the new department. D. Transport, Maintenance and Electrical employees shall retain departmental seniority in their immediate prior department until they have worked sixty (60) days. If for any reason it is necessary to return the employee to his former department during this period, they will then do so with accumulated departmental seniority. Seniority shall be retroactive to the first day of assignment in the new department after the employee completes sixty (60) days worked. 24 8.7 The employee or employees who file application for a job pursuant to job posting notice and who are not selected and who desire to file a grievance shall file such grievance immediately but not later than ten (10) working days from the date of selection notice. Such grievance shall be subject to arbitration in accordance with the terms of this contract; but the grievance, if filed, shall not prohibit the Company from filling the job. 8.8 Any employee requesting transfer, other than temporary, out of a department or into another department, without using the job posting procedure, will forfeit all former department seniority rights when the transfer takes place. 8.9 The Company shall establish an apprenticeship and training program in conformity with the State of Wisconsin Department of Workforce Development Apprenticeship Division for those in maintenance classifications. A. Apprentices must be indentured and attend the appropriate school in accordance with the Wisconsin Apprenticeship Law, Chapter 106 and meet all requirements as may be set up by the Wisconsin Department of Workforce Development and the Company. TRANSFERS OUT OF THE BARGAINING UNIT 8.10 Both parties agree to the principle of advancing employees to positions outside the bargaining unit. In the event an employee so advanced is demoted or requests demotion during the first year, he shall be promptly returned to his former job at the going rate of pay with credited departmental and Company seniority. A. Employees previously advanced prior to January 1, 1972 shall accrue departmental seniority for a maximum of three (3) years. Employees advanced outside the bargaining unit subsequent to January 1, 1972, shall continue to accrue departmental seniority for a maximum of one year. In the event there is a reduction in force the employee shall be entitled to use his departmental seniority he had at the expiration of the accrual period in order to return to the bargaining unit. B. Employees advanced outside the bargaining unit subsequent to January 1, 1993 who do not return to the bargaining unit during the first year shall forfeit all departmental seniority rights. In the event there is a reduction in force during the first ten (10) years after an employee is so advanced, he shall be entitled to use his Company seniority in order to return to the bargaining unit. In the event there is a reduction in force subsequent to ten (10) years after an employee is so advanced, he shall not be entitled to return to the bargaining unit. C. The employee's Company seniority shall continue to accrue during the employee's entire period of employment with the Company. 25 ARTICLE 9 - LEAVES OF ABSENCE 9.1 Employees desiring a leave of absence shall be required to make written request for said leave of absence, outlining the reason for such request. The granting of such request shall be by mutual written consent of the Company and the Union Business Committee Chairman, in triplicate, the original to be retained by the employee, the duplicate by the Company and the triplicate by the Union. A leave of absence shall be granted to members designated by the Chairman of the Union Business Committee for the purpose of attending conventions and Union conferences. Employees on leave of absence shall accrue departmental seniority for a maximum of one (1) year in addition to that already accrued at the time of the leave. 9.2 When members of the Union are serving full time on behalf of the Union, or are selected to represent the International Union, necessitating a leave of absence from the Company, the Company will grant such leave of absence for up to three (3) years. Such leave of absence shall be automatically renewed by request for up to a maximum of ten (10) years. Reasonable advance notice of such leaves shall be given to the Company. A. In the event an employee so serving the Union returns to bargaining unit work during the first year, he shall be promptly returned to his former job at the going rate of pay with credited departmental and Company seniority. In the event there is a reduction in force during the first ten (10) years after an employee is so serving, he shall be entitled to use his Company seniority to return to bargaining unit work. In the event there is a reduction in force subsequent to ten (10) years after an employee is so serving, he shall not be entitled to return to bargaining unit work. 9.3 The Local Union President shall be excused from work without pay for the entire day on which the Union Local conducts its regular monthly meeting, provided he notifies his department superintendent at least one day in advance of the date of the meeting. A. When it is necessary for the Local Union President to be further absent from work without pay for Union business in addition to the day of the regular monthly meeting, the Local Union President shall obtain approval in advance from his department superintendent. ARTICLE 10 - MANAGEMENT 10.1 The management of the Company and the direction of the working force including the right to hire, suspend or discharge for cause, to transfer or lay off for lack of work or any other legitimate reason, to make and enforce reasonable rules and regulations and in general, all other functions of management unless limited by this Agreement, are reserved to and are vested exclusively in the Employer, including any of the rights, power or authority the Employer had prior to the signing of this Agreement. 26 ARTICLE 11 - NO STRIKE - NO LOCKOUT 11.1 It is agreed that as a part of the consideration of this contract, any and all disputes and any and all claims or demands growing out of said contract or involved therein shall be settled and determined exclusively by the machinery provided herein through the grievance procedure and that during the term of this contract, there shall be no strike on the part of the Union nor lockout on the part of the Company. 11.2 It is specifically understood and agreed that the no-strike clause in the preceding paragraph shall not be operative under the following circumstances: If at the expiration of this contract the parties are unable to agree upon the terms or conditions of a renewal or modification thereof. ARTICLE 12 - FUNERAL LEAVE 12.1 In the event of death of an employee's brother, sister, father, mother, step-father, step-mother, father-in-law, or mother-in-law, the employee may be absent from work and shall be paid a minimum of eight (8) hours of pay, per day, up to three (3) days for his scheduled time actually lost from the day of death to the day of the funeral. Funerals in excess of 200 miles from the City of Neenah, Wisconsin, shall be considered an additional day of funeral leave the day after the funeral. The 200-mile provision will also apply to 12.3 but not 12.2. 12.2 In the case of the employee's spouse or child or step-child, paid funeral leave shall be up to five (5) scheduled days lost at a minimum of 8 hours pay, per day, from the day of death to the seventh day following the day of death. 12.3 In the event of the death of an employee's grandparent, grandchild, sister-in-law, brother-in-law, daughter-in-law, son-in-law, or of an employee's spouse's grandparent, the employee may be absent from work and shall be paid for scheduled time actually lost up to a minimum of eight (8) hours pay, per day, on the day of the funeral if it is a scheduled work day and the employee attends the funeral. 12.4 To qualify for paid funeral leave the employee must _ A. have passed his probationary period prior to the death of the above mentioned family member. B. attend the funeral unless unable to do so because of illness, accident, or other just cause; and C. notify the Personnel Department as soon as possible that he will be absent because of the death. 27 12.5 Funeral leave pay will be computed at the employee's regular straight time base rate including any shift premium. No funeral leave pay will be paid for days on which Holiday or Vacation pay is paid, or when an employee is on any kind of leave of absence or Worker's Compensation. Scheduled time lost shall not be counted as hours worked for purposes of computing overtime pay. ARTICLE 13 - GENERAL 13.1 Space for bulletin boards shall be made available by the Company at convenient places as near as possible to the time clock for the posting of Union notices. 13.2 Duly accredited representatives of the Union, upon application for permission, shall have the right of access to the plant to interview any of the employees affected by this contract or to investigate any grievances. The Company will provide accommodations for such interview or interviews on its premises. A. Upon proper notice to the Company from the Union requesting time off for representatives to perform Union business, the Company shall give written notice of work release to the affected employee, his immediate supervisor and/or department manager. SICK PAY 13.3 Any employee covered by this Agreement who is absent because of a non-industrial accident or illness long enough to collect benefits from the Neenah Foundry Company Sickness and Accident Insurance Program will be paid up to the first three (3) scheduled work days of such absence or absences not covered by the insurance program at the rate of eight (8) hours per day at the employee's straight time hourly base rate. It is understood that not more than a total of three (3) scheduled work days will be due an employee during any calendar year because of a non-industrial sickness or accident or combination thereof. A. Any employee who is absent due to an industrial injury or illness incurred at Neenah Foundry Company will be paid, under this Agreement, for the first three (3) scheduled work days of absence or absences not covered by Worker's Compensation Insurance, for each such injury or illness, if, (1) the injury sustained was properly reported on the day of injury, and, (2) these same days are not later paid for by Worker's Compensation. B. In any event, no sick pay will be paid for any day not a scheduled work day, or on which holiday pay or vacation pay is paid. 13.4 The Company will continue to provide, and with the cooperation of its employees, maintain proper sanitary and safety conditions. A joint Company-Union Safety Committee shall function as outlined in the December 17, 1974 policy letter. 13.5 The Company agrees to furnish a current seniority list to the Union once per month. 28 13.6 The Union will, at the execution of this contract, furnish the Company with a list of the names of its Shop Stewards Committee or other committees designated to handle negotiations and grievances on behalf of the Union. 13.7 The Company will, at the execution of this contract, furnish the Union Business Committee with a list of the names of its Bargaining Group who will have authority to negotiate or adjust grievances. 13.8 The Company shall furnish a meal at a cost not to exceed $5.00 for each employee who works more than two (2) hours beyond his scheduled shift. A paid twenty minute lunch period will be provided when meals are furnished; such period will not be included in the "more than two (2) hour" qualifying period, but will be counted as time worked for overtime purposes. 13.9 The Company and the Union will comply with all laws and regulations established by Federal and State Governments regarding their respective obligations under this Agreement. A. Any Federal or State law which mandatorily changes any of the provisions of this Agreement shall govern. However, such required change shall not change any of the other provisions of the contract. 13.10 Non-bargaining unit personnel shall not perform work normally done by bargaining unit employees except for the purpose of instruction or in the case of emergency. (See policy dated December 9, 1974.) 13.11 Upon presentation of proper pay voucher, an employee required to serve jury duty shall be paid the difference between his jury duty pay and eight (8) hours of straight time pay at his base rate for each scheduled work day he lost as a result of the jury duty. 13.12 A tool allowance of $175.00 will be paid annually to each maintenance employee on the payroll as of January 1. 13.13 The Company will reimburse each employee $75.00 for one pair of approved safety shoes purchased by the employee for his personal wear, each year. For designated employees who have outside jobs, the Company will provide an additional $75.00 reimbursement for purchase of one pair of insulated safety boots per year. Employees regularly assigned to the following outside jobs are eligible for the additional $75.00 reimbursement:
Plant 2 Plant 3 ------- ------- Charge Yard Charge Yard Shipping Yard Paint Knockout Skid Repair Front End Loader Operator Inter Plant Truck Drivers
29 Plus: Outside Distribution Yards To be eligible for any reimbursement allowance, the employee must have completed his probationary period at the time of purchase. 13.14 The Company will reimburse each employee for replacement of prescription safety glasses, or parts thereof, which are damaged at work at the actual cost to a maximum of $40.00 per year. A. Effective January 1, 2000, the safety glass reimbursement will be $45.00. B. Effective January 1, 2001, the safety glass reimbursement will be $50.00. ARTICLE 14 - PENSIONS 14.1 The Company agrees to continue its pension program started January 1, 1963, according to separate contract with Connecticut General Life Insurance Company. This plan is to be wholly financed and owned by the Company. A. Effective January 1, 1999, the formula for determining monthly pensions shall provide for $31.00 per month as pension base. B. Effective January 1, 2000, the formula for determining monthly pensions shall provide for $32.00 per month as pension base. C. Effective January 1, 2001, the formula for determining monthly pensions shall provide for $33.00 per month as pension base. D. Effective January 1, 2000, those employees who retired during 1999 will have their pension recalculated on the $32.00 per month pension base. Effective January 1, 2001, those same employees will have their pensions recalculated on the $33.00 per month pension base. 14.2 The plan contains a surviving spouse's benefit provision. To be eligible for such benefit, an employee shall have a minimum of five (5) years of vested Company service. 14.3 The normal retirement date is the first of the month following the employee's 65th birthday. Provisions for early retirement after age 60 are provided for in the plan. 14.4 The minimum pension disability benefit shall be $370.00 per month. To be eligible for such benefit, an employee shall have a minimum of five (5) years of vested Company service. A. Effective January 1, 2000, the minimum pension disability benefit shall be $385.00 per month. B. Effective January 1, 2001, the minimum pension disability benefit shall be $395.00 per month. 30 14.5 None of the above increases in pension benefits shall apply to employees already on retirement. 14.6 A 401k Retirement Plan will be implemented by July 1, 1999. ARTICLE 15 - INSURANCE 15.1 A PPO Health Insurance Plan, administered by Employers Health Insurance, Network Health Plan (HMO) and United Health Plan (HMO) will be offered. A. Specific benefits offered by the plans listed in 15.1 are contained in the plan summaries which are available through the Personnel office. B. The employee monthly contribution rates for coverage effective January I, 1999, is as follows:
Network HMO PPO Plan United HMO Single Coverage $30.34 $ 46.19 $35.26 Family Coverage $82.83 $125.80 $99.18
These employee contribution rates for health insurance will be in effect for calendar year 1999, and for any future premium changes, the employee will pay 20% of the gross premium during the life of this agreement. C. Effective January 1, 1988, employees with 15 or more years of service who retire between the ages of 60 and 65 will be eligible for continuing in one of the health insurance plans offered by Neenah Foundry Company to the regular hourly employees by paying 50% of the insurance premium costs, until the employee reaches age 65 or qualifies for Medicare coverage earlier. Effective January 1, 1996, employees who elect to retire between the ages of 62-65 will be eligible to continue in one of the health insurance plans offered by Neenah Foundry Company to regular hourly employees, by paying 25% of the insurance premium cost, until the employee reaches age 65 or qualifies for Medicare coverage earlier. It is further understood that if the employee elects family coverage, dependents as defined in the policy are also covered, and if the employee should die during this period of coverage, all coverage for dependents stops at the end of the month in which the employee dies. D. It is understood there will be no changes in the coverage or the carrier except by mutual agreement between the Company and the Union Business Committee. 15.2 For Life Insurance, Weekly Sickness and Accident Insurance, and Accidental Death and Dismemberment Insurance, the Company will continue to pay 90% of the premiums and the employee will pay 10%. 15.3 The weekly Sickness and Accident benefit shall be $270.00 for a maximum of 26 weeks. A. Effective January 1, 2000, the weekly benefit shall be $280.00. 31 B. Effective January 1, 2001, the weekly benefit shall be $290.00. 15.4 The Accidental Death and Dismemberment coverage is $22,000. 15.5 The Company will pay 65% of the cost and the employee will pay 35% of the cost of the Employers Insurance Dental Plan, now in effect. A. Eligibility for this coverage will begin the first day of the month following the employee's 12 month service anniversary. 15.6 In the case of a work-connected death of an employee who carries family coverage under the Company's health insurance and/or dental insurance programs, the Company will continue such programs for a period of thirty-six (36) months for the surviving spouse and dependent children. The Company will pay the full premium for that coverage the employee had carried at the time of his death. 15.7 Life Insurance Coverage is $22,000. 15.8 In the event an employee is laid off the Company shall continue to pay its percentage share of the premium of the health and welfare plan (excluding sickness and accident benefits) for a period of three (3) months following the month in which the layoff became effective provided the employee arranges with the Personnel Office for payment of his percentage share of the premium. 15.9 Eligibility for coverage by the insurance programs, except Dental Coverage, shall commence on the first of the month following completion of thirty (30) days worked. 15.10 The insurance benefits outlined herein are subject to the express limitations, exclusions and all other terms and conditions as fully and completely set forth in the actual insurance policies in effect between the Company and the respective carriers. ARTICLE 16 - TRUCKING 16.1 An Over-the-Road Truck Driver is one who is classified as such and operates tractor-trailer type of equipment used generally for long hauling. 16.2 Rates and conditions applicable only to Over-the-Road Truck Drivers are set forth in Exhibit "D" which by this reference is made a part of this Agreement. 32 ARTICLE 17 - TERMINATION CLAUSE THIS CONTRACT agreed upon the 10th Day of December, 1998, and signed this ____________ Day of ____________, 1999, shall be in full force and effect from January 1, 1999, until and including the 31st day of December, 2001. NEENAH FOUNDRY COMPANY Bill Barrett, President LOCAL NO. 121B GLASS, MOLDERS, POTTERY, PLASTICS AND ALLIED WORKERS INTERNATIONAL UNION, AFL-CIO-CLC Jerry L. Cotton Mick Dietzen Lynn C. Broege Tom Lorge Scott Wolf Ramiro Cardoza Reuben H. Stoegbauer Roddy Rice Greg Kempen Paul Merkley Donald Benotch, Executive Officer GMP, AFL-CIO-CLC 33 EXHIBIT "A" MINIMUM RATES NON-INCENTIVE
EFFECTIVE DATES 12/13/98 1/2/00 12/31/00 -------- ------ -------- Janitor Labor $12.48 $12.88 $13.18 Yard and General Labor 12.48 12.88 13.18 Cleaning Room General 12.51 12.91 13.21 Truck Loader Helper - Plant 2 12.56 12.96 13.26 Gangway Man 12.56 12.96 13.26 Pattern Storage 12.56 12.96 13.26 Pattern Setup 12.61 13.01 13.31 Utility Man - Plant 2 12.64 13.04 13.34 Jeep Driver General. 12.66 13.06 13.36 Sand Tester 12.66 13.06 13.36 Flask Welder 12.66 13.06 13.36 Shipping Clerk Helper 12.71 13.11 13.41 Pattern Storage Truck 12.71 13.11 13.41 Receiving Clerk 12.72 13.12 13.42 Inspector 12.74 13.14 13.44 Front End Loader Operator 12.74 13.14 13.44 Jeep Driver, Metal Delivery 12.74 13.14 13.44 Casting Processing - Plant 3 12.75 13.15 13.45 Core Support - Plant 3 12.75 13.15 13.45 Stock Room Clerk 12.76 13.16 13.46 Utility - Distribution Yards 12.76 13.16 13.46 Maintenance Helper, Mechanical 12.82 13.22 13.52 Salvage Welder 12.82 13.22 13.52 BMD Operator Assistant 12.97 13.37 13.67 BMD Finishing Operator Assistant 12.97 13.37 13.67 Melt Systems Plant 2 13.05 13.45 13.75 BMD Iron Pourer 13.05 13.45 13.75 Melt System - Plant 3 13.05 13.45 13.75 Quality Assurance - Plant 3 13.25 13.65 13.95 Utility Truck Driver 13.27 13.67 13.97 Maintenance General, Mechanical 13.28 13.68 13.98 Truck Driver/Utility - Distribution Yards 13.47 14.17 14.57 Core Operations - Plant 3 13.70 14.10 14.40 Utility Truck Driver 13.77 14.47 14.87 Auto Grinder - Plant 3 14.05 14.45 14.75 BMD Finishing Operator 14.05 14.45 14.75 BMD Pattern Change Operator 14.05 14.45 14.75 Disa System 14.05 14.45 14.75 BMD Maintenance Operator 16.23 16.88 17.43 Maintenance Mechanic 16.23 16.88 17.43 Journeyman Electrician 17.05 17.70 18.25
34 APPRENTICE PAY SCHEDULE (ELECTRICAL) Minimum Compensation to be paid: 1st period of 1,050 hours 75% of the skilled rate 2nd period of 1,050 hours 78% of the skilled rate 3rd period of 1,050 hours 81% of the skilled rate 4th period of 1,050 hours 84% of the skilled rate 5th period of 1,050 hours 87% of the skilled rate 6th period of 1,050 hours 90% of the skilled rate 7th period of 1,050 hours 93% of the skilled rate 8th period of 1,050 hours 96% of the skilled rate INCENTIVE 1/2/00 12/31/00 12/13/98 ------ -------- -------- Chipper 12.36 12.76 13.06 Grinder 12.36 12.76 13.06 Core Maker 12.36 12.76 13.06 Machine Shop Operator - Plant 2 12.36 12.76 13.06 Core Finisher 12.36 12.76 13.06 Shifter and Shakeout 12.36 12.76 13.06 Jeep Driver/Load Checker - Plant 2 12.45 12.85 13.15 Radial Drill Operator 12.46 12.86 13.16 Truck Loader/Order Picker - Plant 2 12.46 12.86 13.16 Iron Pourer 12.55 12.95 13.25 Slinger Molder 12.55 12.95 13.25 Slinger Operator, Hydro 12.69 13.09 13.39
Leadmen, when utilized, will be selected by the Company. Leadmen will receive a minimum of $.15 over the rate of the job led. 35 EXHIBIT "B" DRUG AND ALCOHOL ABUSE POLICY BETWEEN NEENAH FOUNDRY COMPANY AND LOCAL 121B, GLASS, MOLDERS, POTTERY, PLASTICS & ALLIED WORKERS INTERNATIONAL UNION, (AFL-CIO-CLC) POLICY FOR SCREENING FOR ABUSE OF ALCOHOL, MARIJUANA AND CHEMICAL SUBSTANCES Neenah Foundry Company and GMP Local 121B have a strong commitment to provide a safe and secure workplace for all employees and to promote high standards of employee health and productivity. Because of this commitment, both Neenah Foundry Company and GMP Local 121B agree to a program of screening for use and/or abuse of alcohol or chemical substances in the workplace. It is the purpose of this agreement to provide guidelines for addressing such substance use/abuse by employees. 1.There will be no random drug/alcohol testing except as mandated by law. 2.This agreement applies to employees in situations where the Company has determined the employee to be under the influence of drugs, marijuana, chemical or controlled substances, or alcohol while at work or on Company property or when an employee is involved in a work related accident involving: - - A piece of mobile equipment (e.g. industrial lift trucks, overhead cranes, road vehicles, etc.) and an employee or another object (equipment, building, etc.); - - Two or more pieces of mobile equipment; - - Any injury resulting in a lost time accident and severe enough to require the attention of a medical doctor, nurse practitioner or emergency room personnel. 3.If an employee appears to be under the influence of alcohol or drugs, the supervisor should, if possible, secure the assistance of another supervisor in observing the employee's action and in escorting the employee to an appropriate office or area for further investigation. A Union representative or designee shall be secured to be present during the investigation. 4.If, as a result of the investigation, the supervisor has reasonable cause to believe that the employee is in a condition that is jeopardizing workplace safety or cannot perform his or her job because of on-the-job intoxication or impairment, the employee will be suspended and will be required to submit to a screen for alcohol/drugs. The supervisor may and if requested by the employee, a Union representative, if available, may accompany the employee to the test site. However, neither shall be permitted to impede the testing process. The Union representative will continue to be paid during the time required to accompany the employee, wait at the test site, and return to work, if he would otherwise be scheduled to work during this time. 36 5. The initial screen for suspected drug, marijuana, and chemical substance use will be an enzyme multiplied immunoassay test. The confirmatory test will be a gas chromatography-mass spectrometry (GC-MS) test. A confirmatory test will automatically be performed on any sample that is initially positive. However, the Company reserves the right to test directly by using the gas chromatography-mass spectrometry (GC-MS) test rather than the initial enzyme multiplied immunoassay (EMIT) test. In those situations where there may be reason to believe that the sample may have been tampered with by the person giving the sample prior to the sealing and signing of the samples, the Company may authorize the laboratory to perform a Specific Gravity test prior to the EMIT/GC-MS test being performed. 6. If available, the appropriate test for suspected alcohol use will be a breathalyzer test. A blood sample may also be utilized at the discretion of the Company to determine or verify the results of the breathalyzer test. 6A. State law standards as defined in the motor vehicle code in the state where the plant exists or incident occurs, will be utilized to determine if the employee is intoxicated. 7. The initial sample taken for screening for illegal chemical substance, drugs, marijuana and controlled substances will be split into three samples. They will be sealed and signed at the time of the taking of the sample by the person taking the sample and the person giving the sample. One sample will be used for the EMIT and/or the confirmatory (GC-MS) test. The remaining two (2) sealed and signed samples will be retained by the testing laboratory. If it is determined that the GC-MS screen is positive, the employee will have the right within two (2) weeks of notification of said positive screen test results, to have the second sample sent to a certified lab of their choice to be tested. The laboratory selected by the Company will transmit the sample directly to the laboratory selected by the employee, with the seal and signature intact to protect the chain of custody, where a GC-MS confirmatory screen test will be performed. The employee will be reimbursed for the cost of any screen performed at his discretion provided the laboratory selected is certified for testing by the National Institute of Drug Abuse (NIDA) (or a comparable independent state certified laboratory), and provided the results are negative. The employee will sign a consent agreement authorizing the release of the results of the screen to the Company. In situations where the results of the screen test from the two (2) labs reach opposite conclusions, then a third certified laboratory will be selected by the two (2) respective laboratories and the remaining sealed and signed sample of the original specimen will be sent to the third certified laboratory to perform a GC-MS screen test. 37 The results of the third certified laboratory will be binding on all parties and if the tests are negative then the employee's record would be cleared of any suspension or reference to the incident. The Company will reimburse the employee for time lost at the applicable rate, as specified in the Union contract, from the date of suspension. 8. Any employee who is asked to submit to a screen for alcohol or drug use will sign a consent agreement authorizing the release of the results of the screen to the Company. 9. Refusal to submit to a screen for items covered under this Drug and Alcohol Abuse Policy or to sign a consent agreement or to take rehabilitation recommended by appropriate medical authorities will be considered insubordination's and the employee will be suspended pending termination. 10. If the employee is taking prescription or over-the-counter substances that might affect the results of the screen, the Company will be advised by the employee prior to the screen being administered. 11. The Company will select a properly licensed, accredited testing NIDA or comparable state approved/certified facility and follow testing procedures specified above to assure the most accurate results, maintain the most complete chain of custody and quality control procedures and assure the maximum of confidentiality. 11A. Outside of the Neenah/Menasha area, the Company and Union will accept reasonable facilities and the results of law enforcement agencies. 12. All screening as well as the results of any screen will be treated in a confidential manner. All employees who are tested will be given the results of their tests in writing. 13. Any employee found to be intoxicated (in accordance with 6A), under the influence of illegal chemical substance, marijuana or controlled substances, will be offered the opportunity for rehabilitation on the first incident only except as specified in Item 15 below. The type of rehabilitation program available will be determined at the appropriate time after consultation with appropriate medical authorities. Any treatment must be provided by an approved rehabilitation facility in accordance with the insurance program specified in the respective Collective Bargaining Agreement. If the employee agrees to the rehabilitation program, then the employee will be required to satisfactorily complete such rehabilitation program. Failure to do so will result in their suspension pending termination. 14. An employee who has completed rehabilitation and is found to be under the influence of alcohol, (in accordance with 6A), illegal chemical substance, marijuana, or controlled substance a second time, the employee will be suspended pending termination. 38 15. Any employee who initially tests positive for use of alcohol (in accordance with 6A), illegal chemical substances, marijuana, or controlled substance and, the test is confirmed, will be subject to future tests upon reasonable cause as specified in (4) and (5) above. In situations where an employee voluntarily comes forward prior to any Company inquiry and admits they have an alcohol or drug problem after having satisfactorily completed the counseling/rehabilitation program shall be given a second chance at rehabilitation. Any subsequent situations will result in the employee being suspended pending termination. 16. All new employees will be informed that the Company has an alcohol and substance abuse testing program. 17. This policy does not replace or interfere in any way with normal disciplinary procedures. 18. All specimens will be sent to a National Institute of Drug Abuse Laboratories (NIDA), and all test results will be forwarded to Neenah Foundry Company. 19. Any dispute with respect to this drug and alcohol policy shall be subject to the grievance procedure. 39 EXHIBIT "C" NEENAH FOUNDRY COMPANY SUPPLEMENTAL INCENTIVE AGREEMENT AGREED ON NOVEMBER 27, 1957, amended January 11, 1960, amended December 27, 1962, amended January 1, 1969, amended January 2, 1972, renewed January 1, 1975, renewed January 1, 1978, amended January 1, 1981, renewed January 1, 1984, renewed January 1, 1987, renewed January 1, 1990, renewed January 1, 1993, renewed January 1, 1996, and renewed January 1, 1999. A. The Company agrees to study and install incentive rates for workers who are not now on any incentive plan, where such plans are practical. B. Incentive Plans established by the Company are to be set at a level which affords a normal competent operator working at incentive pace, producing a quality product, the opportunity to earn 33% over contract base rate, where performance is fully controlled by the operator's own effort. Where less than full opportunity for work exists, because performance is restricted by equipment, operating limitations, or availability of work, the total earnings opportunity shall be proportionately less by agreement with the Union. C. All incentive workers shall be guaranteed their base rate for each day worked. Core makers and core finishers will be guaranteed their incentive earnings for each division worked during a single day. Divisions are defined as follows: a) Bench and Bench Blower and CB-22 no-bake. D. Molders, Coremakers, Core Finishers, Chippers, Grinders, Machine Shop and Radial Drill Operators working on experimental work or samples will be paid on the basis of average earnings. For this purpose, the following definitions will apply: (1) SAMPLES are jobs being run to prove a production process to satisfy customer or Company requirements, and may involve interruptions by Supervision and/or Quality Control; (2) EXPERIMENTAL WORK involves the research and/or development of new materials, processes, or equipment to evaluate the feasibility of incorporating them into the manufacturing operation. E. The Union shall be given a copy of all standard data used as basis for setting incentive rates including future additions or changes to such standard data. Each Plant Manager will have a copy of the standard data used in his plant, which will be made available to duly appointed Union representatives upon request. Minor changes shall not cause an adjustment in standard data until the accumulated changes total at least plus or minus 5%. F. After incentive rates have been installed, such rates cannot be changed except as provided in paragraphs 1, 2 and 3 below or by mutual agreement between the Union and the Company. This does not preclude the Company from establishing new methods and procedures and assigning applicable rates. Incentive rates, once established, shall become permanent rates and shall be guaranteed against change except for the following: 40 1. Changes due to errors in job content analysis, clerical errors, managerial changes in material, method, equipment or process which definitely change the work elements of the job so that it shall require more or less time to perform. 2. Where changes affect the time required to perform an element or elements, only those elements which have changed will be adjusted. 3. Changes through grievance procedure. G. Notification of changes will be given to workers affected by the changed rate. Such notifications will include the reason(s) change was made. H. Incentive rates will be computed from Standard Data. If the incentive rate cannot be met by a normal competent operator working at an incentive pace, the Company agrees to review the elements making up the incentive rate. In accordance with results of the review, the incentive rate may be adjusted to provide normal incentive opportunity on the job. Incentive earnings shall not be averaged to determine whether individual values are fairly established. I. Any incentive employee or Committeeman shall have the right to grieve any new incentive rate which has been established by the Company. However, as a guide to determine whether an individual is justified in challenging a particular incentive rate, such individual's overall average incentive earnings shall be considered. If a rate is changed as a result of a grievance such rate shall be retroactive to the date on which the grievance was filed. J. The Company shall endeavor to establish rates for unrated jobs before the job starts. If the rate is not established before the job starts, the rate shall be set and the employee notified within four hours from job start or by the end of the shift, whichever is sooner, or pay average earnings retroactive to job start. An unrated job is any job (excluding plus standard work) for which a rate is not at the job site when the job starts. K. If an incentive employee or leadman has a question concerning the work content of a job, he shall contact his supervisor. The supervisor shall check the job by observation, by review of the scheduling master, or other data. If the operator's question cannot be satisfactorily answered, then the supervisor shall request a copy of the factor sheet and will review the copy of the factor sheet with the employee. The supervisor may request the Standards Department to observe the job in question. L. A duly appointed Union representative, after contacting his supervisor, shall have the right to examine any incentive rate in effect during the life of this contract. The Union representative, in order to complete the examination of an incentive rate, may request the supervisor to get the factor sheet for said job. All such rates shall at all times remain in the possession of the Company, subject, however, to the right of inspection by the Union representative. 41 M. The International Union Representative or Shop Steward Chairman Assistant shall have the right to call for a time study on any incentive rate which the Union feels is improperly established and on which a grievance has been filed. Such time study shall be made in accordance with accepted Industrial Engineering practice. N. When time studies are made as a result of a grievance, the Union Representative shall be furnished with a copy upon request. EXHIBIT "D" TRUCKING 1. The following rates shall apply as indicated: a. Mileage Rate - The mileage rate for employees who are OTR Drivers or Relief Drivers on December 13, 1998 shall be $.36 1/2 per mile from December 13, 1998, through December 31, 1999. This mileage rate will be increased to $.37 1/2 per mile January 2, 2000. b. Hourly Rate - The hourly rate shall be $14.63 per hour from December 13, 1998, through December 31, 1999. Effective January 2, 2000, the hourly rate shall increase to $15.03, and effective December 31, 2000, it shall be $15.33. 2. The Over-the-Road Driver will be paid mileage on the basis of routings and mileage determined and assigned by Neenah Transport, Incorporated. Until mileage for a specific route has been determined, the route will be designated and odometer mileage will be paid. 3. It is understood that mileage compensation covers all time spent in the service of the Company, including but not limited to pickups, deliveries, line-haul operations, communications and reporting, exchange of equipment, waiting time, scaling, fueling, equipment checks, loading or unloading, verifying the accuracy of products loaded or unloaded, precautionary measures to protect the load, including tarping, ensuring the trailer is clean and safe for loading and compliance with all state and federal paperwork and inspection requirements of any kind whatsoever and any other functions required, assigned or performed as an Over-the-Road Driver except as provided in paragraphs 9, 10, 11, 12 and 13 of this Exhibit. 4. "Out-of area" shall be defined as any place in excess of 50 miles from the designated home terminal. "Area" shall be defined as any place within 50 miles from the home terminal. When assigned to area driving, the Over-the-Road Driver shall be paid the mileage rate provided in paragraph 1, in addition to any drop pay for which he qualifies. 42 5. On out-of-area trips the Company shall have the right to schedule and route Over-the-Road Drivers to fit its delivery and pickup requirements and to install and use any recording equipment on the vehicles. 6. Where overnight trips are scheduled, the Over-the-Road Driver shall be entitled to reasonable expense for lodging. a. Reasonable expense for lodging will be effective only at the end of the second consecutive work day, and every other second consecutive day following, when a driver is on an extended trip. When circumstances make such impractical, then the driver is to contact Neenah Transport supervision and obtain advance approval to stay in a motel. b. The Company will reimburse each driver for reasonable expenses when charged for utilizing truck-stop showers, on each day he does not stay in a motel. c. The Company will reimburse each driver for parking fees required to be paid for parking the truck. d. Drivers must submit paid bills for all expenses. e. An employee eligible for a motel under 6a, above, may elect to accept a payment of $35.00 instead of sleeping in a motel. 7. Over-the-Road Drivers shall submit an immediate verbal report on all accidents, and follow with a written report on any accidents, defects in equipment or any emergencies as soon thereafter as possible. In case of illness which precludes the driver from proceeding further to his destination, such driver shall notify Neenah Transport supervision as soon as possible. 8. Over-the-Road Drivers shall familiarize themselves and comply with the Neenah Transport Truck Drivers' Manual, as well as all applicable rules and regulations of the DOT, Wisconsin Department of Transportation, and the various states in which our operations are conducted. 9. Minimum Daily Guarantee. When an Over-the-Road Driver reports to work and was not advised at the end of the previous day that there would be no work, he shall be paid a minimum of four (4) hours employment or a minimum of four (4) hours pay at the hourly rate provided in paragraph 1 before being dismissed for the day, provided, however, that the Company shall not be liable under this paragraph for unavoidable breakdowns of machinery, power failure, Acts of God, or conditions beyond the control of the Management. It is understood that this paragraph (9) applies only to drivers beginning their work schedule at the designated home terminal or maintenance point. 10. Lost time due to Over-the-Road Emergencies. 43 When an Over-the-Road Driver on an out-of-area trip is unable to continue that trip because of accidents, impassable road conditions such as ice, snow, flood, fog, or other Acts of God for a period of twenty-four (24) consecutive hours or more, he will receive eight (8) hours pay at the hourly rate provided in paragraph 1 and a meal allowance of $20.00. An additional eight (8) hours of pay at the hourly rate provided in paragraph 1 and a meal allowance of $20.00 will be provided at the end of each consecutive twenty-four (24) hour delay period thereafter. When an Over-the-Road Driver on an out-of-area trip is unable to continue that trip because of a breakdown, the driver shall be paid the hourly rate provided in paragraph 1 when required to remain with his equipment, to a maximum of 10 hours total pay for that day. After eight (8) hours from the time he is no longer required to remain with his equipment, he will be paid up to an additional 10 hours at the rate provided in paragraph 1 if his equipment is not available within the 24 hour period beginning when he is no longer required to remain with his equipment, as well as a meal allowance of $20.00. Should his equipment not be available after that 24 hour period, he will again be paid up to an additional 10 hours at the rate provided in paragraph 1, and a meal allowance of $20.00. 11. Layover Pay. If an Over-the-Road Driver is directed by Neenah Transport supervision to lay over for a period exceeding twenty-four consecutive hours, the driver shall be paid eight (8) hours at the hourly rate provided in paragraph 1 and a meal allowance of $20.00. An additional eight (8) hours of pay at the hourly rate provided in paragraph 1 and a meal allowance of $20.00 will be provided at the end of each consecutive twenty-four (24) hour lay-over period thereafter. In the event a layover consists of 10 hours or more, then the company will reimburse the driver for reasonable expenses if they chose to stay in a motel. 12. Drop Pay. An Over-the-Road Driver on an area or out-of-area trip will be compensated according to the number of stops for loading and/or unloading purposes at customer and/or vendor locations for each trip by the following schedule: Municipal castings - all stops $15.00 All other types of stops $10.00
If a driver is delayed at any one stop for pickup and/or delivery for a period of more than two (2) hours, and he provides the Company with required documentation of necessary delay time, he will be paid at the hourly rate provided in paragraph 1 for the time that exceeds two (2) hours. However, it is understood that the driver will not be compensated at the hourly rate for time periods when the customer or vendor shipping or receiving facilities are closed. It is further understood that Switch & Go at Neenah Terminal is $10.00 drop pay with a maximum of one payment per day. 44 At the coke yard only, a driver will be paid for all time spent from when he scales in (receives scale ticket) until he scales out (receives scale out ticket) if it is not a Switch & Go. Tarping of loads is to be done outside of the scale in and scale out time. 13. Tarping Allowance An Over-the-Road Driver will be paid a special tarping allowance of $10.00 for the initial tarping of all loads which are required to be tarped in addition to any Drop Pay for which he is eligible. It is agreed that this special tarping allowance is applicable to the initial tarping of a load only, and not applicable for re-tarping following subsequent drops of the load. 14. Call-In Pay -- If after returning to his home terminal and being informed that his dispatch is complete and being dismissed for the day (or some other specified time), a driver is notified he is to return to work before his next work day, he shall be paid two (2) hours straight time call-in pay at his regular base rate, in addition to pay at the appropriate rate for his actual time worked. A driver who requests or volunteers for an early dispatch will not qualify for call-in pay. 15. All other provisions of the current Labor Agreement except Article 2.1, 2.2, 2.3, 2.4, 2.5, 2.6, 2.8, 2.9, 7.2, 7.3, and 13.8 shall be applicable to Over-the-Road Drivers while on out-of-area trips. However, Over-the-Road Drivers will be paid one and one-half times their hourly base wage for attending scheduled Saturday meetings called by the Company, and shall be paid at the rate of double the regular rate for work performed on Sunday, except for Sundays when dispatched from the home terminal, or when paragraph 10 of this Exhibit applies. 45 NEENAH FOUNDRY COMPANY BASIC RULES In order to maintain the general welfare of the Company and its employees and to assure fair treatment for all, the following revised rules are effective immediately. Disciplinary action, whether it be in the form of a warning, suspension from work without pay, or discharge, will be based upon the circumstances surrounding the violation, together with the employee's general record of employment with the Company. 1. Violation of the contract between the Company and Local No. 121B. 2. Dishonesty. 3. Insubordination. 4. Unsafe conduct. 5. Unauthorized absence from job for any length of time or unauthorized presence in the plant. 6. Failure to comply with job requirements and responsibilities. 7. Damage to property on Company premises. 8. Reporting for work while under the influence of intoxicants or use or possession of intoxicants on Company premises (includes illegal controlled substances). 9. Conduct detrimental to the welfare of the Company or its employees. These basic rules are subject to change at any time. 46 NEENAH FOUNDRY COMPANY NEGOTIATED POLICIES 1. Molding job difficulty policy. If after a pattern change, a molder(s) is having difficulty through no fault of his own in making acceptable molds, then after one-half hour of such effort, excluding the time required in putting on a pattern, and following his notification to his supervisor of the difficulty, then: a. The job would be pulled and the employee would be paid base rate. b. If the employee continues the job beyond the half hour, and such is approved by his supervisor, then he will be paid his average earnings from the start of the job, including pattern change time, until he can make acceptable molds. 2. Maintenance uniforms. The Company will arrange to provide five sets of laundered coveralls per week to each maintenance employee. Ownership of the uniforms will be retained by the laundry service. 3. Core maker and finisher job difficulty policy. Core makers and finishers, after approval of the supervisor and for cause beyond control of the worker, may work all or part of a job on base hourly rate. Minimum time to be considered is 30 minutes. 4. Maintenance tools. Neenah Foundry Company will furnish necessary tools in 3/4" or above drive size. These tools will be stored and available to maintenance people as required for their use. They will be stored in Company approved locations. 5. Non-bargaining unit personnel performing bargaining unit work. Article 13.10 reads, as follows: "Non-bargaining unit personnel shall not perform work normally done by bargaining unit employees except for the purpose of instruction or in the case of emergency." 47 To aid in the interpretation of this paragraph, the following clarification is provided: 1. What is "for the purpose of instruction"? Any work performed by a supervisor or foreman for the express purpose of training the employee is "instruction." Generally, a training method of showing and then having the employee try, making corrections, and then continuing that process until the employee has learned to do the particular work is followed. 2. What is "in the case of emergency"? A supervisor is required to work in an emergency. a. An "obvious" emergency exists when prompt and immediate action for protection of employees, property, equipment, or materials is required. This type of emergency is typified by being unplanned, or unforeseen and requires immediate action. b. A "less obvious" emergency can also exist. For example, due to short crewing, such as caused by absenteeism and tardiness of bargaining unit employees, an emergency can be created. An "emergency" is not automatically created, however. If the condition is so critical as to have to shut down any part of the operation, or to deprive those working of the opportunity to perform work, then an "emergency" condition exists. In order to make a valid determination as to whether or not an emergency exists, we have developed a procedure for the supervision to follow for the various shifts. The procedure does not have to be followed in the order it is presented; however, all the steps should be taken before a supervisor decides whether or not an emergency exists. (1) One shift operation. Step 1: Check with the labor pool. Leave word to send employees as soon as they are available. Step 2: Reassign people within your department to get necessary work done. Step 3: Ask yourself the question of any work that remains to be done, "Does it have to be done now?" Step 4: Can any work needing to be done be accomplished by further rearrangement of the work force? Step 5: Can any work needing to be done be performed on an intermittent basis by coordinating existing people? Step 6: If, after the above steps are exhausted and the condition becomes so critical as to have to shut down any part of the operation, or to deprive those working of their opportunity to perform work, then an emergency exists. 48 (2) Two or three shift operation. Step 1: Check with the labor pool. Leave word to send employees as soon as they are available. Step 2: Reassign people within your department to get necessary work done. Step 3: Ask yourself the question of any work that remains to be done, "Does it have to be done now?" Step 4: Can any work needing to be done be accomplished by further rearrangement of the work force? Step 5: Can any work needing to be done be performed on an intermittent basis by coordinating existing people? Step 6: Can you call employees in early, or hold employees over and do the job? Step 7: If, after the above steps are exhausted and the condition becomes so critical as to have to shut down any part of the operation, or to deprive those working of their opportunity to perform work, then an emergency exits. The steps listed above are designed to help when a "less obvious" emergency exists. These steps will help to establish that there is (or isn't) an emergency in fact, and not in name only. 6. Safety Committee operations. Article 13.4 of the Collective Bargaining Agreement provides for a joint Company-Union Safety Committee to function as outlined in the December 17, 1974, policy letter. Below is the content of the referred to letter: The following is an outline of the composition and function of the joint Company-Union Safety Committee to effectively improve the Neenah Foundry Company safety results. 1. Safety inspections. At least one safety inspection of each plant will be held quarterly. During such safety inspection, a (one) local plant Safety Committeeman would be included in the walk-around safety inspection. The Company representatives will include a member of the Safety Department, the Plant Manager, or his delegate, and the Maintenance Superintendent, or his delegate. Prior to the inspection of plant departments, the Department Superintendent and a Safety Committeeman designated by the Union for the area will hold a brief conference with the inspection team. The committee shall hold a post inspection conference to discuss and analyze the inspection. The Union Committeeman involved will be paid at his average earnings for all time spent in such activity. The Safety Committeeman so involved will be transferred to the shift of the inspection and paid accordingly. 49 2. OSHA inspections. In the event an OSHA or State of Wisconsin inspection is conducted, the Company will make available a Safety Committee person for each plant, and compensate him as outlined in 1., above. 3. Safety Committee meetings. Safety Committee meetings will be held as often as necessary by mutual agreement, but at least once each quarter. The joint committee will be comprised of four Union representatives and four Management representatives. The Director of Personnel and Safety will serve as Chairman of the joint committee. The nature of these meetings will be to communicate what items are of joint interest in achieving the goals of the joint committee. They will include, but not be limited to, the following: (a) An updating of any equipment for technology adopted by the Company to improve safety performance. (b) An opportunity for two-way communication as to the effectiveness of the general safety program. (c) Response by the Union Committeemen of constructive ideas to improve the safety results. (d) Communication about the plans for the following quarter to achieve and improve safety records, better compliance with applicable regulations, etc. (e) Review OSHA Form 200 (Log of Industrial Accidents). (f) Discuss inspections conducted by the Safety Inspection Team. When such meetings are held, employees will be compensated as in 1., above. 4. Company monitoring. The Company will, under its program of environmental auditing, housekeeping inspections, local departmental or plant safety inspections, etc. from time to time independently conduct audits and inspections. These may be for the purpose of determining the impact of changes, experimentation with noise reduction or dust suppression technology or methods, etc. The position of the Company is that participation by hourly Safety Committee employees is not required, particularly in environmental auditing, and so Safety Committeemen will not be invited to participate in this type of activity. 50 If, under law, employees or their representatives are authorized to participate in such, they will do so without pay. (The position of the Company is that on walk-around safety inspections, an employee representative may be able to make a positive contribution to either identification of unsafe conditions or acts; however, in environmental sampling, instrumentation and technology of environmental control employees is applied, and, therefore, no effective contribution is anticipated to be made by the hourly employees in this type activity.) 5. Serious accidents. In the event of a serious accident, requiring hospitalization of a bargaining unit employee, the Director of Personnel and Safety will promptly notify the President of Local 121B, or his delegate, and inform him of the incident, describe the circumstances, make available to him a report of the accident, and keep communications open. 7. Weekend overtime when more than a normal department crew is required. When a department needs more than the people assigned to that department to perform overtime work on Saturdays or Sundays, the following procedure should be followed if employees wish to be considered for such work: 1. Employees with good work records should notify their supervisors that they wish to be considered for extra overtime work on weekends. 2. Employees within that plant so notifying their supervisor will be scheduled for available work on the basis of qualifications. If two or more of these employees are equally qualified, the employee(s) who has the most company seniority within that plant will be scheduled. 8. Assignment of overtime. Where overtime is required for an entire department, the overtime will be worked by the department in the plant where the overtime is to occur. Where overtime is required by an entire work section, the overtime will be worked by the work section in that department of the plant where the overtime is to occur. Where overtime is required by less than a department or less than a work section in a plant, the overtime will be assigned the most senior qualified employees who normally perform the job in that department or work section. Where overtime is required for work in process the employee(s) performing the work in process will work the overtime. If additional employees are needed, the overtime will be assigned to the most senior qualified additional employees who normally perform the work in that department of the plant where the overtime is to occur. On weekend overtime only where less than a full department or work section is scheduled, work performed by temporary student employees during the week will be assigned to the senior qualified employees in that department of the plant who were not otherwise scheduled to work overtime. 51 9. Transfers from and Cutbacks to Local 121B Jurisdiction Involving Pattern maker Jurisdictional Jobs 1. When an employee represented by Local 121B is selected by the Company for a job represented by the Patternmakers Union, that employee shall retain his or her departmental seniority in his or her Local 121B department until he or she has worked thirty (30) days, beginning with the first day of work in the patternmaker jurisdiction job. During this time, if for any reason the employee is returned to his or her former job, he or she will do so with continued accumulated departmental seniority. The employee shall lose all seniority in his former department beginning with the day after he or she completes thirty (30) days worked in the pattern maker jurisdiction job. 2. If any employee of the Company who has previously occupied a job represented by Local 121B is cut back or laid off from the pattern shop jurisdiction, and any employees represented by Local 121B are on layoff at that time, the employee cut back from the pattern shop shall go to the end of the Local 121B represented employee layoff list. Should subsequent layoffs occur in jobs represented by Local 121B, then all employees on layoff from Local 121B represented jobs will be recalled prior to any pattern shop employee being recalled to a Local 121B represented job. 3. If any employee of the Company who has previously occupied a job represented by Local 121B is cut back or laid off from the pattern shop jurisdiction, and no one is on layoff from Local 121B at the time, then that employee will have rights to a job within Local 121B jurisdiction, provided there are any openings as determined by the Company. It is agreed that such cut-back employee brings no departmental seniority to his job in Local 121B jurisdiction. After six months, that employee may utilize all of the Company seniority he has for purposes of any other layoff or for seniority determination in job posting. During his first six months, his seniority will be counted from the day he transferred to Local 121B jurisdiction from the pattern shop jurisdiction as though he were a new employee. This same seniority treatment will be applicable to the employee for purposes of layoff and job posting seniority until six months are completed. For purposes of pension plan, vacation eligibility, and all other provisions except job posting or layoff as outlined above for the first six months of service in a local 121B represented job which immediately follows a cut-back or layoff from the pattern shop jurisdiction, the employee will have retained his total Company seniority. 4. The parties agree that the transfer and job posting provisions of ARTICLE 8 of the Collective Bargaining Agreement do not apply to transfers from Local 121B to patternmaker jurisdiction. 52 MANAGEMENT POLICIES 1. Average earnings for periods of one week or less. A. Definition: Average earnings shall be the hourly rate determined by dividing the sum of money paid for all hours worked (excluding overtime premium and pay received for time not worked) by the total hours worked in the last computed four-work-week period, but excluding any week when a shutdown occurs or partial operation is necessary due to holidays. B. This average rate will be used whenever it is necessary to pay an employee at the average earnings rate as specified in the Union Contract, for periods not to exceed one week. C. No adjustment will be made for shift premium. D. An employee permanently transferred to a higher rated job in a week in which a holiday occurs will be paid Holiday Pay at such higher rate, if more than the average earnings rate. E. When a holiday occurs in a week in which a general wage increase becomes effective, an adjustment in average rates will be made. 2. Pay procedure for employees transferred due to temporary disability. An employee unable to perform his regular job because of accident or illness, may be temporarily transferred for the period of disability or until a determination is made that the disability is permanent and he will be unable to return to his regular job. Industrial accident or industrial illness - The employee will receive his regular base rate, or the base rate of the temporary job, whichever is higher, plus incentive if any. During the time of transfer, the employee's average will be frozen. Non-industrial accidents or non-industrial illness - The employee will receive the base rate of the temporary job, plus incentive, if any. 3. Attendance policy - hourly employees. The purpose of this policy is to minimize absenteeism. It is the general policy of the Company to uniformly administer the attendance rules and related procedures listed herein. 53 A. Definitions: 1. Absence - not being at assigned work station during a scheduled shift. 2. Excused absence - being away from assigned work station with proper notification to an approval of supervision and/or the Personnel Department. 3. Unexcused absence - being away from assigned work station without permission of supervision and/or the Personnel Department. B. Responsibility: 1. It shall be the responsibility of plant supervision with counsel from the Manager of Employee Relations to administer the provisions of this policy in a uniform and consistent manner. C. Procedures: 1. Any absence which is known in advance and able to be scheduled, such as an appointment, must be reported to and approved by supervision and/or the Plant Office at least one day prior to the absence. 2. Any absence which is not known in advance, such as an emergency arising during off duty hours, must be reported on the Company's "call-in" telephone line (725-7049) prior to the start of the employee's scheduled shift. Employees whose shift starts after 4:00 P.M. are requested to report in an unscheduled absence no later than 4:00 P.M. to enable supervision to schedule their operations. 3. Any absence to be classified as excused must be reported within the limits set in the above two paragraphs of this policy and have approval of supervision and/or the Personnel Department. 4. Any absence which is unexcused will result in a disciplinary action as described under Article 6 of the Collective Bargaining Agreement. 4. Normal pay procedure for incentive jobs without incentive system. A. Purpose: 1. To set forth the method of compensating employees assigned to incentive jobs which are temporarily without an incentive system, due to an incentive system change or installation of a new incentive system. 2. This procedure replaces all procedures which have been used in the past. 54 3. This procedure is intended to cover normal situations. If unusual conditions arise, deviations from this procedure must be approved by the Vice President of Manufacturing and Engineering. B. Definitions: 1. Incentive job - for the purpose of this procedure, an incentive job is defined as: a. A job which formerly had incentive and is temporarily without an incentive system. b. A job which the Company has determined will be assigned an incentive system in the near future. C. Responsibility: 1. It shall be the responsibility of the Plant Manager to administer this procedure in a uniform and consistent manner. D. Procedures: 1. When the Company determines it is necessary to change an existing incentive system, or determines an existing or new job is going to be assigned an incentive system, the following pay procedures will be followed: a. Pay the employee assigned to these jobs, except those employees who have a current production average in that skill, or temporary base rate of 5% over the current incentive base rate for that job (105%). b. Each employee who has a current production average in that skill will be paid at 90% of his individual four (4) week average or the temporary rate outlined in D-1.a above, whichever is higher. c. The employee's average will be frozen while being paid under this procedure. 5. Payment for time missed from work on day of lost time accident. An employee who is injured during the course of his employment and who in the opinion of a medical doctor, is unable to complete his shift, will be paid at average earnings from the time of the injury to the scheduled end of his shift. An employee who, because of an injury sustained during a particular shift is unable to complete his regular job on that shift, may be assigned to other work for the balance of the shift and will be paid his own base rate, or the rate of the job, whichever is higher, together with any incentive earned. 55 When it is necessary for an employee to see a doctor because of an industrial injury sustained at Neenah Foundry Company, the Company will make an appointment for him with the doctor. If it is necessary to schedule the appointment during working hours, the employee will be paid at average earnings for all time lost in keeping such appointment. Appointments scheduled outside regular working hours will not be covered under this provision. Appointments not scheduled by the Company, whether scheduled during working hours or after regular working hours, will not be covered under this provision. 56 THIS CONTRACT agreed upon the 13th day of December 1998, and signed this Day of , 1999, shall be in full force and effect from January 1, 1999, until and including the 31st day of December, 2001. LOCAL NO. 121B, GLASS, MOLDERS, NEENAH FOUNDRY COMPANY POTTERY, PLASTICS AND ALLIED WORKERS INTERNATIONAL UNION, AFL-CIO-CLC - ----------------------------------- ----------------------------------- John Rader - ----------------------------------- Vice President, Human Resources - ----------------------------------- - ----------------------------------- ----------------------------------- Bill Barrett - ----------------------------------- President - ----------------------------------- - ----------------------------------- - ----------------------------------- - ----------------------------------- - ----------------------------------- - ----------------------------------- EX-21.1 3 EXCHANGE AND REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 21.1 Subsidiaries of the Registrant 1. Neenah Foundry Company Hartley Controls Corporation - wholly owned. Neenah Transport, Inc. - wholly owned. Neenah Foreign Sales Corporation - wholly owned. Deeter Foundry, Inc. - wholly owned. Mercer Forge Corporation - wholly owned. A&M Specialties, Inc. Dalton Corporation - wholly owned. Dalton Corporation, Warsaw Manufacturing Facility Dalton Corporation, Ashland Manufacturing Facility Dalton Corporation, Kendallville Manufacturing Facility Dalton Corporation, Stryker Manufacturing Facility Advanced Cast Products, Inc. - wholly owned. Belcher Corporation. Peerless Corporation. Cast Alloys, Inc. - wholly owned. International Golf, S.A. de, C.V. 100 EX-27.1 4 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF NEENAH FOUNDRY COMPANY AS OF AND FOR THE YEAR ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS SEP-30-1999 OCT-01-1998 SEP-30-1999 17,368 0 78,716 1,020 56,387 160,208 255,245 46,441 641,702 76,246 423,887 0 0 100 63,650 641,702 530,057 530,057 432,437 432,437 55,053 0 (42,395) 172 2,064 (1,892) 0 0 0 (1,892) 0 0
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