10-K 1 c00807e10vk.txt ANNUAL REPORT 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, 2005. [ ] 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 specified in its charter) WISCONSIN 39-1580331 (State or other jurisdiction of (IRS Employer Identification 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 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [ ] No [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X] State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant's most recently completed second fiscal quarter. The aggregate market value of the common equity of Neenah Foundry Company held by non-affiliates as of March 31, 2005 was zero. All of the common stock of Neenah Foundry Company is held by NFC Castings, Inc., a wholly owned subsidiary of ACP Holding Company. Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes [X] No [ ] 1 Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. On December 23, 2005, Neenah Foundry Company had 1,000 shares of Common Stock, par value $100 per share, outstanding, all of which were owned by NFC Castings, Inc., a wholly owned subsidiary of ACP Holding Company. Documents Incorporated by Reference None. 2 PART I Item 1. BUSINESS Unless otherwise stated in this document or unless the context otherwise requires, references herein to the "Company", "we", "our", "ours", and "us", include Neenah Foundry Company ("Neenah") and its wholly owned subsidiaries, namely- Deeter Foundry, Inc. ("Deeter"), Mercer Forge Corporation ("Mercer"), Dalton Corporation ("Dalton"), Advanced Cast Products, Inc. ("Advanced Cast Products"), Gregg Industries, Inc. ("Gregg"), Neenah Transport, Inc. ("Transport") and Cast Alloys, Inc. ("Cast Alloys"), which is inactive, and their respective subsidiaries. Neenah, a Wisconsin corporation, is a wholly owned subsidiary of NFC Castings, Inc. ("NFC"), a Delaware corporation, which is a wholly owned subsidiary of ACP Holding Company ("ACP"), a Delaware corporation. Overview The Company manufactures and markets a wide range of iron castings and forgings for the heavy municipal market and selected segments of the industrial markets. Neenah began business in 1872 and has built a strong reputation for producing quality iron castings. Neenah is one of the largest manufacturers of heavy municipal iron castings in the United States. Neenah'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. Neenah sells these municipal castings 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. In addition, Neenah is also a leading manufacturer of a wide range of complex industrial castings, including castings for the transportation industry, a broad range of castings for the farm equipment industry, and specific components for compressors used in heating, ventilation and air conditioning (HVAC) systems. Background On April 30, 1997, pursuant to an Agreement and Plan of Reorganization with NC Merger Company and NFC, Neenah Corporation (the predecessor company) was acquired by NFC, a holding company and a wholly owned subsidiary of ACP. 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. The other two wholly owned subsidiaries were Neenah Transport, Inc. and Hartley Controls Corporation, an entity that was later sold. On July 1, 1997, Neenah Foundry Company merged with and into Neenah Corporation and the surviving company changed its name to Neenah Foundry Company. On March 30, 1998, Neenah acquired all the capital stock of Deeter for $24.3 million. Since 1945, Deeter has been producing gray iron castings for the heavy municipal market. The municipal casting product line of Deeter 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, Neenah acquired all the capital stock of Mercer for $47.0 million in cash. Founded in 1954, Mercer produces complex-shaped forged components for use in transportation, railroad, mining and heavy industrial applications. Mercer is also a producer of microalloy forgings. On September 8, 1998, Neenah acquired all the capital stock of Dalton for $102.0 million in cash. 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. 3 On September 8, 1998, the capital stock of Advanced Cast Products, an entity held by ACP prior to the time ACP acquired its interest in NFC, was contributed to Neenah by ACP. Advanced Cast Products is an independent manufacturer of ductile iron castings. Advanced Cast Products' production capabilities also include a range of finishing operations including austempering and machining. Advanced Cast Products sells its products primarily to companies in the heavy truck, construction equipment, railroad, mining and automotive industries. On December 31, 1998, Neenah purchased Cast Alloys, a manufacturer of investment-cast titanium and stainless steel golf clubheads, for $40.1 million in cash. Neenah discontinued the operations of Cast Alloys in January 2002. On November 30, 1999, Neenah purchased Gregg, a manufacturer of gray and ductile iron castings, for $22.9 million in cash. On October 2, 2000, Neenah sold all of the issued and outstanding shares of common stock of Hartley Controls Corporation. On August 8, 2002, Neenah sold substantially all of the assets of Peerless Corporation. On December 27, 2002, Neenah sold substantially all of the assets of Belcher Corporation. Bankruptcy Proceedings Beginning in 2000, several trends converged to create an extremely difficult operating environment for the Company. First, there were dramatic cyclical declines in some of Neenah's most important markets including trucks, railroad, construction and agriculture equipment. Second, there was a major inventory adjustment by manufacturers in the residential segment of the HVAC equipment industry, resulting in fewer orders for Dalton's HVAC castings. Third, domestic foundries had been suffering from underutilized capacity, significantly increased foreign competition, continued price reduction pressure from customers and other competitors, and increased costs associated with heightened safety and environmental regulations. These factors caused and to some extent continue to cause a substantial number of foundries to cease operations or file for bankruptcy protection. Beginning in May 2000, the Company took aggressive steps to offset the impact of the decline in sales and earnings and improve cash flow in the difficult market environment: William Barrett was appointed as the new chief executive officer of NFC; Hartley Controls was sold in September 2000 for $5.0 million in total proceeds; other excess assets were sold for $5.3 million in late 2001; the operations of Cast Alloys, Inc. were discontinued in January 2002; substantially all of the assets of Advanced Cast Product's subsidiary Peerless Corporation were sold for $0.3 million in August 2002; and the assets of Belcher Corporation, a subsidiary of Advanced Cast Products, were sold for $4.0 million in December 2002. Furthermore, management also implemented a significant reduction in the number of employees, a significant reduction in capital expenditures and selected price increases. In January 2003, the Company engaged Houlihan Lokey Howard & Zukin Capital to assist in the formulation and evaluation of various options for a restructuring, reorganization, or other strategic alternatives. Despite these steps, the credit rating agencies began to downgrade our outstanding debt obligations in early 2000. Our 11 1/8% Notes became highly illiquid and traded infrequently. According to data obtained from Telerate, the price of the notes fell from a trailing 12 month high of $57.50 in June 2002 to a trailing 12 month low of $30.00 in late December 2002. The trailing six month average price as of June 23, 2003 was approximately $38.60. As of May 2003, Neenah was not in compliance with the March 31, 2003 EBITDA covenant of its old credit facility and lacked sufficient liquidity to make the then-due interest payment on the 11 1/8% Notes and maintain the liquidity covenants under the old credit facility. 4 On May 1, 2003, we launched both an exchange offer for the 11 1/8% Notes and the pre-petition solicitation of acceptances of the plan of reorganization in accordance with section 1126(b) of the Bankruptcy Code. The exchange offer, which was to be completed outside of Bankruptcy Court, did not result in the requisite percentage of 11 1/8% Notes tendered and both the exchange offer and the solicitation of acceptances for the May 1, 2003 plan of reorganization were allowed to expire. On July 1, 2003, we launched a pre-petition solicitation of acceptances with respect to an alternative joint plan of reorganization that was ultimately approved. Having received sufficient votes to approve the plan of reorganization, Neenah together with ACP, NFC and all of our wholly-owned domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, as amended, with the United States Bankruptcy Court for the District of Delaware on August 5, 2003. On that same date we submitted to the Bankruptcy Court our Amended Prepackaged Joint Plan of Reorganization, which we refer to as the Plan of Reorganization, and the Disclosure Statement that we used to solicit votes for that plan. At the time of the Chapter 11 bankruptcy filing, we had approximately $157 million of existing senior debt under our old credit facility and $282 million of principal and accrued and unpaid interest under our 11 1/8% Notes. We negotiated the continued use of our own cash collateral with our senior lenders, thereby enabling us to utilize our own cash to conduct business operations during the pendency of the Chapter 11 filing. Pursuant to the Plan of Reorganization, we conducted a rights offering, whereby holders of the 11 1/8% Notes were given the opportunity to provide up to $110 million additional financing through the purchase of up to $119.996 million face amount of 11% Senior Secured Notes (the "Notes") and warrants to acquire up to 34.2 million shares of common stock of ACP. In case holders of the 11 1/8% Notes failed to subscribe for the full $110.0 million, we also obtained standby commitment agreements from MacKay Shields LLC, Exis Differential Holdings Ltd., Citicorp Mezzanine III, L.P., Trust Company of the West and Metropolitan Life Insurance Company (the "Standby Purchasers) whereby these Standby Purchasers collectively agreed to provide up to $110 million of financing for the Plan of Reorganization by participating in the rights offering (to the extent that they were holders of the 11 1/8% Notes) as well as purchasing any and all unsubscribed securities not subscribed for by the other holders of 11 1/8% Notes. Approximately 94% of the holders of the 11 1/8% Notes participated in the rights offering and the Standby Purchasers were, therefore, only required to fund the shortfall of approximately $6.4 million. By order dated September 26, 2003, the Bankruptcy Court confirmed the Plan of Reorganization and the Plan of Reorganization became effective on October 8, 2003. October 8, 2003 is hereinafter referred to as the Effective Date. The Plan of Reorganization allowed us to emerge from bankruptcy with an improved capital structure and, because we had arranged to continue paying our trade debt on a timely basis during the pendency of the Chapter 11 case, at the time of emergence, we had sufficient trade credit to continue operations in the ordinary course of business. The Plan of Reorganization resulted in significant changes to our capital structure. Among other things, the Plan of Reorganization provided for the repayment in full of our old credit facility, the cancellation of $282.0 million in principal amount of 11 1/8% Notes, the cancellation of the PIK Note (originally issued to Citicorp Mezzanine III, L.P. by our indirect parent company, ACP) and the elimination of the interests of the former equity owners of ACP. The cash proceeds necessary to consummate the Plan of Reorganization were provided from the consummation of the New Credit Facility and the issuance of the Notes. The claims and interests of our various creditors were satisfied as follows: - our old credit facility was repaid in cash; - the PIK Note was cancelled and Citicorp Mezzanine III, L.P., the holder of that note, received Notes with a principal amount equal to $13.134 million, warrants to acquire 3.8 million shares of common stock of ACP and cash in the amount of $45,400; 5 - our outstanding 11 1/8% Notes were cancelled and each holder of 11 1/8% Notes received its pro rata share of (i) $30.0 million in cash, (ii) $100.0 million in aggregate principal amount of new 13% Senior Subordinated Notes due 2013 of the Company, (iii) 38 million shares of common stock of ACP and (iv) rights to acquire for $110 million in cash in the aggregate, units for up to $119.996 million face amount of Notes and warrants to acquire up to 34.2 million shares of common stock of ACP; - the following debt and equity instruments were cancelled without further consideration: 12% senior subordinated notes issued by ACP, 12% senior subordinated notes issued by NFC and all equity interests of ACP; and - the following claims and equity interests passed through our Chapter 11 bankruptcy proceedings unimpaired: all tax claims, intercompany debt, other secured debt and general unsecured debt and the equity interests of ACP in NFC, equity interests of NFC in Neenah and equity interests of Neenah in its direct and indirect subsidiaries. Exploration of Potential Sale Transaction On July 29, 2005, Neenah and ACP announced that Citigroup Global Markets Inc. had been engaged to assist in exploring the potential sale or merger of Neenah or ACP or a significant portion of their assets or capital stock. On November 29, 2005, Neenah announced that its board of directors, which is also the board of directors of ACP, had unanimously voted to end the sale or merger process and turn the Company's focus to successfully implementing the Company's business plan. The Company's business plan recognizes a consolidating market and is intended to position the Company for growth by expanding its revenues and further penetrating existing markets that are already being served. It also involves exploring other strategic alternatives that would have the effect of reducing costs and expanding capacity in selected markets. BUSINESS SEGMENTS - OVERVIEW We have two reportable segments, Castings and Forgings. The Castings segment manufactures and sells iron castings for the municipal and industrial markets, while the Forgings segment manufactures and sells forged components for the industrial market. The segments were determined based upon the production process utilized and the type of product manufactured. Financial information about our reportable segments and geographic areas is contained in Note 10 in the Notes to Consolidated Financial Statements. CASTINGS SEGMENT We are a leading producer of iron castings for use in heavy municipal and industrial applications. This segment sells directly to tier-one suppliers, as well as to other industrial end users. Products, Customers and Markets The castings segment provides a variety of products to both the heavy municipal and industrial markets. Sales to the heavy municipal market are comprised of storm and sanitary sewer castings, manhole covers and frames and storm sewer frames and grates. Sales also include 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. Sales to the industrial market are comprised of differential carriers, transmission, gear and axle housings, yokes, planting and harvesting equipment parts and compressor components. Markets for these products include medium and heavy-duty truck, farm equipment and HVAC manufacturers. 6 Heavy Municipal Our 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 dimensional and strength specifications established by local authorities. Standard castings are generally higher volume items that are routinely used in new construction and infrastructure replacement. Specialty castings are generally lower volume 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 our municipal product catalog and tree grate catalog, which together encompass over 4,400 standard and specialty patterns. For many of these specialty products, we believe that we are 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. We hold a number of patents and trademarks related to our heavy municipal product line. We sell our municipal castings to state and local government entities, utility companies, pre-cast concrete manhole structure producers and contractors for both new construction and infrastructure replacement. Our 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. During the 70 years that we have manufactured municipal products, we have emphasized servicing specific marketing needs and believe that we have built a strong reputation for customer service. We believe that we are one of the leaders in U.S. heavy municipal casting production and that we have strong name recognition. We have one of the largest sales and marketing force of any foundry serving the heavy municipal market. Our dedicated sales force works out of regional sales offices to market municipal castings to contractors and state and local governmental entities throughout the United States. We operate a number of regional distribution and sales centers throughout the United States. We believe that this regional approach enhances our knowledge of local specifications and our position in the heavy municipal market. Industrial Industrial castings have increased in complexity and are generally produced in higher numbers 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. 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 that require less preparation before being considered a finished product. We primarily sell our industrial castings to a limited number of customers with whom we have established close working relationships. These customers base their purchasing decisions on, among other things, our technical ability, price, service, quality assurance systems, facility capabilities and reputation. Our assistance in product engineering plays an important role in winning bids for industrial castings. For the average industrial casting, 12 to 18 months typically elapse between the design phase and full production. The product life cycle of a typical industrial casting is quite long. Although the patterns for industrial castings are owned by the customer and not the foundry, as is the case with the patterns for municipal castings, industrial patterns are not readily transferable to other foundries without, in most cases, significant additional investment. Foundries, including our company, generally do not design industrial castings. Nevertheless, a close working relationship between the 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 damage to its reputation due to a delayed launch. Involvement by a foundry early in the design process generally increases 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. 7 We estimate that we have historically retained approximately 90% of the castings that we have been awarded throughout the product life cycle, which is typical for the industry. We believe industrial customers will continue to seek out a foundry with a strong reputation for performance that is capable of providing a cost-effective combination of manufacturing technology and quality. Our strategy is to augment our relationships with existing customers by participating in the development and production of more complex industrial castings, while seeking out selected new customers who would value our performance reputation, technical ability and high level of quality and service. We employ a dedicated industrial casting sales force at all of our subsidiary locations, with the exception of Deeter. Our sales force supports ongoing customer relationships, as well as working with customers' engineers and procurement representatives and our engineers, manufacturing management and quality assurance representatives throughout all stages of the production process to ensure that the final product consistently meets or exceeds the specifications of our customers. This team approach, consisting of sales, marketing, manufacturing, engineering and quality assurance efforts is an integral part of our marketing strategy. Manufacturing Process Our foundries manufacture gray and ductile iron and cast it into intricate shapes according to customer metallurgical and dimensional specifications. We continually invest in the improvement of process controls and product performance and believe that these investments and our significant experience in the industry have made us one of the most efficient manufacturers of industrial and heavy municipal casting products. The casting process involves using metal, wood or urethane patterns to make an impression of a desired shape 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. 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. Once the iron has solidified and cooled, the mold sand is separated 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 and its complexity, specifications and function as well as the 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. We continually seek out ways to expand the capabilities of existing technology to improve our manufacturing processes. We also achieve 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 or to produce a different casting product. Such time reductions enable us to produce castings in medium volume quantities on high volume, cost-effective molding equipment. Additionally, our extensive effort in real time process controls permits us to produce a consistent, dimensionally accurate casting, which saves time and effort in the final processing stages of production. This dimensional accuracy contributes significantly to our manufacturing efficiency. Continual testing and monitoring of the manufacturing process is important to maintain product quality. We, therefore, have adopted sophisticated quality assurance techniques and policies for our manufacturing operations. During and after the casting process, we perform numerous tests, including tensile, proof-load, radiography, ultrasonic, magnetic particle and chemical analysis. We utilize statistical process controls to measure and control significant process variables and casting dimensions. We document the results of this testing in metallurgical certifications that are sometimes included with each shipment to our industrial customers. We strive to maintain systems that provide for continual improvement of operations and personnel, emphasize defect prevention, safety and reduce variation and waste in all areas. 8 Raw Materials The primary raw materials used 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, we have generally elected to maintain single-source arrangements with our suppliers for most of these major raw materials except pig iron. Due to long standing relationships with each of our suppliers, we believe that we will continue to be able to secure the proper amount and type of raw materials at competitive prices. Although the prices of the raw materials used vary, fluctuations in the price of scrap metal are the most significant to us. We have arrangements with our industrial customers that enable us 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. Such prior periods vary by customer, but are generally no longer than three months. Castings are sometimes 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 increases in the prices of raw materials. Rapidly fluctuating scrap prices may, however, have an adverse or positive effect on our business, financial condition and results of operations. Seasonality We have historically experienced moderate cyclicality in the heavy municipal market as sales of municipal products are influenced by, among other things, public spending. There is generally not a large backlog of business in the municipal market due to the nature of the market. In the industrial market, we experience cyclicality in sales resulting from fluctuations in our markets, including the medium and heavy-duty truck and the farm equipment markets, which are subject to general economic trends. We experience seasonality in our 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 our fiscal year. We attempt to maintain level production throughout the year in anticipation of such seasonality and therefore do not experience significant production volume fluctuations. We build inventory in anticipation of the construction season. This inventory build-up has a negative impact on working capital and increases our liquidity needs during the second quarter. We have not historically experienced significant seasonality in industrial casting sales. Competition The markets for our products are highly competitive. Competition is based mainly on price, but also on quality of product, range of capability, level of service and reliability of delivery. We compete with numerous domestic foundries, as well as with a number of foreign iron foundries. We also compete with several large domestic manufacturers whose products are made with materials other than ductile and gray iron, such as steel or aluminum. Industry consolidation over the past 20 years has resulted in a significant reduction in the number of foundries and a rise in the share of production by larger foundries, some of which have significantly greater financial resources than do we. Competition from foreign foundries has had an ongoing 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. 9 FORGINGS SEGMENT Our forgings segment, operated by Mercer, produces complex-shaped forged components for use in transportation, railroad, mining and heavy industrial applications. Mercer also produces micro alloy forgings. Mercer sells directly to original equipment manufacturers ("OEMs"), as well as to industrial end users. Mercer's subsidiary, A&M Specialties, Inc., 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. Mercer produces approximately 500 individually forged components and has developed specialized expertise in forgings of micro alloy steel. Products, Customers and Markets Mercer manufactures its products to customer specification with typical production runs of 1,000 or more units. Mercer currently operates mechanical press lines, from 1,300 tons to 4,000 tons. Key markets for Mercer include truck and automotive parts, railroad equipment and general industrial machinery. Mercer's in-house sales organization sells directly 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 delivery performance. Demand for forged products 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. Mercer's largest industry segment, the heavy truck segment, is extremely weak. Mercer's other market segments are also showing weakness following general economic slowdowns in those industrial areas. Management attributes this to normal industrial cycles in these markets and adjustments to overbuilds in inventory levels as well as high energy costs. Manufacturing Process Forgings and castings (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 take the desired shape. Because the metal flow is restricted by the die, 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 and bolt holes. 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. 10 An internal staff of engineers designs products to meet customer specifications incorporating computer assisted design workstations 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 micro alloy steel which produces parts which are lighter and stronger than those forged from conventional carbon steel. Raw Materials The principal raw materials used in Mercer's products are carbon and micro alloy steel. Mercer purchases substantially all of its carbon steel from four principal sources. 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. Seasonality Mercer has experienced moderate cyclicality in sales resulting from fluctuations in the medium and heavy-duty truck market and the heavy industrial market, which are subject to general economic trends. 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 internally, 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. INTELLECTUAL PROPERTY We have registered, and are in the process of registering, various trademarks and service marks with the U.S. Patent and Trademark Office. EMPLOYEES As of September 30, 2005, we had approximately 3,000 full time employees, of whom 2,448 were hourly employees and 552 were salaried employees. Nearly all of the hourly employees at Neenah, Dalton, Advanced Cast Products and Mercer are members of either the United Steelworkers of America 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: Neenah, December 2006; Dalton-Warsaw, April 2008; Dalton-Kendallville, June 2007; Advanced Cast Products-Meadville, October 2010; and Mercer, June 2008. All employees at Deeter and Gregg are non-union. We believe that we have a good relationship with our employees. 11 ENVIRONMENTAL MATTERS Our facilities 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. We believe that each of our operations are currently in substantial compliance with applicable environmental laws, and that we have no liabilities arising under such environmental laws which would have a material adverse effect on our operations, financial condition or competitive position. However, some risk of environmental liability and other cost is inherent in each of our businesses. Any of our businesses 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 will be required to implement the MACT emission limits, control technologies or work practices by April 2007. We estimate that the total cost for compliance with the MACT standard will be less than $3.0 million. The Federal Water Pollution Control Act (Clean Water Act) requires point dischargers to obtain stormwater discharge permits. The Wisconsin Department of Natural Resources (WDNR) was given permitting authority by the Environmental Protection Agency (EPA) in 1974 and continues to administer this program. Neenah has a General Permit to Discharge Stormwater Associated with Industrial Activity and is required to discharge stormwater that complies with EPA Benchmark values for various stormwater contaminants. $1.2 million is budgeted for fiscal 2006 to install stormwater treatment devices needed to achieve compliance with the EPA Benchmarks the WDNR is using for permit compliance. 12 Item 2. PROPERTIES We maintain the following manufacturing, machining, and office facilities. All of the facilities are owned, with the exception of Mercer's machining facility, which is leased.
ENTITY LOCATION PURPOSE ------ -------- ------- CASTINGS SEGMENT: Neenah Foundry Company Neenah, WI 2 manufacturing facilities Office facility Dalton Corporation Warsaw, IN Manufacturing and office facilities Kendallville, IN Manufacturing facility Stryker, OH Machining facility Advanced Cast Products, Inc. Meadville, PA Manufacturing and office facility Deeter Foundry, Inc. Lincoln, NE Manufacturing and office facility Gregg Industries, Inc. El Monte, CA Manufacturing and office facility FORGINGS SEGMENT: Mercer Forge Corporation Mercer, PA Manufacturing and office facility Sharon, PA Machining facility
In addition to the facilities above, Neenah operates thirteen distribution and sales centers. Six of those properties are owned and seven are leased. The principal equipment at the facilities consists of molding machines, presses, machining equipment, welding, grinding and painting equipment. We regard our plant and equipment as well maintained and adequate for its needs. Substantially all of the Company's tangible and intangible assets are pledged to secure the Senior Secured Notes and the Company's Credit Facility. See Note 6 in the Notes to Consolidated Financial Statements. Item 3. LEGAL PROCEEDINGS See "Reorganized Company Fiscal Year Ended September 30, 2005 Compared to the Reorganized Company Fiscal Year Ended September 30, 2004 - Settlement of Litigation" in Item 7 of this report for information concerning the settlement of a legal proceeding which is incorporated herein by reference. We are involved in routine litigation incidental to our business. Such litigation is not, in our opinion, likely to have a material adverse effect on our financial condition or results of operations. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the quarter ended September 30, 2005. 13 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. There is no public market for our common stock. There was one holder of record of our common stock as of December 23, 2005, NFC Castings, Inc., a wholly owned subsidiary of ACP Holding Company We have not paid any cash dividends on our common stock in the last two fiscal years nor have we repurchased any equity securities in the fourth quarter of fiscal 2005. Our Credit Facility and the indentures providing for our Senior Secured and Senior Subordinated Notes severely restrict our ability to pay dividends or repurchase equity. See "Liquidity and Capital Resources" in Item 7 and Note 6 in the Notes to Consolidated Financial Statements for a description of such limitations. 14 Item 6. SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA On August 5, 2003, ACP, NFC, and the Company filed for bankruptcy protection and emerged therefrom on October 8, 2003. Although the Plan of Reorganization became effective on October 8, 2003, due to the immateriality of the results of operations for the period between October 1, 2003 and the Effective Date, for financial reporting purposes we recorded the fresh-start adjustments necessitated by the American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code," ("SOP 90-7") on October 1, 2003. As a result of the gain on extinguishment of debt and adjustments to the fair value of assets and liabilities, we recognized a $43.9 million reorganization gain on October 1, 2003. As a result of our emergence from Chapter 11 bankruptcy and the application of fresh-start reporting, our consolidated financial statements for the periods commencing on October 1, 2003 are referred to as the "Reorganized Company" and will not be comparable with any periods prior to October 1, 2003, which are referred to as the "Predecessor Company" (see Note 1 in the Notes to Consolidated Financial Statements). All references to the years ended September 30, 2005 and 2004 are to the Reorganized Company. All references to the years ended September 30, 2003, 2002 and 2001 are to the Predecessor Company. The following table sets forth our selected historical consolidated financial and other data as of and for the years ended September 30, 2005, 2004, 2003, 2002, and 2001 which have been derived from our historical consolidated financial statements. 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 our historical consolidated financial statements and related notes included elsewhere in this report. All amounts are presented in thousands.
REORGANIZED PREDECESSOR ------------------- ------------------------------------- FISCAL YEAR ENDED SEPTEMBER 30, ----------------------------------------------------------- 2005 2004 2003(3) 2002(2)(3) 2001(1)(2)(3) -------- -------- -------- ---------- ------------- STATEMENT OF OPERATIONS DATA: Net sales .................................. $541,772 $450,942 $375,063 $387,707 $398,782 Cost of sales .............................. 440,818 375,124 321,834 323,740 335,264 -------- -------- -------- -------- -------- Gross profit ............................... 100,954 75,818 53,229 63,967 63,518 Selling, general and administrative expenses ................................ 34,467 27,374 26,132 28,743 27,587 Litigation settlement ...................... 6,500 -- -- -- -- Amortization expense ....................... 7,124 7,121 3,819 3,829 10,489 Provision for impairment of assets ......... -- -- -- 74 -- Other expenses (income) .................... 953 465 195 544 (434) -------- -------- -------- -------- -------- Operating income ........................... 51,910 40,858 23,083 30,777 25,876 Interest expense, net ...................... 33,406 33,363 46,620 42,647 43,009 Reorganization expense ..................... -- -- 7,874 -- -- -------- -------- -------- -------- -------- Income (loss) from continuing operations before income taxes ..................... 18,504 7,495 (31,411) (11,870) (17,133) Provision (credit) for income taxes ........ 3,409 3,881 (8,541) (5,917) (4,004) -------- -------- -------- -------- -------- Income (loss) from continuing operations ... 15,095 3,614 (22,870) (5,953) (13,129) Loss from discontinued operations, net of income taxes ............................ -- (359) (1,095) (41,750) (4,325) Gain (loss) on sale of discontinued operations, net of income taxes ......... -- -- (1,596) -- 2,404 -------- -------- -------- -------- -------- Net income (loss) .......................... $ 15,095 $ 3,255 $(25,561) $(47,703) $(15,050) ======== ======== ======== ======== ======== BALANCE SHEET DATA (AT END OF PERIOD): Cash and cash equivalents .................. $ 3,484 $ -- $ 24,356 $ 26,164 $ 4,346 Working capital ............................ 62,937 49,918 102,866 65,050 72,140 Total assets ............................... 412,555 407,440 536,834 569,388 626,443 Total debt ................................. 271,754 283,801 439,357 451,432 434,077 Total stockholder's equity (deficit) ....... 17,353 8,784 (39,016) (12,146) 41,939
---------- (1) On October 2, 2000, we sold all of the issued and outstanding shares of common stock of Hartley Controls Corporation. The results of the operations of Hartley Controls Corporation have been reported separately as discontinued operations for all periods presented. (2) During the year ended September 30, 2002, we discontinued the operations of Cast Alloys. The results of Cast Alloys have been reported separately as discontinued operations for all periods presented. (3) During the year ended September 30, 2003, we sold substantially all of the assets of Belcher Corporation. The results of Belcher Corporation have been reported separately as discontinued operations for all periods presented. 15 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 "believe," "anticipate," "expect" or words of similar import. Similarly, statements that describe our 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 otherwise herein 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 we undertake no obligation to update such forward-looking statements to reflect subsequent events or circumstances. Due to the Company's emergence from its Chapter 11 proceedings on October 8, 2003, the Company has implemented the "fresh start" accounting provisions of AICPA Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code," ("SOP 90-7") to its financial statements. Fresh start requires that, upon the Company's emergence, the Company establish a "fair value" basis for the carrying value of the assets and liabilities for the reorganized Company. Although the effective date of the Plan of Reorganization was October 8, 2003, due to the immateriality of the results of operations for the period between October 1, 2003 and the effective date, the Company accounted for the consummation of the Plan of Reorganization as if it had occurred on October 1, 2003 and implemented fresh start accounting as of that date. RECENT DEVELOPMENTS Exploration of Potential Sale Transaction. On July 29, 2005, Neenah and ACP announced that Citigroup Global Markets Inc. had been engaged to assist in exploring the potential sale or merger of Neenah or ACP or a significant portion of their assets or capital stock. On November 29, 2005, Neenah announced that its board of directors, which is also the board of directors of ACP, had unanimously voted to end the sale or merger process and turn the Company's focus to successfully implementing the Company's business plan. The Company's business plan recognizes a consolidating market and is intended to position the Company for growth by expanding its revenues and further penetrating existing markets that are already being served. It also involves exploring other strategic alternatives that would have the effect of reducing costs and expanding capacity in selected markets. RESULTS OF OPERATIONS We derive substantially all of our revenue from manufacturing and marketing a wide range of metal castings and forgings for the heavy municipal market and selected segments of the industrial markets. We have two reportable segments, Castings and Forgings. The Castings segment is a leading producer of iron castings for use in heavy municipal and industrial applications. This segment sells directly to original equipment manufacturers, hereinafter referred to as OEMs, as well as to industrial end users. The forgings segment, operated by Mercer, is a producer of complex-shaped forged components for use in transportation, railroad, mining and heavy industrial applications. Mercer is also a producer of microalloy forgings. Mercer sells directly to OEMs, as well as to industrial end users. Mercer's subsidiary, A&M Specialties, Inc., machines forgings and castings for Mercer and other industrial applications. Restructuring charges and certain other expenses, such as income taxes, general corporate expenses and financing costs, are not allocated between our two operating segments. BANKRUPTCY PROCEEDINGS On August 5, 2003, we, together with ACP and NFC filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code, as amended, with the United States Bankruptcy Court for the District of Delaware and submitted to the Bankruptcy Court for approval the Disclosure Statement for our Amended Prepackaged Joint Chapter 11 Plan of Reorganization, which we call the Plan of Reorganization. 16 By order dated September 26, 2003, the Bankruptcy Court confirmed the Plan of Reorganization and the Plan of Reorganization became effective on October 8, 2003. October 8, 2003 is hereinafter referred to as the "Effective Date". The Plan of Reorganization allowed us to emerge from bankruptcy with an improved capital structure. Because we had arranged to continue paying our trade debt on a timely basis, we had sufficient trade credit to continue operations in the ordinary course of business during the pendency of the Chapter 11 proceedings. On the Effective Date, we entered into a new senior credit facility. See "Liquidity and Capital Resources - Credit Facility" below for further discussion. The Plan of Reorganization resulted in significant changes to our capital structure. Among other things, the Plan of Reorganization provided for the repayment in full of our old credit facility, the cancellation of $282.0 million in principal amount of 11 1/8% Notes, the cancellation of the PIK Note (originally issued to Citicorp Mezzanine III, L.P. by our indirect parent company, ACP) and the elimination of the interests of the former equity owners of ACP. The cash proceeds necessary to consummate the Plan of Reorganization were provided from the consummation of the New Credit Facility and the issuance of 11% Senior Secured Notes (the "Notes"). The claims and interests of our various creditors were satisfied as follows: - our old credit facility was repaid in cash; - the PIK Note was cancelled and Citicorp Mezzanine III, L.P., the holder of that note, received Notes with a principal amount equal to $13.134 million, warrants to acquire 3.8 million shares of common stock of ACP and cash in the amount of $45,400; - our outstanding 11 1/8% Notes were cancelled and each holder of 11 1/8% Notes received its pro rata share of (i) $30.0 million in cash, (ii) $100.0 million in aggregate principal amount of new 13% Senior Subordinated Notes due 2013 of the Company, (iii) 38 million shares of common stock of ACP and (iv) rights to acquire for $110 million in cash in the aggregate, units for up to $119.996 million face amount of Notes and warrants to acquire up to 34.2 million shares of common stock of ACP; - the following debt and equity instruments were cancelled without further consideration: 12% senior subordinated notes issued by ACP, 12% senior subordinated notes issued by NFC and all equity interests of ACP; and - the following claims and equity interests passed through our Chapter 11 bankruptcy proceedings unimpaired: all tax claims, intercompany debt, other secured debt and general unsecured debt and the equity interests of ACP in NFC, equity interests of NFC in Neenah and equity interests of Neenah in its direct and indirect subsidiaries. As a result of the Plan of Reorganization, significant changes resulted to our capital structure. Although the Plan of Reorganization became effective on October 8, 2003, due to the immateriality of the results of operations for the period between October 1, 2003 and the Effective Date, for financial reporting purposes we recorded the fresh-start adjustments necessitated by SOP 90-7 on October 1, 2003. Reorganization value is defined by SOP 90-7 as "the fair value of the entity before considering liabilities and approximates the amount a willing buyer would pay for the assets of the entity immediately after the restructuring." Our reorganization value was $290 million and was determined based on the consideration of many factors and by reliance on various valuation techniques, including comparable company analysis and discounted cash flow analyses. As a result of our emergence from Chapter 11 bankruptcy and the application of fresh-start reporting, our consolidated financial statements for the periods commencing on October 1, 2003 are referred to as the "Reorganized Company" and are not comparable with any periods prior to October 1, 2003, which are referred to as the "Predecessor Company" (see Note 1 in the Notes to Consolidated Financial Statements). 17 All references to years ended September 30, 2003, 2002, and 2001 are to the Predecessor Company. All references to the periods subsequent to October 1, 2003 are to the Reorganized Company. REORGANIZED COMPANY FISCAL YEAR ENDED SEPTEMBER 30, 2005 COMPARED TO THE REORGANIZED COMPANY FISCAL YEAR ENDED SEPTEMBER 30, 2004 Net Sales. Net sales for the year ended September 30, 2005 were $541.8 million, which was $90.9 million or 20.2% higher than the year ended September 30, 2004. The increase was due to increased demand for industrial castings used in the heavy duty truck market, increased shipments of municipal products, higher pricing (including steel scrap cost recovery) on both industrial and construction castings, and new business at all locations. Gross Profit. Gross profit was $101.0 million for the year ended September 30, 2005, which was $25.2 million or 33.2% higher than the year ended September 30, 2004. Gross profit as a percentage of net sales increased to 18.6% during the year ended September 30, 2005 from 16.8% for the fiscal year ended September 30, 2004. The majority of the increase in gross profit resulted from sales volume increases and the efficiencies achieved by operating the manufacturing plants at higher capacity. Selling, General and Administrative Expenses. Selling, general and administrative expenses for the year ended September 30, 2005 were $34.5 million, an increase of $7.1 million from the $27.4 million for the year ended September 30, 2004. As a percentage of net sales, selling, general and administrative expenses increased to 6.4% for the year ended September 30, 2005 from 6.1% for the fiscal year ended September 30, 2004. The increase was due to increased expense for incentive plans based on improved profitability, the writeoff of a large accounts receivable balance of a customer who filed for Chapter 11 bankruptcy protection, a decrease in the rebate received from countervailing duties assessed on imported products, and increases in fringe benefit costs, specifically health care. Also, legal and professional costs increased in comparison to the prior year; however, the prior year cost level was abnormally low due to the majority of the 2004 legal and professional fees related to the bankruptcy reorganization, which were recorded in fresh start accounting. Settlement of Litigation. On November 22, 2004, Neenah entered into a letter of intent ("LOI") with respect to a proposed management buyout of all the outstanding stock of our wholly owned subsidiary Mercer Forge Corporation ("Mercer"). The parties to the LOI, however, were unable to agree on the terms of a definitive agreement by the extended termination date of the LOI, which had lapsed. The long-lived assets of Mercer were classified as held for use as of September 30, 2004 and continue to be so classified. On January 24, 2005, JD Holdings, LLC ("JDH"), one of the counterparties to the LOI, filed a complaint in the United States District Court for the Southern District of New York against Neenah alleging, among other things, that Neenah breached the terms of the LOI by not consummating the sale of the stock of Mercer to JDH. The complaint sought an order of specific performance of the LOI or, in the alternative, no less than $35 million in damages and, in either case, an order temporarily, preliminarily and permanently restraining Neenah from transferring the stock of Mercer to any third party. Neenah answered the complaint, denying the material allegations thereof, and filed a counterclaim against JDH alleging breach of the LOI and seeking damages for the costs associated with the negotiation of the potential transaction. The parties agreed to mediate this dispute and the litigation was stayed pending the outcome of the mediation and of follow-on settlement discussions. On August 5, 2005, the parties agreed to settle this matter. The settlement provided for a $6.5 million cash payment by the Company to JDH and the exchange of full and final releases by the parties on behalf of themselves and their respective members, officers, directors, affiliates and shareholders. Each party dismissed with prejudice the claims pending against the other in the Southern District of New York. The entry into the settlement, and the consequent avoidance of the costs and distractions of continued litigation, as well as of the uncertainty associated with the judicial process, was deemed to be in the best interests of the Company. 18 Amortization of Intangible Assets. Amortization of intangible assets was $7.1 million for each of the years ended September 30, 2005 and September 30, 2004. Other Expenses. Other expenses for the years ended September 30, 2005 and 2004 consist of losses of $1.0 million and $0.5 million, respectively, for the disposal of long-lived assets in the ordinary course of business. Operating Income. Operating income was $51.9 million for the year ended September 30, 2005, an increase of $11.1 million or 27.1% from the year ended September 30, 2004. The increase was caused by the reasons discussed above under gross profit and was partially offset by the $6.5 million litigation settlement and increased selling, general and administrative expenses. As a percentage of net sales, operating income increased from 9.1% for the year ended September 30, 2004 to 9.6% for the year ended September 30, 2005. Net Interest Expense. Net interest expense was $33.4 million for each of the years ended September 30, 2005 and 2004. Provision for Income Taxes. The provision for income taxes for the year ended September 30, 2005 is lower than the amount computed by applying our statutory rate of 35% to the income before income taxes principally due to a change in the tax method of determining LIFO inventory and the recognition of permanent differences due to the reorganization. The change in tax method of determining LIFO inventory resulted in a tax benefit of $2.7 million, which increased fiscal 2005 net income by $2.7 million. REORGANIZED COMPANY FISCAL YEAR ENDED SEPTEMBER 30, 2004 COMPARED TO THE PREDECESSOR COMPANY FISCAL YEAR ENDED SEPTEMBER 30, 2003 Net Sales. Net sales for the year ended September 30, 2004 were $450.9 million, which was $75.8 million or 20.2% higher than the year ended September 30, 2003. Approximately $34.8 million, which represents 46% of the total increase in net sales, was due to the increased cost of steel scrap charged to customers. Most of the remainder of the increase was due to significantly increased demand for industrial castings used in the heavy duty truck market and lesser increases in construction, agricultural and municipal products. New business at all locations also contributed to sales growth. Gross Profit. Gross profit was $75.8 million for the year ended September 30, 2004, which was $22.6 million or 42.4% higher than the year ended September 30, 2003. Gross profit as a percentage of net sales increased to 16.8% during the year ended September 30, 2004 from 14.2% for the fiscal year ended September 30, 2003. The increase in gross profit resulted from sales volume increases and the efficiencies achieved by operating the manufacturing plants at higher capacity. This increase was partially offset by an approximately $3.3 million increase in scrap metal costs which had not yet been recovered from customers. These increased scrap metal costs are recovered on a delayed basis from the Company's industrial customers and require a general price increase to recover the costs from municipal customers. Selling, General and Administrative Expenses. Selling, general and administrative expenses for the year ended September 30, 2004 were $27.4 million, an increase of $1.3 million from the $26.1 million for the year ended September 30, 2003. As a percentage of net sales, selling, general and administrative expenses decreased to 6.1% for the year ended September 30, 2004 from 7.0% for the fiscal year ended September 30, 2003. The percentage decrease was due to relatively stable selling, general and administrative expenses spread across a larger sales volume. Amortization of Intangible Assets. Amortization of intangible assets for the year ended September 30, 2004 was $7.1 million, an increase of $3.3 million from the $3.8 million for the year ended September 30, 2003. The increase was due to the increase in amortizable identifiable intangible assets resulting from applying fresh start accounting as discussed in Note 1 in the Notes to Consolidated Financial Statements. 19 Other Expenses. Other expenses for the years ended September 30, 2004 and 2003 consist of losses of $0.5 million and $0.2 million, respectively, for the disposal of long-lived assets in the ordinary course of business. Operating Income. Operating income was $40.9 million for the year ended September 30, 2004, an increase of $17.8 million or 77.0% from the year ended September 30, 2003. The increase was caused by the reasons discussed above under gross profit and was partially offset by slightly higher selling, general and administrative expenses. As a percentage of net sales, operating income increased from 6.2% for the year ended September 30, 2003 to 9.1% for the year ended September 30, 2004. Net Interest Expense. Net interest expense decreased to $33.4 million for the year ended September 30, 2004 from $46.6 million for the year ended September 30, 2003. The decreased interest expense resulted from the reduction in borrowing due to the reorganization discussed in Note 1 in the Notes to Consolidated Financial Statements. Reorganization Expense. We recorded $7.9 million of reorganization expenses in 2003 which related to professional fees incurred in connection with the restructuring of our company and our filing for Chapter 11 bankruptcy protection as well as the write-off of debt issuance costs and premiums related to the 11 1/8% Notes. Provision for Income Taxes. The provision for income taxes for the year ended September 30, 2004 is higher than the amount computed by applying our statutory rate of 35% to the income before income taxes principally due to state income taxes and the loss of benefit on fiscal year 2004's net operating losses due to the reorganization. Loss from Discontinued Operations. During December 2002, we sold substantially all of the assets of Belcher. The disposition of Belcher resulted in a loss of $1.6 million net of income taxes, which we recognized in the year ended September 30, 2003. In accordance with the provisions of Statement of Financial Accounting Standards No. 144, or SFAS 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the results of operations for Belcher have been reported as discontinued operations in the consolidated statements of operations for all periods presented. 20 LIQUIDITY AND CAPITAL RESOURCES Credit Facility. On July 28, 2005, the Company amended its bank Loan and Security Agreement (the "Credit Facility"), which was originally entered into as of October 8, 2003 upon our emergence from bankruptcy. The following principal changes were made to the Credit Facility: (i) the revolving loan commitment under the Credit Facility was increased from $70 million to $92.1 million (provided, however, that the outstanding aggregate amount of revolving loans, letters of credit and term loans provided under the Credit Facility may not exceed the revolving loan commitment at any time), (ii) the interest rates applicable to revolving loans and term loans were reduced, (iii) the maturity of the Credit Facility was extended by one year, to October 8, 2009 (iv) the Company was provided additional flexibility to pay deferrable interest on its outstanding 13% Senior Subordinated Notes due 2013 and to make repayments, prepayments, redemptions and repurchases of the Senior Subordinated Notes, (v) the Company was authorized to sell Mercer Forge Corporation and/or Gregg Industries, Inc., subject to certain conditions, and (vi) the principal financial covenant in the Credit Facility was revised in a manner that is more favorable to the Company than before. The Company's Credit Facility, as amended on July 28, 2005, consists of a revolving credit facility of up to $92.1 million (with a $5 million sublimit available for letters of credit and term loans in the aggregate original principal amount of $22.1 million). The Credit Facility matures on October 8, 2009, and bears interest at rates based on the lenders' Base Rate, as defined in the Credit Facility, or an adjusted rate based on LIBOR. Availability under the Credit Facility is based on various advance rates against the Company's accounts receivable and inventory. Amounts under the revolving credit facility may be borrowed, repaid and reborrowed subject to the terms of the facility. At September 30, 2005, the Company had approximately $30.5 million outstanding under the revolving credit facility and approximately $16.6 million outstanding under the term loan facility. No portion of the term loan, once repaid, may be reborrowed. Substantially all of the Company's wholly owned subsidiaries are co-borrowers with the Company under the Credit Facility and are jointly and severally liable with the Company for all obligations under the Credit Facility, subject to customary exceptions for transactions of this type. In addition, NFC Castings, Inc. ("NFC"), the Company's immediate parent, and the remaining wholly owned subsidiaries of the Company jointly and severally guarantee the Company's obligations under the Credit Facility, subject to customary exceptions for transactions of this type. The borrowers' and guarantors' obligations under the Credit Facility are secured by a first priority perfected security interest, subject to customary restrictions, in substantially all of the tangible and intangible assets of the Company and its subsidiaries. The senior secured notes discussed below, and the guarantees in respect thereof, are equal in right of payment to the Credit Facility, and the guarantees in respect thereof. The liens in respect of the senior secured notes are junior to the liens securing the Credit Facility and guarantees thereof. Voluntary prepayments may be made at any time on the term loan borrowings or the revolving borrowings upon customary prior notice. Prepayments on the term loan borrowings may be made at any time without premium or penalty unless a simultaneous reduction of the revolving loan commitment amount is being made or if any such reduction of the revolving loan commitment amount has been made previously. Reductions of the revolving loan commitment are subject to certain premiums specified in the Credit Facility. Mandatory repayments are required under certain circumstances, including a sale of assets or the issuance of debt or equity. The Credit Facility requires the Company to observe certain customary conditions, affirmative covenants and negative covenants including financial covenants. The Credit Facility also contains events of default customary for these types of facilities, including, without limitation, payment defaults, material misrepresentations, covenant defaults, bankruptcy and a change of ownership of the Company, NFC or ACP Holding Company, NFC's immediate parent company. The Company is prohibited from paying dividends and is restricted to a maximum yearly stock repurchase of $250,000. At September 30, 2005, the Company is in compliance with existing bank covenants. 21 Subsequent to the end of fiscal 2005, the Company further amended the Credit Facility to allow the $6.5 million settlement in connection with the Mercer litigation, discussed above, to be added back in the calculation of Adjusted EBITDA. The amendment was executed and became effective on December 9, 2005. 11% Senior Secured Notes due 2010. The Company has outstanding Senior Secured Notes due 2010 in the principal amount of $133.1 million, with a coupon rate of 11%. These notes were issued at a price which included a discount of $11.7 million. The obligations under the Senior Secured Notes due 2010 are equal in right of payment to the Credit Facility and the associated guarantees. The liens securing the senior secured notes are junior to the liens securing the Credit Facility and guarantees thereof. Interest on the Senior Secured Notes due 2010 is payable on a semi-annual basis. The Company's obligations under the notes are guaranteed on a secured basis by each of its wholly owned subsidiaries. Subject to the restrictions in the Credit Facility, the notes are redeemable at the Company's option in whole or in part at any time on or after September 30, 2007, with not less than 30 days nor more than 60 days notice, at the redemption price specified in the indenture governing the notes (105.500% of the principal amount redeemed beginning September 30, 2007, 104.125% beginning September 30, 2008, and 102.750% beginning September 30, 2009 and thereafter), plus accrued and unpaid interest up to the redemption date. Upon the occurrence of a "change of control" as defined in the indenture governing the notes, the Company may be required to make an offer to purchase the secured notes at 101% of the outstanding principal amount thereof, plus accrued and unpaid interest up to the purchase date. The secured notes contain customary covenants typical to this type of financing, such as limitations on (1) indebtedness, (2) restricted payments (among other things, currently limiting most dividends and similar payments by Neenah and its subsidiaries to no more than approximately $14 million), (3) liens, (4) restrictions on distributions from restricted subsidiaries, (5) sale of assets, (6) affiliate transactions, (7) mergers and consolidations and (8) lines of business. The secured notes also contain customary events of default typical to this type of financing, such as (1) failure to pay principal and/or interest when due, (2) failure to observe covenants, (3) certain events of bankruptcy, (4) the rendering of certain judgments or (5) the loss of any guarantee. 13% Senior Subordinated Notes due 2013. The Company has outstanding Senior Subordinated Notes due 2013 in the principal amount of $100 million, with a coupon rate of 13%. The obligations under the senior subordinated notes are senior to the Company's subordinated unsecured indebtedness, if any, and are subordinate to the Credit Facility and the senior secured notes. Interest on the senior subordinated notes is payable on a semi-annual basis. Not less than five percent of the interest on the senior subordinated notes must be paid in cash and up to 8% interest may be paid-in-kind. To date, all interest payments have been made in cash. The Company's obligations under the notes are guaranteed on an unsecured basis by each of its wholly owned subsidiaries. Subject to the restrictions in the Credit Facility, the notes are redeemable at our option in whole or in part at any time, with not less than 30 days nor more than 60 days notice, at the redemption price specified in the indenture governing the notes (currently 101% of the principal amount redeemed, and 100% beginning September 30, 2006 and thereafter), plus accrued and unpaid interest up to the redemption date. Upon the occurrence of a "change of control" as defined in the indenture governing the notes, the Company may be required to make an offer to purchase the subordinated notes at 101% of the outstanding principal amount thereof, plus accrued and unpaid interest up to the purchase date. The subordinated notes contain customary covenants typical to this type of financing, such as limitations on (1) indebtedness, (2) restricted payments (among other things, currently limiting most dividends and similar payments by Neenah and its subsidiaries to no more than approximately $14 million), (3) liens, (4) restrictions on distributions from restricted subsidiaries, (5) sale of assets, (6) affiliate transactions, (7) mergers and consolidations and (8) lines of business. The subordinated notes also contain customary events of default typical to this type of financing, such as, (1) failure to pay principal and/or interest when due, (2) failure to observe covenants, (3) certain events of bankruptcy, (4) the rendering of certain judgments or (5) the loss of any guarantee. For the fiscal years ended September 30, 2005, 2004 and 2003, capital expenditures were $17.6 million, $12.7 million and $11.9 million, respectively. These amounts represent a level of capital expenditures necessary to maintain equipment and facilities. 22 The Company's principal source of cash to fund its liquidity needs will be net cash from operating activities and borrowings under the revolving loan commitment under the Credit Facility. Net cash provided by operating activities for the fiscal year ended September 30, 2005 was $33.6 million, an increase of $30.9 million from cash provided by operating activities for the fiscal year ended September 30, 2004 of $2.7 million. The increase in net cash provided by operating activities was primarily due to the increase in net income, as well as a decrease in working capital accounts (primarily from accounts receivable). Net cash provided by operating activities for the fiscal year ended September 30, 2004 was $2.7 million, a decrease of $20.3 million from cash provided by operating activities for the fiscal year ended September 30, 2003 of $23.0 million. The decrease in net cash provided by operating activities was primarily due to a large increase in the accounts receivable balance proportional to our increased sales volume. The $23.0 million cash provided by operating activities for the fiscal year ended September 30, 2003 included an income tax refund that the Company received in December 2002 of $18.4 million from the carryback of net operating losses. Future Capital Needs. Despite our significant decrease in leverage as a result of the Plan of Reorganization, we are still significantly leveraged and our ability to meet our debt obligations will depend upon future operating performance which will be affected by many factors, some of which are beyond our control. Based on our current level of operations, we anticipate that our operating cash flows and available credit facilities will be sufficient to fund our anticipated operational investments, including working capital and capital expenditure needs, for at least the next twelve months. If, however, we are unable to service our debt requirements as they become due or are unable to maintain ongoing compliance with restrictive covenants, we may be forced to adopt alternative strategies that may include reducing or delaying capital expenditures, selling assets, restructuring or refinancing indebtedness or seeking additional equity capital. There can be no assurances that any of these strategies could be effected on satisfactory terms, if at all. Adjusted EBITDA. Our borrowing arrangement contains certain financial covenants which are tied to ratios based on Adjusted EBITDA. Adjusted EBITDA is defined in the Company's Credit Facility as "EBITDA" and is generally calculated as the sum of net income (excluding non-recurring non-cash charges and certain one-time cash charges), income taxes, interest expense, and depreciation and amortization. Adjusted EBITDA is presented herein because it is a material component of the covenants contained within the Company's Credit Facility. Non-compliance with the covenants could result in the requirement to immediately repay all amounts outstanding under the Credit Facility which could have a material adverse effect on our results of operations, financial position and cash flow. Management also believes that certain investors use information concerning Adjusted EBITDA as a measure of a company's performance and ability to service its debt. Adjusted EBITDA should not be considered a substitute for, or more meaningful than, income from operations, net income, cash flows or other measures of financial performance prepared in accordance with accounting principles generally accepted in the United States. Adjusted EBITDA, as presented by the Company, may not be comparable to similarly titled measures reported by other companies. A reconciliation of Adjusted EBITDA for the fiscal years ended September 30, 2005 and 2004 is provided below (in thousands):
2005 2004 ------- ------- Net income .......................... $15,095 $ 3,255 Income tax provision ................ 3,409 3,881 Net interest expense ................ 33,406 33,363 Depreciation and amortization ....... 18,864 17,992 Loss on disposal of equipment ....... 953 465 Loss from discontinued operations ... -- 359 Neenah non-cash inventory charge .... 242 -- Gregg non-cash inventory charge ..... -- 1,172 Deeter non-cash inventory charge .... -- 624 Gregg write-off of lease deposits ... 64 -- ------- ------- Adjusted EBITDA (as defined above) .. $72,033* $61,111 ======= =======
* Adjusted EBITDA for the year ended September 30, 2005 is $6.5 million lower than it would have been without the $6.5 million litigation settlement paid in August, 2005. As discussed above, effective December 9, 2005, the Credit Facility was amended to allow the $6.5 million settlement in connection with the Mercer litigation to be added back in the calculation of Adjusted EBITDA. 23 OFF-BALANCE SHEET ARRANGEMENTS None. CONTRACTUAL OBLIGATIONS The following table includes the Company's significant contractual obligations at September 30,2005 (in millions):
Expected Payments due by Period ------------------------------------------ Less More than 1-3 3-5 than Total 1 year years years 5 years ------ ------ ----- ------ ------- Long term debt ................................. $241.3 $ 3.2 $ 6.4 $131.7 $100.0 Interest on long term debt ..................... 179.6 28.5 56.6 55.5 39.0 Revolving line of credit ....................... 30.5 30.5 -- -- -- Interest and fees on revolving line of credit .. 0.9 0.9 -- -- -- Operating leases ............................... 6.6 2.0 2.9 1.2 0.5 ------ ----- ----- ------ ------ Total contractual obligations .................. $458.9 $65.1 $65.9 $188.4 $139.5 ====== ===== ===== ====== ======
As of September 30, 2005, the Company had no material purchase obligations other than those created in the ordinary course of business related to inventory and property, plant and equipment, which generally have terms of less than 90 days. The Company also has long-term obligations related to its pension and post-retirement plans which are discussed in detail in Note 9 of the Notes to Consolidated Financial Statements. As of the most recent actuarial measurement date, the Company anticipates making $5.1 million of contributions to pension plans in fiscal 2006. Post-retirement medical claims are paid as they are submitted and are anticipated to be $0.5 million in fiscal 2006. CRITICAL ACCOUNTING ESTIMATES Critical accounting estimates are those that are, in management's view, both very important to the portrayal of our financial condition and results of operations and require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Future events and their effects cannot be determined with absolute certainty. The determination of estimates, therefore, requires the exercise of judgment. Actual results may differ from those estimates, and such differences may be material to the financial statements. Our accounting policies are more fully described in Note 2 in the Notes to Consolidated Financial Statements. We believe that the most significant accounting estimates inherent in the preparation of our financial statements include estimates associated with the evaluation of the recoverability of certain assets including goodwill, other intangible assets and property, plant and equipment as well as those estimates used in the determination of reserves related to the allowance for doubtful accounts, inventory obsolescence, workers compensation and pensions and other post-retirement benefits. Various assumptions and other factors underlie the determination of these significant estimates. In addition to assumptions regarding general economic conditions, the process of determining significant estimates is fact-specific and accounts for such factors as historical experience, product mix and, in some cases, actuarial techniques. We constantly reevaluate these significant factors and make adjustments where facts and circumstances necessitate. Historically, our actual results have not significantly deviated from those determined using the estimates described above. 24 We believe the following critical accounting estimates affect our more significant judgments and estimates used in the preparation of our consolidated financial statements: - Defined-Benefit Pension Plans. We account for our defined benefit pension plans in accordance with Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions" ("SFAS 87"), which requires that amounts recognized in financial statements be determined on an actuarial basis. The most significant element in determining our pension expense in accordance with SFAS 87 is the expected return on plan assets. We have assumed that the expected long-term rate of return on plan assets will be 7.50% to 8.50%, depending on the plan. Over the long term, our pension plan assets have earned in excess of these rates; therefore, we believe that our assumption of future returns is reasonable. The plan assets, however, have earned a rate of return substantially less than these rates in the last three years. Should this trend continue, our future pension expense would likely increase. At the measurement date, we determine the discount rate to be used to discount plan liabilities. In developing this rate, we use the Moody's Average AA Corporate Bonds index. At the measurement date of June 30, 2005, we determined the discount rate to be 5.25%. Changes in discount rates over the past few years have not materially affected our pension expense. The net effect of changes in this rate, as well as other changes in actuarial assumptions and experience, have been deferred as allowed by SFAS 87. - Other Postretirement Benefits. We provide retiree health benefits to qualified employees under an unfunded plan. We use various actuarial assumptions including the discount rate and the expected trend in health care costs and benefit obligations for our retiree health plan. Consistent with our pension plans, we used a discount rate of 5.25%. In 2005, our assumed healthcare cost trend rate was 8.0% decreasing gradually to 5.0% in 2010 and then remaining at that level thereafter. Changes in these rates could materially affect our future operating results and net worth. 25 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 Credit Facility. If market interest rates for such borrowings change by 1%, the Company's interest expense would increase or decrease by approximately $0.5 million. This analysis does not consider the effects of changes in the level of overall economic activity that could occur due to interest rate changes. Further, in the event of an upward change of such magnitude, management could take actions to further mitigate its exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, the sensitivity analysis assumes no changes in the Company's financial structure. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The financial statements and schedules are listed in Part IV Item 15 of this Annual Report on Form 10-K and are incorporated by reference in this Item 8. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. Item 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures. The Company's management, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based upon such evaluation, the Chief Executive Officer and the Chief Financial Officer have concluded that, as of the end of such period, the Company's disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act. Internal Control Over Financial Reporting. There have not been any changes in the Company's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. Item 9B. OTHER INFORMATION None. 26 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following sets forth certain information with respect to the persons who are members of the board of directors and executive officers of the Company. All executive officers hold office at the pleasure of the board of directors. Under the Company's bylaws, each director holds office until the next annual meeting of shareholders and until the director's successor has been elected and qualified. All of the directors of the Company are also directors of ACP.
NAME AGE POSITION ---- --- -------- William M. Barrett............ 58 President, Chief Executive Officer, Director and Chairman of the Board Gary W. LaChey................ 59 Corporate Vice President - Finance, Treasurer, Secretary and Chief Financial Officer James Ackerman................ 61 President - Mercer Forge John H. Andrews............... 60 Corporate Vice President - Manufacturing Joseph L. DeRita.............. 67 Division President, Dalton Corporation Frank Headington.............. 56 Vice President - Technology Timothy Koller................ 55 Vice President - Municipal Sales & Engineering Joseph Varkoly................ 43 Vice President - Industrial Sales and Marketing Andrew B. Cohen............... 34 Director Benjamin C. Duster, IV, Esq... 50 Director Michael J. Farrell............ 55 Director Jeffrey G. Marshall........... 61 Director
Mr. Barrett has served as our President and Chief Executive Officer since May 2000. Mr. Barrett joined us 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 and President from October 1, 1998 to April 30, 2000. From 1985 to 1992, Mr. Barrett was the Vice President -- Sales for Harvard Industries Cast Products Group. Mr. Barrett has also been one of our directors and Chairman of the Board since May 2000. Mr. LaChey has served as our Corporate Vice President -- Finance since June 2000. Mr. LaChey joined us in 1971 and has served in a variety of positions of increasing responsibility in the finance department. Mr. LaChey was most recently Vice President -- Finance, Treasurer and Secretary. Mr. Ackerman has served as the President of Mercer Forge since 2000. Previously, Mr. Ackerman served as the Vice President/CFO of Mercer Forge since 1990. Prior to joining Mercer Forge in 1990, Mr. Ackerman worked for Sheet Metal Coating & Litho as its Controller, Dunlop Industrial/Angus Fire Armour Corp. as its Controller and Ajax Magnethermic Corporation as its Vice President-Finance (CFO). Mr. Andrews has served as our Corporate Vice President -- Manufacturing since August 2003. Mr. Andrews joined us in 1988 and has served in a variety of manufacturing positions with increasing responsibility. Prior to joining Neenah, Mr. Andrews was Division Manager for Dayton Walther Corporation's Camden Casting Center from 1986 to 1988 and served as Manufacturing Manager and then Plant Manager for Waupaca Foundry's Marinette Plant from 1973 to 1986. Mr. DeRita has served as Division President of the Dalton Corporation since 1999. He joined Newnam Manufacturing in 1989 and became the Vice President -- Sales when the Dalton Corporation acquired Newnam Manufacturing in 1992. Prior to joining our company, Mr. DeRita was the Manager of Engineering and Maintenance at Erie Malleable, the same position he held previously at Zurn Industries. 27 Mr. Headington has served as the Vice President - Technology since August 2003. Previously, Mr. Headington was our Manager of Technical Services and Director of Product Reliability since January 1989. Prior to joining the Company, Mr. Headington co-founded and operated Sintered Precision Components, a powdered metal company. Prior to his involvement with Precision Components, he was employed by Wagner Casting Company as Quality Manager. Mr. Koller has served as the Vice President - Municipal Sales & Engineering since May 1998. Mr. Koller has worked within our Municipal products area for the last 27-years serving with increasing responsibility as Sales Representative, Specifications Manager, and General Sales Manager. Mr. Varkoly has served as the Vice President - Industrial Sales & Marketing since August 2003. Previously, Mr. Varkoly was our Vice President of Business Development since March 2000. Prior to joining our company in 2000, he served as the Director - Finance of Betzdearborn, Inc. Previously, he was a Manager for Performance Improvement Management Consulting with Ernst & Young LLP and the Business Development Manager of FMC Corporation. Mr. Cohen has served as a director since October 2003. Mr. Cohen is currently a Managing Director at Dune Capital Management, LP. Previously, Mr. Cohen was employed by SAC Capital Advisors for three years. Prior to his employment at SAC Capital Advisors, he spent six years in the investment banking division of Morgan Stanley. Mr. Cohen received his BA and MBA degrees from the University of Pennsylvania. Mr. Duster has served as a director since October 2003. Mr. Duster is currently Chairman of the Board of Algoma Steel, Inc., a Toronto Stock Exchange listed integrated steel manufacturer based in Canada. Mr. Duster is also a principal in Masson & Company, a financial restructuring advisory and turnaround management firm based in New York. Mr. Farrell has served as a director since February 2003. Mr. Farrell is currently the President of Farrell & Co., a merchant banking firm specializing in heavy manufacturing companies, and the Chief Executive Officer of Standard Steel, LLC. Mr. Farrell has also served in executive capacities for MK Rail Corporation, Motor Coils Manufacturing Co. and Season-ALL Industries. Mr. Farrell currently also serves as a director of Federated Investors, Inc. Mr. Farrell is a certified public accountant. Mr. Marshall has served as a director since October 2003. Mr. Marshall is currently the Chairman of Smith Marshall, a subsidiary of the NextMedia Company Limited. Previously, he was the President and Chief Executive Officer of Aluma Enterprises, Inc., a construction technology company, for six years. Prior to joining Aluma Enterprises, Inc., Mr. Marshall successively held the positions of President and Chief Executive Officer at Marshall Steel Limited, Marshall Drummond McCall Inc. and the Ontario Clean Water Agency. AUDIT COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT The current members of the Audit Committee of the board of directors are Michael J. Farrell and Jeffrey G. Marshall. The board of directors has determined that all members of the Audit Committee are independent and financially literate in accordance with the audit committee requirements of the New York Stock Exchange. The board has determined that Mr. Michael J. Farrell is an audit committee financial expert within the meaning of SEC rules. CODE OF ETHICS In December 2004, the Company adopted a Code of Ethics applicable to all officers of the Company as well as certain other key accounting staff. A copy of the Code of Ethics can be obtained free of charge by writing to the Company. 28 BOARD COMPOSITION The board of directors of ACP, the ultimate parent company of Neenah consists of five directors. ACP's Amended and Restated Bylaws permits the holders of a majority of the shares of common stock of ACP then entitled to vote at an election of directors, to remove any director or the entire board of directors at any time, with or without cause. Under ACP's Amended and Restated Bylaws, vacancies on the board of directors may be filled by the affirmative vote of a majority of the holders of ACP's outstanding stock entitled to vote thereon. Under the Stockholders Agreement discussed below, MacKay Shields LLC designated two members to the board of directors of ACP and Citicorp Mezzanine III, L.P and Trust Company of the West designated one member to the board of directors of ACP. The MacKay Shields LLC designees are Andrew B. Cohen and Benjamin C. Duster, IV, Esq. The Citicorp Mezzanine III, L.P and Trust Company of the West designees are Michael J. Farrell and Jeffrey G. Marshall, respectively. Under the Stockholders Agreement, the board of directors of any subsidiary of ACP, including Neenah, is required to consist of the same number of directors and have the same composition as the board of directors of ACP. COMPENSATION COMMITTEE The current members of the compensation committee of the board of directors are Andrew B. Cohen and Benjamin C. Duster, IV, Esq. STOCKHOLDERS AGREEMENT Under the terms of the Plan of Reorganization, ACP and each person or entity that held common stock of ACP or warrants to purchase ACP common stock as of October 8, 2003, the Effective Date of the Plan of Reorganization (the "Stockholders"), are subject to a stockholders agreement dated as of October 8, 2003 (the "Stockholders Agreement"). The Stockholders Agreement, among other things, (i) governs the composition of the board of directors of ACP and its subsidiaries, (ii) establishes the requisite approvals for certain significant corporate transactions (including acquisitions and dispositions of material businesses or assets, and the incurrence of debt), and (iii) provides for certain rights, requirements and restrictions with respect to the sale or transfer of ACP common stock or warrants to purchase ACP common stock. The Stockholders Agreement provides that the stockholders shall vote all of their shares of ACP common stock to cause the board of directors of ACP to be comprised of the then duly elected and acting chief executive officer of ACP, one member each designated by MacKay Shields LLC, Citicorp Mezzanine III, L.P. and Trust Company of the West, in each case, so long as they, together with their respective affiliates, hold at least 10.0% of the ACP common stock on a fully diluted basis (the "Minimum Ownership"); however, so long as MacKay Shields LLC is the holder of at least 20% of the ACP common stock on a fully diluted basis, it shall be entitled to designate one additional member. In addition, no designated member of the board of directors of ACP may be removed without the consent of the Stockholder which has the right to designate such member. Further, the Stockholders Agreement provides that each of MacKay Shields LLC, Citicorp Mezzanine III, L.P and Trust Company of the West (subject to the Minimum Ownership) has the ability to approve or veto the sale of ACP and/or its subsidiaries (through sale of shares, merger, recapitalization, asset sale or similar transaction) (a "Sale of the Company"), amendments to the respective charter and bylaws of each company, modifications to the number of directors of each company and affiliate transactions. The board of directors of any subsidiary of ACP is required to consist of the same number of directors and shall have the same composition as the board of directors of ACP. In addition to the general governance issues discussed above, the Stockholders Agreement provides that, so long as MacKay Shields LLC, Citicorp Mezzanine III, L.P and Trust Company of the West each have the Minimum Ownership certain sales or transfers or series of sales or transfers by any stockholder or a "group" of stockholders of ACP common stock or warrants to purchase ACP common stock which owns 10% or more of the shares of ACP common stock on a fully diluted basis may be subject to the prior right of ACP and the Stockholders party to the Stockholders Agreement who own more than 29 5% of the ACP common stock on a fully diluted basis ("5% Stockholders") to purchase such shares. Also, the Stockholders Agreement provides for "tag-along" rights for 5% Stockholders with respect to certain sales or transfers of ACP common stock and warrants to purchase ACP common stock by other 5% Stockholders. Furthermore, the Stockholders Agreement provides that the board of directors, by the vote of at least three directors, shall have the right to cause a Sale of the Company and to cause all Stockholders to consent to, approve and participate in a Sale of the Company; provided that (i) all Stockholders receive the same consideration on a per share basis, (ii) the identity of such purchaser is approved (which approval shall not be unreasonably withheld) by MacKay Shields LLC, Citicorp Mezzanine III, L.P and Trust Company of the West (subject to the Minimum Ownership) and (iii) such purchaser is not MacKay Shields LLC, Citicorp Mezzanine III, L.P or Trust Company of the West or any other 5% Stockholder, or an affiliate of any of the foregoing. The foregoing description of the Stockholders Agreement does not purport to be complete and is qualified in its entirety by reference to the Stockholders Agreement, which is filed as Exhibit 10.6 to this report. 30 ITEM 11. EXECUTIVE COMPENSATION Summary Compensation Table. The following table summarizes compensation awarded to, earned by or paid to our Chief Executive Officer and each of our other four most highly compensated executive officers (collectively, the "named executive officers") for services rendered to ACP, NFC, and the Company during the 2005, 2004 and 2003 fiscal years.
LONG-TERM COMPENSATION ---------------------------------- ANNUAL COMPENSATION AWARDS PAYOUTS --------------------------------- ------------------------ ------- OTHER ANNUAL RESTRICTED SECURITIES LTIP ALL OTHER NAME AND PRINCIPAL FISCAL COMPENSATION STOCK UNDERLYING PAYOUTS COMPENSATION POSITION YEAR SALARY $ BONUS $ $ (2) AWARDS $(3) OPTIONS # $ $(4) ------------------ ------- -------- ------- ------------ ----------- ---------- ------- ------------ William M. Barrett ....... 2005 550,000 558,292 -- -- -- -- 27,520 President and Chief ... 2004(1) 483,337 160,800 -- -- -- -- 26,719 Executive ............. 2003(1) 342,704 103,137 -- 9,410 -- -- 23,991 Officer and Director Gary W. LaChey ........... 2005 286,749 336,400 -- -- -- -- 27,200 Corporate Vice ........ 2004(1) 242,996 74,100 -- -- -- -- 26,306 President-Finance, .... 2003(1) 234,996 102,399 -- 7,196 -- -- 23,449 Treasurer, Secretary and Chief Financial Officer James Ackerman ........... 2005 180,000 149,000 -- -- -- -- 14,647 President - Mercer .... 2004 180,000 144,000 -- -- -- -- 13,968 Forge ................. 2003 180,000 -- -- -- -- -- 12,668 John H. Andrews .......... 2005 214,004 252,791 -- -- -- -- 26,694 Corporate Vice ........ 2004(1) 193,336 60,000 -- -- -- -- 25,687 President - ........... 2003(1) 172,501 35,049 -- 1,107 -- -- 22,758 Manufacturing Joseph L. DeRita ......... 2005 256,000 313,645 -- -- -- -- 18,700 Division President, ... 2004(1) 243,000 74,100 -- -- -- -- 14,281 Dalton Corporation .... 2003(1) 235,000 1,015 -- 3,044 -- -- 17,972
---------- (1) Certain prior year amounts have been reclassified. (2) The Company provides its executive officers with personal benefits as part of providing a competitive compensation program. These may include such benefits as a company automobile, and personal liability insurance. These benefits are valued based upon the incremental cost to the Company. The incremental cost to the Company of such benefits did not exceed the SEC's disclosure threshold for any named executive officer for any of the three years. (3) The aggregate unvested restricted stock holdings of ACP common stock at the end of fiscal 2005 for the named executive officers were as follows: Mr. Barrett - 312,500 shares, Mr. LaChey - 238,971 shares, Mr. Ackerman - 0 shares, Mr. Andrews - 36,765 shares, and Mr. DeRita - 101,103 shares. Because there was no public market for the common stock at that date, the fair market value per share of the common stock is not able to be determined by any reference to any published price data. On October 8, 2003, Messrs. Barrett, LaChey, Ackerman, Andrews, and DeRita, respectively, were granted 1,250,000, 955,882, 0, 147,059, and 404,412 shares of ACP common stock. One-fourth of the shares vested on the date of grant, and the balance vest on an annual straight-line basis over the ensuing three years. Dividends, if any, paid on the common stock would be paid on the restricted stock. (4) All other compensation for fiscal 2005 for Messrs. Barrett, LaChey, Ackerman, Andrews, and DeRita, respectively, includes: (i) matching contributions to the 401(k) plan for each named executive officer of $5,250, $5,250, $5,593, $5,250, and $6,300; (ii) contributions pursuant to the profit sharing plan for each named executive officer of $15,375, $15,375, $0, $15,375, and $0; (iii) an executive life insurance premium for each named executive officer of $2,838, $2,518, $5,026, $2,012, and $7,064; and (iv) health insurance reimbursement premiums for each named executive officer of $4,057, $4,057, $4,028, $4,057, and $5,336. EMPLOYMENT AGREEMENTS We have entered into employment agreements with each of the named executive officers, other than Mr. Ackerman. The agreements establish a base salary as well as providing for a severance payment calculation in the event of termination (pursuant to the 2003 Severance and Change of Control Plan described below), health (subject to satisfying insurability requirements), 401(k) and other benefits that the named employees are entitled to receive. Non-competition and non-solicitation agreements have been 31 signed as part of the employment agreements, which will apply during a period of three years for our chief executive officer and two years for the chief financial officer and other members of management of the Company, in each case, after termination. 2003 MANAGEMENT ANNUAL INCENTIVE PLAN Under the 2003 Management Annual Incentive Plan, members of management and certain other specified employees will receive annual performance awards if the Company achieves certain Adjusted EBITDA targets set by the board of directors of the Company at the beginning of each fiscal year. The bonus paid will equal (i) 50% of the target bonus amount for each individual should the Company reach 85% of the Adjusted EBITDA target, (ii) 100% of the target bonus on reaching 100% of the target Adjusted EBITDA, and (iii) 200% of the target bonus on reaching 120% of the target Adjusted EBITDA. For 2005, the $6.5 million settlement in connection with the Mercer litigation was added back to calculate Adjusted EBITDA for purposes of the bonus calculation. Target bonuses range up to 30.0% of base salary depending upon job responsibility. In addition, the 2003 Management Annual Incentive Plan was amended to allow management the ability to earn additional cash compensation based on varying levels of debt reduction achieved during the year. Earned bonus is payable within ten business days of the approval of the Company's audited financial statements by the board of directors. In addition, a one time aggregate incremental $450,000 emergence bonus was paid upon emergence from Chapter 11 bankruptcy in fiscal 2004 to certain members of management upon the Effective Date. For fiscal 2006, the executives and certain other specified employees will be entitled to receive annual performance awards upon achieving certain milestones, including EBITDA targets, debt reduction targets and other certain criteria as determined from time to time by the compensation committee of the board of directors. Target bonus as a percentage of salary for each member of management will be consistent with historical levels. Target levels, timing of payments and other terms and conditions of the annual incentive plan will be determined by the compensation committee. 2003 MANAGEMENT EQUITY INCENTIVE PLAN Under the 2003 Management Equity Incentive Plan, which was established on the Effective Date, certain members of management received restricted shares which represented 5% of the common stock of ACP on a fully diluted basis as of the Effective Date. The 4,000,000 restricted shares issued pursuant to the 2003 Management Equity Incentive Plan were 25% vested upon grant and the balance vest on an annual straight-line basis over the ensuing three years subject to acceleration in the event of a Significant Transaction, as defined in the award agreement. The 2003 Management Equity Incentive Plan also provides that a pool of options for an additional 4,000,000 shares of common stock of ACP be reserved for future grants as determined by the compensation committee of the board of directors. 2003 SEVERANCE AND CHANGE OF CONTROL PLAN Under the 2003 Severance and Change of Control Plan, the executives with whom we have executed employment agreements, shall be entitled to receive Severance Payments, as defined in the 2003 Severance and Change of Control Plan, health benefits and outplacement services if the Company terminates his or her employment without cause or if he or she terminates his or her employment for Good Reason and a Change of Control Payment, health benefits and outplacement services if a participating executive's employment is terminated or the executive resigns from employment for Good Reason within 180 days of a Change of Control, as such terms are defined in the 2003 Severance and Change of Control Plan. 32 The Severance Payment is equal to (1) the severance multiple listed in each executive's employment agreement multiplied by (2) the base salary of such executive. The Change of Control Payment is equal to (1) the change of control multiple listed in each executive's employment agreement multiplied by (2) the base salary of such executive. The severance multiples for Messrs. Barrett, LaChey, Andrews, and DeRita, respectively are 2.70, 2.03, 1.88, and 2.03. The change of control multiples for Messrs. Barrett, LaChey, Andrews, and DeRita, respectively are 3.38, 2.70, 1.88, and 2.03. The plan also requires payments in certain circumstances to executives sufficient to make them whole for any excise tax imposed under Section 4999 of the Internal Revenue Code. DIRECTOR COMPENSATION Subject to certain limitations, each member of the board of directors of ACP who is not an officer of ACP shall be entitled to receive annual compensation for their services as a director of ACP and its subsidiaries, including Neenah, in the amount $40,000 ($80,000 for members of the audit committee), payable in cash quarterly in four equal installments, and are entitled to receive reimbursement for all reasonable out-of-pocket expenses, including, without limitation, travel expenses, incurred by such director in connection with the performance of such director's duties. In addition, each member of the board of directors who is not an officer is paid a fee of $1,000 for in person attendance at annual, regular, special and adjourned meetings of the board of directors or committee meetings of the board of directors. Meeting fees paid to the four outside directors for fiscal 2005 totaled $69,000. On the Effective Date, ACP issued 200,000 shares of ACP common stock, representing 0.25% of ACP's common stock on a fully-diluted basis as of the Effective Date, to each outside director. Members of the Special Litigation Committee of the board of directors (Messrs. Cohen and Marshall) were also granted a special one time payment of $20,000 to recognize their work in connection in arriving at a settlement of the Mercer litigation in 2005. 33 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The following table sets forth information known to us with respect to the beneficial ownership of the common stock of ACP, our ultimate parent company, as of December 16, 2005, or as otherwise indicated, by: - each person or entity who owns beneficially more than 5% or more of any class of ACP's voting securities; - each of the named executive officers; - each director; and - all directors and executive officers as a group.
SHARES BENEFICIALLY OWNED ------------------------- NAME OF BENEFICIAL OWNER (1) (2) NUMBER PERCENTAGE -------------------------------- ---------- ---------- MacKay Shields LLC (3) ............................................. 19,698,751 24.4% Harbert Distressed Investment Master Fund, Ltd. (4) ................ 12,144,764 15.0% Citicorp Mezzanine III, L.P. (5) ................................... 11,890,846 14.7% Trust Company of the West (6) ...................................... 6,206,107 7.7% William M. Barrett (7) ............................................. 1,250,000 1.5% Gary W. LaChey (8) ................................................. 955,882 1.2% Joseph L. DeRita (9) ............................................... 404,412 * John H. Andrews (10) ............................................... 147,059 * James Ackerman ..................................................... 0 * Andrew B. Cohen (11) ............................................... 200,000 * Benjamin C. Duster, IV, Esq (11) ................................... 200,000 * Michael J. Farrell (11) ............................................ 200,000 * Jeffrey G. Marshall (11) ........................................... 200,000 * All executive officers and directors as a group (12 persons) (12) .. 4,366,176 5.4%
---------- * Less than 1 % (1) As used in this table, a beneficial owner of a security includes any person who, directly or indirectly, through contract, arrangement, understanding, relationship or otherwise has or shares (1) the power to vote, or direct the voting of, such security or (2) investing power which includes the power to dispose, or to direct the disposition of, such security. In addition, a person is deemed to be the beneficial owner of a security if that person has the right to acquire beneficial ownership of such security within 60 days of December 16, 2005. Except as otherwise noted, the persons and entities listed on this table have sole voting and investment power with respect to all of the shares of common stock owned by them. Calculations are based on a total of 80,800,000 shares of common stock deemed to be outstanding as of December 16, 2005, which includes warrants to purchase common stock. The warrants have a nominal exercise price of $.01 per share (2) Includes the following number of shares issuable upon exercise of warrants presently exercisable: 9,812,706 warrants held by MacKay Shields LLC; 5,244,764 warrants held by Harbert Distressed Investment Master Fund, Ltd. The following data is the most recent available and is as of October 8, 2003: 90,644 warrants held by Exis Differential Holdings Ltd.; 7,848,293 warrants held by Citicorp Mezzanine III, L.P.; 3,113,554 warrants held by Trust Company of the West and 217,547 warrants held by Metropolitan Life Insurance Company. 34 (3) The address for MacKay Shields LLC is 9 West 57th Street, 33rd Floor, New York, NY 10019. (4) The address for Harbert Distressed Investment Master Fund, Ltd. is Third Floor, Bishop's Square, Redmond's Hill, Dublin 2, Ireland. (5) The number of shares listed above for Citicorp Mezzanine III, L.P. is as of October 8, 2003. Citicorp Mezzanine III, L.P. received 4,096,665 warrants for being a Standby Purchaser and 3,751,628 warrants in exchange for cancellation of the PIK Note. The address for Citicorp Mezzanine III, L.P. is 399 Park Avenue, 14th Floor, New York, NY 10043. (6) The number of shares listed above for Trust Company of the West is as of October 8, 2003. Includes shares held by TCW Shared Opportunity Fund II, L.P., Shared Opportunity Fund IIB LLC, TCW Shared Opportunity Fund IV, L.P., TCW Shared Opportunity Fund IVB, L.P., AIMCO CDO, Series 2000-A, TCW High Income Partners, Ltd. and TCW High Income Partners II, Ltd. The Trust Company of the West is the ultimate beneficial holder of these shares. The address for Trust Company of the West is 11100 Santa Monica Boulevard, Suite 2000, Los Angeles, CA 90025. (7) Includes 312,500 unvested shares of restricted stock. These shares shall vest on the next anniversary of the Effective Date (October 8, 2006), if as of such date, Mr. Barrett is still in our employ. (8) Includes 238,970 unvested shares of restricted stock. These shares shall vest on the next anniversary of the Effective Date (October 8, 2006), if as of such date, Mr. LaChey is still in our employ. (9) Includes 101,103 unvested shares of restricted stock. These shares shall vest on the next anniversary of the Effective Date (October 8, 2006), if as of such date, Mr. DeRita is still in our employ. (10) Includes 36,765 unvested shares of restricted stock. These shares shall vest on the next anniversary of the Effective Date (October 8, 2006), if as of such date, Mr. Andrews is still in our employ. (11) Pursuant to the Plan of Reorganization, Messrs. Cohen, Duster, Farrell and Marshall each received 200,000 shares of common stock as of the Effective Date. (12) Excludes 433,824 shares beneficially owned by other managerial employees. Collectively, our management and directors own an aggregate of 4,800,000 shares of common stock. 35 EQUITY COMPENSATION PLAN INFORMATION The following table sets forth, as of September 30, 2005, the number of securities outstanding under the 2003 Management Equity Incentive Plan, the weighted-average exercise price of such securities and the number of securities available for grant under this plan:
NUMBER OF NUMBER OF SECURITIES SECURITIES TO BE REMAINING AVAILABLE FOR ISSUED UPON FUTURE ISSUANCE UNDER EXERCISE OF WEIGHTED-AVERAGE EQUITY COMPENSATION OUTSTANDING EXERCISE PRICE OF PLANS (EXCLUDING OPTIONS, WARRANTS OUTSTANDING OPTIONS, SECURITIES REFLECTED IN PLAN CATEGORY AND RIGHTS WARRANTS AND RIGHTS THE FIRST COLUMN) ------------- ----------------- -------------------- ----------------------- Equity compensation plans approved by security holders (1) -- -- 4,000,000 Equity compensation plans not approved by security holders -- -- -- --- --- --------- Total -- -- 4,000,000
---------- (1) The 2003 Management Equity Incentive Plan was adopted in connection with the Plan of Reorganization. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS RELATIONSHIP WITH ACP ACP is the parent company of NFC, and thus ACP indirectly owns 100% of the Common Stock of the Company. William M. Barrett, who serves as the President and Chief Executive Officer of the Company, currently serves as President and Chief Executive Officer of ACP. RELATIONSHIP WITH THE STANDBY PURCHASERS As a result of the standby purchase agreements that we entered into with the Standby Purchasers, we gave certain of the Standby Purchasers the right to designate members to the ACP board of directors. These rights are set forth in the Stockholders Agreement, which is described in Item 10 of this report and incorporated herein by reference. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES We paid the following fees to Ernst & Young LLP in 2005 and 2004: Audit Fees. Fees for audit services totaled $410,900 and $513,700 for the years ended September 30, 2005 and 2004, respectively, which included fees associated with the annual audit, filings under the Securities Act of 1933, as amended, and other services performed related to regulatory filings. Audit-Related Fees. Fees for audit-related services totaled $116,500 and $21,600 for the years ended September 30, 2005 and 2004, respectively, for accounting consultations. Tax Fees. Fees for tax services totaled $509,300 and $482,000 for the years ended September 30, 2005 and 2004, respectively, and consisted primarily of tax consulting services. All Other Fees. There were no other fees incurred by the Company during the years ended September 30, 2005 and 2004. The Company's Audit Committee appoints the independent registered public accounting firm and pre-approves the services in regularly scheduled audit committee meetings. The Audit Committee has considered whether the fees of Ernst & Young LLP for non-audit services is compatible with maintaining Ernst & Young LLP's independence. 36 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Page ---- (a) (1) Consolidated Financial Statements of Neenah Foundry Company Report of Independent Registered Public Accounting Firm 38 Consolidated Balance Sheets 39 Consolidated Statements of Operations 41 Consolidated Statements of Changes in Stockholder's Equity (Deficit) 42 Consolidated Statements of Cash Flows 43 Notes to Consolidated Financial Statements 44 (2) Financial Statement Schedules Report of Independent Registered Public Accounting Firm 75 Schedule II - Valuation and Qualifying Accounts of Neenah Foundry Company 76
Schedules I, III, IV, and V are omitted since they are not applicable or not required under the rules of Regulation S-X. (3) Exhibits See (b) below (b) Exhibits See the Exhibit Index following the signature page of this report, which is incorporated herein by reference. Each management contract and compensatory plan or arrangement required to be filed as an exhibit to this report is identified in the Exhibit Index by an asterisk following its exhibit number. (c) Financial Statements Excluded From Annual Report to Shareholders Not Applicable 37 Report of Independent Registered Public Accounting Firm The Board of Directors Neenah Foundry Company We have audited the accompanying consolidated balance sheets of Neenah Foundry Company and Subsidiaries (the Company) as of September 30, 2005 and 2004 (Reorganized Company), and the related consolidated statements of operations, changes in stockholder's equity (deficit) and cash flows for the year ended September 30, 2005 and the period from October 1, 2003 to September 30, 2004 (Reorganized Company) and the year ended September 30, 2003 (Predecessor Company) and the portion of October 1, 2003 related to the Predecessor Company's reorganization gain. 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 standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Reorganized Company at September 30, 2005 and 2004, and the consolidated results of operations and cash flows for the year ended September 30, 2005 and the period from October 1, 2003 to September 30, 2004 (Reorganized Company) and the year ended September 30, 2003 (Predecessor Company) and the portion of October 1, 2003 related to the Predecessor Company's reorganization gain, in conformity with U.S. generally accepted accounting principles. As discussed in Note 1 to the financial statements, effective October 8, 2003, the Company was reorganized under a plan of reorganization confirmed by the United States Bankruptcy Court, District of Delaware. The financial statements of the Reorganized Company reflect the impact of adjustments to reflect the fair value of assets and liabilities under fresh start accounting, which was applied effective October 1, 2003. As a result, the financial statements of the Reorganized Company are presented on a different basis than those of the Predecessor Company and, therefore, are not comparable in all respects. /s/ Ernst & Young LLP Milwaukee, Wisconsin November 4, 2005 38 Neenah Foundry Company Consolidated Balance Sheets (In Thousands, Except Share and Per Share Data)
REORGANIZED SEPTEMBER 30 ------------------- 2005 2004 -------- -------- ASSETS Current assets: Cash $ 3,484 $ -- Accounts receivable, less allowance for doubtful accounts of $2,093 in 2005 and $1,142 in 2004 85,795 81,320 Inventories 59,123 61,119 Deferred income taxes 3,304 -- Other current assets 6,897 6,978 Current assets of discontinued operations -- 200 -------- -------- Total current assets 158,603 149,617 Property, plant and equipment: Land 6,708 6,287 Buildings and improvements 16,917 15,668 Machinery and equipment 74,026 63,542 Patterns 12,753 11,026 Construction in progress 2,994 1,551 -------- -------- 113,398 98,074 Less accumulated depreciation 22,148 10,798 -------- -------- 91,250 87,276 Deferred financing costs, net of accumulated amortization of $1,012 in 2005 and $487 in 2004 2,192 2,566 Identifiable intangible assets, net of accumulated amortization of $14,245 in 2005 and $7,121 in 2004 69,192 76,316 Goodwill 86,699 86,699 Other assets 4,619 4,966 -------- -------- 162,702 170,547 -------- -------- $412,555 $407,440 ======== ========
39 Neenah Foundry Company Consolidated Balance Sheets (In Thousands, Except Share and Per Share Data)
REORGANIZED SEPTEMBER 30 ------------------- 2005 2004 -------- -------- LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable $ 30,305 $ 29,150 Income taxes payable 5,562 2,831 Accrued wages and employee benefits 16,586 12,881 Accrued interest 7,134 7,140 Other accrued liabilities 2,411 2,122 Deferred income taxes -- 1,360 Current portion of long-term debt 33,668 44,215 -------- -------- Total current liabilities 95,666 99,699 Long-term debt 238,086 239,586 Deferred income taxes 23,759 28,636 Postretirement benefit obligations 10,404 10,575 Other liabilities 27,287 20,160 -------- -------- Total liabilities 395,202 398,656 Commitments and contingencies Stockholder's equity: Common stock, par value $100 per share; 1,000 shares authorized, issued and outstanding 100 100 Capital in excess of par value 5,429 5,429 Retained earnings 18,350 3,255 Accumulated other comprehensive loss (6,526) -- -------- -------- Total stockholder's equity 17,353 8,784 -------- -------- $412,555 $407,440 ======== ========
See accompanying notes. 40 Neenah Foundry Company Consolidated Statements of Operations (In Thousands)
REORGANIZED PREDECESSOR YEARS ENDED ------------------------ SEPTEMBER 30 YEAR ENDED ------------------- OCTOBER 1 SEPTEMBER 30 2005 2004 2003 2003 -------- -------- --------- ------------ Net sales $541,772 $450,942 $ -- $375,063 Cost of sales 440,818 375,124 -- 321,834 -------- -------- ------- -------- Gross profit 100,954 75,818 -- 53,229 Selling, general and administrative expenses 34,467 27,374 -- 26,132 Litigation settlement 6,500 -- -- -- Amortization expense 7,124 7,121 -- 3,819 Loss on disposal of property, plant and equipment 953 465 -- 195 -------- -------- ------- -------- Operating income 51,910 40,858 -- 23,083 Other income (expense): Interest expense (33,419) (33,392) -- (47,445) Interest income 13 29 -- 825 Reorganization gain (expense) -- -- 43,943 (7,874) -------- -------- ------- -------- Income (loss) from continuing operations before income taxes 18,504 7,495 43,943 (31,411) Provision (credit) for income taxes 3,409 3,881 -- (8,541) -------- -------- ------- -------- Income (loss) from continuing operations 15,095 3,614 43,943 (22,870) Discontinued operations: Loss from discontinued operations, net of income tax benefit of $(240) in 2004 and $(590) in 2003 -- (359) -- (1,095) Loss on sale of discontinued operations, net of income benefit of $(860) -- -- -- (1,596) -------- -------- ------- -------- Net income (loss) $ 15,095 $ 3,255 $43,943 $(25,561) ======== ======== ======= ========
See accompanying notes. 41 Neenah Foundry Company Consolidated Statements of Changes in Stockholder's Equity (Deficit) (In Thousands)
ACCUMULATED RETAINED OTHER CAPITAL EARNINGS COMPREHENSIVE COMMON IN EXCESS OF (ACCUMULATED (LOSS) STOCK PAR VALUE DEFICIT) INCOME TOTAL -------- ------------ ------------ ------------- -------- PREDECESSOR COMPANY Balance at September 30, 2002 $100 $ 51,317 $(55,563) $(8,000) $(12,146) Components of comprehensive loss: Net loss -- -- (25,561) -- (25,561) Pension liability adjustment, net of tax effect of $952 -- -- -- (1,309) (1,309) -------- Total comprehensive loss (26,870) ---- -------- -------- ------- -------- Balance at September 30, 2003 100 51,317 (81,124) (9,309) (39,016) Effect of fresh start accounting under plan of reorganization -- (45,888) 81,124 9,309 44,545 ---- -------- -------- ------- -------- REORGANIZED COMPANY Balance at October 1, 2003 100 5,429 -- -- 5,529 Net income -- -- 3,255 -- 3,255 ---- -------- -------- ------- -------- Balance at September 30, 2004 100 5,429 3,255 -- 8,784 Components of comprehensive income: Net income -- -- 15,095 -- 15,095 Pension liability adjustment, net of tax effect of $4,350 -- -- -- (6,526) (6,526) -------- Total comprehensive income 8,569 ---- -------- -------- ------- -------- Balance at September 30, 2005 $100 $ 5,429 $ 18,350 $(6,526) $ 17,353 ==== ======== ======== ======= ========
See accompanying notes. 42 Neenah Foundry Company Consolidated Statements of Cash Flows (In Thousands)
REORGANIZED PREDECESSOR YEARS ENDED ------------------------ SEPTEMBER 30 YEAR ENDED ------------------- OCTOBER 1 SEPTEMBER 30 2005 2004 2003 2003 -------- -------- --------- ------------ OPERATING ACTIVITIES Net income (loss) $ 15,095 $ 3,255 $ 43,943 $(25,561) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Noncash reorganization expense (gain) -- -- (68,299) 1,464 Provision for obsolete inventories 356 456 -- 424 Provision for bad debts 2,153 1,043 -- 1,760 Lower of cost or market inventory adjustment -- -- -- 1,228 Depreciation 11,740 10,871 -- 22,530 Amortization of identifiable intangible assets 7,124 7,121 -- 3,819 Amortization of deferred financing costs and premium/discount on notes 2,110 2,070 -- 2,242 Loss on sale of discontinued operations -- -- -- 2,456 Loss on disposal of property, plant and equipment 953 465 -- 195 Deferred income taxes (5,191) 3,620 -- (10,337) Changes in operating assets and liabilities: Accounts receivable (6,628) (26,847) -- (794) Inventories 1,640 (2,013) -- (6,995) Other current assets 281 (1,254) -- (3,047) Accounts payable 1,155 (2,619) -- 3,184 Accrued liabilities 6,719 7,749 -- 29,978 Postretirement benefit obligations (171) 256 -- 575 Other liabilities (3,749) (1,428) -- (119) -------- -------- -------- -------- Net cash provided by (used in) operating activities 33,587 2,745 (24,356) 23,002 INVESTING ACTIVITIES Proceeds from disposition of business, net of fees -- -- -- 648 Purchase of property, plant and equipment (17,572) (12,713) -- (11,900) Proceeds from sale of property, plant and equipment 905 55 -- 40 Other 347 475 -- (105) -------- -------- -------- -------- Net cash used in investing activities (16,320) (12,183) -- (11,317) FINANCING ACTIVITIES Proceeds from long-term debt 84 14,450 -- 815 Payments on long-term debt (13,716) (5,012) -- (13,017) Debt issuance costs (151) -- -- (1,291) -------- -------- -------- -------- Net cash provided by (used in) financing activities (13,783) 9,438 -- (13,493) -------- -------- -------- -------- Increase (decrease) in cash and cash equivalents 3,484 -- (24,356) (1,808) Cash and cash equivalents at beginning of year -- -- 24,356 26,164 -------- -------- -------- -------- Cash and cash equivalents at end of year $ 3,484 $ -- $ -- $ 24,356 ======== ======== ======== ======== Supplemental disclosures of cash flows information: Interest paid $ 31,315 $ 24,182 $ -- $ 34,995 Income taxes paid (refunded) 5,622 568 -- (18,032)
See accompanying notes. 43 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 1. ORGANIZATION AND DESCRIPTION OF BUSINESS Neenah Foundry Company (Neenah), together with its subsidiaries (collectively, the Company), manufactures gray and ductile iron castings and forged components 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, tree grates and specialty castings for a variety of applications and are sold principally to state and local government entities, utilities and contractors. The Company's sales generally are unsecured. Neenah is a wholly owned subsidiary of NFC Castings, Inc., which is a wholly owned subsidiary of ACP Holding Company. Neenah has the following subsidiaries, all of which are wholly owned: Deeter Foundry, Inc. (Deeter); Mercer Forge Corporation and subsidiaries (Mercer); Dalton Corporation and subsidiaries (Dalton); Advanced Cast Products, Inc. and subsidiaries (Advanced Cast Products); Gregg Industries, Inc. (Gregg); Neenah Transport, Inc. (Transport) and Cast Alloys, Inc. (Cast Alloys), which is inactive. Deeter manufactures gray iron castings for the municipal market and special application construction castings. Mercer manufactures 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. Advanced Cast Products manufactures ductile and malleable iron castings for use in various industrial segments, including heavy truck, construction equipment, railroad, mining and automotive. Gregg manufactures gray and ductile iron castings for industrial and commercial use. 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. On August 5, 2003, the Company filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code with the United States Bankruptcy Court, District of Delaware (the Bankruptcy Court). On September 26, 2003, the Bankruptcy Court confirmed the Company's Plan of Reorganization, and on October 8, 2003, the Company consummated the Plan of Reorganization and emerged from its Chapter 11 reorganization proceedings with a significantly restructured balance sheet. The accompanying consolidated financial statements for 44 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 1. ORGANIZATION AND DESCRIPTION OF BUSINESS (CONTINUED) the year ended September 30, 2003, and the portion of October 1, 2003 related to the reorganization gain have been prepared in accordance with American Institute of Certified Public Accountant's Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" (SOP 90-7). The Company implemented the fresh start accounting provisions (fresh start) of SOP 90-7 as of October 1, 2003. Under fresh start, the fair value of the reorganized Company was allocated among its assets and liabilities, and its accumulated deficit as of October 1, 2003 was eliminated. The implementation of fresh start resulted in a substantial reduction in the carrying value of the Company's long-lived assets, including property, plant and equipment and intangible assets, and long-term liabilities. As a result, the Predecessor financial statements are not comparable to the financial statements of the reorganized company. Although the effective date of the Plan of Reorganization was October 8, 2003, due to the immateriality of the results of operations for the period between October 1, 2003 and the effective date, the Company has accounted for the consummation of the Plan of Reorganization as if it had occurred on October 1, 2003 and implemented fresh start reporting as of that date. Fresh start required that the Company adjust the historical cost of its assets and liabilities to their fair value. The fair value of the reorganized Company, or the reorganization value, of approximately $290,000 was determined by an independent party based on multiples of earnings before interest, income taxes, depreciation and amortization (EBITDA) and discounted cash flows under the Company's financial projections. Reorganization gain for the Predecessor on October 1, 2003 consisted of the following: Net gain on extinguishment of debt $ 168,208 Net loss resulting from fresh start fair value adjustments to assets and liabilities (124,265) --------- Total reorganization gain $ 43,943 =========
45 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Neenah and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. USE OF ESTIMATES The preparation of financial statements in conformity with U.S. 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. ACCOUNTS RECEIVABLE The Company evaluates the collectibility of its accounts receivable based on a number of factors. For larger accounts, an allowance for doubtful accounts is recorded based on the applicable parties' ability and likelihood to pay based on management's review of the facts. For all other accounts, the Company recognizes an allowance based on the length of time the receivable is past due based on historical experience. INVENTORIES Inventories at September 30, 2005 and 2004 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 supplies, for which cost is determined on the first-in, first-out (FIFO) method. The cost of inventories for Deeter, Mercer, Advanced Cast Products and Gregg is determined on the FIFO method. LIFO inventories comprise 42% and 47% of total inventories at September 30, 2005 and 2004, respectively. If the FIFO method of inventory valuation had been used by all companies, inventories would have been approximately $6,901 and $4,938 higher than reported at September 30, 2005 and 2004, respectively. Additionally, cost of sales in the accompanying consolidated statement of operations would have been approximately $1,039 higher for the year ended September 30, 2005 had the Company not experienced a decrement in inventory quantities that are valued on the LIFO method. 46 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment acquired prior to September 30, 2003 are stated at fair value, as required by fresh start accounting. Additions to property, plant and equipment subsequent to October 1, 2003 are stated at cost. Depreciation for financial reporting purposes is provided over the estimated useful lives (3 to 40 years) of the respective assets using the straight-line method. DEFERRED FINANCING COSTS Costs incurred to obtain long-term financing are amortized using the effective 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 10 to 40 years. GOODWILL Goodwill is tested for impairment annually during the fourth fiscal quarter or more frequently if an event indicates that the goodwill might be impaired in accordance with Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets." Based on such tests, there was no impairment of goodwill recorded in fiscal 2005 or 2004. IMPAIRMENT OF LONG-LIVED ASSETS Property, plant and equipment and identifiable 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. 47 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION Revenues are recognized when all of the following criteria are met: persuasive evidence of an arrangement exists; delivery has occurred and ownership has transferred to customer; the price to the customer is fixed and determinable; and collectibility is reasonably assured. The Company meets these criteria for revenue recognition upon shipment of product, which corresponds with transfer of title. SHIPPING AND HANDLING COSTS Shipping and handling costs are included in cost of sales. ADVERTISING COSTS Advertising costs are expensed as incurred. Advertising costs for continuing operations were $470, $525 and $445 for the years ended September 30, 2005, 2004 and 2003, 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 carrying value of the Company's financial instruments, including cash, accounts receivable and accounts payable approximate fair value. The fair value of the Company's long-term debt is approximately $285,838 at September 30, 2005. The fair value of the Senior Subordinated and Senior Secured Notes with a face value of $233,130 is based on quoted market prices. RECLASSIFICATIONS Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. 48 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) NEW ACCOUNTING PRONOUNCEMENTS In November 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 151, "Inventory Costs, an Amendment of ARB No. 43, Chapter 4." SFAS No. 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and requires the allocation of fixed production overhead to inventory based on the normal capacity of the production facilities. SFAS No. 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Adoption of SFAS No. 151 is not expected to have a material impact on the Company's financial condition, results of operations or cash flows. On December 16, 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment," which is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123(R) supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees," and amends SFAS No. 95, "Statement of Cash Flows." Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. Under the amended compliance dates adopted by the Securities and Exchange Commission, SFAS No. 123(R) must be adopted by the Company no later than October 1, 2005, the beginning of the Company's next fiscal year. The adoption of SFAS No. 123(R) will not have a material impact on the Company's results of operations or financial position as the Company has no stock-based compensation plans. 3. DISCONTINUED OPERATIONS On December 27, 2002, the Company sold substantially all of the assets of Belcher Corporation (Belcher) foundry (a wholly-owned subsidiary of Advanced Cast Products) for cash of $648 (net of fees and escrow deposits), a $1,500 note receivable and $1,000 of preferred stock of the buyer. The disposition of Belcher resulted in a loss of $1,596, net of taxes of $860. Included in the loss on disposal is a curtailment loss on Belcher's defined-benefit pension plan of $367, net of taxes of $198, which was retained by the Company. The results of operations of Belcher have been reported as discontinued operations in the consolidated statements of operations for all periods presented. 49 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 3. DISCONTINUED OPERATIONS (CONTINUED) Revenues for Belcher, which were previously included in the Castings segment, for the year ended September 30, 2003 were $3,186. Interest allocated to Belcher of $139 for the year ended September 30, 2003 was based on the purchase price of Belcher in relation to the purchase price of all other acquisitions funded by additional Company borrowings. 4. INVENTORIES Inventories consist of the following as of September 30:
2005 2004 ------- ------- Raw materials $ 6,905 $ 5,218 Work in process and finished goods 37,088 41,566 Supplies 15,130 14,335 ------- ------- $59,123 $61,119 ======= =======
5. INTANGIBLE ASSETS Identifiable intangible assets consist of the following as of September 30:
2005 2004 ----------------------- ----------------------- GROSS GROSS CARRYING ACCUMULATED CARRYING ACCUMULATED AMOUNT AMORTIZATION AMOUNT AMORTIZATION -------- ------------ -------- ------------ Amortizable intangible assets: Customer lists $67,000 $13,401 $67,000 $6,700 Tradenames 16,282 823 16,282 411 Other 155 21 155 10 ------- ------- ------- ------ $83,437 $14,245 $83,437 $7,121 ======= ======= ======= ======
The Company does not have any intangible assets deemed to have indefinite lives. The Company expects to recognize amortization expense of $7,124 in each of the five fiscal years subsequent to September 30, 2005. 50 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 6. LONG-TERM DEBT Long-term debt consists of the following as of September 30:
2005 2004 -------- -------- 13% Senior Subordinated Notes $100,000 $100,000 11% Senior Secured Notes, less unamortized discount of $7,921 and $9,506 124,607 123,022 Term Loan Facilities 16,564 19,719 Revolving Credit Facility 30,502 39,477 Other 81 1,583 -------- -------- 271,754 283,801 Less current portion 33,668 44,215 -------- -------- $238,086 $239,586 ======== ========
The Company's Credit Facility provides for a revolving credit line of up to $92,085 (with a $5,000 sublimit available for letters of credit and a term loan in the aggregate original principal amount of $22,085 which requires annual principal payments of $3,155 through fiscal 2008, with the remainder due in fiscal 2009). The Credit Facility matures on October 8, 2009. The Credit Facility contains various financial and nonfinancial covenants and is secured by substantially all of the Company's tangible and intangible assets. The interest rate on the Credit Facility is based on LIBOR (4% at September 30, 2005) or prime plus an applicable margin, based upon the Company meeting certain financial statistics. The weighted-average interest rate on the revolving credit line outstanding borrowings at September 30, 2005 is 5.85%. Substantially all of Neenah's wholly owned subsidiaries are co-borrowers with Neenah under the Credit Facility and are jointly and severally liable with Neenah for all obligations under the Credit Facility, subject to customary exceptions for transactions of this type. In addition, NFC Castings, Inc. (NFC), Neenah's immediate parent, and the remaining wholly owned subsidiaries of Neenah jointly and severally guarantee Neenah's obligations under the Credit Facility, subject to customary exceptions for transactions of this type. The borrowers' and guarantors' obligations under the Credit Facility are secured by a first priority perfected security interest, subject to customary restrictions, in substantially all of the tangible and intangible assets of the Company and its subsidiaries. The Senior Secured Notes, and the guarantees in respect thereof, are equal in right of payment to the Credit Facility, and the guarantees in respect thereof. The liens in respect of the Senior Secured Notes are junior to the liens securing the Credit Facility and guarantees thereof. Borrowings under the Revolving Credit Facility have been classified as current liabilities in the accompanying consolidated balance sheets in accordance with the consensus of Emerging Issues Task Force No. 95-22, 51 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) "Balance Sheet Classification of Borrowings Outstanding under Revolving Credit Agreements that include both a Subjective Acceleration Clause and a Lock-Box Arrangement." The Senior Secured Notes mature on September 30, 2010 and bear interest at 11%. Interest is payable semiannually on January 1 and July 1. The Senior Secured Notes are secured by substantially all of the Company's tangible and intangible assets; however, they are second in priority to the borrowings under the Credit Facility. The Company's obligations under the Senior Secured Notes are guaranteed on a secured basis by each of its wholly owned subsidiaries. 52 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 6. LONG-TERM DEBT (CONTINUED) The Senior Subordinated Notes are unsecured, mature on September 30, 2013 and bear interest at 13%. Interest of 5% is payable in cash and 8% may be paid-in-kind semiannually on January 1 and July 1. Through July 1, 2005, the Company has paid the interest in cash. The Senior Secured and the Senior Subordinated Notes contain covenants which restrict the Company from incurring additional indebtedness and restricts dividend payments, stock redemptions and certain other transactions. The Senior Secured and the Senior Subordinated Notes are fully, unconditionally, jointly and severally guaranteed by all subsidiaries. Scheduled annual principal payments on long-term debt for fiscal years subsequent to September 30, 2005 are: 2006 $ 33,668 2007 3,166 2008 3,167 2009 7,112 2010 124,620 Thereafter 100,021 -------- $271,754 ========
7. COMMITMENTS AND CONTINGENCIES The Company leases certain plants, warehouse space, machinery and equipment, office equipment and vehicles under operating leases. Rent expense for continuing operations under these operating leases for the years ended September 30, 2005, 2004 and 2003 totaled $2,920, $2,999 and $2,885, respectively. Minimum rental payments due under operating leases for fiscal years subsequent to September 30, 2005, are as follows: 2006 $2,015 2007 1,637 2008 1,267 2009 689 2010 538 Thereafter 479 ------ $6,625 ======
53 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 7. COMMITMENTS AND CONTINGENCIES (CONTINUED) 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 67% of the Company's work force is covered by collective bargaining agreements. The collective bargaining agreement for Advanced Cast Products was scheduled to expire in October 2005 and has been extended through fiscal 2009. In the normal course of business, the Company is named in legal proceedings. There are currently no material legal proceedings pending with respect to the Company. On August 5, 2005 the Company settled a legal matter related to the proposed sale of one of its subsidiaries by paying a cash settlement of $6,500. 8. INCOME TAXES The provision (credit) for income taxes consists of the following:
REORGANIZED PREDECESSOR ---------------- ----------- YEARS ENDED SEPTEMBER 30 ------------------------------ 2005 2004 2003 ------- ------ -------- Current: Federal $ 7,032 $ (700) $ -- State 1,568 721 346 8,600 21 346 Deferred (5,191) 3,620 (10,337) ------- ------ -------- $ 3,409 $3,641 $ (9,991) ======= ====== ========
The provision (credit) for income taxes is included in the consolidated statements of operations as follows:
REORGANIZED PREDECESSOR --------------- ----------- YEARS ENDED SEPTEMBER 30 ----------------------------- 2005 2004 2003 ------ ------ ------- Continuing operations $3,409 $3,881 $(8,541) Discontinued operations -- (240) (1,450) ------ ------ ------- $3,409 $3,641 $(9,991) ====== ====== =======
54 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 8. INCOME TAXES (CONTINUED) The provision (credit) for income taxes differs from the amount computed by applying the federal statutory rate of 35% to income (loss) before income taxes as follows:
REORGANIZED PREDECESSOR ---------------- ----------- YEARS ENDED SEPTEMBER 30 ------------------------------ 2005 2004 2003 ------- ------ -------- Provision (credit) at statutory rate $ 6,476 $2,414 $(12,443) State income taxes, net of federal taxes 815 469 225 Reorganization expenses -- -- 2,244 Permanent differences due to reorganization (885) 763 -- Change in tax method of determining LIFO inventory (2,679) -- -- Other (318) (5) (17) ------- ------ -------- Provision (credit) for income taxes $ 3,409 $3,641 $ (9,991) ======= ====== ========
55 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 8. INCOME TAXES (CONTINUED) Deferred income tax assets and liabilities consist of the following as of September 30:
2005 2004 -------- -------- Deferred income tax liabilities: Inventories $ (905) $ (4,118) Property, plant and equipment (10,939) (10,243) Identifiable intangible assets (27,677) (30,526) Other (382) (570) -------- -------- (39,903) (45,457) Deferred income tax assets: Employee benefit plans 14,972 12,208 Accrued vacation 2,191 2,148 Other accrued liabilities 1,414 587 State net operating loss carryforwards 264 -- Other 871 518 -------- -------- Total deferred tax assets 19,712 15,461 Valuation allowance for deferred income tax assets (264) -- ======== ======== 19,448 15,461 ======== ======== Net deferred income tax liability $(20,455) $(29,996) ======== ======== Included in the consolidated balance sheets as: Current deferred income tax asset (liability) $ 3,304 $ (1,360) Noncurrent deferred income tax liability (23,759) (28,636) -------- -------- $(20,455) $(29,996) ======== ========
As of September 30, 2005, the Company has state net operating loss carryforwards of $2,733 which expire through fiscal 2015. A full valuation allowance has been established for all state net operating loss carryforwards due to the uncertainty regarding the realization of the deferred tax benefit through future earnings. 56 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 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 has elected a measurement date of June 30 for all of its pension plans. The Company funds the pension plans based on actuarially determined cost methods allowable under Internal Revenue Service regulations. The Company also sponsors unfunded defined-benefit postretirement health care plans covering substantially all salaried and hourly employees at Neenah and their dependents. For 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. The Company has elected a measurement date of June 30 for these plans. FASB Financial Staff Position No. FAS 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003" (the Act), addresses the impact of the Act enacted in December 2003. The Act provides a prescription drug subsidy benefit for Medicare eligible employees starting in 2006. During fiscal 2005, it was determined that the benefit levels of the Company's defined-benefit postretirement health care plan covering salaried employees met the criteria set forth by the Act to qualify for the subsidy. Effective with the June 30, 2005 measurement date, the effects of the subsidy were used in measuring the plan's benefit obligation and net periodic postretirement benefit cost. The effect of the subsidy was to reduce the net periodic postretirement benefit cost by approximately $56 for the year ended September 30, 2005 and reduce the accumulated postretirement benefit obligation by approximately $415 as of the June 30, 2005 measurement date. The amount of subsidy payments expected to be received is approximately $42 per year in fiscal 2006 and future years. 57 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 9. EMPLOYEE BENEFIT PLANS (CONTINUED) OBLIGATIONS AND FUNDED STATUS The following table summarizes the funded status of the pension plans and postretirement benefit plans and the amounts recognized in the consolidated balance sheets at September 30, 2005 and 2004:
PENSION POSTRETIREMENT BENEFITS BENEFITS ------------------- ------------------- 2005 2004 2005 2004 -------- -------- -------- -------- Change in benefit obligation: Benefit obligation, October 1 $ 62,190 $ 60,049 $ 8,914 $ 10,319 Service cost 2,008 1,964 161 215 Interest cost 3,870 3,663 363 393 Plan amendments -- -- -- (461) Actuarial (gains) losses 12,548 (1,761) (1,655) (1,185) Benefits paid (2,454) (1,725) (432) (367) -------- -------- -------- -------- Benefit obligation, September 30 $ 78,162 $ 62,190 $ 7,351 $ 8,914 ======== ======== ======== ======== Change in plan assets: Fair value of plan assets, October 1 $ 49,020 $ 43,489 $ -- $ -- Actual return on plan assets 3,892 3,845 -- -- Company contributions 4,190 3,411 432 367 Benefits paid (2,454) (1,725) (432) (367) -------- -------- -------- -------- Fair value of plan assets, September 30 $ 54,648 $ 49,020 $ -- $ -- ======== ======== ======== ======== Funded status of the plans: Benefit obligation in excess of plan assets $(23,514) $(13,170) $ (7,351) $ (8,914) Unrecognized prior service cost -- -- (429) (461) 4th quarter contributions 1,200 -- 109 122 Unrecognized net (gains) losses 10,789 (1,986) (2,733) (1,322) -------- -------- -------- -------- $(11,525) $(15,156) $(10,404) $(10,575) ======== ======== ======== ======== Amounts recognized in the consolidated balance sheets at September 30: Accrued pension or postretirement benefit liability $(22,401) $(15,156) $(10,404) $(10,575) Deferred income tax asset 4,350 -- -- -- Accumulated other comprehensive loss 6,526 -- -- -- -------- -------- -------- -------- $(11,525) $(15,156) $(10,404) $(10,575) ======== ======== ======== ========
The accumulated benefit obligation for the Company's defined benefit pension plans was $78,162 and $62,190 at September 30, 2005 and 2004, respectively. 58 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 9. EMPLOYEE BENEFIT PLANS (CONTINUED) BENEFIT COSTS Components of net periodic benefit cost for the years ended September 30 are as follows:
PENSION BENEFITS POSTRETIREMENT BENEFITS --------------------------- ----------------------- 2005 2004 2003 2005 2004 2003 ------- ------- ------- ----- ---- ------ Service cost $ 2,008 $ 1,964 $ 1,798 $ 161 $286 $ 319 Interest cost 3,870 3,663 3,433 363 523 592 Expected return on plan assets (4,157) (3,630) (3,265) -- -- -- Amortization of prior service cost -- -- 146 (32) (32) 45 Recognized net actuarial (gain) loss 2 20 515 (244) (33) 47 ------- ------- ------- ----- ---- ------ Net periodic benefit cost $ 1,723 $ 2,017 $ 2,627 $ 248 $744 $1,003 ======= ======= ======= ===== ==== ======
The net periodic benefit costs are included in continuing operations in the consolidated statements of operations for all periods, except for the year ended September 30, 2003, of which $195 is recorded as discontinued operations. ASSUMPTIONS Weighted-average assumptions used to determine benefit obligations as of September 30 are as follows:
PENSION BENEFITS POSTRETIREMENT BENEFITS ---------------- ----------------------- 2005 2004 2005 2004 ---- ---- ---- ---- Discount rate 5.25% 6.25% 5.25% 6.25%
59 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 9. EMPLOYEE BENEFIT PLANS (CONTINUED) Weighted-average assumptions used to determine net periodic benefit cost for the years ended September 30 are as follows:
PENSION BENEFITS POSTRETIREMENT BENEFITS --------------------------------------------- ----------------------- 2005 2004 2003 2005 2004 2003 ------------- ------------- ------------- ---- ---- ---- Discount rate 6.25% 6.25% 6.25% to 7.25% 6.25% 6.25% 6.25% Expected long-term rate of return on plan assets 7.50% TO 8.50% 7.50% to 8.50% 7.50% to 8.50% -- -- --
For measurement purposes, the healthcare cost trend rate was assumed to be 8% decreasing gradually to 5.0% in 2010 and then remaining at that level thereafter. The healthcare cost trend rate assumption has a significant effect on the amounts reported. A one percentage point change in the healthcare cost trend rate would have the following effect:
1% Increase 1% Decrease ----------- ----------- Effect on total of service cost and interest cost $ 114 $ (87) Effect on postretirement benefit obligation 1,454 (1,122)
PENSION PLAN ASSETS The following table summarizes the weighted-average asset allocations of the pension plans at September 30:
2005 2004 ---- ---- Asset category: Equity securities 47% 47% Debt securities 34 37 Real estate 3 3 Other 16 13 --- --- 100% 100% === ===
60 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 9. EMPLOYEE BENEFIT PLANS (CONTINUED) The Company employs a total return investment approach whereby a mix of equities and fixed income investments are used to maximize the long-term return of plan assets for a prudent level of risk. The intent of this strategy is to minimize plan expenses by maximizing investment returns within that prudent level of risk. The investment portfolio contains a diversified blend of equity and fixed income investments. Furthermore, equity investments are diversified across U.S. and non-U.S. stocks as well as growth, value, and small and large capitalizations. The Company's targeted asset allocation ranges as a percentage of total market value are as follows: equity securities 45% to 50% and debt securities 35% to 40%. None of the plans' equity securities are invested in common stock of the plan sponsor's parent company, ACP Holding Company. Additionally, cash balances are maintained at levels adequate to meet near term plan expenses and benefit payments. Investment risk is measured and monitored on an ongoing basis through quarterly investment portfolio reviews. The Company's overall expected long-term rate of return on assets is 7.50% to 8.50%. The expected long-term rate of return is based on the portfolio as a whole and not on the sum of the returns on individual asset categories. The return is based on historical returns adjusted to reflect the current view of the long-term investment market. BENEFIT PAYMENTS AND CONTRIBUTIONS The following benefit payments, which reflect expected future service, as appropriate, and are net of expected Medicare subsidy receipts, are expected to be paid for fiscal years subsequent to September 30, 2005: 2006 $ 2,613 2007 2,758 2008 2,907 2009 3,259 2010 3,471 2011 - 2015 22,017 ------- $37,025 =======
The Company expects to contribute $5,071 to its pension plans during fiscal 2006. 61 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 up to a maximum of 6% of the employee's compensation, as defined. The Company may make additional voluntary contributions to the Plans as determined annually by the Board of Directors. Total Company contributions for continuing operations amounted to $1,861, $1,195 and $1,694 for the years ended September 30, 2005, 2004 and 2003, respectively. OTHER EMPLOYEE BENEFITS The Company provides unfunded supplemental retirement benefits to certain active and retired employees at Dalton. At September 30, 2005, the present value of the current and long-term portion of these supplemental retirement obligations totaled $232 and $2,347, respectively. At September 30, 2004, the present value of the current and long-term portion of these supplemental retirement obligations totaled $215 and $2,656, 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 years ended September 30, 2005, 2004 and 2003, was $337, $361 and $417, respectively. Substantially all of Mercer's union employees are covered by a multiemployer, defined-benefit pension plan pursuant to a collective bargaining agreement. The Company's expense for the years ended September 30, 2005, 2004 and 2003, was $290, $141 and $102, respectively. 10. SEGMENT INFORMATION The Company has two reportable segments, Castings and Forgings. The Castings segment manufactures and sells gray and ductile 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 and freight hauling. 62 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 and amortization 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. The following segment information is presented for continuing operations:
REORGANIZED PREDECESSOR ------------------- ----------- YEARS ENDED SEPTEMBER 30 --------------------------------- 2005 2004 2003 -------- -------- ----------- Revenues from external customers: Castings $491,159 $414,575 $ 349,410 Forgings 44,348 29,853 20,861 Other 22,507 22,035 19,185 Elimination of intersegment revenues (16,242) (15,521) (14,393) -------- -------- --------- $541,772 $450,942 $ 375,063 ======== ======== ========= Income (loss) from continuing operations: Castings $ 15,095 $ 3,614 $ (22,870) Forgings (570) (2,482) (6,819) Other 189 1,980 (150) Elimination of intersegment loss 381 502 6,969 -------- -------- --------- $ 15,095 $ 3,614 $ (22,870) ======== ======== ========= Total assets: Castings $475,725 $478,820 $ 641,870 Forgings 7,040 8,110 38,454 Other 13,268 12,097 10,971 Elimination of intersegment assets (83,478) (91,587) (154,461) -------- -------- --------- $412,555 $407,440 $ 536,834 ======== ======== =========
63 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 10. SEGMENT INFORMATION (CONTINUED)
CASTINGS FORGINGS OTHER TOTAL -------- -------- ------ ------- Year ended September 30, 2005 (Reorganized): Interest expense $29,543 $3,387 $ 489 $33,419 Interest income 13 -- -- 13 Provision for income taxes 1,642 479 1,288 3,409 Depreciation and amortization expense 16,979 815 1,070 18,864 Expenditures for long-lived assets 15,966 948 658 17,572 Year ended September 30, 2004 (Reorganized): Interest expense $29,392 $3,476 $ 524 $33,392 Interest income 29 -- -- 29 Provision (credit) for income taxes 3,648 (385) 618 3,881 Depreciation and amortization expense 16,254 749 989 17,992 Expenditures for long-lived assets 11,589 398 726 12,713 Year ended September 30, 2003 (Predecessor): Interest expense $41,907 $4,803 $ 735 $47,445 Interest income 825 -- -- 825 Provision (credit) for income taxes (8,331) (622) 412 (8,541) Depreciation and amortization expense 22,522 2,277 1,296 26,095 Expenditures for long-lived assets 11,112 217 571 11,900
GEOGRAPHIC INFORMATION
LONG-LIVED NET SALES ASSETS (1) --------- ---------- Year ended September 30, 2005 (Reorganized): United States $509,104 $ 91,250 Foreign countries 32,668 -- -------- -------- $541,772 $ 91,250 ======== ======== Year ended September 30, 2004 (Reorganized): United States $428,081 $ 87,276 Foreign countries 22,861 -- -------- -------- $450,942 $ 87,276 ======== ======== Year ended September 30, 2003 (Predecessor): United States $364,318 $162,969 Foreign countries 10,745 -- -------- -------- $375,063 $162,969 ======== ========
(1) Represents tangible long-lived assets only. 64 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 11. GUARANTOR SUBSIDIARIES The following tables present condensed consolidating financial information for fiscal 2005 and the period from October 1, 2003 to September 30, 2004 (Reorganized Company) and fiscal 2003 (Predecessor Company) for: (a) Neenah, and (b) on a combined basis, the guarantors of the Senior Secured Notes and the Senior Subordinated Notes, which include all of the wholly owned subsidiaries of Neenah (Subsidiary Guarantors). Separate financial statements of the Subsidiary Guarantors are not presented because the guarantors are jointly, severally and unconditionally liable under the guarantees, and the Company believes separate financial statements and other disclosures regarding the Subsidiary Guarantors are not material to investors. 65 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 11. GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET SEPTEMBER 30, 2005
SUBSIDIARY NEENAH GUARANTORS ELIMINATIONS CONSOLIDATED -------- ---------- ------------ ------------ ASSETS Current assets: Cash (overdraft) and cash equivalents $ 4,952 $ (1,468) $ -- $ 3,484 Accounts receivable, net 37,085 48,710 -- 85,795 Inventories 22,754 36,369 -- 59,123 Deferred income taxes 4,537 (1,233) -- 3,304 Other current assets 3,908 2,989 -- 6,897 -------- -------- --------- -------- Total current assets 73,236 85,367 -- 158,603 Investments in and advances to subsidiaries 114,430 -- (114,430) -- Property, plant and equipment, net 36,519 54,731 -- 91,250 Deferred financing costs, identifiable intangible assets and goodwill, net 140,435 17,648 -- 158,083 Other assets 1,834 2,785 -- 4,619 -------- -------- --------- -------- $366,454 $160,531 $(114,430) $412,555 ======== ======== ========= ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable $ 8,442 $ 21,863 $ -- $ 30,305 Net intercompany payable -- 81,907 (81,907) -- Income taxes payable 5,562 -- -- 5,562 Accrued wages and employee benefits 7,701 8,885 -- 16,586 Accrued interest 7,134 -- -- 7,134 Other accrued liabilities 469 1,942 -- 2,411 Current portion of long-term debt 33,658 10 -- 33,668 -------- -------- --------- -------- Total current liabilities 62,966 114,607 (81,907) 95,666 Long-term debt 238,015 71 -- 238,086 Deferred income taxes 20,539 3,220 -- 23,759 Postretirement benefit obligations 10,404 -- -- 10,404 Other liabilities 17,177 10,110 -- 27,287 Stockholder's equity 17,353 32,523 (32,523) 17,353 -------- -------- --------- -------- $366,454 $160,531 $(114,430) $412,555 ======== ======== ========= ========
66 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 11. GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET SEPTEMBER 30, 2004
SUBSIDIARY NEENAH GUARANTORS ELIMINATIONS CONSOLIDATED -------- ---------- ------------ ------------ ASSETS Current assets: Cash (overdraft) and cash equivalents $ 1,683 $ (1,683) $ -- $ -- Accounts receivable, net 39,487 41,833 -- 81,320 Inventories 25,481 35,638 -- 61,119 Deferred income taxes 4,086 (4,086) -- -- Other current assets 3,638 3,540 -- 7,178 -------- -------- --------- -------- Total current assets 74,375 75,242 -- 149,617 Investments in and advances to subsidiaries 111,982 -- (111,982) -- Property, plant and equipment, net 31,683 55,593 -- 87,276 Deferred financing costs, identifiable intangible assets and goodwill, net 146,515 19,066 -- 165,581 Other assets 1,895 3,071 -- 4,966 -------- -------- --------- -------- $366,450 $152,972 $(111,982) $407,440 ======== ======== ========= ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable $ 8,457 $ 20,693 $ -- $ 29,150 Net intercompany payable -- 73,527 (73,527) -- Income taxes payable 2,831 -- -- 2,831 Accrued wages and employee benefits 5,616 7,265 -- 12,881 Accrued interest 7,140 -- -- 7,140 Other accrued liabilities 467 1,655 -- 2,122 Deferred income taxes -- 1,360 -- 1,360 Current portion of long-term debt 42,632 1,583 -- 44,215 -------- -------- --------- -------- Total current liabilities 67,143 106,083 (73,527) 99,699 Long-term debt 239,586 -- -- 239,586 Deferred income taxes 27,747 889 -- 28,636 Postretirement benefit obligations 10,575 -- -- 10,575 Other liabilities 12,615 7,545 -- 20,160 Stockholder's equity 8,784 38,455 (38,455) 8,784 -------- -------- --------- -------- $366,450 $152,972 $(111,982) $407,440 ======== ======== ========= ========
67 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 11. GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - REORGANIZED COMPANY YEAR ENDED SEPTEMBER 30, 2005
SUBSIDIARY NEENAH GUARANTORS ELIMINATIONS CONSOLIDATED -------- ---------- ------------ ------------ Net sales $241,467 $306,635 $ 6,330) $541,772 Cost of sales 177,897 269,251 (6,330) 440,818 -------- -------- ------- -------- Gross profit 63,570 37,384 -- 100,954 Selling, general and administrative expenses 24,169 16,798 -- 40,967 Amortization expense 5,705 1,419 -- 7,124 Loss on disposal of equipment 367 586 -- 953 -------- -------- ------- -------- Operating income 33,329 18,581 -- 51,910 Other income (expense): Interest expense (17,767) (15,652) -- (33,419) Interest income -- 13 -- 13 -------- -------- ------- -------- (17,767) (15,639) -- (33,406) -------- -------- ------- -------- Income from operations before income taxes and equity in losses of subsidiaries 15,562 2,942 -- 18,504 Provision (credit) for income taxes (3,784) 7,193 -- 3,409 -------- -------- ------- -------- 19,346 (4,251) -- 15,095 Equity in losses of subsidiaries (4,251) -- 4,251 -- -------- -------- ------- -------- Net income (loss) $ 15,095 $ (4,251) $ 4,251 $ 15,095 ======== ======== ======= ========
68 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 11. GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - REORGANIZED COMPANY YEAR ENDED SEPTEMBER 30, 2004
SUBSIDIARY NEENAH GUARANTORS ELIMINATIONS CONSOLIDATED -------- ---------- ------------ ------------ Net sales $198,331 $258,266 $(5,655) $450,942 Cost of sales 144,649 236,130 (5,655) 375,124 -------- -------- ------- -------- Gross profit 53,682 22,136 -- 75,818 Selling, general and administrative expenses 13,249 14,125 -- 27,374 Amortization expense 5,705 1,416 -- 7,121 Loss on disposal of equipment 465 -- -- 465 -------- -------- ------- -------- Operating income 34,263 6,595 -- 40,858 Other income (expense): Interest expense (17,295) (16,097) -- (33,392) Interest income 21 8 -- 29 -------- -------- ------- -------- (17,274) (16,089) -- (33,363) -------- -------- ------- -------- Income (loss) from continuing operations before income taxes and equity in losses of subsidiaries 16,989 (9,494) -- 7,495 Provision (credit) for income taxes (1,890) 5,771 -- 3,881 -------- -------- ------- -------- 18,879 (15,265) -- 3,614 Equity in losses of subsidiaries (15,624) -- 15,624 -- -------- -------- ------- -------- Income (loss) from continuing operations 3,255 (15,265) 15,624 3,614 Loss from discontinued operations, net of income taxes -- (359) -- (359) -------- -------- ------- -------- Net income (loss) $ 3,255 $(15,624) $15,624 $ 3,255 ======== ======== ======= ========
69 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 11. GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS - PREDECESSOR COMPANY YEAR ENDED SEPTEMBER 30, 2003
SUBSIDIARY NEENAH GUARANTORS ELIMINATIONS CONSOLIDATED -------- ---------- ------------ ------------ Net sales $160,529 $220,102 $(5,568) $375,063 Cost of sales 117,301 210,101 (5,568) 321,834 -------- -------- ------- -------- Gross profit 43,228 10,001 -- 53,229 Selling, general and administrative expenses 11,766 14,366 -- 26,132 Amortization expense 1,832 1,987 -- 3,819 Loss on disposal of equipment 214 (19) -- 195 -------- -------- ------- -------- Operating income (loss) 29,416 (6,333) -- 23,083 Other income (expense): Interest expense (25,589) (21,856) -- (47,445) Interest income 822 3 -- 825 Reorganization expense (7,874) -- -- (7,874) -------- -------- ------- -------- (32,641) (21,853) -- (54,494) -------- -------- ------- -------- Loss from continuing operations before income taxes and equity in losses of subsidiaries (3,225) (28,186) -- (31,411) Provision (credit) for income taxes (8,846) 305 -- (8,541) -------- -------- ------- -------- 5,621 (28,491) -- (22,870) Equity in losses of subsidiaries (31,182) -- 31,182 -- -------- -------- ------- -------- Loss from continuing operations (25,561) (28,491) 31,182 (22,870) Loss from discontinued operations, net of income taxes -- (1,095) -- (1,095) Loss on sale of discontinued operations, net of income tax -- (1,596) -- (1,596) ======== ======== ======= ======== Net loss $(25,561) $(31,182) $31,182 $(25,561) ======== ======== ======= ========
70 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 11. GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - REORGANIZED COMPANY YEAR ENDED SEPTEMBER 30, 2005
SUBSIDIARY NEENAH GUARANTORS ELIMINATIONS CONSOLIDATED -------- ---------- ------------ ------------ OPERATING ACTIVITIES Net income (loss) $ 15,095 $(4,251) $ 4,251 $ 15,095 Noncash adjustments 6,637 12,608 -- 19,245 Changes in operating assets and liabilities 5,428 (6,181) -- (753) -------- ------- ------- -------- Net cash provided by operating activities 27,160 2,176 4,251 33,587 INVESTING ACTIVITIES Investments in and advances to subsidiaries (4,129) 8,380 (4,251) -- Purchase of property, plant and equipment (7,678) (9,894) -- (17,572) Other 197 1,055 -- 1,252 -------- ------- ------- -------- Net cash used in investing activities (11,610) (459) (4,251) (16,320) FINANCING ACTIVITIES Proceeds from long-term debt -- 84 -- 84 Payments on long-term debt (12,130) (1,586) -- (13,716) Debt issuance costs (151) -- -- (151) -------- ------- ------- -------- Net cash used in financing activities (12,281) (1,502) -- (13,783) -------- ------- ------- -------- Increase in cash and cash equivalents 3,269 215 -- 3,484 Cash (overdraft) and cash equivalents at beginning of year 1,683 (1,683) -- -- -------- ------- ------- -------- Cash (overdraft) and cash equivalents at end of year $ 4,952 $(1,468) $ -- $ 3,484 ======== ======= ======= ========
71 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 11. GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - REORGANIZED COMPANY YEAR ENDED SEPTEMBER 30, 2004
SUBSIDIARY NEENAH GUARANTORS ELIMINATIONS CONSOLIDATED -------- ---------- ------------ ------------ OPERATING ACTIVITIES Net income (loss) $ 3,255 $(15,624) $ 15,624 $ 3,255 Noncash adjustments 8,792 16,854 -- 25,646 Changes in operating assets and liabilities (11,999) (14,157) -- (16,156) -------- -------- -------- -------- Net cash provided by (used in) operating activities 48 (12,927) 15,624 2,745 INVESTING ACTIVITIES Investments in and advances to subsidiaries (6,749) 22,373 (15,624) -- Purchase of property, plant and equipment (3,897) (8,816) -- (12,713) Other 121 409 -- 530 -------- -------- -------- -------- Net cash provided by (used in) investing activities (10,525) 13,966 (15,624) (12,183) FINANCING ACTIVITIES Proceeds from long-term debt 14,450 -- -- 14,450 Payments on long-term debt (2,366) (2,646) -- (5,012) -------- -------- -------- -------- Net cash provided by (used in) financing activities 12,084 (2,646) -- 9,438 -------- -------- -------- -------- Increase (decrease) in cash and cash equivalents 1,607 (1,607) -- -- Cash (overdraft) and cash equivalents at beginning of year 76 (76) -- -- -------- -------- -------- -------- Cash (overdraft) and cash equivalents at end of year $ 1,683 $ (1,683) $ -- $ -- ======== ======== ======== ========
72 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 11. GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS - PREDECESSOR YEAR ENDED SEPTEMBER 30, 2003
SUBSIDIARY NEENAH GUARANTORS ELIMINATIONS CONSOLIDATED -------- ---------- ------------ ------------ OPERATING ACTIVITIES Net loss $(25,561) $(31,182) $ 31,182 $(25,561) Noncash adjustments 2,711 23,070 -- 25,781 Changes in operating assets and liabilities 32,264 (9,482) -- 22,782 -------- -------- -------- -------- Net cash provided by (used in) operating activities 9,414 (17,594) 31,182 23,002 INVESTING ACTIVITIES Investments in and advances to subsidiaries 1,086 30,096 (31,182) -- Purchase of property, plant and equipment (4,930) (6,970) -- (11,900) Other 89 494 -- 583 -------- -------- -------- -------- Net cash provided by (used in) investing activities (3,755) 23,620 (31,182) (11,317) FINANCING ACTIVITIES Proceeds from long-term debt 815 -- -- 815 Payments on long-term debt (10,041) (2,976) -- (13,017) Debt issuance costs (1,291) -- -- (1,291) -------- -------- -------- -------- Net cash used in financing activities (10,517) (2,976) -- (13,493) -------- -------- -------- -------- Increase (decrease) in cash and cash equivalents (4,858) 3,050 -- (1,808) Cash (overdraft) and cash equivalents at beginning of year 29,290 (3,126) -- 26,164 -------- -------- -------- -------- Cash (overdraft) and cash equivalents at end of year $ 24,432 $ (76) $ -- $ 24,356 ======== ======== ======== ========
73 Neenah Foundry Company Notes to Consolidated Financial Statements (continued) (In Thousands) 12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
YEAR ENDED SEPTEMBER 30, 2005 ----------------------------------------------------- 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ----------- ----------- ----------- ----------- Net sales $121,864 $131,527 $145,685 $142,696 Gross profit 19,168 20,460 31,347 30,979 Net income 612 1,175 6,130(a) 7,178
YEAR ENDED SEPTEMBER 30, 2004 ----------------------------------------------------- 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ----------- ----------- ----------- ----------- Net sales $89,825 $105,113 $124,717 $131,287 Gross profit 11,482 13,739 26,063 24,534 Net income (loss) (4,684) (3,644) 8,786 2,797
(a) Net income as previously reported $3,451 Adjustment to recognize tax benefit of change in tax method 2,679 ------ Net income as restated $6,130 ======
The Company made an election to change its tax method of determining LIFO inventory resulting in a tax benefit of $2,679. The effect is to increase previously reported fiscal 2005 third quarter net income by $2,679. 74 Report of Independent Registered Public Accounting Firm The Board of Directors Neenah Foundry Company We have audited the consolidated financial statements of Neenah Foundry Company as of September 30, 2005 and 2004 (Reorganized Company) and for the years ended September 30, 2005 and 2004 (Reorganized Company) and the year ended September 30, 2003 (Predecessor Company) and have issued our report thereon dated November 4, 2005 (included elsewhere in this Annual Report on Form 10-K). Our audits also included the financial statement schedule listed in the index at Item 15(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. /s/ Ernst & Young LLP Milwaukee, Wisconsin November 4, 2005 75 Schedule II NEENAH FOUNDRY COMPANY VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED SEPTEMBER 30, 2003, 2004, AND 2005 (Dollars in Thousands)
BALANCE AT ADDITIONS BEGINNING CHARGED TO BALANCE AT DESCRIPTION OF PERIOD EXPENSE DEDUCTIONS END OF PERIOD ----------- ---------- ---------- ---------- ------------- Allowance for doubtful accounts receivable: 2003 $1,062 $1,760 $ 447 (A) $2,375 ====== ====== ====== ====== 2004 $2,375 $1,043 $2,276 (A) $1,142 ====== ====== ====== ====== 2005 $1,142 $2,153 $1,202 (A) $2,093 ====== ====== ====== ====== (A) Uncollectible accounts written off, net of recoveries Reserve for obsolete inventory: 2003 $ 829 $ 424 $ 59 (B) $1,194 ====== ====== ====== ====== 2004 $1,194 $ 231 $ 690 (B) $ 735 ====== ====== ====== ====== 2005 $ 735 $ 356 $ 90 (B) $1,001 ====== ====== ====== ====== (B) Reduction for disposition of inventory
76 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. Date: December 27, 2005 NEENAH FOUNDRY COMPANY (Registrant) /s/ Gary W. LaChey ---------------------------------------- Gary W. LaChey Corp. Vice President - Finance (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 27, 2005, by the following persons on behalf of the registrant and in the capacities indicated. /s/ William M. Barrett /s/ Gary W. LaChey ------------------------------------- ---------------------------------------- William M. Barrett Gary W. LaChey President and Corp. Vice President - Finance Chief Executive Officer, Director (Principal Financial and Principal (Principal Executive Officer) Accounting Officer) /s/ Jeffrey G. Marshall /s/ Michael J. Farrell ------------------------------------- ---------------------------------------- Jeffrey G. Marshall Michael J. Farrell Director Director /s/ Benjamin C. Duster, IV, Esq. /s/ Andrew B. Cohen ------------------------------------- ---------------------------------------- Benjamin C. Duster, IV, Esq. Andrew B. Cohen Director Director 77 SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT The Company is not required to nor does it intend to furnish an Annual Report or a Proxy Statement to security holders. 78 NEENAH FOUNDRY COMPANY (THE "REGISTRANT") (COMMISSION FILE NO. 333-28751) EXHIBIT INDEX TO 2005 ANNUAL REPORT ON FORM 10-K
EXHIBIT FILED NUMBER DESCRIPTION INCORPORATED HEREIN BY REFERENCE TO HEREWITH ------- ----------- ----------------------------------- -------- 2.1 Disclosure Statement for Pre-Petition Exhibit T3E-1 to application for of Votes with respect to the qualification of indenture on Form T-3 Prepackaged Joint Plan of filed 7/1/03 (File No. 022-28687) Reorganization of ACP Holding Company, NFC Castings, Inc., and Neenah Foundry Company 2.2 Prepackaged Joint Plan of Exhibit T3E-2 to application for Reorganization of ACP Holding Company, qualification of indenture on Form T-3 NFC Castings, Inc. Neenah Foundry filed 7/1/03 (File No. 022-28687) Company and Certain of its Subsidiaries under Chapter 11 of the United States Bankruptcy Code 3.1 Amended and Restated Certificate X [Articles] of Incorporation of Neenah Foundry Company 3.2 Third Amended and Restated Certificate of X Incorporation of ACP Holding Company 3.3 Amended and Restated Certificate of X Incorporation of NFC Castings, Inc. 3.4 Amended and Restated Certificate of Exhibit 3.2 to Amendment No. 1 to the Incorporation of Advanced Cast Registrant's Form S-4 Registration Products, Inc. Statement (File No. 333-111008) filed on January 28, 2004 (the "1/28/04 S-4 Amendment") 3.5 Amended and Restated Articles of Exhibit 3.3 to the 1/28/04 S-4 Amendment Incorporation of Dalton Corporation 3.6 Certificate of Incorporation of Dalton Exhibit 3.4 to the 1/28/04 S-4 Amendment Corporation, Warsaw Manufacturing Facility 3.7 Amended and Restated Articles of Exhibit 3.5 to the 1/28/04 S-4 Amendment Incorporation of Dalton Corporation, Stryker Machining Facility Co.
79
EXHIBIT FILED NUMBER DESCRIPTION INCORPORATED HEREIN BY REFERENCE TO HEREWITH ------- ----------- ----------------------------------- -------- 3.8 Articles of Incorporation of Dalton Exhibit 3.6 to the 1/28/04 S-4 Amendment Corporation, Ashland Manufacturing Facility 3.9 Articles of Incorporation of Dalton Exhibit 3.7 to the 1/28/04 S-4 Amendment Corporation, Kendallville Manufacturing facility 3.10 Articles of Incorporation of Deeter Exhibit 3.8 to the 1/28/04 S-4 Amendment Foundry, Inc. 3.11 Articles of Incorporation of Gregg Exhibit 3.9 to the 1/28/04 S-4 Amendment Industries, Inc. 3.12 Articles of Incorporation of A&M Exhibit 3.10 to the 1/28/04 S-4 Amendment Specialties, Inc. 3.13 Restated Articles of Incorporation of Exhibit 3.11 to the 1/28/04 S-4 Amendment Neenah Transport, Inc. 3.14 Restated Articles of Incorporation of Exhibit 3.12 to the 1/28/04 S-4 Amendment Cast Alloys, Inc. 3.15 [Reserved] 3.16 [Reserved] 3.17 Certificate of Incorporation of Mercer X Forge Corporation 3.18 Amended and Restated Bylaws of ACP Holding X Company 3.19 Amended Bylaws of NFC Castings, Inc. X 3.20 Amended Bylaws of Neenah Foundry Exhibit 3.15 to the 1/28/04 S-4 Amendment Company 3.21 Bylaws of Advanced Cast Products, Inc. Exhibit 3.16 to the 1/28/04 S-4 Amendment 3.22 Amended Code of Bylaws of Dalton Exhibit 3.17 to the 1/28/04 S-4 Amendment Corporation 3.23 Amended Code of Bylaws of Dalton Exhibit 3.18 to the 1/28/04 S-4 Amendment Corporation, Warsaw Manufacturing Facility
80
EXHIBIT FILED NUMBER DESCRIPTION INCORPORATED HEREIN BY REFERENCE TO HEREWITH ------- ----------- ----------------------------------- -------- 3.24 Code of Regulations of Dalton Exhibit 3.19 to the 1/28/04 S-4 Amendment Corporation, Stryker Manufacturing Facility 3.25 Amended and Restated Code of Exhibit 3.20 to the 1/28/04 S-4 Amendment Regulations of Dalton Corporation, Ashland Manufacturing Facility 3.26 Amended Code of Bylaws of Dalton Exhibit 3.21 to the 1/28/04 S-4 Amendment Corporation, Kendallville Manufacturing Facility 3.27 Bylaws of Deeter Foundry, Inc. Exhibit 3.22 to the 1/28/04 S-4 Amendment 3.28 Bylaws of Gregg Industries, Inc. Exhibit 3.23 to the 1/28/04 S-4 Amendment 3.29 Amended A&M Specialties, Inc. Bylaws Exhibit 3.24 to the 1/28/04 S-4 Amendment 3.30 Amended Neenah Transport, Inc. Bylaws Exhibit 3.25 to the 1/28/04 S-4 Amendment 3.31 Bylaws of Cast Alloys, Inc. Exhibit 3.26 to the 1/28/04 S-4 Amendment 3.32 [Reserved] 3.33 Bylaws of Mercer Forge Corporation X 4.1 Warrant Agreement, dated October 8, by Exhibit 10.4 hereto and between ACP Holding Company and the Bank of New York as warrant agent 4.2 Stockholders Agreement, dated October Exhibit 10.6 hereto 8, 2003, by and among ACP Holding Company, the Standby Purchasers, the Executives and Directors (as such terms are defined therein) 4.3 Indenture by and among Neenah Foundry Exhibit 10.7 hereto Company, the guarantors named therein, and the Bank of New York, as Trustee, dated October 8, 2003, for the 13% Senior Subordinated Notes due 2013
81
EXHIBIT FILED NUMBER DESCRIPTION INCORPORATED HEREIN BY REFERENCE TO HEREWITH ------- ----------- ----------------------------------- -------- 4.4 Form of Note for the 13% Senior Exhibit 10.8 hereto Subordinated Notes due 2013 4.5 Indenture by and among Neenah Foundry Exhibit 10.21 hereto Company, the guarantors named therein and The Bank of New York, as Trustee, dated October 8, 2003, for the 11% Senior Secured Notes due 2010 4.6 Form of Note for the 11% Senior Exhibit 10.22 hereto Secured Notes due 2010 10.1 Loan and Security Agreement, dated Exhibit 10.1 to the 1/28/04 S-4 Amendment October 8, 2003, by and among Neenah Foundry Company, its subsidiaries party thereto, the various lenders party thereto and Fleet Capital Corporation, as agent 10.2 Amendment No. 1 to Loan and Security Exhibit 10.1 to the Registrant's Form Agreement, dated October 8, 2003, by 8-K dated July 28, 2005 and among Neenah Foundry Company, its subsidiaries party thereto, the various lenders party thereto and Fleet Capital Corporation, as agent 10.2(a) Amendment No. 2 to Loan and Security X Agreement, dated October 8, 2003, by and among Neenah Foundry Company, its subsidiaries party thereto, the various lenders party thereto and Fleet Capital Corporation, as agent 10.3 Subscription Agreement, dated as of Exhibit 10.2 to the Registrant's Form October 7, 2003, by and among ACP S-4 Registration Statement (File No. Holding Company, Neenah Foundry 333-111008) filed on December 8, 2003 Company, the subsidiary Guarantors (the "Form S-4") named therein and the Investors as defined therein 10.4 Warrant Agreement, dated October 8, X 2003, by and between ACP Holding Company and the Bank of New York as warrant agent 10.5 Registration Rights Agreement, dated Exhibit 10.4 to the 1/28/04 S-4 Amendment October 8, 2003, by and between ACP Holding Company and the initial
82
EXHIBIT FILED NUMBER DESCRIPTION INCORPORATED HEREIN BY REFERENCE TO HEREWITH ------- ----------- ----------------------------------- -------- holders 10.6 Stockholders Agreement, dated October Exhibit 10.5 to the Form S-4 8, 2003, by and among ACP Holding Company, the Standby Purchasers, the Executives and Directors (as such terms are defined therein) 10.7 Indenture by and among Neenah Foundry Exhibit 10.6 to the Form S-4 Company, the guarantors named therein, and the Bank of New York, as Trustee, dated October 8, 2003, for the 13% Senior Subordinated Notes due 2013 10.8 Form of Note for the 13% Senior Exhibit 10.6 to the Form S-4 Subordinated Notes due 2013 10.9 Registration Rights Agreement, dated Exhibit 10.8 to the Form S-4 October 8, 2003, by and among ACP Holding Company and the parties named therein for the 13% Senior Subordinated Noted due 2013 10.10* Form of Amendment to the Employment X Agreements and Restricted Grants listed in Exhibits 10.10(a) through 10.18 10.10(a)* Employment Agreement and Restricted Exhibit 10.9 to the 1/28/04 S-4 Amendment Stock Grant by and among Neenah Foundry Company, ACP Holding Company and John Andrews 10.11* Employment Agreement and Restricted Exhibit 10.10 to the 1/28/04 S-4 Stock Grant by and among Neenah Amendment Foundry Company, ACP Holding Company and William M. Barrett 10.12* Employment Agreement and Restricted Exhibit 10.11 to the 1/28/04 S-4 Stock Grant by and among Dalton Amendment Corporation, ACP Holding Company and Joseph L. DeRita 10.13* Employment Agreement and Restricted Exhibit 10.12 to the 1/28/04 S-4 Stock Grant by and among Neenah Amendment Foundry Company, ACP Holding Company and Frank C. Headington
83
EXHIBIT FILED NUMBER DESCRIPTION INCORPORATED HEREIN BY REFERENCE TO HEREWITH ------- ----------- ----------------------------------- -------- 10.14* Employment Agreement and Restricted Exhibit 10.13 to the 1/28/04 S-4 Stock Grant by and among Neenah Amendment Foundry Company, ACP Holding Company and Timothy Koller 10.15* Employment Agreement and Restricted Exhibit 10.14 to the 1/28/04 S-4 Stock Grant by and among Neenah Amendment Foundry Company, ACP Holding Company and Gary W. LaChey 10.16* Employment Agreement and Restricted Exhibit 10.15 to the 1/28/04 S-4 Stock Grant by and among Neenah Amendment Foundry Company, ACP Holding Company and William Martin 10.17* Employment Agreement and Restricted Exhibit 10.16 to the 1/28/04 S-4 Stock Grant by and among Dalton Amendment Corporation, ACP Holding Company and Steve Shaffer 10.18* Employment Agreement and Restricted Exhibit 10.17 to the 1/28/04 S-4 Stock Grant by and among Neenah Amendment Foundry Company, ACP Holding Company and Joseph Varkoly 10.19* Neenah Foundry Company 2003 Management Exhibit 10.18 to the Form S-4 Annual Incentive Plan 10.19(a)* Summary of Amendment to Neenah Foundry X Company 2003 Management Annual Incentive Plan 10.20* Neenah Foundry Company 2003 Severance Exhibit 10.19 to the Form S-4 and Change of Control Plan 10.21 Indenture by and among Neenah Foundry Exhibit 4.1 to the Form S-4 Company, the guarantors named therein and The Bank of New York, as Trustee, dated October 8, 2003, for the 11% Senior Secured Notes due 2010
84
EXHIBIT INCORPORATED HEREIN FILED NUMBER DESCRIPTION BY REFERENCE TO HEREWITH ------- ----------- ------------------- -------- 10.22 Form of Note for the 11% Senior Exhibit 4.1 to the Form S-4 Secured Notes due 2010 10.23 Lien Subordination Agreement, dated Exhibit 4.3 to the Form S-4 October 8, 2003, by and among Fleet Capital Corporation, Neenah Foundry Company, the subsidiaries named therein, NFC Castings, Inc. and The Bank of New York as Trustee on behalf of the Noteholders under the Indenture governing the 11% Senior Secured Notes due 2010 10.24 Registration Rights Agreement, dated Exhibit 4.4 to the Form S-4 October 8, 2003, by and among Neenah Foundry Company, the Guarantors named therein and The Bank of New York as Trustee for the 11% Senior Secured Notes due 2010 10.25 Subordinated Security Agreement, dated Exhibit 4.5 to the Form S-4 October 8, 2003, by Neenah Foundry Company and the guarantors named therein in favor of The Bank of New York as Trustee for the Noteholders under the Indenture governing the 11% Senior Secured Noted due 2010 10.26 Subordinated Pledge Agreement, dated Exhibit 4.6 to the Form S-4 October 8, 2003, by Dalton Corporation in favor of The Bank of New York as Trustee for the Noteholders under the Indenture governing the 11% Senior Secured Notes due 2010. 10.27 Subordinated Pledge Agreement, dated Exhibit 4.7 to the Form S-4 October 8, 2003, by Mercer Forge Corporation in favor of The Bank of New York as Trustee for the Noteholders under the Indenture governing the 11% Senior Secured Notes due 2010 10.28 Subordinated Copyright, Patent, Exhibit 4.8 to the Form S-4 Trademark and License Mortgage, dated October 8, 2003, by Neenah Foundry Company in favor of The Bank of New York as Trustee for the Noteholders
85
EXHIBIT INCORPORATED HEREIN FILED NUMBER DESCRIPTION BY REFERENCE TO HEREWITH ------- ----------- ------------------- -------- under the Indenture governing the 11% Senior Secured Notes due 2010 10.29 Subordinated Copyright, Patent, Exhibit 4.9 to the Form S-4 Trademark and License Mortgage, dated October 8, 2003, by Advanced Cast Products, Inc. in favor of The Bank of New York as Trustee for the Noteholders under the Indenture governing the 11% Senior Secured Notes due 2010 10.30 Subordinated Copyright, Patent, Exhibit 4.10 to the Form S-4 Trademark and License Mortgage, dated October 8, 2003, by Peerless Corporation in favor of The Bank of New York as Trustee for the Noteholders under the Indenture governing the 11% Senior Secured Notes due 2010 10.31 Subordinated Pledge Agreement, dated Exhibit 4.11 to the Form S-4 October 8, 2003, by Neenah Foundry Company in favor of The Bank of New York as Trustee for the Noteholders under the Indenture governing the 11% Senior Securities due 2010 10.32 Subordinated Pledge Agreement, dated Exhibit 4.12 to the Form S-4 October 8, 2003, by Advanced Cast Products, Inc. in favor of The Bank of New York as Trustee for the Noteholders under the Indenture governing the 11% Senior Securities due 2010 10.33* 2003 Management Equity Incentive Plan X 12.1 Ratio of Earnings to Fixed Charges X 21 Subsidiaries of Neenah Foundry Company X 31.1 Certification of Chief Executive X Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to section
86
EXHIBIT INCORPORATED HEREIN FILED NUMBER DESCRIPTION BY REFERENCE TO HEREWITH ------- ----------- ------------------- -------- 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification of Chief Financial X Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002 32 Chief Executive and Chief Financial X Officers' certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
---------- * Denotes management contract or executive compensation plan or arrangement required to be filed as an exhibit pursuant to Item 15 of Form 10-K. 87