-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Tmb7FBcYnNS++lokQN0yrPX76hhBh8QSAGZbsIwhhl65BV41cL0Wbt6i1/tWMh9O BF52Fe0vMQcXLeSH6Zk/Rg== 0000950137-06-001683.txt : 20060213 0000950137-06-001683.hdr.sgml : 20060213 20060213092920 ACCESSION NUMBER: 0000950137-06-001683 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20051231 FILED AS OF DATE: 20060213 DATE AS OF CHANGE: 20060213 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEENAH FOUNDRY CO CENTRAL INDEX KEY: 0001040599 STANDARD INDUSTRIAL CLASSIFICATION: GLASS, GLASSWARE, PRESSED OR BLOWN [3220] IRS NUMBER: 391580331 STATE OF INCORPORATION: WI FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-28751-03 FILM NUMBER: 06600973 BUSINESS ADDRESS: STREET 1: 2121 BROOKS AVE STREET 2: PO BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 BUSINESS PHONE: 9207257000 MAIL ADDRESS: STREET 1: 2121 BROOKS AVE STREET 2: PO BOX 729 CITY: NEENAH STATE: WI ZIP: 54927 10-Q 1 c02399e10vq.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2005 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to _____________ Commission File Number 333-28751 NEENAH FOUNDRY COMPANY (Exact name of registrant as specified in its charter) Wisconsin 39-1580331 (State or other jurisdiction of (IRS Employer ID Number) incorporation or organization)
2121 Brooks Avenue, 54957 P.O. Box 729, Neenah, Wisconsin (Zip Code) (Address of principal executive offices)
(920) 725-7000 (Registrant's telephone number, including area code) None (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate by check mark whether the registrant is a large accelerated filer, an accelerated flier, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated Filer [ ] Non-accelerated filer [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No X --- --- Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 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 --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. On January 31, 2006, the registrant 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. 1 NEENAH FOUNDRY COMPANY Form 10-Q Index For the Quarter Ended December 31, 2005
Page ---- Part I. Financial Information Item 1. Financial Statements Condensed consolidated balance sheets -- Neenah Foundry Company as of December 31, 2005 and September 30, 2005 3 Condensed consolidated statements of operations -- Neenah Foundry Company for the three months ended December 31, 2005 and 2004 4 Condensed consolidated statements of cash flows -- Neenah Foundry Company for the three months ended December 31, 2005 and 2004 5 Notes to condensed consolidated financial statements -- December 31, 2005 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14 Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 Item 4. Controls and Procedures 19 Part II. Other Information Item 6. Exhibits 20 Signatures 21 Exhibits 22
2 NEENAH FOUNDRY COMPANY PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts)
December 31, September 30, 2005 2005(1) ------------ ------------- (Unaudited) ASSETS Current assets: Cash .................................................... $ -- $ 3,484 Accounts receivable, net ................................ 69,296 85,795 Inventories ............................................. 62,421 59,123 Deferred income taxes ................................... 3,304 3,304 Other current assets .................................... 5,980 6,897 -------- -------- Total current assets .............................. 141,001 158,603 Property, plant and equipment .............................. 116,769 113,398 Less accumulated depreciation .............................. 25,318 22,148 -------- -------- 91,451 91,250 Deferred financing costs, net .............................. 2,068 2,192 Identifiable intangible assets, net ........................ 67,412 69,192 Goodwill ................................................... 86,699 86,699 Other assets ............................................... 4,768 4,619 -------- -------- $393,399 $412,555 ======== ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable ........................................ $ 24,787 $ 30,305 Income taxes payable .................................... 750 5,562 Accrued wages and employee benefits ..................... 10,341 16,586 Accrued interest ........................................ 200 7,134 Other accrued liabilities ............................... 2,651 2,411 Current portion of long-term debt ....................... 38,598 33,668 -------- -------- Total current liabilities ......................... 77,327 95,666 Long-term debt ............................................. 237,779 238,086 Deferred income taxes ...................................... 23,759 23,759 Postretirement benefit obligations ......................... 10,482 10,404 Other liabilities .......................................... 25,979 27,287 -------- -------- Total liabilities ................................. 375,326 395,202 Commitments and contingencies STOCKHOLDER'S EQUITY: Common stock, par value $100 per share -- authorized, issued and outstanding 1,000 shares .................. 100 100 Capital in excess of par value ............................. 5,429 5,429 Retained earnings .......................................... 19,070 18,350 Accumulated other comprehensive loss ....................... (6,526) (6,526) -------- -------- Total stockholder's equity ........................ 18,073 17,353 -------- -------- $393,399 $412,555 ======== ========
See notes to condensed consolidated financial statements. (1) The balance sheet as of September 30, 2005 has been derived from the audited financial statements as of that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. 3 NEENAH FOUNDRY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands)
Three Months Ended December 31, ------------------- 2005 2004 -------- -------- Net sales ........................................ $121,714 $121,864 Cost of sales .................................... 102,624 102,696 -------- -------- Gross profit ..................................... 19,090 19,168 Selling, general and administrative expenses ..... 7,959 7,953 Amortization of intangible assets ................ 1,780 1,783 Gain on disposal of equipment .................... (5) (1) -------- -------- Total operating expenses ......................... 9,734 9,735 -------- -------- Operating income ................................. 9,356 9,433 Net interest expense .......................... (8,225) (8,411) -------- -------- Income before income taxes ....................... 1,131 1,022 Income tax provision ............................. 411 410 -------- -------- Net income ....................................... $ 720 $ 612 ======== ========
See notes to condensed consolidated financial statements. 4 NEENAH FOUNDRY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Three Months Ended December 31, ------------------ 2005 2004 -------- ------- OPERATING ACTIVITIES Net income ...................................................... $ 720 $ 612 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ................................ 4,984 4,627 Amortization of deferred financing costs and discount on notes ..................................................... 520 516 Changes in operating assets and liabilities .................. (10,530) (5,565) -------- ------- Net cash provided by (used in) operating activities ............................................. (4,306) 190 INVESTING ACTIVITIES Purchase of property, plant and equipment ....................... (3,405) (4,822) -------- ------- Net cash used in investing activities ............................................. (3,405) (4,822) FINANCING ACTIVITIES Net change in revolver balance .................................. 4,924 6,097 Proceeds from long-term debt .................................... 94 -- Payments on long-term debt and capital lease obligations ........ (791) (1,450) Debt issuance costs ............................................. -- (15) -------- ------- Net cash provided by financing activities ............................................. 4,227 4,632 -------- ------- Increase (decrease) in cash and cash equivalents ................ (3,484) -- Cash and cash equivalents at beginning of period ................ 3,484 -- -------- ------- Cash and cash equivalents at end of period ...................... $ -- $ -- ======== =======
See notes to condensed consolidated financial statements. 5 NEENAH FOUNDRY COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands) NOTE 1 -- BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal and recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended December 31, 2005 are not necessarily indicative of the results that may be expected for the year ending September 30, 2006. For further information, refer to the consolidated financial statements and footnotes thereto included in Neenah Foundry Company's Annual Report on Form 10-K for the year ended September 30, 2005. NOTE 2 -- INVENTORIES The components of inventories are as follows:
December 31, September 30, 2005 2005 ------------ ------------- Raw materials ....................... $ 7,545 $ 6,905 Work in process and finished goods .. 39,244 37,088 Supplies ............................ 15,632 15,130 ------- ------- $62,421 $59,123 ======= =======
NOTE 3 -- RECENT ACCOUNTING PRONOUNCEMENTS On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 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. The Company adopted Statement 123(R) on October 1, 2005. The adoption of Statement 123(R) did not have an impact on the Company's results of operations or financial position as the Company has no stock-based compensation plans. 6 NOTE 4 -- EMPLOYEE BENEFIT PLANS COMPONENTS OF NET PERIODIC BENEFIT COST The Company has five defined-benefit pension plans covering the majority of its hourly employees and also sponsors unfunded defined benefit postretirement health care plans covering substantially all salaried and hourly employees and their dependents. Components of net periodic benefit costs are as follows for the three months ended December 31, 2005 and 2004 (in thousands):
Pension Benefits Postretirement Benefits ------------------ ----------------------- Three Months Ended Three Months Ended December 31, December 31, ------------------ ----------------------- 2005 2004 2005 2004 ------- ----- ----- ---- Service cost $ 668 $ 486 $ 68 $ 75 Interest cost 1,051 884 160 138 Expected return on plan assets (1,140) (900) -- -- Amortization of prior service cost (credit) -- -- (10) (6) Recognized net actuarial loss (gain) 5 -- (108) (8) ------- ----- ----- ---- Net periodic benefit cost $ 584 $ 470 $ 110 $199 ======= ===== ===== ====
EMPLOYER CONTRIBUTIONS For the three months ended December 31, 2005, $1,800 of contributions have been made. The Company presently anticipates contributing an additional $3,900 to fund its pension plans in fiscal 2006 for a total of $5,700. 7 NOTE 5 -- GUARANTOR SUBSIDIARIES The following tables present condensed consolidating financial information as of December 31, 2005 and September 30, 2005 and for the three months ended December 31, 2005 and 2004 for: (a) Neenah Foundry Company ("Neenah") and (b) on a combined basis, the guarantors of the 11% Senior Secured Notes due 2010 and 13% Senior Subordinated Notes due 2013, 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. CONDENSED CONSOLIDATING BALANCE SHEET DECEMBER 31, 2005
Subsidiary Neenah Guarantors Eliminations Consolidated -------- ---------- ------------ ------------ ASSETS Current assets: Cash and cash equivalents $ (347) $ 347 $ -- $ -- Accounts receivable, net 29,988 39,308 -- 69,296 Inventories 24,992 37,429 -- 62,421 Deferred income taxes 4,537 (1,233) -- 3,304 Other current assets 3,332 2,648 -- 5,980 -------- -------- --------- -------- Total current assets 62,502 78,499 -- 141,001 Investments in and advances to subsidiaries 112,168 -- (112,168) -- Property, plant and equipment, net 37,201 54,250 -- 91,451 Deferred financing costs and identifiable intangible assets, net 52,186 17,294 -- 69,480 Goodwill 86,699 -- -- 86,699 Other assets 1,834 2,934 -- 4,768 -------- -------- --------- -------- $352,590 $152,977 $(112,168) $393,399 ======== ======== ========= ======== LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable $ 5,972 $ 18,815 $ -- $ 24,787 Net intercompany payable -- 81,523 (81,523) -- Income taxes payable 799 (49) -- 750 Accrued liabilities 4,775 8,417 -- 13,192 Current portion of long-term debt 38,580 18 -- 38,598 -------- -------- --------- -------- Total current liabilities 50,126 108,724 (81,523) 77,327 Long-term debt 237,623 156 -- 237,779 Deferred income taxes 20,539 3,220 -- 23,759 Postretirement benefit obligations 10,482 -- -- 10,482 Other liabilities 15,747 10,232 -- 25,979 Stockholder's equity 18,073 30,645 (30,645) 18,073 -------- -------- --------- -------- $352,590 $152,977 $(112,168) $393,399 ======== ======== ========= ========
8 NOTE 5 -- GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET SEPTEMBER 30, 2005
Subsidiary Neenah Guarantors Eliminations Consolidated -------- ---------- ------------ ------------ ASSETS Current assets: Cash 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 and identifiable intangible assets, net 53,736 17,648 -- 71,384 Goodwill, net 86,699 -- -- 86,699 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 liabilities 15,304 10,827 -- 26,131 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 ======== ======== ========= ========
9 NOTE 5 -- GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 2005
Subsidiary Neenah Guarantors Eliminations Consolidated ------- ---------- ------------ ------------ Net sales $52,373 $70,886 $(1,545) $121,714 Cost of sales 39,489 64,680 (1,545) 102,624 ------- ------- ------- -------- Gross profit 12,884 6,206 -- 19,090 Selling, general and administrative expenses 4,105 3,854 -- 7,959 Amortization of intangible assets 1,426 354 -- 1,780 Loss (gain) on disposal of equipment (6) 1 -- (5) ------- ------- ------- -------- Operating income 7,359 1,997 -- 9,356 Net interest expense (4,353) (3,872) -- (8,225) ------- ------- ------- -------- Income (loss) before income taxes and equity in loss of subsidiaries 3,006 (1,875) -- 1,131 Income tax provision (benefit) 1,093 (682) -- 411 ------- ------- ------- -------- 1,913 (1,193) -- 720 Equity in loss of subsidiaries (1,193) -- 1,193 -- ------- ------- ------- -------- Net income (loss) $ 720 $(1,193) $ 1,193 $ 720 ======= ======= ======= ========
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS THREE MONTHS ENDED DECEMBER 31, 2004
Subsidiary Neenah Guarantors Eliminations Consolidated ------- ---------- ------------ ------------ Net sales $55,035 $68,296 $(1,467) $121,864 Cost of sales 42,958 61,205 (1,467) 102,696 ------- ------- ------- -------- Gross profit 12,077 7,091 -- 19,168 Selling, general and administrative expenses 4,326 3,627 -- 7,953 Amortization of intangible assets 1,427 356 -- 1,783 Gain on disposal of equipment (1) -- -- (1) ------- ------- ------- -------- Operating income 6,325 3,108 -- 9,433 Net interest expense (4,436) (3,975) -- (8,411) ------- ------- ------- -------- Income (loss) before income taxes and equity in loss of subsidiaries 1,889 (867) -- 1,022 Income tax provision 408 2 -- 410 ------- ------- ------- -------- 1,481 (869) -- 612 Equity in loss of subsidiaries (869) -- 869 -- ------- ------- ------- -------- Net income (loss) $ 612 $ (869) $ 869 $ 612 ======= ======= ======= ========
10 NOTE 5 -- GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS THREE MONTHS ENDED DECEMBER 31, 2005
Subsidiary Neenah Guarantors Eliminations Consolidated -------- ---------- ------------ ------------ OPERATING ACTIVITIES Net income (loss) $ 720 $(1,193) $ 1,193 $ 720 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 2,167 2,817 -- 4,984 Amortization of deferred financing costs and discount on notes 520 -- -- 520 Changes in operating assets and liabilities (13,680) 3,150 -- (10,530) -------- ------- ------- -------- Net cash provided by (used in) operating activities (10,273) 4,774 1,193 (4,306) INVESTING ACTIVITIES Investments in and advances to subsidiaries 2,262 (1,069) (1,193) -- Purchase of property, plant and equipment (1,423) (1,982) -- (3,405) -------- ------- ------- -------- Net cash provided by (used in) investing activities 839 (3,051) (1,193) (3,405) FINANCING ACTIVITIES Net change in revolver balance 4,924 -- -- 4,924 Proceeds from long-term debt -- 94 -- 94 Payments on long-term debt and capital lease obligations (789) (2) -- (791) -------- ------- ------- -------- Net cash provided by financing activities 4,135 92 -- 4,227 -------- ------- ------- -------- Increase (decrease) in cash and cash equivalents (5,299) 1,815 -- (3,484) Cash and cash equivalents at beginning of period 4,952 (1,468) -- 3,484 -------- ------- ------- -------- Cash and cash equivalents at end of period $ (347) $ 347 $ -- $ -- ======== ======= ======= ========
11 NOTE 5 -- GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS THREE MONTHS ENDED DECEMBER 31, 2004
Subsidiary Neenah Guarantors Eliminations Consolidated -------- ---------- ------------ ------------ OPERATING ACTIVITIES Net income (loss) $ 612 $ (869) $ 869 $ 612 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 2,027 2,600 -- 4,627 Amortization of deferred financing costs and discount on notes 516 -- -- 516 Changes in operating assets and liabilities (299) (5,266) -- (5,565) -------- ------- ----- ------- Net cash provided by (used in) operating activities 2,856 (3,535) 869 190 INVESTING ACTIVITIES Investments in and advances to subsidiaries (7,499) 8,368 (869) -- Purchase of property, plant and equipment (2,974) (1,848) -- (4,822) -------- ------- ----- ------- Net cash provided by (used in) investing activities (10,473) 6,520 (869) (4,822) FINANCING ACTIVITIES Net change in revolver balance 6,097 -- 6,097 Payments on long-term debt and capital lease obligations (417) (1,033) (1,450) Deferred financing costs (15) -- -- (15) -------- ------- ----- ------- Net cash provided by (used in) financing activities 5,665 (1,033) -- 4,632 -------- ------- ----- ------- Increase (decrease) in cash and cash equivalents (1,952) 1,952 -- -- Cash and cash equivalents at beginning of period 1,683 (1,683) -- -- -------- ------- ----- ------- Cash and cash equivalents at end of period $ (269) $ 269 $ -- $ -- ======== ======= ===== =======
12 NOTE 6 -- SEGMENT INFORMATION The Company has two reportable segments, Castings and Forgings. The Castings segment manufactures and sells castings for the industrial and municipal markets, while the Forgings segment manufactures forged components for the industrial market. The Other segment includes machining operations and freight hauling. 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 in the Company's Annual Report on Form 10-K. Intersegment sales and transfers are recorded at cost plus a share of operating profit. The following segment information is presented for continuing operations:
Three months ended December 31, ------------------- 2005 2004 -------- -------- Revenues from continuing operations: Castings $109,078 $109,718 Forgings 9,906 10,695 Other 5,292 5,261 Elimination of intersegment revenues (2,562) (3,810) -------- -------- Consolidated $121,714 $121,864 ======== ======== Income (loss) from continuing operations: Castings $ (1,435) $ (1,707) Forgings (196) 474 Other 472 621 Elimination of intersegment loss 1,879 1,224 -------- -------- Consolidated $ 720 $ 612 ======== ========
December 31, September 30, 2005 2005 ------------ ------------- Total assets: Castings $458,579 $475,725 Forgings 6,659 7,040 Other 14,090 13,268 Elimination of intersegment assets (85,929) (83,478) -------- -------- Consolidated $393,399 $412,555 ======== ========
13 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL Certain matters discussed in this Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this quarterly report are "forward-looking statements" intended to qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can generally be identified as such because the context of the statement will include words such as the Company "believes," "anticipates," "expects" or words of similar import. Similarly, statements that describe the Company's future plans, objectives or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties which may cause actual results to differ materially from those currently anticipated. Factors that could cause the Company's results to differ materially from current expectations include material disruptions to the major industries served by the Company; continued price fluctuations in the scrap metal market; developments affecting the valuation or prospects of the casting and forging industries generally or the Company in particular; and other factors described or referenced in the Company's Form 10-K for the year ended September 30, 2005 or subsequent SEC filings. The forward-looking statements made herein are made only as of the date of this report and, unless required by law, the Company undertakes no obligation to update such forward-looking statements to reflect subsequent events or circumstances. RECENT DEVELOPMENTS Exploration of Potential Sale Transaction. On July 29, 2005, Neenah Foundry Company and its indirect parent company, ACP Holding Company ("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. 14 RESULTS OF OPERATIONS (dollars in thousands) The following discussions compare the results of operations of the Company for the three months ended December 31, 2005, to the results of the operations of the Company for the three months ended December 31, 2004. Three Months Ended December 31, 2005 and 2004 Net sales. Net sales for the three months ended December 31, 2005 were $121,714, which are $150 or .1% lower than the quarter ended December 31, 2004. A greater amount of municipal products sold, offset by reduced shipments of parts for the heavy-duty truck market, resulted in similar levels of net sales for the three months ended December 31, 2005 and the three months ended December 31, 2004. Gross profit. Gross profit for the three months ended December 31, 2005 was $19,090, a decrease of $78, or .4%, as compared to the quarter ended December 31, 2004. Gross profit as a percentage of net sales was 15.7% for both the three months ended December 31, 2005 and for the three months ended December 31, 2004. A favorable mix of products sold throughout the Company, offset by increases in certain production costs, resulted in similar levels of gross profit for the three months ended December 31, 2005 and the three months ended December 31, 2004. Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended December 31, 2005 were $7,959, an increase of $6, or .1%, as compared to the $7,953 for the quarter ended December 31, 2004. Selling, general and administrative expenses as a percentage of net sales were 6.5% for the quarter ended December 31, 2005 as well as for the quarter ended December 31, 2004. Amortization of intangible assets. Amortization of intangible assets was $1,780 for the three months ended December 31, 2005, which is comparable to the $1,783 for the quarter ended December 31, 2004. Operating income. Operating income was $9,356 for the three months ended December 31, 2005, a decrease of $77 from operating income of $9,433 for the quarter ended December 31, 2004. As a percentage of net sales, operating income was 7.7% for the quarter ended December 31, 2005 as well as for the quarter ended December 31, 2004. Net interest expense. Net interest expense was $8,225 for the three months ended December 31, 2005 compared to $8,411 for the quarter ended December 31, 2004. Interest expense for the three months ended December 31, 2005 included amortization of bond discount of $396 and amortization of deferred financing costs of $124. Income tax provision. The income tax provision for the three months ended December 31, 2005 and 2004 is based on the Company's estimated effective tax rate of approximately 40%. The provision for the three months ended December 31, 2005 is slightly lower due to the resolution of an IRS tax audit. 15 LIQUIDITY AND CAPITAL RESOURCES (dollars in thousands) Credit Facility The Company's bank Loan and Security Agreement, as amended (the "Credit Facility"), consists of a revolving credit facility of up to $92,085 (with a $5,000 sublimit available for letters of credit and term loans in the aggregate original principal amount of $22,085). 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 December 31, 2005, the Company had approximately $35,400 outstanding under the revolving credit facility, which includes $13,800 borrowed on December 30, 2005 for an interest payment due January 2, 2006, and approximately $15,800 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. The Company is prohibited from paying dividends and is restricted to a maximum yearly stock repurchase of $250. During the quarter ended December 31, 2005, the Company amended the Credit Facility to allow the $6.5 million settlement paid in August 2005 in connection with the Mercer litigation, discussed in the Company's 10-K for the year ended September 30, 2005, to be added back in the calculation of Adjusted EBITDA. The amendment was executed and became effective on December 9, 2005. At December 31, 2005, the Company is in compliance with existing bank covenants. 16 11% Senior Secured Notes due 2010. The Company has outstanding Senior Secured Notes due 2010 in the principal amount of $133,130, with a coupon rate of 11%. These notes were issued at a price which included a discount of $11,692. The obligations under the senior secured notes 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 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 $100,000, 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 will be paid in cash and up to 8% interest may be paid-in-kind. 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 three months ended December 31, 2005 and December 31, 2004, capital expenditures were $3,405 and $4,822, respectively. Both periods represent a level of capital expenditures necessary to maintain equipment and facilities. The 2004 period includes some make-up of deferred capital projects during the three months ended December 31, 2004. The Company's principal source of cash to fund its liquidity needs will be net cash from operating activities and borrowings under the revolving credit facility. After the borrowing of $13,800 on December 30, 2005 to make the interest payment due January 2, 2006, the Company still had remaining availability of $36,612 under the revolving credit facility at December 31, 2005. Net cash used in operating activities for the three months ended December 31, 2005 was $4,306, a decrease of $4,496 from cash provided by operating activities for the three months ended December 31, 2004 of $190. The increase in net cash used in operating activities was due to reductions in accounts payable and accrued wages and payment of $4,700 of additional income taxes during the quarter ended December 31, 2005, offset by a larger decrease in accounts receivable for the quarter ended December 31, 2005 compared to the quarter ended December 31, 2004. 17 Future Capital Needs. The Company is significantly leveraged and its ability to meet debt obligations will depend upon future operating performance which will be affected by many factors, some of which are beyond the Company's control. Based on the Company's current level of operations, the Company anticipates that its operating cash flows and available credit facilities will be sufficient to fund anticipated operational investments, including working capital and capital expenditure needs, for at least the next twelve months. If, however, the Company is unable to service its debt requirements as they become due or is unable to maintain ongoing compliance with restrictive covenants, the Company 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 three months ended December 31, 2005, compared to the three months ended December 31, 2004, is provided below (in thousands):
Three Months Ended December 31, ------------------ 2005 2004 -------- ------- Net income........................ $ 720 $ 612 Income tax provision.... ......... 411 410 Net interest expense ............. 8,225 8,411 Depreciation and amortization .... 4,984 4,627 Gain on disposal of equipment .... (5) (1) ------- ------- Adjusted EBITDA (as defined above) ............ $14,335 $14,059 ======= =======
- ---------- CONTRACTUAL OBLIGATIONS There have been no material changes to our contractual obligations outside the ordinary course of our business from those disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2005. OFF-BALANCE SHEET ARRANGEMENTS None. 18 CRITICAL ACCOUNTING ESTIMATES There have been no changes in critical accounting estimates from those disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2005. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risk related to changes in interest rates. The Company does not use derivative financial instruments for speculative or trading purposes. Interest Rate Sensitivity. Although the senior secured notes and senior subordinated notes are subject to fixed interest rates, 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% during the remainder of the fiscal year ending September 30, 2006, the Company's interest expense would increase or decrease by approximately $368 thousand. 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 4. CONTROLS AND PROCEDURES Disclosure Control 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 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 fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 19 NEENAH FOUNDRY COMPANY PART II. OTHER INFORMATION Item 6. EXHIBITS (a) Exhibits 10.1 Amendment No. 2, dated December 9, 2005, to Loan and Security 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 (incorporated by reference to Exhibit 10.2(a) to Neenah Foundry Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2005) 31.1 Certification of Chief Executive 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 31.2 Certification of Chief Financial 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 Officers' certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
20 SIGNATURES Pursuant to the requirements 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. NEENAH FOUNDRY COMPANY DATE: February 13, 2006 /s/ Gary W. LaChey ---------------------------------------- Gary W. LaChey Corporate Vice President - Finance (Principal Financial Officer and Duly Authorized Officer) 21 EX-31.1 2 c02399exv31w1.txt CERTIFICATION EXHIBIT 31.1 RULE 15D-14(A) CERTIFICATION OF CEO CERTIFICATIONS I, William M. Barrett, President and Chief Executive Officer of Neenah Foundry Company, certify that: 1. I have reviewed this report on Form 10-Q of Neenah Foundry Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. DATE: February 13, 2006 /s/ William M. Barrett ---------------------------------------- William M. Barrett President and Chief Executive Officer 22 EX-31.2 3 c02399exv31w2.txt CERTIFICATION EXHIBIT 31.2 RULE 15D-14(A) CERTIFICATION OF CFO CERTIFICATIONS I, Gary W. LaChey, Corporate Vice President - Finance and Chief Financial Officer of Neenah Foundry Company, certify that: 1. I have reviewed this report on Form 10-Q of Neenah Foundry Company; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any changes in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. DATE: February 13, 2006 /s/ Gary W. LaChey ---------------------------------------- Gary W. LaChey Corporate Vice President - Finance and Chief Financial Officer 23 EX-32 4 c02399exv32.txt CERTIFICATION EXHIBIT 32 Certification of the President and Chief Executive Officer and Corporate Vice President - Finance and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 As adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Solely for the purposes of complying with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, we, the undersigned President and Chief Executive Officer, and Corporate Vice President - Finance and Chief Financial Officer of Neenah Foundry Company (the "Company"), hereby certify, based on our knowledge, that the Quarterly Report on Form 10-Q of the Company for the quarter ended December 31, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. DATE: February 13, 2006 /s/ William M. Barrett ---------------------------------------- William M. Barrett President and Chief Executive Officer /s/ Gary W. LaChey ---------------------------------------- Gary W. LaChey Corporate Vice President - Finance and Chief Financial Officer 24 -----END PRIVACY-ENHANCED MESSAGE-----