10-Q/A 1 c09432a1e10vqza.txt AMENDMENT TO QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A (AMENDMENT NO. 1) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2006 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, P.O. Box 729, Neenah, Wisconsin 54957 (Address of principal executive offices) (Zip Code) (920) 725-7000 (Registrant's telephone number, including area code) None (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate 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 July 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. NEENAH FOUNDRY COMPANY Form 10-Q Index For the Quarter Ended June 30, 2006
Page ---- Part I. Financial Information Item 1. Financial Statements Condensed consolidated balance sheets -- Neenah Foundry Company as of June 30, 2006 and September 30, 2005 3 Condensed consolidated statements of operations -- Neenah Foundry Company for the three and nine months ended June 30, 2006 and 2005 4 Condensed consolidated statements of cash flows -- Neenah Foundry Company for the nine months ended June 30, 2006 and 2005 5 Notes to condensed consolidated financial statements -- June 30, 2006 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 Item 3. Quantitative and Qualitative Disclosures About Market Risk 21 Item 4. Controls and Procedures 21 Part II. Other Information Item 6. Exhibits 22 Signatures 23
EXPLANATORY NOTE This amended report on Form 10-Q (the "Amended Report") is being filed to amend Items 1 and 2 in Part I to make corrections to the financial statements and other financial information for the prior year periods in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 that was filed on August 11, 2006 (the "Original Report"). The Original Report has been amended to reflect the Company's prior election [in the third quarter of fiscal 2005] to change its tax method of determining LIFO inventory resulting in a tax benefit of $2.679 million. The effect is to increase previously reported fiscal 2005 third quarter net income by $2.679 million. The Company previously reported this change in footnote 12 to the Company's consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2005. This Amended Report sets forth the content of the Original Report in its entirety, except for the changes noted above to the Original Report. This Amended Report continues to speak as of the date of the Original Report. We have not updated the disclosures contained in this Amended Report to reflect any events that occurred at a date subsequent to the filing of the Original Report. The filing of this Amended Report is not a representation that any statements contained in the Original Report or this Amended Report are true or complete as of any date subsequent to the date of the Original Report. The revision does not affect the remaining information set forth in the Original Report, the remaining provisions of which have not been amended. 2 NEENAH FOUNDRY COMPANY PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts)
June 30, September 30, 2006 2005(1) --------- ------------- (Unaudited) ASSETS Current assets: Cash ................................................. $ - $ 3,484 Accounts receivable, net ............................. 86,826 85,795 Inventories .......................................... 66,342 59,123 Deferred income taxes ................................ 3,304 3,304 Other current assets ................................. 7,299 6,897 --------- --------- Total current assets ....................... 163,771 158,603 Property, plant and equipment .......................... 126,640 113,398 Less accumulated depreciation .......................... 31,725 22,148 --------- --------- 94,915 91,250 Deferred financing costs, net .......................... 1,819 2,192 Identifiable intangible assets, net .................... 63,853 69,192 Goodwill ............................................... 86,699 86,699 Other assets ........................................... 4,710 4,619 --------- --------- $ 415,767 $ 412,555 ========= ========= LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable ..................................... $ 31,651 $ 30,305 Income taxes payable ................................. 4,527 5,562 Accrued wages and employee benefits .................. 12,486 16,586 Accrued interest ..................................... 243 7,134 Other accrued liabilities ............................ 2,938 2,411 Current portion of long-term debt .................... 43,599 33,668 --------- --------- Total current liabilities .................. 95,444 95,666 Long-term debt ......................................... 237,947 238,086 Deferred income taxes .................................. 23,759 23,759 Postretirement benefit obligations ..................... 10,637 10,404 Other liabilities ...................................... 22,008 27,287 --------- --------- Total liabilities .......................... 389,795 395,202 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 ...................................... 26,969 18,350 Accumulated other comprehensive loss ................... (6,526) (6,526) --------- --------- Total stockholder's equity ................. 25,972 17,353 --------- --------- $ 415,767 $ 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 U.S. generally accepted accounting principles for complete financial statements. 3 NEENAH FOUNDRY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands)
Three Months Ended Nine Months Ended June 30, June 30, ------------------------ ------------------------ 2006 2005 2006 2005 --------- --------- --------- --------- Net sales ..................................... $ 147,724 $ 145,685 $ 399,951 $ 399,076 Cost of sales ................................. 117,773 114,338 329,691 328,101 --------- --------- --------- --------- Gross profit .................................. 29,951 31,347 70,260 70,975 Selling, general and administrative expenses .. 8,737 8,884 25,893 25,168 Litigation settlement ......................... - 6,500 - 6,500 Amortization of intangible assets ............. 1,780 1,778 5,339 5,341 Loss (gain) on disposal of equipment .......... (11) 104 (19) 103 --------- --------- --------- --------- Total operating expenses ...................... 10,506 17,266 31,213 37,112 --------- --------- --------- --------- Operating income .............................. 19,445 14,081 39,047 33,863 Net interest expense .......................... (8,362) (8,328) (24,910) (25,128) --------- --------- --------- --------- Income before income taxes .................... 11,083 5,753 14,137 8,735 Income tax provision (benefit) ................ 4,241 (377) 5,518 818 --------- --------- --------- --------- Net income .................................... $ 6,842 $ 6,130 $ 8,619 $ 7,917 ========= ========= ========= =========
See notes to condensed consolidated financial statements. 4 NEENAH FOUNDRY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands)
Nine Months Ended June 30, ---------------------- 2006 2005 -------- -------- OPERATING ACTIVITIES Net income ......................................................... $ 8,619 $ 7,917 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ................................... 15,042 13,944 Amortization of deferred financing costs and discount on notes .. 1,561 1,573 Changes in operating assets and liabilities ..................... (23,942) (8,615) -------- -------- Net cash provided by operating activities .................. 1,280 14,819 INVESTING ACTIVITIES Purchase of property, plant and equipment .......................... (13,368) (11,499) -------- -------- Net cash used in investing activities ...................... (13,368) (11,499) FINANCING ACTIVITIES Net change in revolver balance ..................................... 9,792 732 Proceeds from long-term debt ....................................... 1,244 - Payments on long-term debt and capital lease obligations ........... (2,432) (3,901) Debt issuance costs ................................................ - (151) -------- -------- Net cash provided by (used in) financing activities ........ 8,604 (3,320) -------- -------- Decrease in cash ................................................... (3,484) - Cash at beginning of period ........................................ 3,484 - -------- -------- Cash 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 U.S. generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal and recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months ended June 30, 2006 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:
June 30, September 30, 2006 2005 ------- ------------- Raw materials ......................... $ 6,499 $ 6,905 Work in process and finished goods .... 43,658 37,088 Supplies .............................. 16,185 15,130 ------- ------- $66,342 $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. In June 2006, the Financial Accounting Standards Board (FASB) issued Financial Interpretation No. (FIN) 48, "Accounting for Uncertainty in Income Taxes," which clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with FASB Statement No. 109, "Accounting for Income Taxes." The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The Company is required to adopt FIN 48 beginning in fiscal year 2008 and is currently evaluating the impact that the adoption of FIN 48 will have on its consolidated financial statements and notes thereto. 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 and nine months ended June 30, 2006 and 2005 (in thousands):
Pension Benefits Postretirement Benefits -------=------------------- --------------------------- Three Months Ended June 30, Three Months Ended June 30, --------------------------- --------------------------- 2006 2005 2006 2005 ------- ------- ------- ------- Service cost .......................... $ 668 $ 535 $ 68 $ 75 Interest cost ......................... 1,051 1,066 160 137 Expected return on plan assets ........ (1,140) (1,194) - - Amortization of prior service credit .. - - (10) (6) Recognized net actuarial loss (gain) .. 5 - (108) (7) ------- ------- ------- ------- Net periodic benefit cost ............. $ 584 $ 407 $ 110 $ 199 ======= ======= ======= =======
Pension Benefits Postretirement Benefits -------------------------- -------------------------- Nine Months Ended June 30, Nine Months Ended June 30, -------------------------- -------------------------- 2006 2005 2006 2005 ------- ------- ------- ------- Service cost .......................... $ 2,003 $ 1,508 $ 202 $ 225 Interest cost ......................... 3,154 2,833 480 413 Expected return on plan assets ........ (3,421) (2,993) - - Amortization of prior service credit .. - - (30) (19) Recognized net actuarial loss (gain) .. 16 - (322) (23) ------- ------- ------- ------- Net periodic benefit cost ............. $ 1,752 $ 1,348 $ 330 $ 596 ======= ======= ======= =======
EMPLOYER CONTRIBUTIONS For the nine months ended June 30, 2006, $6,900 of contributions have been made to the defined-benefit pension plans. The Company presently anticipates making no additional contributions to its pension plans in fiscal 2006. 7 NOTE 5 -- GUARANTOR SUBSIDIARIES The following tables present condensed consolidating financial information as of June 30, 2006 and September 30, 2005 and for the three and nine months ended June 30, 2006 and 2005 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 JUNE 30, 2006
Subsidiary Neenah Guarantors Eliminations Consolidated --------- ---------- ------------ ------------ ASSETS Current assets: Cash $ 452 $ (452) $ - $ - Accounts receivable, net 41,698 45,128 - 86,826 Inventories 27,177 39,165 - 66,342 Deferred income taxes 4,537 (1,233) - 3,304 Other current assets 5,090 2,209 - 7,299 --------- ---------- ------------ ------------ Total current assets 78,954 84,817 - 163,771 Investments in and advances to subsidiaries 114,939 - (114,939) - Property, plant and equipment, net 39,598 55,317 - 94,915 Deferred financing costs and identifiable intangible assets, net 49,085 16,587 - 65,672 Goodwill 86,699 - - 86,699 Other assets 1,834 2,876 - 4,710 --------- ---------- ------------ ------------ $ 371,109 $ 159,597 $ (114,939) $ 415,767 ========= ========== ============ ============ LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable $ 8,899 $ 22,752 $ - $ 31,651 Net intercompany payable - 85,328 (85,328) - Income taxes payable 5,209 (682) - 4,527 Accrued liabilities 6,684 8,983 - 15,667 Current portion of long-term debt 43,448 151 - 43,599 --------- ---------- ------------ ------------ Total current liabilities 64,240 116,532 (85,328) 95,444 Long-term debt 236,838 1,109 - 237,947 Deferred income taxes 20,539 3,220 - 23,759 Postretirement benefit obligations 10,637 - - 10,637 Other liabilities 12,883 9,125 - 22,008 Stockholder's equity 25,972 29,611 (29,611) 25,972 --------- ---------- ------------ ------------ $ 371,109 $ 159,597 $ (114,939) $ 415,767 ========= ========== ============ ============
8 NOTE 5 -- GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING BALANCE SHEET SEPTEMBER 30, 2005
Subsidiary Neenah Guarantors Eliminations Consolidated --------- ---------- ------------ ------------ ASSETS Current assets: Cash $ 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 JUNE 30, 2006
Subsidiary Neenah Guarantors Eliminations Consolidated --------- ---------- ------------ ------------ Net sales $ 72,074 $ 77,632 $ (1,982) $ 147,724 Cost of sales 50,338 69,417 (1,982) 117,773 --------- ---------- ------------ ------------ Gross profit 21,736 8,215 - 29,951 Selling, general and administrative expenses 4,625 4,112 - 8,737 Amortization of intangible assets 1,426 354 - 1,780 Gain on disposal of equipment (11) - - (11) --------- ---------- ------------ ------------ Operating income 15,696 3,749 - 19,445 Net interest expense (4,477) (3,885) - (8,362) --------- ---------- ------------ ------------ Income (loss) before income taxes and equity in loss of subsidiaries 11,219 (136) - 11,083 Income tax provision 4,217 24 - 4,241 --------- ---------- ------------ ------------ 7,002 (160) - 6,842 Equity in loss of subsidiaries (160) - 160 - --------- ---------- ------------ ------------ Net income (loss) $ 6,842 $ (160) $ 160 $ 6,842 ========= ========== ============ ============
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2005
Subsidiary Neenah Guarantors Eliminations Consolidated --------- ---------- ------------ ------------ Net sales $ 67,049 $ 80,324 $ (1,688) $ 145,685 Cost of sales 46,323 69,703 (1,688) 114,338 --------- ---------- ------------ ------------ Gross profit 20,726 10,621 - 31,347 Selling, general and administrative expenses 4,367 4,517 - 8,884 Litigation settlement 6,500 - - 6,500 Amortization of intangible assets 1,426 352 - 1,778 Loss (gain) on disposal of equipment (14) 118 - 104 --------- ---------- ------------ ------------ Operating income 8,447 5,634 - 14,081 Net interest expense (4,434) (3,894) - (8,328) --------- ---------- ------------ ------------ Income before income taxes and equity in income of subsidiaries 4,013 1,740 - 5,753 Income tax provision (benefit) (1,073) 696 - (377) --------- ---------- ------------ ------------ 5,086 1,044 - 6,130 Equity in income of subsidiaries 1,044 - (1,044) - --------- ---------- ------------ ------------ Net income $ 6,130 $ 1,044 $ (1,044) $ 6,130 ========= ========== ============ ============
10 NOTE 5 -- GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS NINE MONTHS ENDED JUNE 30, 2006
Subsidiary Neenah Guarantors Eliminations Consolidated --------- ---------- ------------ ------------ Net sales $ 179,696 $ 225,331 $ (5,076) $ 399,951 Cost of sales 131,331 203,436 (5,076) 329,691 --------- ---------- ------------ ------------ Gross profit 48,365 21,895 - 70,260 Selling, general and administrative expenses 13,755 12,138 - 25,893 Amortization of intangible assets 4,278 1,061 - 5,339 Loss (gain) on disposal of equipment (20) 1 - (19) --------- ---------- ------------ ------------ Operating income 30,352 8,695 - 39,047 Net interest expense (13,308) (11,602) - (24,910) --------- ---------- ------------ ------------ Income (loss) before income taxes and equity in loss of subsidiaries 17,044 (2,907) - 14,137 --------- ---------- ------------ ------------ Income tax provision (benefit) 6,653 (1,135) - 5,518 10,391 (1,772) - 8,619 Equity in loss of subsidiaries (1,772) - 1,772 - --------- ---------- ------------ ------------ Net income (loss) $ 8,619 $ (1,772) $ 1,772 $ 8,619 ========= ========== ============ ============
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS NINE MONTHS ENDED JUNE 30, 2005
Subsidiary Neenah Guarantors Eliminations Consolidated --------- ---------- ------------ ------------ Net sales $ 172,570 $ 230,983 $ (4,477) $ 399,076 Cost of sales 128,961 203,617 (4,477) 328,101 --------- ---------- ------------ ------------ Gross profit 43,609 27,366 - 70,975 Selling, general and administrative expenses 12,794 12,374 - 25,168 Litigation settlement 6,500 - - 6,500 Amortization of intangible assets 4,279 1,062 - 5,341 Loss (gain) on disposal of equipment (15) 118 - 103 --------- ---------- ------------ ------------ Operating income 20,051 13,812 - 33,863 Net interest expense (13,354) (11,774) - (25,128) --------- ---------- ------------ ------------ Income before income taxes and equity in income of subsidiaries 6,697 2,038 - 8,735 Income tax provision 2 816 - 818 --------- ---------- ------------ ------------ 6,695 1,222 - 7,917 Equity in income of subsidiaries 1,222 - (1,222) - --------- ---------- ------------ ------------ Net income $ 7,917 $ 1,222 $ (1,222) $ 7,917 ========= ========== ============ ============
11 NOTE 5 -- GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS NINE MONTHS ENDED JUNE 30, 2006
Subsidiary Neenah Guarantors Eliminations Consolidated -------- ---------- ------------ ------------ OPERATING ACTIVITIES Net income (loss) $ 8,619 $ (1,772) $ 1,772 $ 8,619 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 6,501 8,541 - 15,042 Amortization of deferred financing costs and discount on notes 1,561 - - 1,561 Changes in operating assets and liabilities (22,796) (1,146) - (23,942) -------- ---------- ------------ ------------ Net cash provided by (used in) operating activities (6,115) 5,623 1,772 1,280 INVESTING ACTIVITIES Investments in and advances to subsidiaries (509) 2,281 (1,772) - Purchase of property, plant and equipment (5,302) (8,066) - (13,368) -------- ---------- ------------ ------------ Net cash used in investing activities (5,811) (5,785) (1,772) (13,368) FINANCING ACTIVITIES Net change in revolver balance 9,792 - - 9,792 Proceeds from long-term debt - 1,244 - 1,244 Payments on long-term debt and capital lease obligations (2,366) (66) - (2,432) -------- ---------- ------------ ------------ Net cash provided by financing activities 7,426 1,178 - 8,604 -------- ---------- ------------ ------------ Increase (decrease) in cash (4,500) 1,016 - (3,484) Cash at beginning of period 4,952 (1,468) - 3,484 -------- ---------- ------------ ------------ Cash at end of period $ 452 $ (452) $ - $ - ======== ========== ============ ============
12 NOTE 5 -- GUARANTOR SUBSIDIARIES (CONTINUED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS NINE MONTHS ENDED JUNE 30, 2005
Subsidiary Neenah Guarantors Eliminations Consolidated -------- ---------- ------------ ------------ OPERATING ACTIVITIES Net income $ 7,917 $ 1,222 $ (1,222) $ 7,917 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,079 7,865 - 13,944 Amortization of deferred financing costs and discount on notes 1,573 - - 1,573 Changes in operating assets and liabilities (2,357) (6,258) - (8,615) -------- ---------- ------------ ------------ Net cash provided by operating activities 13,212 2,829 (1,222) 14,819 INVESTING ACTIVITIES Investments in and advances to subsidiaries (7,190) 5,968 1,222 - Purchase of property, plant and equipment (6,029) (5,470) - (11,499) -------- ---------- ------------ ------------ Net cash provided by (used in) investing activities (13,219) 498 1,222 (11,499) FINANCING ACTIVITIES Net change in revolver balance 732 - 732 Payments on long-term debt and capital lease obligations (2,366) (1,535) (3,901) Deferred financing costs (151) - - (151) -------- ---------- ------------ ------------ Net cash used in financing activities (1,785) (1,535) - (3,320) -------- ---------- ------------ ------------ Increase (decrease) in cash (1,792) 1,792 - - Cash at beginning of period 1,683 (1,683) - - -------- ---------- ------------ ------------ Cash at end of period $ (109) $ 109 $ - $ - ======== ========== ============ ============
13 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 Nine months ended June 30, June 30, ----------------------------- ----------------------------- 2006 2005 2006 2005 ------------- ------------- ------------- ------------- Revenues from continuing operations: Castings $ 134,009 $ 132,528 $ 360,526 $ 359,162 Forgings 10,956 10,034 31,017 33,398 Other 6,011 6,036 17,070 17,306 Elimination of intersegment revenues (3,252) (2,913) (8,662) (10,790) ------------- ------------- ------------- ------------- Consolidated $ 147,724 $ 145,685 $ 399,951 $ 399,076 ============= ============= ============= ============= Net Income Castings $ 6,004 $ 7,052 $ 4,875 $ 6,349 Forgings (11) (18) (886) 1,292 Other 711 834 1,720 2,308 Elimination of intersegment (income) loss 138 (1,738) 2,910 (2,032) ------------- ------------- ------------- ------------- Consolidated $ 6,842 $ 6,130 $ 8,619 $ 7,917 ============= ============= ============= =============
June 30, September 30, 2006 2005 ------------- ------------ Total assets: Castings $ 482,422 $ 475,725 Forgings 6,167 7,040 Other 17,777 13,268 Elimination of intersegment assets (90,599) (83,478) ------------- ------------- Consolidated $ 415,767 $ 412,555 ============= =============
14 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 Major Customer Declares Bankruptcy. On March 3, 2006, Dana Corporation ("Dana"), a major customer of the Company, filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code. The total accounts receivable owed to the Company by Dana on March 3, 2006 were approximately $4.7 million. Total payments received from Dana in the 90 days preceding the bankruptcy filing were approximately $7.4 million. Sales to Dana accounted for approximately 7%, 5%, 6% and 6% of the Company's net sales for the fiscal years ended September 30, 2003, 2004, 2005 and the nine months ended June 30, 2006, respectively. These amounts reflect the Company's transactions directly with Dana and exclude Dana products supplied to machine shops, which are not owned by Dana but whose business sourcing is controlled by Dana. The Company negotiated a settlement with Dana and received partial payment of outstanding accounts receivable owed to the Company. As of June 30, 2006, approximately $3.9 million of the $4.7 million owed on March 3, 2006 has been collected by the Company. The Company has reflected its estimate of the amounts that will not be collected in the accompanying financial statements. Since the bankruptcy process is ongoing, it is difficult to precisely calculate any losses that may result from this process. Accordingly, actual results may differ, requiring adjustments to the allowance. The Company continues to engage legal counsel to monitor the proceedings and to assist in negotiations as required. Change of Control. As previously disclosed in the Company's Current Report on Form 8-K dated May 25, 2006 and filed on June 1, 2006, a change of control of the Company occurred on May 25, 2006, when Tontine Capital Partners, L.P. ("Tontine") became the beneficial owner of more than a majority of the outstanding shares, on a fully diluted basis, of our parent, ACP Holding Company. The change of control required the Company to make the change of control tender offers to purchase its Senior Secured Notes and Senior Subordinated Notes discussed below under "Liquidity and Capital Resources" - "11% Senior Secured Notes due 2010" and - "13% Senior Subordinated Notes due 2013", with Tontine, as the Company's designee, purchasing notes tendered pursuant to the offers. Expected Market Decline. Due to new emissions standards set to take effect on January 1, 2007, heavy-duty truck production is expected to decline beginning early in calendar 2007. In addition, housing starts are expected to decline in calendar 2007, reflecting softness in the overall housing sector. As a result, the Company expects its sales into these end-markets to decline in fiscal 2007 from fiscal 2006 levels. 15 RESULTS OF OPERATIONS (dollars in thousands) The following discussions compare the results of operations of the Company for the three and nine months ended June 30, 2006, to the results of the operations of the Company for the three and nine months ended June 30, 2005. Three Months Ended June 30, 2006 and 2005 Net sales. Net sales for the three months ended June 30, 2006 were $147,724, which are $2,039 or 1.4% higher than the quarter ended June 30, 2005, due to increased shipments of municipal products. Gross profit. Gross profit for the three months ended June 30, 2006 was $29,951, a decrease of $1,396, or 4.5%, as compared to the quarter ended June 30, 2005. Gross profit as a percentage of net sales decreased to 20.3% for the three months ended June 30, 2006 from 21.5% for the three months ended June 30, 2005, primarily as a result of increased material costs and operating difficulties at one of the Company's locations during the three months ended June 30, 2006. Selling, general and administrative expenses. Selling, general and administrative expenses for the three months ended June 30, 2006 were $8,737, a decrease of $147, or 1.7%, as compared to the $8,884 for the quarter ended June 30, 2005. Selling, general and administrative expenses as a percentage of net sales decreased to 5.9% for the quarter ended June 30, 2006 from 6.1% for the quarter ended June 30, 2005. Litigation settlement. As disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2005, on August 5, 2005, the Company settled the litigation matter with JD Holdings, LLC, regarding the proposed sale of Mercer. The $6,500 cash payment was accrued in the quarter ended June 30, 2005. Amortization of intangible assets. Amortization of intangible assets was $1,780 for the three months ended June 30, 2006, which is comparable to the $1,778 for the quarter ended June 30, 2005. Operating income. Operating income was $19,445 for the three months ended June 30, 2006, an increase of $5,364 from operating income of $14,081 for the quarter ended June 30, 2005. As a percentage of net sales, operating income was 13.2% for the three months ended June 30, 2006, compared to 9.7% for the three months ended June 30, 2005. The increase in operating income was due to the accrual of the litigation settlement in June of 2005, partially offset by the reduced gross profit, as mentioned above. Net interest expense. Net interest expense was $8,362 for the three months ended June 30, 2006 compared to $8,328 for the quarter ended June 30, 2005. Interest expense for the three months ended June 30, 2006 included amortization of bond discount of $396 and amortization of deferred financing costs of $124. Income tax provision (benefit). The effective tax rate for the third quarter of 2006 was 38%, which includes the favorable impact of the Production Activities Deduction as permitted under the American Jobs Creation Act of 2004. The income tax benefit for the three months ended June 30, 2005 includes the favorable impact of a change in the tax method of determining LIFO inventory. 16 Nine Months Ended June 30, 2006 and 2005 Net sales. Net sales for the nine months ended June 30, 2006 were $399,951, which are $875 or .2% higher than for the nine months ended June 30, 2005. Increased shipments of municipal products, somewhat offset by reduced shipments of products to the HVAC (heating, ventilation and air conditioning) market, resulted in a slightly higher level of net sales for the nine months ended June 30, 2006 compared to the nine months ended June 30, 2005. Gross profit. Gross profit for the nine months ended June 30, 2006 was $70,260, a decrease of $715, or 1.0%, as compared to the nine months ended June 30, 2005. Gross profit as a percentage of net sales was 17.6% for the nine months ended June 30, 2006, compared to 17.8% for the nine months ended June 30, 2005. The decrease in gross profit resulted from a slightly less favorable mix of products sold throughout the Company during the nine months ended June 30, 2006 as compared to the nine months ended June 30, 2005. Selling, general and administrative expenses. Selling, general and administrative expenses for the nine months ended June 30, 2006 were $25,893, an increase of $725, or 2.9%, as compared to the $25,168 for the nine months ended June 30, 2005. Selling, general and administrative expenses as a percentage of net sales were 6.5% for the nine months ended June 30, 2006, compared to 6.3% for the nine months ended June 30, 2005. The increase in selling, general and administrative expenses is due mainly to increased costs related to existing health care plans and estimated bad debts. Litigation settlement. As disclosed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2005, on August 5, 2005, the Company settled the litigation matter with JD Holdings, LLC, regarding the proposed sale of Mercer. The $6,500 cash payment was accrued in the quarter ended June 30, 2005. Amortization of intangible assets. Amortization of intangible assets was $5,339 for the nine months ended June 30, 2006, which is comparable to the $5,341 for the nine months ended June 30, 2005. Operating income. Operating income was $39,047 for the nine months ended June 30, 2006, an increase of $5,184 from operating income of $33,863 for the nine months ended June 30, 2005. As a percentage of net sales, operating income was 9.8% for the nine months ended June 30, 2006, compared to 8.5% for the nine months ended June 30, 2005. The increase in operating income was due to the accrual of the litigation settlement in June of 2005, partially offset by decreased gross profit and increased selling, general and administrative expenses in 2006, as mentioned above. Net interest expense. Net interest expense was $24,910 for the nine months ended June 30, 2006 compared to $25,128 for the nine months ended June 30, 2005. Interest expense for the nine months ended June 30, 2006 included amortization of bond discount of $1,188 and amortization of deferred financing costs of $373. Income tax provision. The effective tax rate for the nine months ended June 30, 2006 and 2005 was 39% and 9%, respectively. The effective tax rate for the nine months ended June 30, 2006 includes the impact of the Production Activities Deduction as permitted under the American Jobs Creation Act of 2004. The effective tax rate for the nine months ended June 30, 2005 includes the favorable impact of a change in the tax method of determining LIFO inventory. 17 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 June 30, 2006, the Company had approximately $40,300 outstanding under the revolving credit facility, which includes $13,800 borrowed on June 30, 2006 for an interest payment on long-term debt due July 3, 2006, and approximately $14,200 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. At June 30, 2006, the Company is in compliance with existing bank covenants. 18 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. Since a "change of control", as defined in the indenture governing the notes, occurred on May 25, 2006, when Tontine acquired control, as referred to under "Recent Developments" above, the Company was 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 tender offer expired on July 24, 2006 with approximately $115 of the notes being purchased by the Company's designee, Tontine. The notes purchased by Tontine have not been retired and remain outstanding. 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) 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. Since a "change of control", as defined in the indenture governing the notes, occurred on May 25, 2006, when Tontine acquired control, as referred to under "Recent Developments" above, the Company was 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 original tender offer expired on July 24, 2006 with $41,662 of the notes being purchased by the Company's designee, Tontine. The notes purchased by Tontine have not been retired and remain outstanding. Following the commencement of the original offer, some concerns were raised regarding whether the timing of the original offer complied with the timing requirements under the indenture. Although the Company believes that the timing of the original offer was proper under the circumstances, to avoid any doubt regarding performance of its obligations under the indenture, on July 25, 2006, the Company commenced a subsequent offering period for the subordinated notes, which expires on August 28, 2006. Any subordinated notes tendered during the subsequent offering period also will be purchased by Tontine, as the Company's designee, and will remain outstanding. 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) 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 nine months ended June 30, 2006 and June 30, 2005, capital expenditures were $13,368 and $11,499, respectively. Both periods represent a level of capital expenditures necessary to maintain equipment and facilities. Capital spending for the nine months ended June 30, 2006 includes $564 for MACT (Maximum Achievable Control Technology) compliance at Neenah and Dalton. The Company's principal source of cash to fund its liquidity needs is net cash from operating activities and borrowings under the revolving credit facility. The Company had remaining availability of $37,595 under the revolving credit facility at June 30, 2006. Net cash provided by operating activities for the nine months ended June 30, 2006 was $1,280, a decrease of $13,539 from cash provided by operating activities for the nine months ended June 30, 2005 of $14,819. The decrease in net cash provided by operating activities was due to increases in inventory balances, payment of $4,300 of additional income taxes and $3,200 of additional pension contributions during the nine months ended June 30, 2006. 19 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. The Company is proceeding with a major capital project to replace an existing molding line that will enhance efficiency, increase capacity and provide expanded molding capabilities. 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 (including the first phase of the planned capital project to replace an existing molding line), 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. The Company has from time to time explored refinancing alternatives and continues to review its capital structure, but it has made no decisions to enter into any particular refinancing or restructuring transactions. 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 and nine months ended June 30, 2006, compared to the three and nine months ended June 30, 2005, is provided below (in thousands):
Three Months Ended Nine Months Ended June 30, June 30, -------------------- ------------------- 2006 2005 2006 2005 -------- -------- -------- -------- Net income ............................. $ 6,842 $ 6,130 $ 8,619 $ 7,917 Income tax provision (benefit) ......... 4,241 (377) 5,518 818 Net interest expense ................... 8,362 8,328 24,910 25,128 Depreciation and amortization .......... 5,035 4,645 15,042 13,944 Loss (gain) on disposal of equipment.... (11) 104 (19) 103 Litigation settlement * ................ - 6,500 - 6,500 Gregg write-off of lease deposits ...... - (39) - 65 -------- -------- -------- -------- Adjusted EBITDA (as defined above) ..... $ 24,469 $ 25,291 $ 54,070 $ 54,475 ======== ======== ======== ========
------------------ * 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. 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. 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. 20 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 $130. 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 the 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 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. 21 NEENAH FOUNDRY COMPANY PART II. OTHER INFORMATION Item 6. EXHIBITS (a) Exhibits
INCORPORATED HEREIN BY REFERENCE EXHIBIT NO. DESCRIPTION TO FILED HEREWITH ----------- ----------- -------------------------------- -------------- 3.1 Bylaws of ACP Holding Company X 4.1 Supplemental Indenture, dated as of May 23, Exhibit 4.1 to the Registrant's 2006, to the Indenture dated October 8, 2003, for Form 8-K dated May 19, 2006 the 13% Senior Subordinated Notes due 2013, among Neenah Foundry Company, the guarantors named therein, and the Bank of New York, as Trustee 4.2 Supplemental Indenture, dated as of May 23, Exhibit 4.2 to the Registrant's 2006, to the Indenture dated October 8, 2003, for Form 8-K dated May 19, 2006 the 11% Senior Secured Notes due 2010, among Neenah Foundry Company, the guarantors named therein, and the Bank of New York, as Trustee 10.1 Amendment No. 3 to Loan and Security Exhibit 10.1 to the Registrant's Agreement, dated as of May 19, 2006, by and Form 8-K dated May 19, 2006 among Neenah Foundry Company, its subsidiaries party thereto, the various lenders party thereto and Fleet Capital Corporation, as agent 10.2 Letter Agreement, dated May 18, 2006 Exhibit 10.2 to the Registrant's Form 8-K dated May 19, 2006 31.1 Certification of Chief Executive Officer pursuant X 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 X to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Chief Executive and Chief Financial Officers' X certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.1 Securities Purchase Agreement, dated as of Exhibit 99.1 to the Registrant's May 19, 2006 Form 8-K dated May 19, 2006 99.2 Stock Purchase Agreement, dated as of Exhibit 99.2 to the Registrant's May 19, 2006 Form 8-K dated May 19, 2006 99.3 Transfer Notice, dated as of May 19, 2006 Exhibit 99.3 to the Registrant's Form 8-K dated May 19, 2006 99.4 Response Letter, dated May 22, 2006 Exhibit 99.4 to the Registrant's Form 8-K dated May 19, 2006
22 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: October 26, 2006 /s/ Gary W. LaChey ----------------------------------------- Gary W. LaChey Corporate Vice President - Finance and Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer) 23