1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2000
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------ -----------------
Commission File Number 333-28751
NEENAH FOUNDRY COMPANY
(Exact name of each registrant as it appears in its charter)
Wisconsin 39-1580331
(State or other jurisdiction of (IRS Employer ID Number)
incorporation or organization)
2121 Brooks Avenue, P.O. Box 729, Neenah, Wisconsin 54957
(Address of principal executive offices) (Zip Code)
(920) 725-7000
(Registrant's telephone number, including area code)
None
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, Class A, $100 par value- 1,000 shares as of January 31, 2001
Common Stock, Class B, $100 par value- 0 shares as of January 31, 2001
PAGE 1
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NEENAH FOUNDRY COMPANY
Form 10-Q Index
For the Quarter Ended December 31, 2000
Page
----
Part 1. Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets -- December 31, 2000 and September 30, 2000 3
Condensed consolidated statements of operations -- Three months ended December 31, 2000
and Three months ended December 31, 1999 4
Condensed consolidated statements of cash flows -- Three months ended December 31, 2000
and Three months ended December 31, 1999 5
Notes to condensed consolidated financial statements -- December 31, 2000 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 15
Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
Part II. Other Information
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 18
PAGE 2
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NEENAH FOUNDRY COMPANY
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31 September 30
2000 2000(1)
------------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents ............................. $ 13,474 $ 19,478
Accounts receivable, net .............................. 56,157 72,873
Inventories ........................................... 65,020 65,119
Refundable income taxes ............................... -- 167
Deferred income taxes ................................. 4,026 2,748
Other current assets .................................. 5,970 6,131
--------- ---------
Total current assets ................ 144,647 166,516
Property, plant and equipment ........................... 301,129 295,562
Less accumulated depreciation ........................... 74,678 67,323
--------- ---------
226,451 228,239
Identifiable intangible assets, net ..................... 68,819 70,766
Goodwill, net ........................................... 190,170 191,557
Other assets ............................................ 9,211 9,140
--------- ---------
$ 639,298 $ 666,218
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable ...................................... $ 29,795 $ 31,172
Income taxes payable .................................. 740 --
Accrued liabilities ................................... 22,247 35,833
Current portion of long-term debt ..................... 11,280 11,280
Current portion of capital lease obligation ........... 2,180 2,151
--------- ---------
Total current liabilities ........... 66,242 80,436
Long-term debt .......................................... 429,681 438,327
Capital lease obligations ............................... 9,631 10,143
Deferred income taxes ................................... 66,907 66,046
Postretirement benefit obligations ...................... 5,838 6,118
Other liabilities ....................................... 6,729 6,630
--------- ---------
Total liabilities ................... 585,028 607,700
Commitments and contingencies
STOCKHOLDER'S EQUITY:
Preferred stock, par value $100 per share --
authorized 3,000 shares, no shares
issued or outstanding .......................... -- --
Common stock, par value $100 per share --
authorized 11,000 shares, issued
and outstanding 1,000 shares ................... 100 100
Additional paid in capital ............................ 51,317 51,317
Retained earnings ..................................... 2,942 7,190
Accumulated other comprehensive loss .................. (89) (89)
--------- ---------
Total stockholder's equity .......... 54,270 58,518
--------- ---------
$ 639,298 $ 666,218
========= =========
See notes to condensed consolidated financial statements
(1) The balance sheet as of September 30, 2000 has been derived from the
audited financial statements as of that date but does not include all
of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
PAGE 3
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NEENAH FOUNDRY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
Three Months Three Months
Ended Ended
December 31, December 31,
2000 1999
------------- ------------
(Unaudited)
Net sales ............................................. $ 114,570 $ 126,434
Cost of sales ......................................... 100,849 106,413
--------- ---------
Gross profit .......................................... 13,721 20,021
Selling, general and administrative expenses .......... 9,035 8,878
Amortization of intangible assets ..................... 2,905 2,707
Gain on disposal of equipment ......................... (32) --
--------- ---------
Total operating expenses .............................. 11,908 11,585
--------- ---------
Operating income ...................................... 1,813 8,436
Net interest expense .................................. (12,177) (11,503)
--------- ---------
Loss from continuing operations before income taxes.... (10,364) (3,067)
Income tax benefit .................................... (3,564) (340)
--------- ---------
Loss from continuing operations ....................... (6,800) (2,727)
Gain on sale of discontinued operations, net of tax.... 2,552 --
Income from discontinued operations, net of tax ....... -- 136
--------- ---------
Net loss .............................................. $ (4,248) $ (2,591)
========= =========
See notes to condensed consolidated financial statements.
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NEENAH FOUNDRY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Three Months
Ended Ended
December 31, December 31,
2000 1999
------------ ------------
(Unaudited)
OPERATING ACTIVITIES
Net loss ................................................................ $ (4,248) $ (2,591)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization ........................................ 10,510 9,653
Amortization of deferred financing costs and premium on notes ........ 272 271
Gain on sale of discontinued operations .............................. (2,552) --
Deferred income taxes ................................................ (625) (247)
Changes in operating assets and liabilities .......................... 384 (3,341)
-------- --------
Net cash provided by operating
activities ...................................................... 3,741 3,745
INVESTING ACTIVITIES
Purchase of property, plant and equipment ............................... (5,815) (7,451)
Acquisition of Gregg Industries, Inc., net of cash acquired ............. -- (23,002)
Proceeds from sale of Hartley Controls Corporation, net of fees ......... 5,044 --
-------- --------
Net cash used in investing
activities ...................................................... (771) (30,453)
FINANCING ACTIVITIES
Proceeds from long-term debt ............................................ -- 25,000
Payments on long-term debt and capital lease obligations ................ (8,974) (1,080)
-------- --------
Net cash provided by (used in) financing
activities ...................................................... (8,974) 23,920
-------- --------
Decrease in cash and cash equivalents ................................... (6,004) (2,788)
Cash and cash equivalents at beginning of period ........................ 19,478 17,368
-------- --------
Cash and cash equivalents at end of period .............................. $ 13,474 $ 14,580
======== ========
See notes to condensed consolidated financial statements.
PAGE 5
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NEENAH FOUNDRY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 2000
(In thousands)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal and recurring adjustments ) considered necessary for a fair
presentation have been included. Operating results for the three months ended
December 31, 2000 are not necessarily indicative of the results that may be
expected for the year ending September 30, 2001. For further information, refer
to the consolidated financial statements and footnotes thereto included in
Neenah Foundry Company's Annual Report on Form 10-K for the year ended September
30, 2000.
NOTE 2 -- INVENTORIES
The components of inventories are as follows:
December 31, September 30
2000 2000
------------ ------------
Raw materials ...................................... $ 9,265 $ 10,333
Work in process and finished goods ................. 44,476 43,946
Supplies ........................................... 11,279 10,840
------------ ------------
$ 65,020 $ 65,119
============ ============
If the FIFO method of inventory valuation had been used on all components,
inventories would have been approximately $540 and $549 higher than reported at
December 31, 2000 and September 30, 2000, respectively.
NOTE 3 -- ACQUISITIONS
On November 30, 1999, the Company purchased Gregg Industries, Inc. ("Gregg"), a
manufacturer of gray and ductile iron castings, for $23,002 (including direct
costs of $735 and net of $403 of acquired cash). The acquisition of Gregg was
financed through drawings under the Company's Acquisition Loan Facility.
Additional purchase consideration of $6,500 was paid in April, 2000 based on
Gregg's operating results for the calendar year ended December 31, 1999. Based
on parameters contained in the original purchase agreement, it is unlikely that
any additional purchase consideration will be paid to Gregg shareholders for the
calendar year ended December 31, 2000. Had the acquisition of Gregg occurred as
of October 1, 2000 or October 1, 1999, there would have been no material pro
forma effect on net sales or net loss for the three months ended December 31,
2000 or 1999.
The acquisition of Gregg has been accounted for using the purchase method of
accounting and, accordingly, the purchase price has been allocated on the basis
of fair values to the underlying assets acquired and liabilities assumed. The
excess of the cost of acquisition over the fair value of the net tangible and
identifiable assets acquired has been allocated to goodwill. The operating
results of Gregg are included in the consolidated statements of operations since
the date of its acquisition.
PAGE 6
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NOTE 4 -- SALE OF SUBSIDIARY
On October 2, 2000, the Company sold all of the issued and outstanding shares of
common stock of Hartley Controls Corporation ("Hartley") for a cash purchase
price of $5,500, subject to adjustment as defined in the Stock Purchase
Agreement. The disposition of Hartley resulted in a pretax gain of $4,252 which
was recognized in the three months ended December 31, 2000. In accordance with
the provisions of Accounting Principles Board Opinion No. 30, the results of
operations of Hartley have been reported separately as discontinued operations
in the consolidated statements of operations. Revenues for Hartley for the three
months ended December 31, 1999 were $1,789.
NOTE 5 -- GUARANTOR SUBSIDIARIES
The following tables present condensed consolidating financial information for
the three months ended December 31, 2000 and 1999 for: (a) the Company and (b)
on a combined basis, the guarantors of the Senior Subordinated Notes, which
include all of the wholly owned subsidiaries of the Company (Subsidiary
Guarantors). Separate financial statements of the Subsidiary Guarantors are not
presented because the guarantors are jointly, severally and unconditionally
liable under the guarantees, and the Company believes separate financial
statements and other disclosures regarding the Subsidiary Guarantors are not
material to investors.
PAGE 7
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NOTE 5 -- GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2000
Subsidiary
Company Guarantors Eliminations Consolidated
------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 13,329 $ 145 $ -- $ 13,474
Accounts receivable, net 21,451 34,706 -- 56,157
Inventories 22,155 42,865 -- 65,020
Deferred income taxes 2,069 1,957 -- 4,026
Other current assets 1,231 4,739 -- 5,970
------------------------------------------------------------
Total current assets 60,235 84,412 -- 144,647
Investments in and advances to subsidiaries 272,427 (36,169) (236,258) --
Property, plant and equipment, net 90,684 135,767 -- 226,451
Identifiable intangible assets, net 30,344 38,475 -- 68,819
Goodwill, net 107,109 83,061 -- 190,170
Other assets 3,625 5,586 -- 9,211
------------------------------------------------------------
$564,424 $ 311,132 $ (236,258) $ 639,298
============================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 6,390 $ 23,405 $ -- $ 29,795
Income taxes payable 3,972 (3,232) -- 740
Accrued liabilities 11,029 11,218 -- 22,247
Current portion of long-term debt 11,280 -- -- 11,280
Current portion of capital lease obligations -- 2,180 -- 2,180
------------------------------------------------------------
Total current liabilities 32,671 33,571 -- 66,242
Long-term debt 429,449 232 429,681
Capital lease obligations -- 9,631 -- 9,631
Deferred income taxes 39,823 27,084 -- 66,907
Postretirement benefit obligations 5,838 -- -- 5,838
Other liabilities 2,373 4,356 -- 6,729
Stockholder's equity 54,270 236,258 (236,258) 54,270
------------------------------------------------------------
$564,424 $ 311,132 $ (236,258) $ 639,298
============================================================
PAGE 8
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NOTE 5 -- GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 2000
Subsidiary
Company Guarantors Eliminations Consolidated
--------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 16,982 $ 2,496 $ -- $ 19,478
Accounts receivable, net 29,270 43,603 -- 72,873
Inventories 22,036 43,083 -- 65,119
Refundable income taxes 347 (180) -- 167
Deferred income taxes (885) 3,633 -- 2,748
Other current assets 1,391 4,740 -- 6,131
--------------------------------------------------------------
Total current assets 69,141 97,375 -- 166,516
Investments in and advances to subsidiaries 278,429 (32,318) (246,111) --
Property, plant and equipment, net 91,509 136,730 -- 228,239
Identifiable intangible assets, net 31,263 39,503 -- 70,766
Goodwill, net 107,846 83,711 -- 191,557
Other assets 3,831 5,309 -- 9,140
--------------------------------------------------------------
$ 582,019 $ 330,310 $ (246,111) $ 666,218
==============================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 7,667 $ 23,505 $ -- $ 31,172
Accrued liabilities 21,493 14,340 -- 35,833
Current portion of long-term debt 11,280 -- -- 11,280
Current portion of capital lease obligations -- 2,151 -- 2,151
--------------------------------------------------------------
Total current liabilities 40,440 39,996 -- 80,436
Long-term debt 438,095 232 -- 438,327
Capital lease obligations -- 10,143 -- 10,143
Deferred income taxes 36,868 29,178 -- 66,046
Postretirement benefit obligations 5,724 394 -- 6,118
Other liabilities 2,374 4,256 -- 6,630
Stockholder's equity 58,518 246,111 (246,111) 58,518
--------------------------------------------------------------
$ 582,019 $ 330,310 $ (246,111) $ 666,218
==============================================================
PAGE 9
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NOTE 5 -- GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2000
Subsidiary
Company Guarantors Eliminations Consolidated
---------------------------------------------------------------
Net sales $ 36,590 $ 79,178 $ (1,198) $ 114,570
Cost of sales 26,497 75,550 (1,198) 100,849
---------------------------------------------------------------
Gross profit 10,093 3,628 -- 13,721
Selling, general and administrative expense 3,286 5,749 -- 9,035
Amortization of intangible assets 1,229 1,676 -- 2,905
Gain on disposal of equipment -- (32) -- (32)
---------------------------------------------------------------
Operating income 5,578 (3,765) -- 1,813
Net interest expense (5,067) (7,110) -- (12,177)
---------------------------------------------------------------
Income (loss) from continuing operations
before income taxes and equity in earnings
of subsidiaries 511 (10,875) -- (10,364)
Provision (credit) for income taxes 501 (4,065) -- (3,564)
---------------------------------------------------------------
10 (6,810) -- (6,800)
Equity in earnings of subsidiaries (6,810) -- 6,810 --
---------------------------------------------------------------
Loss from continuing operations (6,800) (6,810) 6,810 (6,800)
Gain on sale of discontinued operations,
net of tax 2,552 -- -- 2,552
---------------------------------------------------------------
Net loss $ (4,248) $ (6,810) $ 6,810 $ (4,248)
===============================================================
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NOTE 5 -- GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1999
Subsidiary
Company Guarantors Eliminations Consolidated
---------------------------------------------------------------
Net sales $ 46,082 $ 82,032 $ (1,680) $ 126,434
Cost of sales 31,908 76,185 (1,680) 106,413
---------------------------------------------------------------
Gross profit 14,174 5,847 -- 20,021
Selling, general and administrative expense 3,469 5,409 -- 8,878
Amortization of intangible assets 1,229 1,478 -- 2,707
---------------------------------------------------------------
Operating income 9,476 (1,040) -- 8,436
Net interest expense (5,378) (6,125) -- (11,503)
---------------------------------------------------------------
Income (loss) from continuing operations
before income taxes and equity in earnings
of subsidiaries 4,098 (7,165) -- (3,067)
Provision (credit) for income taxes 1,934 (2,274) -- (340)
---------------------------------------------------------------
2,164 (4,891) -- (2,727)
Equity in earnings of subsidiaries (4,755) 4,755 --
---------------------------------------------------------------
Loss from continuing operations (2,591) (4,891) 4,755 (2,727)
Income from discontinued operations, net
of tax -- 136 -- 136
---------------------------------------------------------------
Net loss $ (2,591) $ (4,755) $ 4,755 $ (2,591)
===============================================================
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NOTE 5 -- GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 2000
Subsidiary
Company Guarantors Eliminations Consolidated
-----------------------------------------------------------
OPERATING ACTIVITIES
Net loss $ (4,248) $ (6,810) $ 6,810 $ (4,248)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 3,359 7,151 -- 10,510
Amortization of deferred financing costs and
premium on notes 272 -- -- 272
Gain on sale of discontinued operations (2,552) -- -- (2,552)
Deferred income taxes (207) (418) -- (625)
Changes in operating assets and liabilities (1,527) 1,911 -- 384
-----------------------------------------------------------
Net cash provided by (used in)
operating activities (4,903) 1,834 6,810 3,741
INVESTING ACTIVITIES
Investments in and advances to subsidiaries 6,002 808 (6,810) --
Purchase of property, plant and equipment (1,305) (4,510) -- (5,815)
Proceeds from sale of discontinued operations 5,044 -- -- 5,044
-----------------------------------------------------------
Net cash provided by (used in)
investing activities 9,741 (3,702) (6,810) (771)
FINANCING ACTIVITIES
Payments on long-term debt and capital
lease obligations (8,491) (483) -- (8,974)
-----------------------------------------------------------
Net cash used in financing activities (8,491) (483) -- (8,974)
-----------------------------------------------------------
Decrease in cash and cash equivalents (3,653) (2,351) -- (6,004)
Cash and cash equivalents at beginning
of year 16,982 2,496 -- 19,478
-----------------------------------------------------------
Cash and cash equivalents at end of year $ 13,329 $ 145 $ -- $ 13,474
===========================================================
PAGE 12
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NOTE 5 -- GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1999
Subsidiary
Company Guarantors Eliminations Consolidated
-----------------------------------------------------------
OPERATING ACTIVITIES
Net loss $ (2,591) $ (4,755) $ 4,755 $ (2,591)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 3,330 6,323 -- 9,653
Amortization of deferred financing costs and
premium on notes 271 -- -- 271
Deferred income taxes -- (247) -- (247)
Changes in operating assets and liabilities (1,360) (1,981) $ -- (3,341)
-----------------------------------------------------------
Net cash provided by (used in)
operating activities (350) (660) 4,755 3,745
INVESTING ACTIVITIES
Investments in and advances to subsidiaries (27,977) 32,732 (4,755) --
Purchase of property, plant and equipment (2,112) (5,339) -- (7,451)
Acquisition of business -- (23,002) -- (23,002)
-----------------------------------------------------------
Net cash provided by (used in)
investing activities (30,089) 4,391 (4,755) (30,453)
FINANCING ACTIVITIES
Proceeds from long-term debt 25,000 -- -- 25,000
Payments on long-term debt and capital
lease obligations (1,011) (69) -- (1,080)
-----------------------------------------------------------
Net cash provided by financing activities 23,989 (69) -- 23,920
-----------------------------------------------------------
Increase (decrease) in cash and cash equivalents (6,450) 3,662 -- (2,788)
Cash and cash equivalents at beginning
of year 15,852 1,516 -- 17,368
-----------------------------------------------------------
Cash and cash equivalents at end of year $ 9,402 $ 5,178 $ -- $ 14,580
===========================================================
PAGE 13
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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.
Three months ended
December 31,
--------------------------
2000 1999
---------- ----------
Revenues from external customers:
Castings $ 106,367 $ 116,199
Forgings 5,785 7,993
Other 5,979 6,916
Elimination of intersegment revenues (3,561) (4,674)
--------- ---------
Consolidated $ 114,570 $ 126,434
========= =========
Income (loss) from continuing operations:
Castings $ (11,440) $ (6,179)
Forgings (1,984) (1,031)
Other (186) 179
Elimination of intersegment income 6,810 4,304
--------- ---------
Consolidated $ (6,800) $ (2,727)
========= =========
December 31, September 30,
2000 2000
------------ -------------
Identifiable Assets:
Castings $ 802,640 $ 832,256
Forgings 52,956 57,933
Other 13,984 19,654
Elimination of intersegment assets (230,282) (243,625)
--------- ---------
Total consolidated assets $ 639,298 $ 666,218
========= =========
PAGE 14
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Certain matters discussed in this Management's Discussion and Analysis of
Financial Condition and Results of Operations and other sections of this annual
report are "forward-looking statements" intended to qualify for the safe harbors
from liability established by the Private Securities Litigation Reform Act of
1995. These forward looking statements can generally be identified as such
because the context of the statement will include words such as the Company
"believes," "anticipates," "expects" or words of similar import. Similarly,
statements that describe the Company's future plans, objectives or goals are
also forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties which are described in close proximity to such
statements and which may cause actual results to differ materially from those
currently anticipated. The forward-looking statements made herein are made only
as of the date of this report and the Company undertakes no obligation to
publicly update such forward-looking statements to reflect subsequent events or
circumstances.
The following discussions compare the results of operations of the Company for
the three months ended December 31, 2000, to the results of the operations of
the Company for the three months ended December 31, 1999.
RESULTS OF OPERATIONS (dollars in thousands)
Three Months Ended December 31, 2000 and 1999
Net sales. Net sales for the three months ended December 31, 2000 were $114,570
which are $11,864 or 9.4% lower than the quarter ended December 31, 1999. The
decrease in net sales resulted from a dramatic reduction in demand for
industrial castings required for the heavy duty truck market.
Gross profit. Gross profit for the three months ended December 31, 2000 was
$13,721, a decrease of $6,300, or 31.5%, as compared to the quarter ended
December 31, 1999. Gross profit as a percentage of net sales decreased to 12.0%
for the three months ended December 31, 2000 from 15.8% for the quarter ended
December 31, 1999. The decrease in gross profit resulted from lower sales volume
noted above, increased energy prices, and an inability to implement sufficient
overhead spending reductions necessary to offset the decreased level of
absorption of manufacturing costs at lower production volumes.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the three months ended December 31, 2000 were
$9,035, an increase of $157, or 1.8%, as compared to the $8,878 for the quarter
ended December 31, 1999. The increase was due to the recognition of severance
benefits payable to certain terminated employees and the inclusion of Gregg's
operating expenses for the entire period in 2000, partially offset by decreased
corporate expense and the implementation of other cost cutting measures. As a
percentage of net sales, selling, general and administrative expenses increased
from 7.0% for the quarter ended December 31, 1999 to 7.9% for the three months
ended December 31, 2000.
Amortization of intangible assets. Amortization of intangible assets was $2,905
for the three months ended December 31, 2000, an increase of $198, or 7.3%, as
compared to the $2,707 for the quarter ended December 31, 1999. The increase is
due to the increased amortization of goodwill and identifiable intangible assets
of Gregg.
Operating income. Operating income was $1,813 for the three months ended
December 31, 2000, a decrease of $6,623, or 78.5%, from the quarter ended
December 31, 1999. The decrease in operating income was caused by the reasons
discussed above under gross profit. As a percentage of net sales, operating
income decreased from 6.7% for the quarter ended December 31, 1999 to 1.6% for
the three months ended December 31, 2000.
PAGE 15
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Net interest expense. Net interest expense was $12,177 for the three months
ended December 31, 2000 compared to $11,503 for the quarter ended December 31,
1999. The increased interest expense resulted from the interest on the drawings
under the Company's Senior Bank Facilities which were outstanding for the entire
quarter ended December 31, 2000 as compared to one month during the quarter
ended December 31, 1999. These borrowings were used to finance the purchase of
Gregg on November 30, 1999.
Provision for income taxes. The provision for income taxes for the three months
ended December 31, 2000 and 1999 is higher than the amount computed by applying
the statutory rate of approximately 40% to income before income taxes mainly due
to the amortization of goodwill which is not deductible for income tax purposes.
Discontinued operations. On October 2, 2000, the Company sold the common stock
of Hartley. The disposition of Hartley resulted in a gain of $2,552, net of tax,
which was recognized in the three months ended December 31, 2000. The results of
operations of Hartley have been reported separately as discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES (dollars in thousands)
The Company has outstanding $282.0 million principal of 11 1/8% Senior
Subordinated Notes due 2007 (the "Senior Subordinated Notes"). In addition, the
Company has entered into a credit agreement (the "Senior Bank Facility" or
"Credit Agreement") providing for term loans, an Acquisition Loan Facility, and
a Revolving Credit Facility of up to $50.0 million. At December 31, 2000, there
are no borrowings outstanding on the Revolving Credit Facility, $24.5 million
principal amount outstanding on the Acquisition Loan Facility and $130.1 million
principal outstanding under the term loans.
The Company's liquidity needs will arise primarily from debt service on the
above indebtedness, working capital needs and funding of capital expenditures
and additional acquisitions. Borrowings under the Senior Bank Facilities bear
interest at variable interest rates. The Senior Bank Facility imposes
restrictions on the Company's ability to make capital expenditures and both the
Senior Bank Facility and the indentures governing the Senior Subordinated Notes
limit the Company's ability to incur additional indebtedness. The covenants
contained in the Senior Bank Facility also, among other things, restrict the
ability of the Company and its subsidiaries to dispose of assets, incur
guarantee obligations, prepay the Senior Subordinated Notes or amend the
indentures, pay dividends, create liens on assets, enter into sale and leaseback
transactions, make investments, loans or advances, make acquisitions, engage in
mergers or consolidations, change the business conducted by the Company, make
capital expenditures or engage in certain transactions with affiliates, and
otherwise restrict corporate activities.
For the three months ended December 31, 2000 and December 31, 1999, capital
expenditures were $5,815 and $7,451, respectively. The decrease in capital
expenditures of $1,636 was the result of tighter spending controls placed on
capital expenditures during the three months ended December 31, 2000.
The Company's principal source of cash to fund its liquidity needs will be net
cash from operating activities and borrowings under its Senior Bank Facilities.
Net cash from operating activities for the three months ended December 31, 2000
was $3,741, a decrease of $4 from $3,745 for the three months ended December 31,
1999. The decrease in net cash from operating activities was the result of
decreased operating results, partially offset by improved control of inventory
balances.
The Company believes that cash generated from operations and existing revolving
lines of credit under the Senior Bank Facilities will be sufficient to meet its
normal operating requirements, including working capital needs and interest
payments on the Company's outstanding indebtedness.
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17
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk related to changes in interest rates. The
Company does not use derivative financial instruments for speculative or trading
purposes.
Interest Rate Sensitivity. The Company's earnings are affected by changes
in short-term interest rates as a result of its borrowings under the Senior Bank
Facilities. If market interest rates for such borrowings change by 1% during the
remainder of the fiscal year ended September 30, 2001, the Company's interest
expense would increase or decrease by approximately $1.2 million. This analysis
does not consider the effects of changes in the level of overall economic
activity that could occur due to interest rate changes. Further, in the event of
an upward change of such magnitude, management could take actions to further
mitigate its exposure to the change. However, due to the uncertainty of the
specific actions that would be taken and their possible effects, the sensitivity
analysis assumes no changes in the Company's financial structure.
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NEENAH FOUNDRY COMPANY
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10 - Material Contracts
Stock Purchase Agreement dated as of October 2, 2000 by and between
Neenah Foundry Company (as Seller) and Simpson Technologies Corporation
(as Buyer)
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NEENAH FOUNDRY COMPANY
DATE: February 9, 2001 /s/ Gary LaChey
---------------------------------------------------
Gary LaChey
Vice President-Finance, Secretary & Treasurer
(Principal Financial Officer and Duly Authorized
Officer)
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