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 March 31, 2001
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 April 30, 2001
Common Stock, Class B, $100 par value- 0 shares as of April 30, 2001
2
NEENAH FOUNDRY COMPANY
Form 10-Q Index
For the Quarter Ended March 31, 2001
Page
----
Part 1. Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets -- March 31, 2001 and September 30, 2000 3
Condensed consolidated statements of operations -- Three and six months ended March 31, 2001
and 2000 4
Condensed consolidated statements of cash flows -- Six months ended March 31, 2001 and 2000 5
Notes to condensed consolidated financial statements -- March 31, 2001 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 18
Part II. Other Information
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 19
Page 2
3
NEENAH FOUNDRY COMPANY
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31 September 30
2001 2000(1)
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents .......................................................... $ -- $ 19,478
Accounts receivable, net ........................................................... 59,111 72,873
Inventories ........................................................................ 75,260 65,119
Refundable income taxes ............................................................ 2,409 167
Deferred income taxes .............................................................. 4,026 2,748
Other current assets ............................................................... 4,879 6,131
--------- ---------
Total current assets ............................................ 145,685 166,516
Property, plant and equipment ........................................................ 305,542 295,562
Less accumulated depreciation ........................................................ 82,086 67,323
--------- ---------
223,456 228,239
Identifiable intangible assets, net .................................................. 67,761 70,766
Goodwill, net ........................................................................ 188,788 191,557
Other assets ......................................................................... 8,932 9,140
--------- ---------
$ 634,622 $ 666,218
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities:
Accounts payable ................................................................... $ 28,937 $ 31,172
Accrued liabilities ................................................................ 30,629 35,833
Current portion of long-term debt .................................................. 11,280 11,280
Current portion of capital lease obligation ........................................ 2,351 2,151
--------- ---------
Total current liabilities ....................................... 73,197 80,436
Long-term debt ....................................................................... 426,440 438,327
Capital lease obligations ............................................................ 8,909 10,143
Deferred income taxes ................................................................ 66,322 66,046
Postretirement benefit obligations ................................................... 5,952 6,118
Other liabilities .................................................................... 6,373 6,630
--------- ---------
Total liabilities ............................................... 587,193 607,700
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 (accumulated deficit) ............................................ (3,899) 7,190
Accumulated other comprehensive loss ............................................... (89) (89)
--------- ---------
Total stockholder's equity ...................................... 47,429 58,518
--------- ---------
$ 634,622 $ 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
4
NEENAH FOUNDRY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- --------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
(Unaudited) (Unaudited)
Net sales ...................................................... $ 112,584 $ 142,662 $ 227,154 $ 269,096
Cost of sales .................................................. 99,942 118,526 200,791 224,939
--------- --------- --------- ---------
Gross profit ................................................... 12,642 24,136 26,363 44,157
Selling, general and administrative expenses ................... 8,180 9,980 17,215 18,858
Amortization of intangible assets .............................. 2,905 2,726 5,810 5,433
Gain on disposal of equipment .................................. (78) -- (110) --
--------- --------- --------- ---------
Total operating expenses ....................................... 11,007 12,706 22,915 24,291
--------- --------- --------- ---------
Operating income ............................................... 1,635 11,430 3,448 19,866
Net interest expense ........................................... (12,068) (11,804) (24,245) (23,307)
--------- --------- --------- ---------
Loss from continuing operations before income taxes ............ (10,433) (374) (20,797) (3,441)
Income tax provision (benefit) ................................. (3,592) 525 (7,156) 185
--------- --------- --------- ---------
Loss from continuing operations ................................ (6,841) (899) (13,641) (3,626)
Gain on sale of discontinued operations, net of tax ............ -- -- 2,552 --
Income (loss) from discontinued operations, net of tax ......... -- (11) -- 125
--------- --------- --------- ---------
Net loss ....................................................... $ (6,841) $ (910) $ (11,089) $ (3,501)
========= ========= ========= =========
See notes to condensed consolidated financial statements.
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5
NEENAH FOUNDRY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Six Months Ended
March 31,
-----------------------------
2001 2000
-------- --------
(Unaudited)
OPERATING ACTIVITIES
Net loss ................................................................................. $(11,089) $ (3,501)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization ......................................................... 21,052 19,553
Amortization of deferred financing costs and premium on notes ......................... 560 541
Gain on sale of discontinued operations ............................................... (2,552) --
Deferred income taxes ................................................................. (1,210) (259)
Changes in operating assets and liabilities ........................................... (7,307) (3,863)
-------- --------
Net cash provided by (used in) operating
activities ....................................................................... (546) 12,471
INVESTING ACTIVITIES
Purchase of property, plant and equipment ................................................ (10,459) (14,743)
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 ....................................................................... (5,415) (37,745)
FINANCING ACTIVITIES
Proceeds from long-term debt ............................................................. -- 26,470
Payments on long-term debt and capital lease obligations ................................. (12,610) (2,864)
Debt issuance costs ...................................................................... (907) --
-------- --------
Net cash provided by (used in) financing
activities ....................................................................... (13,517) 23,606
-------- --------
Decrease in cash and cash equivalents .................................................... (19,478) (1,668)
Cash and cash equivalents at beginning of period ......................................... 19,478 17,368
-------- --------
Cash and cash equivalents at end of period ............................................... $ -- $ 15,700
======== ========
See notes to condensed consolidated financial statements.
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NEENAH FOUNDRY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 2001
(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 and six months
ended March 31, 2001 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:
March 31, September 30,
2001 2000
------------ -------------
Raw materials ................................................................ $ 10,604 $ 10,333
Work in process and finished goods ........................................... 52,784 43,946
Supplies ..................................................................... 11,872 10,840
------------ -------------
$ 75,260 $ 65,119
============ =============
If the FIFO method of inventory valuation had been used on all components,
inventories would have been approximately $202 and $549 higher than reported at
March 31, 2001 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. Had the
acquisition of Gregg occurred as of October 1, 1999, there would have been no
material pro forma effect on net sales or net loss for the three and six months
March 31, 2000.
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.
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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
and six months ended March 31, 2000 were $1,095 and $2,884, respectively.
NOTE 5 -- GUARANTOR SUBSIDIARIES
The following tables present condensed consolidating financial information for
the three and six month periods ended March 31, 2001 and 2000 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.
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NOTE 5 -- GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
MARCH 31, 2001
Subsidiary
Company Guarantors Eliminations Consolidated
-------------------------------------------------------------------
ASSETS
Current assets:
Accounts receivable, net $ 21,167 $ 37,944 $ -- $ 59,111
Inventories 25,648 49,612 -- 75,260
Refundable income taxes (3,565) 5,974 -- 2,409
Deferred income taxes 2,069 1,957 -- 4,026
Other current assets 936 3,943 -- 4,879
-------------------------------------------------------------------
Total current assets 46,255 99,430 -- 145,685
Investments in and advances to subsidiaries 281,535 (50,797) (230,738) --
Property, plant and equipment, net 89,734 133,722 -- 223,456
Identifiable intangible assets, net 30,314 37,447 -- 67,761
Goodwill, net 106,372 82,416 -- 188,788
Other assets 3,475 5,457 -- 8,932
-------------------------------------------------------------------
$ 557,685 $ 307,675 $(230,738) $634,622
===================================================================
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable $ 5,300 $ 23,637 $ -- $ 28,937
Accrued liabilities 19,321 11,308 -- 30,629
Current portion of long-term debt 11,280 -- -- 11,280
Current portion of capital lease obligations -- 2,351 -- 2,351
-------------------------------------------------------------------
Total current liabilities 35,901 37,296 -- 73,197
Long-term debt 426,207 233 426,440
Capital lease obligations -- 8,909 -- 8,909
Deferred income taxes 39,823 26,499 -- 66,322
Postretirement benefit obligations 5,952 -- -- 5,952
Other liabilities 2,373 4,000 -- 6,373
Stockholder's equity 47,429 230,738 (230,738) 47,429
-------------------------------------------------------------------
$ 557,685 $ 307,675 $(230,738) $634,622
===================================================================
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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
===================================================================
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NOTE 5 -- GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 2001
Subsidiary
Company Guarantors Eliminations Consolidated
-------------------------------------------------------------------
Net sales $ 69,570 $ 159,786 $ (2,202) $ 227,154
Cost of sales 51,554 151,439 (2,202) 200,791
-------------------------------------------------------------------
Gross profit 18,016 8,347 -- 26,363
Selling, general and administrative expense 6,811 10,404 -- 17,215
Amortization of intangible assets 2,459 3,351 -- 5,810
Gain on disposal of equipment (61) (49) -- (110)
-------------------------------------------------------------------
Operating income (loss) 8,807 (5,359) -- 3,448
Net interest expense (10,002) (14,243) -- (24,245)
-------------------------------------------------------------------
Loss from continuing operations before
income taxes and equity in loss
of subsidiaries (1,195) (19,602) -- (20,797)
Income tax provision (benefit) 113 (7,269) -- (7,156)
-------------------------------------------------------------------
(1,308) (12,333) -- (13,641)
Equity in loss of subsidiaries (12,333) -- 12,333 --
Loss from continuing operations (13,641) (12,333) 12,333 (13,641)
-------------------------------------------------------------------
Gain on sale of discontinued operations,
net of tax 2,552 -- -- 2,552
-------------------------------------------------------------------
Net loss $(11,089) $ (12,333) $ 12,333 $ (11,089)
===================================================================
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 2000
Subsidiary
Company Guarantors Eliminations Consolidated
-------------------------------------------------------------------
Net sales $ 90,713 $ 181,883 $(3,500) $ 269,096
Cost of sales 63,808 164,631 (3,500) 224,939
-------------------------------------------------------------------
Gross profit 26,905 17,252 -- 44,157
Selling, general and administrative expense 7,305 11,553 -- 18,858
Amortization of intangible assets 2,459 2,974 -- 5,433
-------------------------------------------------------------------
Operating income 17,141 2,725 -- 19,866
Net interest expense (10,521) (12,786) -- (23,307)
-------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes and equity in loss
of subsidiaries 6,620 (10,061) -- (3,441)
Income tax provision (benefit) 3,239 (3,054) -- 185
-------------------------------------------------------------------
3,381 (7,007) -- (3,626)
Equity in loss of subsidiaries (7,007) 7,007 --
-------------------------------------------------------------------
Loss from continuing operations (3,626) (7,007) 7,007 (3,626)
Income from discontinued operations, net
of tax 125 -- -- 125
-------------------------------------------------------------------
Net loss $ (3,501) $ (7,007) $ 7,007 $ (3,501)
===================================================================
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NOTE 5 -- GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001
Subsidiary
Company Guarantors Eliminations Consolidated
-------------------------------------------------------------------
Net sales $ 32,980 $ 80,608 $(1,004) $ 112,584
Cost of sales 25,057 75,889 (1,004) 99,942
-------------------------------------------------------------------
Gross profit 7,923 4,719 -- 12,642
Selling, general and administrative expense 3,525 4,655 -- 8,180
Amortization of intangible assets 1,230 1,675 -- 2,905
Gain on disposal of equipment (61) (17) -- (78)
-------------------------------------------------------------------
Operating income (loss) 3,229 (1,594) -- 1,635
Net interest expense (4,935) (7,133) -- (12,068)
-------------------------------------------------------------------
Loss before income taxes and
equity in loss of subsidiaries (1,706) (8,727) -- (10,433)
Income tax benefit (388) (3,204) -- (3,592)
-------------------------------------------------------------------
(1,318) (5,523) -- (6,841)
Equity in loss of subsidiaries (5,523) -- 5,523 --
-------------------------------------------------------------------
Net loss $ (6,841) $ (5,523) $ 5,523 $ (6,841)
===================================================================
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000
Subsidiary
Company Guarantors Eliminations Consolidated
-------------------------------------------------------------------
Net sales $ 44,631 $ 99,851 $(1,820) $ 142,662
Cost of sales 31,900 88,446 (1,820) 118,526
-------------------------------------------------------------------
Gross profit 12,731 11,405 -- 24,136
Selling, general and administrative expense 3,836 6,144 -- 9,980
Amortization of intangible assets 1,230 1,496 -- 2,726
-------------------------------------------------------------------
Operating income 7,665 3,765 -- 11,430
Net interest expense (5,143) (6,661) -- (11,804)
-------------------------------------------------------------------
Income (loss) from continuing operations
before income taxes and equity in loss
of subsidiaries 2,522 (2,896) -- (374)
Income tax provision (benefit) 1,305 (780) -- 525
-------------------------------------------------------------------
1,217 (2,116) -- (899)
Equity in loss of subsidiaries (2,116) -- 2,116 --
-------------------------------------------------------------------
Loss from continuing operations (899) (2,116) 2,116 (899)
Loss from discontinued operations, net of tax (11) -- -- (11)
-------------------------------------------------------------------
Net loss $ (910) $ (2,116) $ 2,116 $ (910)
===================================================================
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NOTE 5 -- GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 2001
Subsidiary
Company Guarantors Eliminations Consolidated
-------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss $(11,089) $(12,333) $ 12,333 $(11,089)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 6,719 14,333 -- 21,052
Amortization of deferred financing costs and
premium on notes 560 -- -- 560
Gain on sale of discontinued operations (2,552) -- -- (2,552)
Deferred income taxes (207) (1,003) -- (1,210)
Changes in operating assets and liabilities 2,617 (9,924) -- (7,307)
-------------------------------------------------------------------
Net cash used in
operating activities (3,952) (8,927) 12,333 (546)
INVESTING ACTIVITIES
Investments in and advances to subsidiaries (3,105) 15,438 (12,333) --
Purchase of property, plant and equipment (2,485) (7,974) -- (10,459)
Proceeds from sale of discontinued operations 5,044 -- -- 5,044
-------------------------------------------------------------------
Net cash provided by (used in)
investing activities (546) 7,464 (12,333) (5,415)
FINANCING ACTIVITIES
Payments on long-term debt and capital
lease obligations (11,577) (1,033) -- (12,610)
Debt issuance costs (907) -- -- (907)
-------------------------------------------------------------------
Net cash used in financing activities (12,484) (1,033) -- (13,517)
-------------------------------------------------------------------
Decrease in cash and cash equivalents (16,982) (2,496) -- (19,478)
Cash and cash equivalents at beginning
of year 16,982 2,496 -- 19,478
-------------------------------------------------------------------
Cash and cash equivalents at end of year $ -- $ -- $ -- $ --
===================================================================
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NOTE 5 -- GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 2000
Subsidiary
Company Guarantors Eliminations Consolidated
-------------------------------------------------------------------
OPERATING ACTIVITIES
Net loss $ (3,501) $ (7,007) $ 7,007 $ (3,501)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 6,660 12,893 -- 19,553
Amortization of deferred financing costs and
premium on notes 541 -- -- 541
Deferred income taxes -- (259) -- (259)
Changes in operating assets and liabilities 3,417 (7,280) -- (3,863)
-------------------------------------------------------------------
Net cash provided by (used in)
operating activities 7,117 (1,653) 7,007 12,471
INVESTING ACTIVITIES
Investments in and advances to subsidiaries (31,860) 38,867 (7,007) --
Purchase of property, plant and equipment (3,165) (11,578) -- (14,743)
Acquisition of business -- (23,002) -- (23,002)
-------------------------------------------------------------------
Net cash provided by (used in)
investing activities (35,025) 4,287 (7,007) (37,745)
FINANCING ACTIVITIES
Proceeds from long-term debt 25,000 1,470 -- 26,470
Payments on long-term debt and capital
lease obligations (2,526) (338) -- (2,864)
-------------------------------------------------------------------
Net cash provided by financing activities 22,474 1,132 -- 23,606
-------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (5,434) 3,766 -- (1,668)
Cash and cash equivalents at beginning
of year 15,852 1,516 -- 17,368
-------------------------------------------------------------------
Cash and cash equivalents at end of year $ 10,418 $ 5,282 $ -- $ 15,700
===================================================================
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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 Six months ended
March 31, March 31,
--------------------------- ---------------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Revenues from external customers:
Castings $ 101,233 $ 118,757 $ 207,600 $ 234,956
Forgings 6,605 9,783 12,390 17,776
Other 5,650 18,811 11,629 25,727
Elimination of intersegment revenues (904) (4,689) (4,465) (9,363)
--------- --------- --------- ---------
Consolidated $ 112,584 $ 142,662 $ 227,154 $ 269,096
========= ========= ========= =========
Income (loss) from continuing operations:
Castings $ (10,875) $ (1,557) $ (22,315) $ (7,736)
Forgings (1,285) (1,031) (3,269) (2,062)
Other (203) (888) (389) (709)
Elimination of intersegment income 5,522 2,577 12,332 6,881
--------- --------- --------- ---------
Consolidated $ (6,841) $ (899) $ (13,641) $ (3,626)
========= ========= ========= =========
March 31, September 30,
2001 2000
--------- -------------
Identifiable Assets:
Castings $ 789,057 $ 832,256
Forgings 51,136 57,933
Other 15,705 19,654
Elimination of intersegment assets (221,276) (243,625)
--------- ---------
Total consolidated assets $ 634,622 $ 666,218
========= =========
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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 and six months ended March 31, 2001, to the results of the operations
of the Company for the three and six months ended March 31, 2000.
RESULTS OF OPERATIONS (dollars in thousands)
Three Months Ended March 31, 2001 and 2000
Net sales. Net sales for the three months ended March 31, 2001 were $112,584
which are $30,078 or 21.1% lower than the quarter ended March 31, 2000. The
decrease in net sales resulted from continued significant weakness in the demand
for industrial castings used for the heavy duty truck market and an overall
slowing of demand for castings in our other major markets.
Gross profit. Gross profit for the three months ended March 31, 2001 was
$12,642, a decrease of $11,494, or 47.6%, as compared to the quarter ended March
31, 2000. Gross profit as a percentage of net sales decreased to 11.2% for the
three months ended March 31, 2001 from 16.9% for the quarter ended March 31,
2000. The decrease in gross profit resulted from lower sales volume noted above,
significantly increased energy prices, and an inability, at the lower production
and sales levels, to sufficiently absorb the overhead costs necessary to
effectively run the foundry operations.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the three months ended March 31, 2001 were $8,180, a
decrease of $1,800, or 18.0%, as compared to the $9,980 for the quarter ended
March 31, 2000. The decrease was due to decreased corporate expense and the
implementation of other cost cutting measures due to the decreased sales level.
As a percentage of net sales, selling, general and administrative expenses
increased from 7.0% for the quarter ended March 31, 2000 to 7.3% for the three
months ended March 31, 2001.
Amortization of intangible assets. Amortization of intangible assets was $2,905
for the three months ended March 31, 2001, an increase of $179, or 6.6%, as
compared to the $2,726 for the quarter ended March 31, 2000. The increase is due
to the increased amortization of goodwill and identifiable intangible assets of
Gregg.
Operating income. Operating income was $1,635 for the three months ended March
31, 2001, a decrease of $9,795, or 85.7%, from the quarter ended March 31, 2000.
The decrease in operating income was caused by the reasons discussed above under
gross profit, partially offset by decreased selling, general and administrative
expenses. As a percentage of net sales, operating income decreased from 8.0% for
the quarter ended March 31, 2000 to 1.5% for the three months ended March 31,
2001.
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Net interest expense. Net interest expense was $12,068 for the three months
ended March 31, 2001 compared to $11,804 for the quarter ended March 31, 2000.
The increased interest expense resulted from the interest on capital leases
entered into during the second half of fiscal 2000.
Provision for income taxes. The provision for income taxes for the three months
ended March 31, 2001 and 2000 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.
Six Months Ended March 31, 2001 and 2000
Net sales. Net sales for the six months ended March 31, 2001 were $227,154 which
are $41,942 or 15.6% lower than the six months ended March 31, 2000. The
decrease in net sales resulted from continued significant weakness in the demand
for industrial castings used for the heavy duty truck market and an overall
slowing of demand for castings in our other major markets.
Gross profit. Gross profit for the six months ended March 31, 2001 was $26,363,
a decrease of $17,794, or 40.3%, as compared to the six months ended March 31,
2000. Gross profit as a percentage of net sales decreased to 11.6% for the six
months ended March 31, 2001 from 16.4% for the six months ended March 31, 2000.
The decrease in gross profit resulted from lower sales volume noted above,
significantly increased energy prices, and an inability, at the lower production
and sales levels, to sufficiently absorb the overhead costs necessary to
effectively run the foundry operations.
Selling, general and administrative expenses. Selling, general and
administrative expenses for the six months ended March 31, 2001 were $17,215, a
decrease of $1,643, or 8.7%, as compared to the $18,858 for the six months ended
March 31, 2000. The decrease was due to decreased corporate expense and the
implementation of other cost cutting measures partially offset by the
recognition of severance benefits payable to certain terminated employees and
the inclusion of Gregg's operating expenses for the entire period in 2001. As a
percentage of net sales, selling, general and administrative expenses increased
from 7.0% for the six months ended March 31, 2000 to 7.6% for the six months
ended March 31, 2001.
Amortization of intangible assets. Amortization of intangible assets was $5,810
for the six months ended March 31, 2001, an increase of $377, or 6.9%, as
compared to the $5,433 for the six months ended March 31, 2000. The increase is
due to the increased amortization of goodwill and identifiable intangible assets
of Gregg.
Operating income. Operating income was $3,448 for the six months ended March 31,
2001, a decrease of $16,418, or 82.6%, from the six months ended March 31, 2000.
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 7.4%
for the six months ended March 31, 2000 to 1.5% for the six months ended March
31, 2001.
Net interest expense. Net interest expense was $24,245 for the six months ended
March 31, 2001 compared to $23,307 for the six months ended March 31, 2000. The
increased interest expense resulted from the interest on the drawings under the
Company's Senior Bank Facilities which were outstanding for the entire six
months ended March 31, 2001 as compared to four months during the six months
ended March 31, 2000. These borrowings were used to finance the purchase of
Gregg on November 30, 1999. Also, increased interest expense was incurred on
capital leases entered into during the second half of fiscal 2000.
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Provision for income taxes. The provision for income taxes for the six months
ended March 31, 2001 and 2000 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 six months ended March 31, 2001. 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 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 March 31, 2001, there are
no borrowings outstanding on the Revolving Credit Facility, $22.6 million
principal amount outstanding on the Acquisition Loan Facility and $128.9 million
principal amount 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. 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. In March 2001, the Credit Agreement was
amended to provide temporary reductions of certain financial ratio covenants and
to further restrict capital expenditure limits and permitted acquisitions.
For the six months ended March 31, 2001 and March 31, 2000, capital expenditures
were $10,459 and $14,743, respectively. The decrease in capital expenditures of
$4,284 was the result of tighter spending controls placed on capital
expenditures during the six months ended March 31, 2001.
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 used in operating activities for the six months ended March 31, 2001
was $546, a decrease of $13,017 from cash provided by operating activities for
the six months ended March 31, 2000 of $12,471. The decrease in net cash from
operating activities was the result of decreased operating income and a buildup
of inventory balances to support an anticipated increased sales level during the
summer months.
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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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 $.8 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
Amendment No. 2 dated as of March 16, 2001, to the Credit Agreement
dated as of April 30, 1997 as Amended and Restated as of September 12,
1997, as of April 3, 1998, and as of September 8, 1998 by and among
Neenah Foundry Company, NFC Castings, Inc., the Lenders from time to
time party thereto, and the Chase Manhattan Bank.
(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: May 9, 2001 /s/ Gary LaChey
-------------------------------------
Gary LaChey
Vice President-Finance, Secretary & Treasurer
(Principal Financial Officer and Duly
Authorized Officer)
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