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 period ended June 30, 1997 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 NEENAH TRANSPORT, INC. HARTLEY CONTROLS CORPORATION (Exact name of each registrant as it appears in its charter) Wisconsin 39-1580331 Wisconsin 39-1378433 Wisconsin 39-0842568 (State or other jurisdiction of (IRS Employer ID Number) incorporation or organization) 2121 Brooks Avenue, P.O. Box 729, Neenah, Wisconsin 54957 2121 Brooks Avenue, P.O. Box 729, Neenah, Wisconsin 54957 2400 Holly Road, Neenah, Wisconsin 54956 (Address of principal executive offices) (Zip Code) (920) 725-7000 (920) 725-7000 (920) 734-2689 (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 Page 1 2 NEENAH FOUNDRY COMPANY Form 10-Q Index For the Quarter Ended June 30, 1997 Page ---- Part 1. Financial Information Item 1. Financial Statements Condensed consolidated balance sheets -- June 30, 1997 and March 31, 1997 3 Condensed consolidated statements of income -- Three months ended June 30, 1996; One month ended April 30, 1997; and Two months ended June 30, 1997. 4 Condensed consolidated statements of cash flows -- Three months ended June 30, 1996; One month ended April 30, 1997; and Two months ended June 30, 1997. 5 Notes to condensed consolidated financial statements -- June 30, 1997 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of 7 Operations Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 9 Signatures 9 Exhibit Index 10 Page 2 3 NEENAH FOUNDRY COMPANY Part I. Financial Information Condensed Consolidated Balance Sheets (In thousands) Predecessor June 30 March 31 1997 1997 ---- ---- (Unaudited) (Note) ASSETS Current assets: Cash and cash equivalents ............................... $ 18,691 $ 22,403 Accounts receivable, net ................................ 27,755 21,423 Inventories ............................................. 22,400 13,956 Other current assets .................................... -- 401 Deferred income taxes.................................... -- 2,325 -------- --------- Total current assets ................... 68,846 60,508 Property, plant and equipment ............................. 102,102 117,565 Less accumulated depreciation ............................. 1,092 86,186 -------- --------- 101,010 31,379 Identifiable intangible assets ............................ 37,643 -- Goodwill .................................................. 118,360 -- Other assets .............................................. 5,487 1,982 -------- --------- $331,346 $ 93,869 ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable ....................................... $ 8,600 $ 8,497 Amount due former shareholders ......................... 12,530 -- Income taxes payable ................................... 3,177 573 Accrued liabilities .................................... 10,902 7,597 Deferred income taxes .................................. 2,119 -- Current portion of long-term debt ...................... -- 134 -------- --------- Total current liabilities ............. 37,328 16,801 Long-term debt ........................................... 195,116 -- Postretirement benefit obligations ....................... 5,479 5,667 Deferred income taxes .................................... 43,010 2,544 Other liabilities ........................................ 3,643 -- -------- --------- Total liabilities ..................... 284,576 25,012 Commitments and contingencies Stockholders' equity: Common stock, per value $100 per share -- authorized 11,000 shares, issued and outstanding 1,000 shares .................... 100 444 Additional paid in capital.............................. 44,900 -- Retained earnings ...................................... 1,770 71,335 Notes receivable from owners to finance stock purchase . -- (2,922) -------- --------- Total stockholder's equity ............ 46,770 68,857 -------- --------- $331,346 $93,869 ======== ========= See notes to condensed consolidated financial statements. Note: The balance sheet at March 31, 1997 has been derived from the audited financial statement at 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 INCOME (Unaudited) (In thousands) Predecessor ------------------------------ Three Months One Month Two Months Ended Ended Ended June 30, 1996 April 30, 1997 June 30, 1997 ------------- -------------- ------------- Net sales ...................................... $44,309 $17,276 $ 34,367 Cost of sales .................................. 31,169 11,351 24,094 ------- ------- -------- Gross profit ................................... 13,140 5,925 10,273 Selling, general and administrative expenses ... 4,715 1,752 4,129 ------- ------- -------- Operating income ............................... 8,425 4,173 6,144 Net interest income (expense) .................. 201 121 (3,241) ------- ------- -------- Income before income taxes ..................... 8,626 4,294 2,903 Provision for income taxes ..................... 3,448 1,615 1,133 ------- ------- -------- Net income ..................................... $ 5,178 $ 2,679 $ 1,770 ======= ======= ======== See notes to condensed consolidated financial statements. Page 4 5 NEENAH FOUNDRY COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) Predecessor ----------------------- Three Months One Month Two Months Ended Ended Ended June 30, 1996 April 30, 1997 June 30, 1997 ------------- -------------- ------------- OPERATING ACTIVITIES Net income .......................................... $ 5,178 $ 2,679 $ 1,770 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization .................... 1,760 518 2,126 Deferred income taxes ............................ -- (120) -- Changes in operating assets and liabilities.. ..... 2,410 (16,684) 2,819 -------- -------- -------- Net cash provided by (used in) operating activities................................... 9,348 (13,607) 6,715 INVESTING ACTIVITIES Purchase of property, plant and equipment ........... (1,189) (190) (400) Proceeds from life insurance policy ................. -- -- 864 Other ............................................... (18) (1) -- -------- -------- -------- Net cash provided by (used in) investing activities................................... (1,207) (191) 464 FINANCING ACTIVITIES Dividends paid ...................................... (3,552) -- -- Proceeds from long-term debt ........................ -- 24 -- Payments on long-term debt .......................... (22) (5) (34) Collection of notes receivable from owners .......... -- 2,922 -- -------- -------- -------- Net cash provided by (used in) financing activities................................... (3,574) 2,941 (34) -------- -------- -------- Increase (decrease) in cash and cash equivalents.... 4,567 (10,857) 7,145 Cash and cash equivalents at beginning of period .... 10,126 22,403 11,546 -------- -------- -------- Cash and cash equivalents at end of period .......... $ 14,693 $ 11,546 $ 18,691 ======== ======== ======== See notes to condensed consolidated financial statements. Page 5 6 NEENAH FOUNDRY COMPANY Notes to Condensed Consolidated Financial Statements (Unaudited) June 30, 1997 NOTE I -- 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 recurring accruals) considered necessary for a fair presentation have been included. Operating results for the two months ended June 30, 1997 are not necessarily indicative of the results that may be expected for the period ended September 30, 1997. (The Company will change its fiscal year end to September 30 effective September 30, 1997). For further information, refer to the consolidated financial statements and footnotes thereto included in Neenah Foundry Company's Registration Statement on Form S-4 No. 333-28751 effective August 12, 1997. NOTE 2 -- INVENTORIES The components of inventories are as follows: June 30 March 31 1997 1997 ---- ---- (000's omitted) Raw materials ....................................... $ 2,086 $ 2,017 Work in process and finished goods................... 15,668 14,324 Supplies ............................................ 4,646 4,860 ------- -------- Inventories at FIFO cost ............................ 22,400 21,201 Excess of FIFO cost over LIFO cost .................. 0 (7,245) ------- -------- $22,400 $ 13,956 ======= ======== NOTE 3 -- LONG-TERM DEBT AND SUBSEQUENT EVENTS On April 30, 1997, the Company issued $150.0 million principal amount of 11-1/8% Senior Subordinated Notes due 2007 and entered into a credit agreement providing for term loans of $45.0 million and a revolving credit facility of up to $30.0 million. On July 1, 1997, the Company issued $45.0 million principal amount of 11-1/8% Senior Subordinated Notes due 2007 and used the proceeds of $47.6 million to pay the term loans, the accrued interest thereon and related fees and expenses. In addition, on September 12, 1997, the Company amended the revolving credit facility to increase the borrowings available under the revolving credit facility from $30.0 million to $50.0 million and eliminate all borrowing base limitations. The borrowings under the revolving credit facility bear interest at variable interest rates. NOTE 4 -- GUARANTOR SUBSIDIARIES No separate financial statements for Neenah Transport, Inc. and Hartley Controls Corporation (Guarantor Subsidiaries) have been included herein because management has concluded that such financial statements would not provide additional material disclosure. Page 6 7 NEENAH FOUNDRY COMPANY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General On April 30, 1997, pursuant to an Agreement and Plan of Reorganization with NC Merger Company and NFC Castings, Inc., the stock of Neenah Corporation (the Predecessor Company) was acquired by NFC Castings, Inc. (the"Merger"). On July 1, 1997, Neenah Foundry Company, which was the principal operating subsidiary of the Predecessor Company, merged into Neenah Corporation (the Predecessor Company) and the surviving company changed its name to Neenah Foundry Company (the"Company"). The following discussion and analysis of the Company's financial condition and results of operations addresses the periods both before and after the Merger. The Merger has had a significant impact on the Company's results of operations and financial condition. The Merger resulted in the recording of goodwill and identifiable intangible assets totaling approximately $157.0 million. These amounts are being amortized over their estimated useful lives, ranging from 10 to 40 years. The Merger has also resulted in a significant increase in the Company's interest expense. The Merger has been accounted for as a business combination and has resulted in differences in the basis of certain assets and liabilities between the Predecessor Company and the Company. The following discussions compare the pro forma results of the operations of the Company for the three months ended June 30, 1997, assuming the Merger occurred on April 1, 1997, to the historical results of the Predecessor Company for the three months ended June 30, 1996. Results of Operations (dollars in thousands) Net sales for the pro forma three months ended June 30, 1997 were $51,643 which are $7,334 or 16.6% higher than the quarter ended June 30, 1996. Net sales of municipal castings increased by $2,241 or 10.8% due primarily to a strong economy in the upper Midwest and market share gains in strategic focus areas of the East and Southwest. Net sales of industrial castings increased by $5,384 or 24.6% due to the recent surge in the heavy duty truck build rates, percentage gains on dual sourced components and increased build rates by a major industrial customer . Net sales for Hartley Controls for the pro forma three months ended June 30, 1997, declined by $291 mostly due to a reduction in equipment sales caused by capital spending cutbacks at the major foundry customers that Hartley Controls services. Gross profit for the pro forma three months ended June 30, 1997 was $16,198, an increase of $3,058 or 23.3%, as compared to the quarter ended June 30, 1996. Gross profit as a percentage of net sales increased to 31.4% from 29.7% for the quarter ended June 30, 1996. The margin improvement was due to the combined effect of spreading manufacturing overhead over a greater volume, improved efficiency in plant operations and, to a lesser extent, improved pricing of industrial castings. Selling, general and administrative expenses for the pro forma three months ended June 30, 1997 were $6,165, an increase of $1,450 or 30.8% over the $4,715 for the quarter ended June 30, 1996. As a percentage of net sales, selling, general and administrative expenses increased from 10.6% for the quarter ended June 30, 1996 to 11.9%. The increase in selling, general and administrative expense was due to amortization of goodwill and identifiable intangible assets resulting from the Merger. Operating income was $10,033 for the pro forma three months ended June 30, 1997, an increase of $1,608, or 19.1% from the quarter ended June 30, 1996. As a percentage of net sales, operating income increased from 19.0% for the quarter ended June 30, 1996 to 19.4% for the pro forma three months ended June 30, 1997. The improvement in operating income was achieved for the reasons discussed above offset by amortization of goodwill and identifiable intangible assets resulting from the Merger. Page 7 8 Liquidity and Capital Resources (dollars in thousands) In connection with the Merger, the Company issued $150.0 million principal amount of 11-1/8% Senior Subordinated Notes due 2007 and entered into a credit agreement providing for term loans of $45.0 million and a revolving credit facility of up to $30.0 million. On July 1, 1997, the Company issued $45.0 million principal amount of 11-1/8% Senior Subordinated Notes due 2007 and used the proceeds of $47.6 million to pay the term loans, the accrued interest thereon and related fees and expenses. In addition, on September 12, 1997, the Company amended the revolving credit facility to increase the borrowings available under the revolving credit facility from $30.0 million to $50.0 million and eliminate all borrowing base limitations. The Company's liquidity needs will arise primarily from debt service on the above indebtedness, working capital needs and funding of capital expenditures. Borrowings under the revolving credit facility bear interest at variable interest rates. The credit facility imposes restrictions on the Company's ability to make capital expenditures and both the credit facility and the indentures governing the Senior Subordinated Notes limit the Company's ability to incur additional indebtedness. The covenants contained in the credit 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. During the month of April, 1997, $17,500 was expended to pay for various expenses associated with the Merger. Excluding this expenditure, cash increased for the pro forma three months ended June 30, 1997 by $13,788. The increase in cash during the two months ended June 30, 1997 is primarily due to a $2,819 decrease in working capital requirements, $1,770 of net income and $864 of proceeds from cash surrender values associated with life insurance policies. The Company believes that cash generated from operations and existing revolving lines of credit will be sufficient to meet its normal operating requirements, including interest payments on the Company's outstanding indebtedness. Page 8 9 NEENAH FOUNDRY COMPANY PART II. OTHER INFORMATION ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 27 - Financial Data Schedule (b) Reports on Form 8-K The Company did not file any reports on Form 8-K during the quarter ended June 30, 1997. SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrants have duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NEENAH FOUNDRY COMPANY DATE: September 18, 1997 by: /s/ Gary LaChey Vice President-Finance, Secretary & Treasurer (Principal Financial Officer) NEENAH TRANSPORT, INC. DATE: September 18, 1997 by: /s/ Gary LaChey Vice President-Finance, Secretary & Treasurer (Principal Financial Officer) HARTLEY CONTROLS CORPORATION DATE: September 18, 1997 by: /s/ Gary LaChey Vice President-Finance, Secretary & Treasurer (Principal Financial Officer) Page 9