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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 December 31, 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
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NEENAH FOUNDRY COMPANY
Form 10-Q Index
For the Quarter Ended December 31, 1997
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Page
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Part 1. Financial Information
Item 1. Financial Statements
Condensed consolidated balance sheets -- December 31, 1997 and September 30, 1997 3
Condensed consolidated statements of income -- Three months ended December 31, 1997;
and Three months ended December 31, 1996 4
Condensed consolidated statements of cash flows -- Three months ended December 31, 1997;
and Three months ended December 31, 1996 5
Notes to condensed consolidated financial statements -- December 31, 1997 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 7
Operations
Part II. Other Information
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 9
Exhibit Index 10
</TABLE>
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NEENAH FOUNDRY COMPANY
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
As of As of
December 31 September 30
1997 1997(1)
----------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................ $ 21,994 $ 20,344
Accounts receivable, net ......................... 22,226 29,932
Inventories ...................................... 18,286 19,639
Other current assets ............................. 719 318
Deferred income taxes ............................ 1,628 1,695
-------- --------
Total current assets ....................... 64,853 71,928
Property, plant and equipment ...................... 104,841 103,710
Less accumulated depreciation ...................... 5,118 3,131
-------- --------
99,723 100,579
Identifiable intangible assets, net ................ 34,415 35,277
Goodwill, net ...................................... 115,953 116,690
Other assets ....................................... 3,817 3,951
-------- --------
$ 318,761 $ 328,425
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................. $ 5,744 $ 10,333
Income taxes payable ............................. 3,730 4,384
Accrued liabilities .............................. 11,549 17,283
Current portion of long-term debt ................ 78 98
-------- --------
Total current liabilities .................. 21,101 32,098
Long-term debt ..................................... 197,457 197,522
Postretirement benefit obligations ................. 4,975 4,894
Deferred income taxes .............................. 44,452 44,519
Other liabilities .................................. 2,151 2,172
-------- --------
Total liabilities .......................... 270,136 281,205
Commitments and contingencies
STOCKHOLDERS' 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 .................... 44,900 44,900
Retained earnings ............................. 3,625 2,220
-------- --------
Total stockholders' equity ................. 48,625 47,220
-------- --------
$ 318,761 $ 328,425
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
(1) The balance sheet as of September 30, 1997 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.
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NEENAH FOUNDRY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Predecessor
------------
Three Months Three Months
Ended Ended
December 31, December 31,
1997 1996
---------------- ------------
<S> <C> <C>
Net sales ................................................ $45,854 $37,815
Cost of sales ............................................ 32,771 26,990
------- -------
Gross profit ............................................. 13,083 10,825
Selling, general and administrative expenses ............. 3,550 4,468
------- -------
Operating income ......................................... 9,533 6,357
Net interest income (expense) ............................ (6,759) 347
------- -------
Income before income taxes ............................... 2,774 6,704
Provision for income taxes ............................... 1,369 2,069
------- -------
Net income ............................................... $ 1,405 $ 4,635
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
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NEENAH FOUNDRY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
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<CAPTION>
Predecessor
-------------
Three Months Three Months
Ended Ended
December 31, December 31,
1997 1996
-------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income .............................................. $ 1,405 $ 4,635
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ........................ 3,518 1,759
Changes in operating assets and liabilities .......... (2,125) 2,459
------- -------
Net cash provided by operating
activities ..................................... 2,798 8,853
INVESTING ACTIVITIES
Purchase of property, plant and equipment ............... (1,128) (911)
Other ................................................... -- (18)
------- -------
Net cash used in investing
activities ...................................... (1,128) (929)
FINANCING ACTIVITIES
Dividends paid .......................................... -- (2,220)
Payments on long-term debt .............................. (20) (18)
------- -------
Net cash used in financing
activities ...................................... (20) (2,238)
------- -------
Increase in cash and cash equivalents ................... 1,650 5,686
Cash and cash equivalents at beginning of period ........ 20,344 18,166
------- -------
Cash and cash equivalents at end of period .............. $21,994 $23,852
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
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NEENAH FOUNDRY COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
December 31, 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 and recurring adjustments) considered necessary for a
fair presentation have been included. Operating results for the three months
ended December 31, 1997 are not necessarily indicative of the results that may
be expected for the period ending September 30, 1998. (The Company changed
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 Annual Report on Form
10-K for the period ended September 30, 1997.
Note 2 -- Inventories
The components of inventories are as follows:
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<CAPTION>
December 31 September 30
1997 1997
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(000's omitted)
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Raw materials ................................. $ 1,927 $ 1,688
Work in process and finished goods............. 12,528 13,379
Supplies ...................................... 4,684 4,572
------- -------
Inventories at FIFO cost ...................... 19,139 19,639
Excess of FIFO cost over LIFO cost ............ (853) --
------- -------
$18,286 $19,639
======= =======
</TABLE>
At September 30, 1997, inventories at LIFO approximated FIFO cost.
NOTE 3 -- GUARANTOR SUBSIDIARIES
Neenah Transport, Inc. and Hartley Controls Corporation (the "Guarantor
Subsidiaries") are wholly-owned subsidiaries of Neenah Foundry Company and
have fully and unconditionally guaranteed the Senior Subordinated Notes (as
defined below) on a joint and several basis. The Guarantor Subsidiaries
comprise all of the Company's direct and indirect subsidiaries. The separate
financial statements of the Guarantor Subsidiaries have not been included
herein because management has concluded that such financial statements would
not provide additional information that is material to investors.
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Item 2. 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 Neenah Corporation, merged with and into Neenah Corporation 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 $148.8 million. These
amounts are being amortized over their estimated useful lives, ranging from
five months 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 Company changed its fiscal year end
to September 30 from March 31 effective September 30, 1997. The following
discussions compare the results of operations of the Company for the three
months ended December 31, 1997, to the historical results of the Predecessor
Company for the three months ended December 31, 1996.
RESULTS OF OPERATIONS (dollars in thousands)
Net sales. Net sales for the three months ended December 31, 1997 were
$45,854 which are $8,039 or 21.3% higher than the quarter ended December 31,
1996. Net sales of municipal castings increased by $1,006 or 6.2% due
primarily to market share gains in strategic focus areas of the Eastern and
Southwestern United States as well as a continuation of the successful
transition to a modernized product line. Net sales of industrial castings
increased by $7,426 or 37.7% due to the overall strength of the heavy
duty truck market coupled with very high demand in the agricultural and HVAC
lines of business. Net sales for Hartley Controls Corporation for the three
months ended December 31, 1997, declined by $393 which is mostly attributable
to a reduction in foundry expansion and lower capital spending at the major
foundry customers that Hartley Controls Corporation services.
Gross profit. Gross profit for the three months ended December 31, 1997 was
$13,083, an increase of $2,258, or 20.9%, as compared to the quarter ended
December 31, 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.
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Selling, general and administrative expenses. Selling, general and
administrative expenses for the three months ended December 31, 1997 were
$3,550, a decrease of $918, or 20.5%, as compared to the $4,468 for the
quarter ended December 31, 1996. As a percentage of net sales, selling, general
and administrative expenses decreased from 11.8% for the quarter ended
December 31, 1996 to 7.7% for the three months ended December 31, 1997. The
decrease in selling, general and administrative expenses was mainly due to the
reduction in compensation for senior executives who did not remain with the
Company after the Merger, which was offset by amortization of goodwill and
identifiable intangible assets resulting from the Merger.
Operating income. Operating income was $9,533 for the three months ended
December 31, 1997, an increase of $3,176, or 50.0%, from the quarter ended
December 31, 1996. As a percentage of net sales, operating income increased
from 16.8% for the quarter ended December 31, 1996 to 20.8% for the three
months ended December 31, 1997. The improvement in operating income was
achieved for the reasons discussed above.
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 (the "Senior Subordinated
Notes") and entered into a credit agreement providing for term loans of
$45.0 million and a revolving credit facility of up to $50.0 million, as
amended (the "Senior Bank Facility"). On July 1, 1997, the Company issued an
additional $45.0 million principal amount of Senior Subordinated Notes and
used the proceeds of $47.6 million to pay the term loans, the accrued interest
thereon and related fees and expenses.
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 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, 1997 and December 31, 1996, capital
expenditures were $1,128 and $911, respectively. The $217 increase in capital
expenditures was primarily the result of planned enhancements to certain
equipment in the manufacturing area.
The Company's principal source of cash to fund its liquidity needs will be net
cash from operating activities and borrowings under its revolving credit
facility. Net cash from operating activities for the three months ended
December 31, 1997 was $2,798, a decrease of $6,055 from $8,853 for the three
months ended December 31, 1996. The decrease in net cash from operating
activities was primarily a result of a decrease in net income and interest
payments made in October 1997 on the Company's outstanding indebtedness.
The Company believes that cash generated from operations and existing revolving
lines of credit under the Senior Bank Facility will be sufficient to meet its
normal operating requirements, including interest payments on the Company's
outstanding indebtedness.
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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 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 December 31, 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: February 13, 1998 /s/ Gary LaChey
------------------------------------------------
Gary LaChey
Vice President-Finance, Secretary & Treasurer
(Principal Financial Officer)
NEENAH TRANSPORT, INC.
DATE: February 13, 1998 /s/ Gary LaChey
------------------------------------------------
Gary LaChey
Vice President-Finance, Secretary & Treasurer
(Principal Financial Officer)
HARTLEY CONTROLS CORPORATION
DATE: February 13, 1998 /s/ Gary LaChey
------------------------------------------------
Gary LaChey
Vice President-Finance, Secretary & Treasurer
(Principal Financial Officer)
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EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule
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<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF NEENAH FOUNDRY COMPANY AS OF AND
FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001040599
<NAME> NEENAH FOUNDRY COMPANY
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 21,994
<SECURITIES> 0
<RECEIVABLES> 22,636
<ALLOWANCES> 410
<INVENTORY> 18,286
<CURRENT-ASSETS> 64,853
<PP&E> 104,841
<DEPRECIATION> 5,118
<TOTAL-ASSETS> 318,761
<CURRENT-LIABILITIES> 21,101
<BONDS> 197,457
0
0
<COMMON> 100
<OTHER-SE> 48,525
<TOTAL-LIABILITY-AND-EQUITY> 318,761
<SALES> 45,854
<TOTAL-REVENUES> 45,854
<CGS> 32,771
<TOTAL-COSTS> 32,771
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6,759)
<INCOME-PRETAX> 2,774
<INCOME-TAX> 1,369
<INCOME-CONTINUING> 1,405
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,405
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
