<PAGE> 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
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NEENAH FOUNDRY COMPANY
Form 10-Q Index
For the Quarter Ended June 30, 1997
<TABLE>
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Page
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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
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NEENAH FOUNDRY COMPANY
Part I. Financial Information
Condensed Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
Predecessor
June 30 March 31
1997 1997
---- ----
(Unaudited) (Note)
ASSETS
<S> <C> <C>
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
======== =========
</TABLE>
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.
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NEENAH FOUNDRY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Predecessor
------------------------------
Three Months One Month Two Months
Ended Ended Ended
June 30, 1996 April 30, 1997 June 30, 1997
------------- -------------- -------------
<S> <C> <C> <C>
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
======= ======= ========
</TABLE>
See notes to condensed consolidated financial statements.
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NEENAH FOUNDRY COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Predecessor
-----------------------
Three Months One Month Two Months
Ended Ended Ended
June 30, 1996 April 30, 1997 June 30, 1997
------------- -------------- -------------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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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:
<TABLE>
<CAPTION>
June 30 March 31
1997 1997
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(000's omitted)
<S> <C> <C>
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
======= ========
</TABLE>
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.
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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.
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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.
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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)
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF NEENAH FOUNDRY COMPANY AS OF AND
FOR THE TWO MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> MAY-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 18,691
<SECURITIES> 0
<RECEIVABLES> 28,185
<ALLOWANCES> 430
<INVENTORY> 22,400
<CURRENT-ASSETS> 68,846
<PP&E> 102,102
<DEPRECIATION> 1,092
<TOTAL-ASSETS> 331,346
<CURRENT-LIABILITIES> 37,328
<BONDS> 195,116
0
0
<COMMON> 100
<OTHER-SE> 46,670
<TOTAL-LIABILITY-AND-EQUITY> 331,346
<SALES> 34,367
<TOTAL-REVENUES> 34,367
<CGS> 24,094
<TOTAL-COSTS> 24,094
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (3,241)
<INCOME-PRETAX> 2,903
<INCOME-TAX> 1,133
<INCOME-CONTINUING> 1,770
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,770
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
