<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO.1 TO CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: November 6, 1998
NEENAH FOUNDRY COMPANY
(Exact name of registrant as it appears in its charter)
Wisconsin 333-28751 39-1580331
(State or other (Commission File Number) (IRS Employer ID Number)
jurisdiction of
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 or former address
if changed since last report)
<PAGE> 2
Neenah Foundry Company (the "Company) hereby amends Item 7 of the Company's Form
8-K dated September 21, 1998 reporting the Company's acquisition of all of the
issued and outstanding stock of Dalton Corporation ("Dalton") to include the
requisite financial statements of Dalton and pro forma financial statements. The
complete text of Item 7 as amended is as follows:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired
The financial statements of Dalton are included as follows:
- As of January 3, 1998 and for the year ended January 3, 1998
- Report of Independent Accountants
- Consolidated Balance Sheet
- Consolidated Statement of Income
- Consolidated Statement of Stockholders' Equity
- Consolidated Statement of Cash Flows
- Notes to Consolidated Financial Statements
- As of July 4, 1998 and January 3, 1998 and for the six month periods
ended July 4, 1998 and June 28, 1997
- Condensed Consolidated Balance Sheets
- Condensed Consolidated Statements of Income
- Condensed Consolidated Statements of Cash Flows
- Notes to Condensed Consolidated Financial Statements
(b) Pro Forma Financial Information
Pro forma financial statements of the Company are included as follows:
- Pro Forma Consolidated Financial Statements
- Pro Forma Consolidated Balance Sheet as of June 30, 1998 and related
notes
- Pro Forma Consolidated Statement of Income for the year ended
September 30, 1997 and related notes
- Pro Forma Consolidated Statement of Income for the nine months ended
June 30, 1998 and related notes
(c) Exhibits
2.1 Stock Purchase Agreement for the acquisition of Dalton dated as of
August 7, 1998 by and among Neenah Foundry Company, Dalton
Corporation and the Dalton Corporation Employee Stock Ownership
Plan and Trust.*
10.1 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 Chase Manhattan Bank as Administrative Agent,
Chase Securities Inc. as Arranger and the other Lenders from time
to time party thereto.*
* Previously filed
<PAGE> 3
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On September 8, 1998, Neenah Foundry Company (the "Company") completed its
acquisition of Dalton Corporation, an Indiana Corporation, and its subsidiaries
Dalton Corporation, Warsaw Manufacturing Facility, an Indiana corporation,
Dalton Corporation, Kendallville Manufacturing Facility, an Indiana corporation,
Dalton Corporation, Ashland Manufacturing Facility, an Ohio corporation, and
Dalton Corporation, Stryker Machining Facility Co., an Ohio corporation
(collectively referred to herein as "Dalton"). Pursuant to the transaction, the
Company purchased 100% of the capital stock of Dalton Corporation from the
Dalton Corporation Employee Stock Ownership Plan & Trust for aggregate
consideration of $102.6 million in cash. The acquisition of Dalton was financed
through drawings under the Tranche A term loan facility, an additional Tranche B
term loan facility and a Multi-Draw Acquisition Revolver under the Company's
Amended and Restated Credit Agreement, dated as of April 30, 1997, as amended as
of September 12, 1997, as of April 3, 1998 and as of September 8, 1998, by and
among the Company, the Chase Manhattan Bank and other Lenders party thereto (the
"Credit Agreement"). The Credit Agreement was amended in connection with the
acquisition of Dalton to create an additional $70.0 million Tranche B term loan
facility and a $50.0 million Multi-Draw Acquisition Revolver in addition to the
Company's existing $50.0 million revolving loan facility and term loan facility.
Dalton manufactures and sells gray iron castings, primarily to the
refrigeration, air conditioning, automotive/truck and heavy equipment
industries. Dalton will operate as a wholly owned subsidiary of the Company out
of four facilities in Warsaw, Indiana, Kendallville, Indiana, Ashland, Ohio, and
Stryker, Ohio and will continue to operate under its current management team.
As a consequence of this acquisition, the Company acquired certain real property
and leasehold interests described below as well as the related plant and
equipment assets of Dalton. In addition to the properties listed below, Dalton
currently leases nine (9) properties which are used for warehouse space, sales
offices, aircraft hangar space and concrete loading areas. The Company currently
has no plans to alter the existing usage of these properties.
<TABLE>
<CAPTION>
Location Us Owned or Leased Approximate Area
- ---------------------------- --------------------------------- --------------------- ------------------------
<S> <C> <C> <C>
1900 East Jefferson Street Manufacturing facilities, Owned 315,589 square feet
Warsaw, IN 46580 warehousing and office space
1681 Orange Road Manufacturing facilities, Owned 83,681 square feet
Ashland, OH 44805 warehousing and office space
200 West Ohio Street Manufacturing facilities, Owned 238,193 square feet
Kendallville, IN 46755 warehousing and office space
310 Ellis Street Manufacturing, machining and Owned 31,690 square feet
Stryker, OH 43557 office space
</TABLE>
ITEM 5. OTHER EVENTS.
On September 8, 1998, the Company acquired 100% of the capital stock of Advanced
Cast Products, Inc., a Delaware corporation ("ACP"), pursuant to a capital
contribution from its indirect parent, ACP Holding Company. In connection with
the transaction, the Company repaid certain outstanding indebtedness of ACP
through advances under Tranche A of the Company's Amended and Restated Credit
Agreement dated as of April 30, 1997, as amended as of September 12, 1997 and
April 3, 1998. ACP is a ductile iron foundry specializing in iron castings for
the railroad, automotive/truck and heavy equipment markets. ACP operates out of
3 principal facilities in Meadville, Pennsylvania, Ironton, Ohio and Easton,
Massachusetts and will be operated as a wholly owned subsidiary of the Company
under the direction of the Company's management. Based on the provisions of
Regulation S-X Rule 3-05(b)(2) and the definition of "significant subsidiary"
contained in Rule 1-02(w), ACP is not deemed to be a significant subsidiary.
<PAGE> 4
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired
DALTON CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 3, 1998
<PAGE> 5
REPORT OF INDEPENDENT ACCOUNTANTS
March 6, 1998, except as to
Note 12, which is as of September 8, 1998
To the Stockholders and
Board of Directors of
Dalton Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Dalton
Corporation (formerly known as The Dalton Foundries, Inc.) and its subsidiaries
at January 3, 1998, and the results of their operations and their cash flows for
the year in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Indianapolis, Indiana
<PAGE> 6
DALTON CORPORATION
CONSOLIDATED BALANCE SHEET
================================================================================
<TABLE>
<CAPTION>
JANUARY 3,
1998
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 184,097
Accounts receivable, trade, net of allowance for
doubtful accounts of $150,000 (Note 6) 19,907,606
Income taxes receivable (Notes 1 and 7) 219,361
Inventories (Notes 1, 3 and 6) 13,065,647
Prepaid expenses and other assets 2,031,280
Current deferred taxes (Notes 1 and 7) 922,238
------------
Total current assets 36,330,229
------------
Property, plant and equipment, net (Notes 1, 4 and 6) 34,637,663
Cash value of life insurance 1,759,410
Other assets 1,473,183
------------
Total assets $ 74,200,485
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations
and notes payable (Notes 6 and 12) $ 202,847
Trade accounts payable 9,742,858
Salaries and wages 3,481,816
Group medical insurance 931,900
Taxes, other than income taxes 605,757
Retirement benefits and deferred compensation (Note 8) 818,103
Accrued ESOP contribution (Note 8) 1,006,568
Other 804,197
------------
Total current liabilities 17,594,044
------------
Long-term obligations and notes payable (Notes 6 and 12) 41,238,089
Long-term retirement benefits and deferred compensation (Note 8) 2,752,499
Long-term deferred income taxes (Notes 1 and 7) 1,362,753
Commitments and contingencies (Notes 11 and 12)
Stockholders' equity:
Common stock - no par value, 8,750,000 shares
authorized, 4,801,750 shares issued (Notes 11 and 12) 350,000
Paid in capital 11,384,837
Retained earnings 38,211,260
Treasury stock, 2,430,407 shares at cost (Note 11) (38,445,695)
Minimum pension liability adjustment, net of tax (Note 8) (247,302)
------------
Total stockholders' equity 11,253,100
------------
Total liabilities and stockholders' equity $ 74,200,485
============
</TABLE>
The accompanying notes are an integral part of this statement.
2
<PAGE> 7
DALTON CORPORATION
CONSOLIDATED STATEMENT OF INCOME
================================================================================
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
JANUARY 3,
1998
<S> <C>
Net sales $ 172,107,096
Cost of goods sold 158,906,460
-------------
Gross profit 13,200,636
-------------
Expenses:
Selling 2,745,837
General and administrative 3,986,329
-------------
Operating profit 6,468,470
Other income (expense):
Interest expense (2,958,124)
Other (expense), net (196,281)
-------------
Pretax income from operations 3,314,065
Provision for income taxes 1,017,480
-------------
Net income $ 2,296,585
=============
NET INCOME PER SHARE - BASIC AND DILUTED $ 0.85
=============
</TABLE>
The accompanying notes are an integral part of this statement.
3
<PAGE> 8
DALTON CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
NUMBER OF SHARES
-----------------------
COMMON
STOCK TREASURY COMMON PAID IN RETAINED TREASURY
OUTSTANDING STOCK STOCK CAPITAL EARNINGS STOCK
<S> <C> <C> <C> <C> <C> <C>
December 28, 1996 2,912,177 1,889,573 $ 350,000 $ 11,384,837 $ 36,449,277 $(22,723,640)
Net income 2,296,585
Purchase of treasury
stock (540,834) 540,834 (15,722,055)
Cash dividends of $.20 per share (534,602)
Change in minimum pension
liability adjustment --------- --------- --------- ------------ ------------ ------------
January 3, 1998 2,371,343 2,430,407 $ 350,000 $ 11,384,837 $ 38,211,260 $(38,445,695)
========= ========= ========= ============ ============ ============
<CAPTION>
MINIMUM TOTAL
PENSION STOCK-
LIABILITY HOLDERS'
ADJUSTMENT EQUITY
<S> <C> <C>
December 28, 1996 $ (470,093) $ 24,990,381
Net income 2,296,585
Purchase of treasury
stock (15,722,055)
Cash dividends of $.20 per share (534,602)
Change in minimum pension
liability adjustment 222,791 222,791
------------ ------------
January 3, 1998 $ (247,302) $ 11,253,100
============ ============
</TABLE>
The accompanying notes are a integral part of this statement.
<PAGE> 9
DALTON CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
JANUARY 3,
1998
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 2,296,585
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 6,659,295
Loss on disposal of property, plant and equipment 191,091
Change in, excluding effects of Stryker acquisition:
Accounts receivable, trade and other 2,989,447
Inventories 571,246
Accounts payable, trade and accrued liabilities 1,055,552
Deferred taxes (339,224)
Other (1,138,550)
-------------
Total adjustments 9,988,857
-------------
Net cash provided by operating activities 12,285,442
-------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment, excluding
effects of Stryker acquisition (6,706,277)
Proceeds from sale of property, plant and equipment 5,919
Acquisition of Stryker, net of cash assumed (200,000)
-------------
Net cash used in investing activities (6,900,358)
-------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowing under revolving loan (131,000)
Borrowing of long-term debt 11,019,293
Dividends paid (534,602)
Purchase of treasury stock (15,722,055)
-------------
Net cash used in financing activities (5,368,364)
-------------
Increase in cash and cash equivalents 16,720
Cash and cash equivalents at beginning of period 167,377
-------------
Cash and cash equivalents at end of period $ 184,097
=============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 2,985,453
Cash paid for income taxes $ 1,192,614
</TABLE>
The accompanying notes are an integral part of this statement.
5
<PAGE> 10
DALTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION ... The consolidated financial statements include
the accounts of Dalton Corporation (formerly known as The Dalton
Foundries, Inc., the Company or Dalton) and its wholly-owned
subsidiaries, Warsaw Manufacturing Facility (Warsaw), Kendallville
Manufacturing Facility (formerly known as Newnam Manufacturing, Inc.,
Kendallville), Ashland Manufacturing Facility (formerly known as
Ashland Castings Corporation, Ashland) and Stryker Machining Facility
(formerly known as Economy North, Stryker - see Note 5). All
intercompany accounts and transactions have been eliminated.
Prior to January 2, 1998, the Company was majority owned by an employee
stock ownership plan (ESOP, see Note 8), with 4.8% of the shares held
outside of the ESOP, primarily by certain key executives and officers
of the Company. Effective January 2, 1998, the Company repurchased all
shares held outside of the ESOP at the market value of the Company's
stock as of December 28, 1996 (Note 8), for a total purchase price of
$3,492,935. As a result, effective January 3, 1998 the Company is 100%
owned by the ESOP.
DESCRIPTION OF BUSINESS ... The Company manufactures and sells grey
iron castings, primarily to the refrigeration, heavy equipment and
automotive industries. The Company operates foundries in Warsaw and
Kendallville, Indiana and Ashland, Ohio and a machining facility in
Stryker, Ohio. The Company has no foreign operations and direct export
sales are not significant.
USE OF ESTIMATES ... The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FISCAL YEAR ... The Company's fiscal year ends on the Saturday nearest
December 31. The fiscal year ended January 3, 1998 includes 53 weeks.
CASH FLOWS ... For purposes of the Statement of Cash Flows, the Company
considers all highly liquid instruments with a maturity of three months
or less at date of purchase to be cash and cash equivalents.
INVENTORIES ... Inventories are stated at the lower of cost or market.
Cost is determined using the last-in, first-out (LIFO) method for
approximately 67% of the Company's inventories. Inventories not valued
on LIFO are valued on the first-in, first-out (FIFO) method.
REVENUE RECOGNITION ... Revenues from product sales are recognized at
the time of shipment to the customer.
PROPERTY, PLANT AND EQUIPMENT ... Properties are stated at cost.
Maintenance and minor repairs are expensed as incurred. Depreciation
for financial reporting purposes is determined using the straight-line
method over the estimated useful lives of the assets. The estimated
lives are 7 to 8 years for land improvements, 7 to 20 years for
buildings and improvements, and 2 to 10 years for machinery and
equipment. When property is retired from service or otherwise disposed
of, the cost and related amount of accumulated depreciation are
eliminated from the asset and reserve accounts, with the resulting gain
or loss recognized in income.
6
<PAGE> 11
DALTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INCOME TAXES ... The Company records income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109 "Accounting
for Income Taxes". Deferred income taxes reflect the net tax effects of
temporary differences between the financial reporting carrying values
of assets and liabilities and the income tax carrying amounts.
NET INCOME PER SHARE ... Net income per share is calculated by dividing
net income by the weighted-average number of common shares outstanding
of 2,715,683. There are no potentially dilutive securities.
FAIR VALUE OF FINANCIAL INSTRUMENTS ... The fair value of all financial
instruments where the face value differs from the fair value are
estimated based upon the use of current rates available for similar
financial instruments. If fair value accounting had been used at
January 3, 1998 instead of the historic basis of accounting used in the
financial statements, long-term debt would be reduced from the reported
level by approximately $600,000.
2. ACQUISITION OF ASHLAND MANUFACTURING FACILITY
On July 1, 1995 the net assets of Ashland were acquired by Dalton. At
the time of the acquisition, the fair value of the assets exceeded the
fair value of the liabilities by $1,887,000. The basis of long-term
assets, primarily machinery and equipment, was reduced by this excess.
The purchase agreement requires that Dalton pay the seller, as purchase
price consideration, the lesser of 50% of Ashland's cumulative net
income earned through December 31, 2001 or $7,000,000. Dalton has made
no payments to the seller since the date of acquisition.
This transaction was recorded as a purchase of assets in accordance
with Accounting Principles Board Opinion No. 16 (APB 16), "Business
Combinations". The results of Ashland subsequent to July 1, 1995 have
been included in these financial statements. These results reflect
cumulative net losses of $7,724,338.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JANUARY 3,
1998
<S> <C>
Raw materials and supplies $ 1,651,054
In process and finished goods 8,434,856
Factory supplies 2,979,737
------------
Total inventories $ 13,065,647
============
</TABLE>
If the FIFO method of accounting had been used for all inventories,
inventories would have increased by $1,165,699 at January 3, 1998.
7
<PAGE> 12
DALTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
JANUARY 3,
1998
<S> <C>
Land and improvements $ 1,777,812
Buildings and improvements 10,157,540
Machinery and equipment 59,361,016
-------------
71,296,368
Accumulated depreciation (37,874,273)
-------------
33,422,095
Construction in progress 1,215,568
-------------
Net property, plant and equipment $ 34,637,663
=============
</TABLE>
5. STRYKER MACHINING FACILITY
Prior to January 2, 1997, the Company owned a 50% interest in Stryker.
Stryker machines castings produced by Kendallville and sells the
finished castings primarily within the automotive industry. This
investment was accounted for using the equity method of accounting.
Effective January 2, 1997, the Company purchased from its joint venture
partner the remaining 50% interest in Stryker, for a purchase price of
$1,000,000, $200,000 payable in cash and the balance in the form of an
interest-free installment note payable in equal annual payments over a
five year period. Based upon its non-cash nature, the installment note
payable has not been reflected within the Statement of Cash Flows. The
net present value of the purchase price approximated the book value of
the remaining 50% interest. This transaction was accounted for as a
purchase transaction in accordance with APB 16. The results of Stryker
have been consolidated with the Company subsequent to the purchase of
the remaining 50% ownership interest.
8
<PAGE> 13
DALTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
6. LONG-TERM OBLIGATIONS AND NOTES PAYABLE
Long-term obligations and notes payable consist of the following:
<TABLE>
<CAPTION>
January 3,
1998
<S> <C>
Revolving and reducing line of credit $20,000,000
Revolving line of credit 20,691,000
Capital lease obligations, 10% 2,847
Borrowings against cash value of
Insurance policies, 5% 232,830
Notes payable 514,259
-----------
Total obligations and notes payable 41,440,936
Amounts due within one year (202,847)
-----------
Long-term obligations and notes payable $41,238,089
===========
</TABLE>
The Company negotiated a number of modifications to its two primary
outstanding debt obligations during the course of fiscal 1997. The
commitment under the revolving and reducing line of credit was
increased to $20,000,000, payable in annual installments beginning in
May 1999, with a balloon payment in May 2002. The first annual
installment due in May 1999 is $2,000,000, with annual installments due
in May 2000 and 2001 of $2,670,000. The facility bears interest at a
fixed rate of 8.56% for its entire term, with interest payable monthly.
The commitment under the revolving line of credit was increased to
$25,000,000 during the year. Interest on amounts outstanding under the
facility are charged at a rate which floats with LIBOR and the
Company's Tangible Net Worth Ratio, as defined in the loan agreement,
and is payable monthly. The interest rate approximated 9.465% as of
January 3, 1998. The revolving line of credit expires in May 1999, with
a one-year renewal option if the Company maintains compliance with
terms of the agreement and certain covenants. Amounts available under
the revolving line of credit are also subject to a borrowing base
computation based upon receivable and inventory balances. As of January
3, 1998, the borrowing base computation indicated available borrowings
under the facility of $22,740,000.
Each of the above debt obligations are secured by substantially all of
the assets of the Company, including accounts receivable, inventories
and property, plant and equipment. The obligations are jointly and
severally guaranteed by the Company and all its subsidiaries. The
Company is subject to certain covenants in relation to the above debt
obligations, including the maintenance of a minimum level of Tangible
Net Worth, a maximum ratio of Total Liabilities to Tangible Net Worth,
and a minimum Debt Service ratio as defined in the loan agreements. As
of January 3, 1998, the Company was not in compliance with certain of
these covenants, which could effectively result in the obligations
being callable on demand. See Note 12 for subsequent actions taken by
the lenders with respect to such non-compliance.
The outstanding notes payable of $514,259 at January 3, 1998 represents
the present value of the remaining installments due in relation to the
acquisition of Stryker (Note 5). Annual equal installments are due
under the interest-free note through 2001.
9
<PAGE> 14
DALTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Scheduled payments under the Company's debt agreements as of January 3,
1998 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 202,847
1999 22,841,996
2000 2,833,263
2001 2,670,000
2002 12,660,000
------------
Thereafter $ 41,440,936
============
</TABLE>
7. INCOME TAXES
At January 3, 1998, deferred tax assets consist primarily of temporary
differences associated with accruals such as pensions, deferred
compensation liabilities, self-insurance reserves, employee benefits
and environmental accruals, along with state operating loss
carryforwards at Ashland. Deferred tax liabilities relate to temporary
differences primarily associated with property, plant and equipment due
to accelerated methods of depreciation for tax purposes. Components of
the net deferred tax liability are as follows:
<TABLE>
<CAPTION>
JANUARY 3,
1998
<S> <C>
Deferred tax assets $ 4,045,405
Deferred tax liabilities (3,862,059)
------------
183,346
Valuation allowance (623,861)
------------
Net deferred tax liability $ (440,515)
============
</TABLE>
10
<PAGE> 15
DALTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
A full valuation allowance has been recorded at January 3, 1998
relating to the net state deferred tax assets at Ashland, including
operating loss carryforwards. An operating loss carryforward of
$14,115,000 is available for Ohio State tax purposes, with expiration
dates in 2010 through 2012.
The fiscal 1997 provision for income taxes consists of the following:
<TABLE>
<S> <C>
Current income taxes:
Federal $1,235,179
State 241,486
----------
Total current 1,476,665
Deferred income taxes:
Federal (394,379)
State (64,806)
----------
Total deferred (459,185)
Total provision for income taxes $1,017,480
==========
</TABLE>
A reconciliation of the statutory Federal income tax rate to the
effective income tax rate for fiscal 1997 is as follows:
<TABLE>
<S> <C>
Federal income tax at statutory rate 34.0%
State income tax, net of Federal benefit 3.5
ESOP dividend (5.5)
Other (1.3)
------
Effective income tax rate 30.7%
======
</TABLE>
On March 2, 1998, the Company filed an election to be treated as an
S-Corporation for income tax purposes effective January 4, 1998. As a
result of this election, the Company will no longer be subject to
Federal and state income taxes, other than potential taxes resulting
from the disposal of assets within a ten-year period of the election or
non-income based taxes. With this change in tax status, the deferred
tax accounts and other income tax accounts of the Company will be
adjusted in fiscal 1998 to take into account the new tax status of the
Company, subject to the maintenance of certain tax liabilities
associated with potential taxes due upon the disposition of assets
subsequent to the effective date of the S-Corporation election.
11
<PAGE> 16
DALTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. RETIREMENT BENEFITS AND DEFERRED COMPENSATION
Accrued retirement benefits and deferred compensation consist of the
following:
<TABLE>
<CAPTION>
January 3,
1998
<S> <C>
Defined benefit plan $1,578,197
Supplemental benefits 1,800,826
Defined contribution plans 126,550
Multi-employer plan 45,390
Other 19,639
----------
3,570,602
Amounts to be paid within one year (818,103)
----------
Long-term retirement benefits and
deferred compensation $2,752,499
==========
</TABLE>
DEFINED BENEFIT PLAN...Substantially all of the Company's employees
in the Warsaw bargaining units are covered by a non-contributory
defined benefit pension plan. The plan provides benefits of stated
amounts for each year of service.
The Company's pension expense was determined in accordance with SFAS
No. 87, "Employers' Accounting for Pensions". The discount rate used
was 7.25% as of and for the fiscal year ended January 3, 1998. The
assumed long-term rate of return on assets was 7.50%.
Net pension expense for fiscal 1997 consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Service cost - benefits earned during the period $ 389,411
Interest on projected benefit obligation 501,806
Amortization of transition liability 26,437
Amortization of prior service cost 23,251
Actual return on plan assets (820,660)
Unrecognized net gain 427,313
---------
Net pension expense $ 547,558
=========
</TABLE>
12
<PAGE> 17
DALTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The funded status of the Company's defined benefit pension plan and the
net accrued pension liability recognized in the Company's consolidated
Balance Sheet consists of the following:
<TABLE>
<CAPTION>
JANUARY 3,
1998
<S> <C>
Actuarial present value of benefit obligations:
Vested $ 7,272,722
Nonvested 457,705
-----------
Projected benefit obligation 7,730,427
Plan benefit obligation in excess of plan assets 6,152,230
-----------
Projected benefit obligation in excess of plan assets 1,578,197
Unrecognized prior service cost (209,263)
Unrecognized net liability at January 4, 1997
being recognized over 15 years (105,760)
Unrecognized net gains (380,463)
Recorded additional minimum liability 695,486
-----------
Accrued pension liability $ 1,578,197
===========
</TABLE>
The Company has recognized the amount of the projected benefit
obligation in excess of plan assets as a liability in its financial
statements. An intangible asset of $315,023 was recorded at January 3,
1998, with the remaining $380,463 of the minimum liability recorded as
a reduction of stockholders' equity, net of tax.
SUPPLEMENTAL BENEFITS ... The Company provides supplemental retirement
benefits and death benefits for certain executives. As a method of
funding a portion of the benefits under this plan, the Company
purchased and is the beneficiary of life insurance policies with a cash
value of $1,759,410 and a face value of $3,246,392 at January 3, 1998.
Provisions for these benefits are charged to operations over the
employees' expected terms of employment. Expense of the plan, net of
the increase in cash value of life insurance policies, was $244,431 in
fiscal 1997.
DEFINED CONTRIBUTION PLANS ... The Company maintains defined
contribution plans for substantially all non-union employees and
Ashland union employees. Participants may contribute up to 10% of their
compensation on a pretax basis. The Company may make contributions to
the plans at its discretion. The expense associated with these plans
was $126,550 in fiscal 1997. Warsaw also has a defined contribution
plan for its union employees. Participants may contribute up to 15% of
their compensation on a pretax basis and an additional 10% on a posttax
basis. The Company does not make contributions to the Plan.
MULTI-EMPLOYER PLAN ... Substantially all of Kendallville's hourly
employees are covered by a union-sponsored multi-employer defined
benefit pension plan. As long as the Company remains a participant in
this plan, its obligation is satisfied by its defined contributions.
Information is not available for the union-sponsored plan to permit
Kendallville to determine its share of any unfunded vested benefits.
Contributions to the Plan are established under a collective bargaining
agreement and charges to operations related to this plan totaled
$477,106 in fiscal 1997.
13
<PAGE> 18
DALTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
EMPLOYEE STOCK OWNERSHIP PLAN ... All employees of the Corporate
location and all non-union employees of the Company's Warsaw operation
and Kendallville operation participate in the ESOP. Effective January
1, 1996, all non-union employees of the Ashland operation began
participating in the ESOP. Effective January 1, 1997, all employees of
the Stryker facility also began participating in the ESOP. The amount
of the Company's annual contribution to the ESOP is at the discretion
of the Board of Directors. The total contribution is allocated to
participants based upon participant compensation. There is no
outstanding debt under the ESOP and all shares have been released and
allocated. Historically, the Company has funded its annual ESOP
contribution with Company stock. The market value of the Company's
stock, as determined by an independent appraiser, was $29.07 per share
at December 28, 1996. There has been no updated appraisal of stock
value as of January 3, 1998. During 1997, the Company funded its ESOP
contribution with a cash contribution. The Company's ESOP contribution
for fiscal 1997 was $1,006,568.
9. SIGNIFICANT CUSTOMERS
The Company sells its products primarily to large industrial companies.
During fiscal 1997, two customers individually comprised more than 10%
of sales. one customer comprised 17% of sales, while the other customer
comprised 12% of sales. At January 3, 1998 these two customers and one
additional customer collectively comprised 27% of trade accounts
receivable. The Company generally does not require collateral as a
basis for granting credit.
10. LEASES
The company maintains several operating leases with terms in excess of
one year. Minimum payments are approximately $320,000 in 1998, $200,000
in 1999 and are approximately $100,000 in each of the three years
subsequent to 1999. Lease expense in fiscal 1997 was approximately
$675,000.
11. COMMITMENTS AND CONTINGENCIES
STOCK REPURCHASE OBLIGATION ... When employees leave the company they
are required to put, and the Company is obligated to purchase, all of
their Dalton common shares at an appraised price. The repurchase of
these shares is generally paid in equal annual installments over a five
year period as allowed under the ESOP. The company is obligated to
purchase approximately $23,560,770 of Company stock from employees who
have terminated or retired prior to January 3, 1998. There has been no
appraisal update for the 1997 year-end, therefore, this amount is based
upon the appraised price of the stock as of December 28, 1996, and is
subject to change based upon future appraised values.
Repurchase commitments over the next five years, based upon the
December 28, 1996 stock valuation, are as follows:
1998 $ 6,268,384
1999 $ 6,051,822
2000 $ 6,051,822
2001 $ 3,769,942
2002 $ 1,418,800
See Note 12 for subsequent events impacting the stock repurchase
obligation.
14
<PAGE> 19
DALTON CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
MEDICAL BENEFITS AND WORKERS' COMPENSATION ... The Company is
essentially self-insured with respect to medical benefits and maintains
excess insurance coverage to limit its exposure. The Company is also
self-insured for workers' compensation exposures at the Warsaw
operation and maintains excess insurance coverage limiting its exposure
to no more than $275,000 per accident. The Company pays all Warsaw
claims below the insured level. The Company charges the expected
ultimate costs of self-insured claims to income in the period the
accident or illness occurs. At January 3, 1998 the Company had accrued
$1,391,000 for reported and unreported medical and workers'
compensation claims. Actual costs may be different than this estimate.
ENVIRONMENTAL ... The Company has been identified by the United States
Environmental Protection Agency (EPA) as a Potentially Responsible
Party (PRP) under Superfund legislation because industrial wastes were
allegedly sent to two hazardous waste sites (Wayne Reclamation
Superfund site and Lakeland Superfund site). Dalton has entered into a
consent decree filed with the U.S. District Court for the Wayne
Reclamation Superfund site. All involved parties have accepted the
consent decree, and it is pending approval by the court. Dalton is one
of 16 defendants at the Lakeland Superfund site. Dalton has been
previously dismissed from the PRP list at this site; however, during
1997, the plaintiffs appealed the dismissal previously entered in
Dalton's favor. During February 1998, the Company reached an agreement
with the EPA to settle its obligation for the Lakeland Superfund site.
The amount owed under the terms of the settlement approximates the
accrued amount recorded at January 3, 1998.
The Company is also in the process of closing an on-site surface
impoundment. The amount accrued relative to this closure represents the
estimated total clean up, monitoring and administrative costs
associated with this closure. This project has been substantially
completed as of January 3, 1998. The Company also operates an operating
landfill at which on-going environmental monitoring costs will be
incurred.
Total accruals for environmental liabilities are $150,370 at January 3,
1998.
12. SUBSEQUENT EVENTS
On July 28, 1998, the Company had a fire at the Warsaw operation. There
is no current estimate of damages, however, the Company is fully
insured for property damage subject to a minimal deductible of $25,000.
There were no reported personal injuries and the Company did not suffer
significant business interruption as a result of the fire.
On August 7, 1998, the Company entered into an agreement to sell all
its operations to Neenah Foundry Company (Neenah) for a purchase price
of $102,000,000, less amounts due under outstanding debt agreements and
subject to certain other adjustments. The agreement was subject to
shareholder and regulatory approval, which was received, and the
transaction closed September 8, 1998. With consummation of the
transaction, the ESOP was terminated, pending approval from the
Internal Revenue Service, and all shares were acquired. Furthermore,
certain "change in control" provisions of select benefit agreements may
be activated as a result of the transaction.
Effective August 14, 1998, the Company's primary lenders formally
waived their rights with respect to certain covenant violations to
accelerate payment of amounts outstanding under the bank term loan and
the revolving loan through May 31, 1999, the scheduled expiration date
of the revolving loan agreement. Based upon the waiver of compliance,
the amounts outstanding under these loan agreements were classified as
long-term within the Balance Sheet. With consummation of the sale
transaction to Neenah on September 8, 1998, all outstanding debt
obligations were paid in full from the sale proceeds.
15
<PAGE> 20
DALTON CORPORATION
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JULY 4, 1998
<PAGE> 21
DALTON CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
July 4 January 3
1998 1998(1)
----------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ...................................... $ 226 $ 184
Accounts receivable, net ....................................... 22,526 19,908
Inventories .................................................... 12,634 13,066
Other current assets ........................................... 1,728 2,031
Refundable income taxes ........................................ -- 219
Deferred income taxes .......................................... -- 922
----------- ------------
Total current assets .................................... 37,114 36,330
Property, plant and equipment .................................... 74,850 72,511
Less accumulated depreciation .................................... 41,403 37,873
----------- ------------
33,447 34,638
Other assets...................................................... 3,450 3,232
----------- ------------
$ 74,011 $ 74,200
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................................... $ 10,308 $ 9,743
Accrued liabilities ............................................ 8,553 7,648
Income taxes payable ........................................... 78 --
Current portion of long-term debt .............................. 201 203
----------- ------------
Total current liabilities ............................... 19,140 17,594
Long-term debt ................................................... 36,063 41,238
Long-term retirement benefits and deferred compensation .......... 2,945 2,752
Deferred income taxes ............................................ -- 1,363
----------- ------------
Total liabilities ....................................... 58,148 62,947
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Common stock, no par value
8,750,000 shares authorized,
4,801,750 shares issued ................................... 350 350
Additional paid in capital ....................................... 11,385 11,385
Retained earnings ................................................ 42,821 38,211
Minimum pension liability adjustment, net of tax ................. (247) (247)
Treasury stock, 2,430,407 shares at cost ........................ (38,446) (38,446)
----------- ------------
Total stockholders' equity ................................ 15,863 11,253
----------- ------------
$ 74,011 $ 74,200
=========== ============
</TABLE>
See notes to condensed consolidated financial statements.
(1) The balance sheet as of January 3, 1998 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> 22
DALTON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
July 4, 1998 June 28, 1997
-------------- --------------
<S> <C> <C>
Net sales ..................................................................... $ 100,322 $ 88,035
Cost of sales ................................................................. 91,514 79,302
--------- ---------
Gross profit .................................................................. 8,808 8,733
Selling, general and administrative expenses .................................. 3,663 3,641
--------- ---------
Operating income .............................................................. 5,145 5,092
Net interest expense .......................................................... 1,883 1,300
--------- ---------
Income before income taxes .................................................... 3,262 3,792
Provision (credit) for income taxes ........................................... (1,348) 1,607
--------- ---------
Net income .................................................................... $ 4,610 $ 2,185
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 23
DALTON CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
July 4, 1998 June 28, 1997
-------------- ---------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income ................................................................... $ 4,610 $ 2,185
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ............................................. 3,640 3,314
Changes in operating assets and liabilities ............................... (588) 2,027
------- -------
Net cash provided by operating
activities ........................................................... 7,662 7,526
INVESTING ACTIVITIES
Purchase of property, plant and equipment .................................... (2,473) (6,333)
Other ........................................................................ 30 --
------- -------
Net cash used in investing
activities ........................................................... (2,443) (6,333)
FINANCING ACTIVITIES
Dividends paid ............................................................... -- (275)
Purchase of treasury stock ................................................... -- (8,886)
Proceeds from long-term debt ................................................. -- 8,086
Payments on long-term debt ................................................... (5,177) --
------- -------
Net cash used in financing
activities ........................................................... (5,177) (1,075)
------- -------
Increase in cash and cash equivalents ........................................ 42 118
Cash and cash equivalents at beginning of period ............................. 184 167
------- -------
Cash and cash equivalents at end of period ................................... $ 226 $ 285
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 24
DALTON CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
July 4, 1998 and June 28, 1997
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. 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 six months ended July
4, 1998 and June 28, 1997 are not necessarily indicative of the results that may
be expected for the period ending January 2, 1999 or January 3, 1998. For
further information, refer to the Company's consolidated financial statements
and footnotes thereto for the period ended January 3, 1998.
NOTE 2 -- INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
July 4, January 3,
1998 1998
----------------- -----------------
(000's omitted)
<S> <C> <C>
Raw materials and supplies........................ $ 1,749 $ 1,651
In process and finished goods..................... 7,724 8,435
Factory supplies.................................. 3,161 2,980
------- -------
Total inventories................................. $12,634 $13,066
======= =======
</TABLE>
NOTE 3 -- INCOME TAXES
On March 2, 1998, the Company filed an election to be treated as an
S-Corporation for income tax purposes effective January 4, 1998. As a result of
this election, the Company is no longer subject to Federal and state income
taxes, other than potential taxes resulting from the disposal of assets within a
ten-year period of the election or non-income based taxes. With this change in
tax status, deferred income taxes and other income tax accounts of the Company
have been adjusted to take into account the new tax status of the Company.
<PAGE> 25
(b) Pro Forma Financial Information
NEENAH FOUNDRY COMPANY
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated balance sheet and consolidated
statements of income (collectively, the "Pro Forma Statements") were prepared to
illustrate the estimated effects of the acquisition of Dalton Corporation
(Dalton) on September 8, 1998 and the acquisition of Advanced Cast Products,
Inc. (ACP) on September 8, 1998 by Neenah Foundry Company (the "Company")
(collectively, the "Acquisitions"). The unaudited pro forma consolidated balance
sheet assumes the Acquisitions had occurred on June 30, 1998. The unaudited pro
forma consolidated statements of income assume the Acquisitions were consummated
as of the beginning of the periods presented.
The Pro Forma Statements do not purport to represent what the Company's
financial position or results of operations would actually have been if the
Acquisitions in fact had occurred on the assumed dates or to project the
Company's financial position or results of operations for any future date or
period.
The pro forma adjustments are based upon available information and upon
certain assumptions that the Company believes are reasonable. The Pro Forma
Statements and accompanying notes should be read in conjunction with the
historical consolidated financial statements of the Company and Dalton,
including the notes thereto.
The Dalton Acquisition will be accounted for using the purchase method of
accounting. The total purchase price of approximately $102.6 million will be
allocated to the assets and liabilities of Dalton based upon their respective
fair values, with the remainder allocated to costs in excess of net assets
acquired. Such allocations have been made based upon valuations and other
studies, which may be subject to adjustment. Accordingly, the allocation of the
purchase cost included in the accompanying Pro Forma Statements is preliminary.
The final values may differ from those set forth in the accompanying Pro Forma
Statements. The ACP Acquisition will be accounted for at historical cost in a
manner similar to that in pooling of interest accounting since the Company and
ACP are under common control.
The Company, Dalton and ACP have different fiscal year ends - September 30 for
the Company and ACP and the Saturday nearest December 31 for Dalton. The
unaudited pro forma consolidated statement of income for the year ended
September 30, 1997 includes the results of operations of the Company and ACP for
the twelve month period ended September 30, 1997 and the results of operations
of Dalton for the twelve month period ended January 3, 1998. The unaudited
proforma consolidated statement of income for the nine months ended June 30,
1998 includes the results of operations of the Company and ACP for the nine
months ended June 30, 1998 and of Dalton for the nine months ended July 4, 1998.
Statement of income information of Dalton for the months of October, November
and December, 1997 are included in both the annual and the interim proforma
consolidated statements of income.
<PAGE> 26
NEENAH FOUNDRY COMPANY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1998
(In thousands)
<TABLE>
<CAPTION>
Historical
----------------------------------
Neenah Pro Forma
Foundry Dalton ACP Adjustments Pro Forma
---------- ---------- ---------- ------------- ----------
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents ........................... $ 9,741 $ 226 $ -- $ 81 (a) $ 10,048
Accounts receivable, net ............................ 38,333 22,526 7,747 -- 68,606
Inventories ......................................... 26,686 12,634 2,496 1,268 (b) 43,084
Other current assets ................................ 2,936 1,728 281 -- 4,945
Prepaid income taxes ................................ 1,155 -- 438 -- 1,593
Deferred income taxes ............................... 1,710 -- -- 2,425 (b) 4,135
---------- ---------- ---------- ------------- ----------
Total current assets ......................... 80,561 37,114 10,962 3,774 132,411
Property, plant and equipment ......................... 138,116 74,850 17,783 (38,623)(b) 192,126
Less accumulated depreciation ......................... 9,820 41,403 4,533 (41,403)(b) 14,353
---------- ---------- ---------- ------------- ----------
128,296 33,447 13,250 2,780 177,773
Identifiable intangible assets, net 41,951 -- -- 27,919 (b) 69,870
Goodwill, net ......................................... 147,487 -- 6,254 30,185 (b) 183,926
Other assets .......................................... 3,756 3,450 784 3,279 (a)
(315)(b)
1,697 (c)
(652)(d) 11,999
---------- ---------- ---------- ------------- ----------
$ 402,051 $ 74,011 $ 31,250 $ 68,667 $ 575,979
========== ========== ========== ============= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................................... $ 14,558 $ 10,308 $ 3,853 -- $ 28,719
Income taxes payable ................................ -- 78 -- -- 78
Accrued liabilities ................................. 15,601 8,553 2,856 769 (b) 27,779
Current portion of long-term debt ................... 827 201 1,746 (1,947)(a)
2,250 (a) 3,077
---------- ---------- ---------- ------------- ----------
Total current liabilities .................... 30,986 19,140 8,455 1,072 59,653
(48,400)(a)
Long-term debt ........................................ 251,715 36,063 12,337 116,750 (a) 368,465
Postretirement benefit obligations .................... 5,137 -- -- -- 5,137
Deferred income taxes ................................. 54,592 -- 2,405 12,868 (b) 69,865
Other liabilities ..................................... 2,151 2,945 -- 2,892 (b) 7,988
---------- ---------- ---------- ------------- ----------
Total liabilities ............................ 344,581 58,148 23,197 85,182 511,108
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 ................. 100 350 4,254 (350)(b)
(4,254)(e) 100
Additional paid in capital ............................ 48,750 11,385 2,265 (11,385)(b)
4,254 (e) 55,269
Retained earnings ..................................... 8,620 42,821 1,534 (42,821)(b)
(652)(d) 9,502
Treasury stock ........................................ -- (38,446) -- 38,446 (b) --
Minimum pension liability adjustment, net of tax ...... -- (247) -- 247 (b) --
---------- ---------- ---------- ------------- ----------
Total stockholders' equity ..................... 57,470 15,863 8,053 (16,515) 64,871
---------- ---------- ---------- ------------- ----------
$ 402,051 $ 74,011 $ 31,250 $ 68,667 $ 575,979
========== ========== ========== ============= ==========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet.
<PAGE> 27
NEENAH FOUNDRY COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<TABLE>
<CAPTION>
(a) Adjustment to reflect the net effect on cash of the Dalton and ACP
Acquisitions, as follows:
<S> <C>
Proceeds from Tranche A Term Loan $ 20,000
Proceeds from Tranche B Term Loan 70,000
Proceeds from Multi-Draw Acquisition Revolver 29,000
Less deferred financing cost (1,697)
---------
117,303
Purchase price:
Acquisition of Dalton common stock $ (62,995)
Fees and expenses incurred in connection with
the Dalton Acquisition (601)
Satisfaction of Dalton outstanding indebtedness (including
$2,749 borrowed subsequent to June 30, 1998) (39,013)
Satisfaction of ACP outstanding indebtedness (including
$530 borrowed subsequent to June 30, 1998) (14,613)
---------
(117,222)
---------
$ 81
=========
(b) Adjustment to reflect the allocation of the $63,596 purchase cost of Dalton:
Net assets acquired at historical cost $ 15,863
Fair value adjustments(1):
Eliminate LIFO reserve 973
Inventory step-up 295
Write-up property, plant, and equipment(2) 2,780
Record intangible assets(3) 27,919
Adjustment to pension liability (1,092)
Deferred compensation (2,935)
Other 51
Record deferred income taxes associated with the
valuation of Dalton assets and liabilities (10,443)
Cost in excess of net assets acquired- goodwill(4) 30,185
---------
$ 63,596
=========
</TABLE>
____________________
(1) For all other recorded assets and liabilities of Dalton, the historical book
values were estimated to approximate their fair values at the balance sheet
date.
(2) The fair value of property, plant and equipment was based on an outside
appraisal completed in connection with the acquisition. The write-up has
been allocated to the fixed asset categories as shown below. The remaining
economic useful lives used in depreciating the new basis of the depreciable
fixed assets are also indicated:
<TABLE>
<CAPTION>
Remaining Economic
Allocated excess Useful Life
--------------------- -------------------
<S> <C> <C>
Land $ 183 n/a
Buildings and improvements (781) 10 to 35 years
Machinery and equipment 3,378 5 to 15 years
</TABLE>
<PAGE> 28
(3) The fair value of intangible assets was based on an outside valuation
completed in connection with the Dalton Acquisition For purposes of the
proforma financial information, the valuation of the intangible assets and
amortization periods are shown below:
<TABLE>
<CAPTION>
Amortization
Fair Value Period
------------------ --------------
<S> <C> <C>
Assembled workforce $ 5,522 5 years
Customer list 12,341 10 years
Backlog 1,239 4 months
Trade name 5,053 40 years
Facilities in place 3,764 40 years
</TABLE>
(4) An amortization period of 40 years will be used for goodwill because the
period expected to be benefited exceeds 40 years.
____________________
(c) Adjustment to record the transaction costs of $1,697 (made up of financing
costs). For purposes of the proforma consolidated balance sheet, the amount
is shown as part of other assets and amortized over 5 years, the life of the
Term Loan.
(d) Adjustment to write off deferred financing costs related to outstanding
indebtedness of ACP which was satisfied in connection with the ACP
Acquisition.
(e) Adjustment to account for the merger with ACP.
<PAGE> 29
NEENAH FOUNDRY COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
Year Ended September 30, 1997
(In thousands)
<TABLE>
<CAPTION>
Historical
------------------------------------
Neenah Foundry Dalton ACP
--------------------- ---------------- -------------------
Year Ended Year Ended Year Ended Pro Forma
September 30, 1997(1) January 3, 1998 September 30, 1997 Adjustments
--------------------- ---------------- ------------------- ------------
<S> <C> <C> <C> <C>
Net sales ...................................... $ 237,572 $ 172,107 $ 46,899 $ --
Cost of sales .................................. 168,644 158,906 38,204 312 (a)
--------------- ------------- ------------ -----------
Gross profit ................................... 68,928 13,201 8,695 (312)
Selling, general and administrative expenses ... 24,670 6,929 4,092 --
Amortization of intangible assets .............. 8,949 -- 533 3,797 (a)
755 (a)
--------------- ------------- ------------ -----------
Total operating expenses ..................... 33,619 6,929 4,625 4,552
--------------- ------------- ------------ -----------
Operating income ............................... 35,309 6,272 4,070 (4,864)
Net interest income (expense) .................. (25,666) (2,958) (2,604) (4,547)(b)
--------------- ------------- ------------ -----------
Income before income taxes ..................... 9,643 3,314 1,466 (9,411)
Provision for income taxes ..................... 5,069 1,017 737 (3,463)(c)
--------------- ------------- ------------ -----------
Net income ..................................... $ 4,574 $ 2,297 $ 729 $ (5,948)
=============== ============= ============ ===========
<CAPTION>
Pro Forma
---------------------
<S> <C>
Net sales ...................................... $ 456,578
Cost of sales .................................. 366,066
---------------
Gross profit ................................... 90,512
Selling, general and administrative expenses ... 35,691
Amortization of intangible assets ..............
14,034
---------------
Total operating expenses ..................... 49,725
---------------
Operating income ............................... 40,787
Net interest income (expense) .................. (35,775)
---------------
Income before income taxes ..................... 5,012
Provision for income taxes ..................... 3,360
---------------
Net income ..................................... $ 1,652
===============
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statements of Income.
(1) Pro Forma Balances from Form 8-K/A dated November 5, 1998
<PAGE> 30
NEENAH FOUNDRY COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
Year Ended September 30, 1997
(Dollars in thousands)
(a) The pro forma adjustments to cost of sales, selling, general and
administrative expenses and amortization of intangible assets are comprised
of the following:
<TABLE>
<CAPTION>
Proforma
Historical Proforma Adjustment
---------------- -------------- ------------
Depreciation of property, plant and
equipment :
<S> <C> <C> <C>
Cost of sales $ 17,154 $ 17,466 $ 312
Selling, general and administrative 2,086 2,086 -
Amortization of identifiable intangible
assets 6,793 10,590 3,797
Amortization of goodwill 2,689 3,444 755
</TABLE>
(b) Adjustment to record interest expense and amortization of deferred financing
costs on the debt incurred to finance the Acquisitions, calculated as
follows:
<TABLE>
<S> <C>
Tranche A Term Loan ($20,000 @ 8.0625%) $ 1,613
Tranche B Term Loan ($70,000 @ 8.3125%) 5,819
Multi-Draw Acquisition Revolver ($29,000 @ 8.0625%) 2,338
Amortization of deferred financing costs (over 5 years) 339
Reduction in interest expense related to indebtedness satisfied
in connection with the Acquisitions (5,562)
--------
$ 4,547
========
</TABLE>
(c) Adjustment to record the tax effect on the above adjustments using the
marginal effective income tax rate of 40%. All adjustments were tax-effected
except for goodwill amortization.
<PAGE> 31
NEENAH FOUNDRY COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
Nine Months Ended June 30, 1998
(In thousands)
<TABLE>
<CAPTION>
Historical for Periods
Historical Prior to Acquisition(2)
---------------- ---------------------------------
Neenah Foundry Mercer Deeter
---------------- -------------- --------------
Nine Months Six Months Six Months
Ended Ended Ended
June 30, 1998 March 31, 1998 March 31, 1998
---------------- -------------- --------------
<S> <C> <C> <C>
Net sales ............................................... $ 160,441 $ 27,529 $ 5,916
Cost of sales ........................................... 113,259 20,632 3,407
---------------- -------------- --------------
Gross profit ............................................ 47,182 6,897 2,509
Selling, general and administrative expenses ............ 13,023 1,812 4,111
Amortization of intangible assets ....................... 4,467 41 --
---------------- -------------- --------------
Total operating expenses .............................. 17,490 1,853 4,111
---------------- -------------- --------------
Operating income ........................................ 29,692 5,044 (1,602)
Net interest income (expense) ........................... (17,512) (485) (196)
---------------- -------------- --------------
Income before income taxes .............................. 12,180 4,559 (1,798)
Provision for income taxes .............................. 5,780 1,436 --
---------------- -------------- --------------
Net income .............................................. $ 6,400 $ 3,123 $ (1,798)
================ ============== ==============
<CAPTION>
Historical
-----------------------------------
Dalton ACP
---------------- --------------
Nine Months Nine Months
Ended Ended Pro Forma
July 4, 1998 June 30, 1998 Adjustments Pro Forma
---------------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
Net sales ............................................... $ 144,962 $ 40,981 $ -- $ 379,829
Cost of sales ........................................... 133,712 33,350 1,181 (a) 305,541
---------------- -------------- ------------ -----------
Gross profit ............................................ 11,250 7,631 (1,181) 74,288
Selling, general and administrative expenses ............ 5,231 3,510 (778)(a)
105 (a) 27,014
Amortization of intangible assets ....................... -- 528 4,564 (a)
1,027 (a) 10,627
---------------- -------------- ------------ -----------
Total operating expenses .............................. 5,231 4,038 4,918 37,641
---------------- -------------- ------------ -----------
Operating income ........................................ 6,019 3,593 (6,099) 36,647
Net interest income (expense) ........................... (2,691) (1,723) (4,866)(b) (27,473)
---------------- -------------- ------------ -----------
Income before income taxes .............................. 3,328 1,870 (10,965) 9,174
Provision for income taxes .............................. (1,328) 751 (3,975)(c)
2,659 (d) 5,323
---------------- -------------- ------------ -----------
Net income .............................................. $ 4,656 $ 1,119 $ (9,649) $ 3,851
================ ============== ============ ===========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statements of Income.
(2) Mercer Forge Corporation (Mercer) was acquired on April 3, 1998 in a
transaction accounted for as a purchase. Deeter Foundry, Inc. (Deeter) was
acquired on March 30, 1998 in a transaction accounted for as a purchase.
<PAGE> 32
NEENAH FOUNDRY COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
Nine Months Ended June 30, 1998
(Dollars in thousands)
(a) The pro forma adjustments to cost of sales, selling, general and
administrative expenses and amortization of intangible assets are comprised
of the following:
<TABLE>
<CAPTION>
Proforma
Historical Proforma Adjustment
----------------- ---------------- ---------------
Depreciation of property, plant and equipment:
<S> <C> <C> <C>
Cost of sales:
Per the Form 8-K/A dated November 5, 1998 $ 3,888 $ 4,835 $ 947
Dalton Acquisition 8,358 8,592 234
--------------- -------------- -------------
Total 12,246 13,427 1,181
Selling, general and administrative:
Per the Form 8-K/A dated November 5, 1998 1,245 1,350 105
Amortization of identifiable intangible assets:
Per the Form 8-K/A dated November 5, 1998 1,515 2,920 1,405
Dalton Acquisition 1,366 4,525 3,159
--------------- -------------- -------------
Total 2,881 7,445 4,564
Amortization of goodwill:
Per the Form 8-K/A dated November 5, 1998 985 1,446 461
Dalton Acquisition 1,170 1,736 566
--------------- -------------- -------------
Total 2,155 3,182 1,027
Elimination of certain non-recurring expenses
incurred by Deeter prior to acquisition:
Per the Form 8-K/A dated November 5, 1998 - (778) (778)
</TABLE>
(b) Adjustment to record interest expense and amortization of deferred financing
costs on the debt incurred to finance the Acquisitions, calculated as
follows:
<TABLE>
<CAPTION>
Per the Form 8-K/A dated November 5, 1998:
<S> <C>
Tranche B Term Loan ($55,000 @ 8.25%) $ 2,269
Amortization of deferred financing costs (over 5 years) 110
Dalton Acquisition:
Tranche A Term Loan ($20,000 @ 8.0625%) 1,209
Tranche B Term Loan ($70,000 @ 8.3125%) 4,364
Multi-Draw Acquisition Revolver ($29,000 @ 8.0625%) 1,754
Amortization of deferred financing costs (over 5 years) 255
Reduction in interest expense related to indebtedness satisfied
in connection with the Acquisitions (5,095)
--------------
$ 4,866
==============
(c) Adjustment to record the tax effect on the above adjustments using the
marginal effective income tax rate of 40%. All adjustments were tax-effected
except for goodwill amortization.
(d) Adjustment to record the tax effect of Dalton as a C-Corporation.
</TABLE>
<PAGE> 33
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned hereunto duly authorized.
NEENAH FOUNDRY COMPANY
DATE: November 6, 1998 /s/ Gary LaChey
-----------------------------------------------
Gary LaChey
Vice President-Finance, Secretary & Treasurer
(Principal Financial Officer and Duly
Authorized Officer)
