<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: June 12, 1998
NEENAH FOUNDRY COMPANY
(Exact name of registrant as it appears in its charter)
Wisconsin 333-28751 39-1580331
(State or other jurisdiction (Commission File (IRS Employer ID Number)
of incorporation or organization) Number)
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 April 14, 1998 reporting the Company's acquisition of all of the
issued and outstanding stock of Mercer Forge Corporation ("Mercer") to include
the requisite financial statements of Mercer and pro forma financial statements.
The complete text of Item 7 as amended is as follows:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
The financial statements of Mercer are included as follows:
- As of November 30, 1997 and 1996 and for the years ended
November 30, 1997 and 1996
- Independent Auditors' Report
- Consolidated Balance Sheets
- Consolidated Statements of Income
- Consolidated Statements of Stockholder's Equity
- Consolidated Statements of Cash Flows
- Notes to Consolidated Financial Statements
(b) Pro Forma Financial Information
Pro forma financial statements of the Company are included as follows:
- Pro Forma Condensed Consolidated Financial Statements
- Pro Forma Consolidated Balance Sheet as of March 31, 1998
and related notes
- Pro Forma Consolidated Statements of
Income for the year ended September 30, 1997 and for the six
months ended March 31, 1998 and related notes
(c) Exhibits
2.1 Stock Purchase Agreement for the acquisition of Mercer
dated as of April 3, 1998 by and among Neenah Foundry
Company, Mercer Forge Corporation and selling shareholders
of Mercer. *
10.1 Credit Agreement dated as of April 30, 1997 as Amended and
Restated as of September 12, 1997 and as of April 3, 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 April 3, 1998, Neenah Foundry Company (the "Company") completed its
acquisition of Mercer Forge Corporation, a Delaware Corporation, and its
subsidiary A&M Specialties, Inc., a Pennsylvania corporation (collectively
referred to herein as "Mercer"). Pursuant to the transaction, the Company
purchased 100% of the capital stock of Mercer from Mercer management, then
current and former directors and officers of Mercer and Rotterdam Ventures, Inc.
for aggregate consideration of $46.9 million in cash. The acquisition of Mercer
was financed through drawings under the Tranche B term loan facility of the
Company's Amended and Restated Credit Agreement, dated as of April 30, 1997, as
amended as of September 12, 1997 and as of April 3, 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 Mercer to create a $75.0 million term loan facility in addition to the
Company's existing $50.0 million revolving loan facility.
Mercer is a closed die forging company, specializing in press forging and
also has a machining operation. Mercer serves truck, railroad, construction and
other industrial customers. Mercer will operate as a wholly owned subsidiary of
the Company out of its facilities in Mercer, Pennsylvania 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 Mercer. In addition to the properties listed below,
Mercer leases small storage spaces in various locations for books and records
and some inventory. The Company currently has no plans to alter the existing
usage of these properties.
<TABLE>
<CAPTION>
Location Use Owned or Leased Approximate Area
- ------------------------------- -------------------------------------- ----------------------- ---------------------------------
<S> <C> <C> <C>
200 Brown Street Manufacturing facilities, Owned 14.97 acres improved by various
Mercer, PA 16137 warehousing and office space buildings of approximately
120-130,000 sq. ft.
100 First Street Manufacturing, machining and Leased pursuant to 18,000 sq. feet on 2.49 acres
Borough of Wheatland office space lease expiring of land
Mercer, PA 16161 October, 1999.
</TABLE>
ITEM 5. OTHER EVENTS.
On March 30, 1998, the Company completed its acquisition of Deeter Foundry,
Inc., a Nebraska corporation ("Deeter"). Pursuant to the transaction, the
Company purchased 100% of the capital stock of Deeter from Deeter management,
and then current and former directors and officers of Deeter, for aggregate
consideration of $24.3 million in cash and notes. The cash portion of the
transaction was financed out of cash on hand of the Company. Deeter is a gray
iron foundry, specializing in iron castings for the municipal market. Deeter is
located in Lincoln, Nebraska 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), Deeter is not deemed to be a significant
subsidiary.
<PAGE> 4
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
MERCER FORGE CORPORATION AND SUBSIDIARY (A
Wholly Owned Subsidiary of Rotterdam Ventures,
Inc.)
Consolidated Financial Statements
November 30, 1997 and 1996
(With Independent Auditors' Report Thereon)
<PAGE> 5
Independent Auditors' Report
The Board of Directors
Mercer Forge Corporation:
We have audited the accompanying consolidated balance sheets of Mercer Forge
Corporation and Subsidiary (a wholly owned subsidiary of Rotterdam Ventures,
Inc.) as of November 30, 1997 and 1996, and the related consolidated statements
of income, stockholder's equity and cash flows for the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mercer Forge
Corporation and Subsidiary as of November 30, 1997 and 1996, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
Pittsburgh, Pennsylvania KPMG Peat Marwick LLP
May 1, 1998
<PAGE> 6
MERCER FORGE CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
November 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
Assets
------
<S> <C> <C>
Current assets:
Cash $ 387,732 450,182
Accounts receivable (net of allowance of $1,000
in 1997 and 1996) (note 5) 7,690,975 4,761,164
Inventories (notes 2 and 5) 1,360,026 1,042,520
Prepaid expenses 276,162 326,511
Prepaid tool and die costs 1,577,576 1,591,400
------------- -----------
Total current assets 11,292,471 8,171,777
Property, plant and equipment (notes 3 and 5) 18,630,763 16,302,474
Less accumulated depreciation 9,472,697 8,368,367
------------- -----------
Net property, plant and equipment 9,158,066 7,934,107
Receivables from affiliates, net 2,157,552 1,080,888
Other noncurrent assets, less accumulated
amortization of $158,904 and $134,333 in
1997 and 1996, respectively (note 4) 161,884 186,455
------------- -----------
$ 22,769,973 17,373,227
============= ===========
Liabilities and Stockholder's Equity
------------------------------------
Current liabilities:
Current installments of long-term debt and
capital lease obligations (note 5) 1,868,263 855,192
Accounts payable 5,151,244 3,184,921
Accrued employment costs 974,634 724,017
Other current liabilities 579,638 587,849
Income taxes payable (note 1 (f)) 450,659 135,893
------------- -----------
Total current liabilities 9,024,438 5,487,872
Long-term debt and capital lease obligations,
less current installments (note 5) 4,886,182 6,972,849
Deferred income taxes (note 8) 1,014,697 772,217
------------- -----------
Total liabilities 14,925,317 13,232,938
Commitments and contingencies (notes 9 and 11)
Stockholder's equity:
Common stock, no par value or stated value:
Authorized 1,000 shares; issued and outstanding 608
shares as of November 30, 1997 and 1996,
respectively 608 608
Additional paid-in capital 6,033,378 6,033,378
Retained earnings (accumulated deficit) 1,810,670 (1,893,697)
------------- -----------
Total stockholder's equity 7,844,656 4,140,289
------------- -----------
$ 22,769,973 17,373,227
============= ===========
</TABLE>
<PAGE> 7
MERCER FORGE CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
Years ended November 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net sales (note 1 (k)) $ 43,220,317 36,952,378
Cost of goods sold 33,105,568 28,842,816
------------- ----------
Gross profit 10,114,749 8,109,562
Operating expenses:
Selling, general and administrative 2,723,821 1,947,815
Depreciation and amortization 1,148,963 1,092,395
Related party charges (note 7) 309,600 408,600
Environmental (reimbursement) costs of
disposed facility (note 11) (720,627) 1,060,135
------------- ----------
Income from operations 6,652,992 3,600,617
Other income (expense):
Interest income 2,649 449
Interest expense (782,180) (1,012,642)
Other - 7,200
------------- ----------
Total other expense, net (779,531) (1,004,993)
------------- ----------
Income before income taxes 5,873,461 2,595,624
Income taxes (notes 1(f) and 8) 2,169,094 1,055,519
------------- ----------
Net income $ 3,704,367 1,540,105
============= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 8
MERCER FORGE CORPORATION AND SUBSIDIARY
Consolidated Statements of Stockholder's Equity
Years ended November 30, 1997 and 1996
<TABLE>
<CAPTION>
Retained
Additional earnings Total
Common paid-in (accumulated stockholder's
stock capital deficit) equity
----- ------- -------- ------
<S> <C> <C> <C> <C>
Balance as of November 30, 1995 $ 608 6,033,378 (3,433,802) 2,600,184
Net income - - 1,540,105 1,540,105
------ ---------- ---------- ---------
Balance as of November 30, 1996 608 6,033,378 (1,893,697) 4,140,289
Net income - - 3,704,367 3,704,367
------ ---------- ---------- ---------
Balance as of November 30, 1997 $ 608 6,033,378 1,810,670 7,844,656
====== ========= ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 9
MERCER FORGE CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended November 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $3,704,367 1,540,105
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,148,963 1,092,395
Deferred Income taxes 344,004 686,907
Change in assets and liabilities:
(Increase) decrease in accounts receivable, net (2,929,811) 154,875
(Increase) decrease in inventories (317,506) 1,939,004
Decrease in refundable income taxes - 181,360
(Increase) decrease in prepaid expenses (32,315) 156,776
Decrease (increase) in prepaid die and tool costs 13,824 (24,763)
Increase (decrease) in accounts payable 1,966,323 (837,411)
Increase in accrued employment costs 250,617 49,037
Decrease in other current liabilities (27,071) (70,721)
Increase in income taxes payable 314,766 109,317
---------- ----------
Net cash provided by operating activities 4,436,161 4,976,881
Cash flows from investing activities:
Capital expenditures (1,899,879) (1,471,599)
---------- ----------
Net cash used in investing activities (1,899,879) (1,471,599)
Cash flows from financing activities:
Increase in receivables from affiliates, net (1,076,664) (390,311)
Principal payments on long-term debt (1,786,900) (4,746,620)
Proceeds from issuance of long-term debt 264,832 1,850,000
---------- ----------
Net cash used in financing activities (2,598,732) (3,286,931)
---------- ----------
Net (decrease) increase in cash (62,450) 218,351
Cash at beginning of year 450,182 231,831
---------- ----------
Cash at end of year $ 387,732 450,182
========== ==========
</TABLE>
(Continued)
<PAGE> 10
MERCER FORGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 777,652 1,013,669
============ =========
Income taxes $ 1,510,354 193,329
============ =========
Supplemental schedule of non-cash investing activity:
Additions to equipment financed with capital leases $ 448,472 -
============ =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 11
MERCER FORGE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
November 30, 1997 and 1996
(1) Summary of Significant Accounting Policies
(a) Description of Business
Mercer Forge Corporation (the Company) operates two plants in
Pennsylvania engaged in the production of carbon and carbon
alloy forgings for use in the truck, automotive, mining and
railway industries. A majority of the Company's sales are to
customers located in Indiana, Illinois and Michigan.
The Company is a subsidiary of Rotterdam Ventures, Inc. The Company
and Rotterdam Ventures, Inc. are part of the Galesi Group, a
group of affiliated entities that operate under common control.
(b) Principles of Consolidation
The consolidated financial statements include the financial
statements of Mercer Forge Corporation and one wholly owned
subsidiary, A & M Specialties, Inc. All significant intercompany
balances, profits and transactions have been eliminated in
consolidation.
(c) Inventories
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method. The
elements of cost included in inventories are direct material,
direct labor and certain production overhead costs.
(d) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Equipment under
capital leases is stated at the present value of minimum lease
payments.
Depreciation on plant and equipment is calculated on the
straight-line method over the estimated useful lives of the
assets. Equipment held under capital leases and leasehold
improvements are amortized on the straight-line method over the
shorter of the lease term or the estimated useful life of the
asset.
(Continued)
<PAGE> 12
MERCER FORGE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(e) Environmental Costs
The Company and other metals companies have in recent years become
subject to increasingly demanding environmental standards
imposed by federal, state and local environmental laws and
regulations. It is the policy of the Company to endeavor to
comply with applicable environmental laws and regulations.
Remediation costs are accrued when management believes such
costs are probable and reasonably estimable. Estimates are based
on currently available facts, existing technology and presently
enacted laws and regulations, and take into consideration the
likely effects of inflation and other societal and economic
factors. Claims for recovery are recorded only when it is
probable that such recoveries will be realized.
(f) Federal Income Taxes
The Company is included in the consolidated Federal income tax
return of its parent company. The Company has a tax sharing
agreement with its parent company and accordingly, federal taxes
payable represent amounts due to the parent in connection with
its tax sharing agreement. The Company files separately for
state income tax purposes.
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date.
(g) Statement of Cash Flows
For purposes of the statement of cash flows, the Company considers
cash to be funds held in checking accounts and cash on hand.
(Continued)
<PAGE> 13
MERCER FORGE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(h) Use of Estimates
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities
and the disclosure of contingent assets and liabilities to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
those estimates.
(i) Reclassifications
Certain amounts in the 1996 consolidated financial statements have
been reclassified to conform to the presentation in the 1997
consolidated financial statements.
(j) Fair Value of Financial Instruments
The fair values of the Company's receivables, payables and debt
financial instruments are estimated to approximate carrying
values as of November 30, 1997 and 1996, given the short-term
nature of receivables and payables and the variable interest
rates ascribed to debt.
(k) Credit Concentration and Risk
Customers for the Company's principal products operate in the truck,
automotive, mining and railway industries. Credit is extended
based on an evaluation of the customer's financial condition
and, in general, collateral is not required. The Company derived
a significant portion of its business from three customers in
1997. Revenues from sales to these three customers in 1997
approximated $21,294,000, $4,284,000 and $3,144,000,
respectively, for a total of $28,722,000 or 66% of net sales.
The Company derived a significant portion of its business from
three customers in 1996. Revenues from sales to these three
customers in 1996 approximated $17,921,000, $5,078,000 and
$2,250,000, respectively, for a total of $25,249,000 or 68% of
net sales.
(Continued)
<PAGE> 14
MERCER FORGE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(2) Inventories
The components of inventories as of November 30, 1997 and 1996, are as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Raw materials $ 455,963 255,901
Work in process 305,599 99,977
Finished goods 598,464 686,642
------------ ---------
$ 1,360,026 1,042,520
============ =========
</TABLE>
Inventories are pledged as collateral for the Company's long-term debt
(see note 5).
(3) Property, Plant and Equipment
Property, plant and equipment as of November 30, 1997 and 1996, are as
follows:
<TABLE>
<CAPTION>
Estimated
1997 1996 useful life
---- ---- -----------
<S> <C> <C> <C>
Land $ 59,111 59,111 N/A
Buildings and improvements 2,895,380 2,857,505 39 - 40 years
Machinery and equipment 12,519,211 10,712,617 3 - 12 years
Office equipment 306,370 242,244 3 - 7 years
Tooling 2,432,953 2,268,040 40 years
Vehicles 181,270 138,832 3 years
Construction in progress 236,468 24,125 N/A
-------------- -----------
18,630,763 16,302,474
Less accumulated depreciation 9,472,697 8,368,367
-------------- -----------
$ 9,158,066 7,934,107
============== ===========
</TABLE>
Depreciation expense for the years ended November 30, 1997 and 1996 was
$1,124,392 and $1,070,513, respectively.
Included in property, plant and equipment are assets under capital leases
with costs of $448,472 and accumulated amortization of $30,710 as of
November 30, 1997. Amortization of assets held under capital leases is
included with depreciation expense.
(Continued)
<PAGE> 15
MERCER FORGE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(4) Other Noncurrent Assets
Other noncurrent assets as of November 30 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
Estimated
1997 1996 useful life
---- ---- -----------
<S> <C> <C> <C>
Goodwill $ 129,553 129,553 40 years
Organizational fee costs 191,235 191,235 5 - 10 years
---------- -------
320,788 320,788
Less accumulated amortization 158,904 134,333
---------- -------
$ 161,884 186,455
========== =======
</TABLE>
Amortization expense for the years ended November 30, 1997 and 1996, was
$24,571 and $21,882, respectively.
(5) Long-term Debt
Long-term debt and capital lease obligations as of November 30, 1997 and
1996 consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Equipment loans payable at interest rates ranging
from 4.35% to 8.35% in varying monthly
installments of principal and interest. Secured by
equipment. $ 1,173,802 1,458,381
Note payable under revolving credit agreements. The agreements aggregate
$14.7 million and expire in 1999. Advances under the agreements are
based on and secured by accounts receivable and inventory. Interest
at prime (8.5% as of
November 30, 1997) plus 5/8%. 2,924,327 3,647,529
Various notes payable at rates ranging from 9.32% to prime (8.5% as of
November 30, 1997) plus 2% in varying
monthly installments of principal and
interest. Secured in part by machinery, equipment,
inventories and publicly traded stock held by
Rotterdam Ventures, Inc. 2,061,172 2,535,313
</TABLE>
<PAGE> 16
MERCER FORGE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Note payable to Rotterdam Ventures, Inc. at an
interest rate of 7.5%. Monthly installments of
principal and interest through January 2001. $ 146,672 186,818
Capital lease obligation at 7.9%, monthly payments
of $9,384 through September 2002. 448,472 -
------------ ---------
6,754,445 7,828,041
Less current portion 1,868,263 855,192
------------ ---------
$ 4,886,182 6,972,849
============ =========
</TABLE>
The aggregate principal payments on long-term debt and future minimum
payments on capital leases during the years subsequent to
November 30, 1997, are:
<TABLE>
<CAPTION>
Long-term Capital
debt leases Total
---- ------ -----
<S> <C> <C> <C>
Year ending November 30,
1998 $ 1,788,239 112,608 1,900,847
1999 3,840,739 112,608 3,953,347
2000 397,994 112,608 510,602
2001 196,648 112,608 309,256
2002 63,847 112,608 176,455
Thereafter 18,506 - 18,506
------------ -------- ----------
6,305,973 563,040 6,869,013
Less amount representing interest
on capital leases - 114,568 114,568
------------ -------- ----------
Total long-term debt and capital
lease obligations 6,305,973 448,472 6,754,445
Less current installments of
long-term debt and capital
lease obligations 1,788,239 80,024 1,868,263
------------ -------- ----------
Long-term debt and capital lease
obligations, excluding current
installments $ 4,517,734 368,448 4,886,182
============ ======== ==========
</TABLE>
<PAGE> 17
MERCER FORGE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
(6) Receivables from Affiliates, Net
As of November 30, 1997 and 1996, the receivables from affiliates
consist primarily of transactions with Rotterdam Ventures, Inc., the
Company's parent company.
In general, payables to and receivables from affiliates result from the
cash management practices of Mercer Forge Corporation and companies
which operate under the common control of the Galesi Group. Management
classifies payables to and receivables from affiliates as long-term as
they do not intend to liquidate them in the near future.
(7) Related Party Charges
The Company incurred operating expenses of $309,600 and $408,600 during
the years ended November 30, 1997 and 1996, respectively, for
management and data processing services provided by an affiliated
company. Charges for management and data processing services are based
upon management estimates of time spent during the year. Such costs
may differ if these services were provided by an unrelated third
party.
(8) Income Taxes
The components of income tax expense for 1997 and 1996, are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current expense:
Federal $ 1,665,001 258,877
State 160,089 109,735
----------- ----------
1,825,090 368,612
Deferred expense:
Federal 292,403 583,871
State 51,601 103,036
----------- ----------
344,004 686,907
$ 2,169,094 1,055,519
=========== ==========
</TABLE>
(Continued)
<PAGE> 18
MERCER FORGE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Income tax expense represents an effective tax rate of 36.9% and 40.7% in
1997 and 1996, respectively. The actual tax expense differs from the
"expected" tax expense (computed by applying the U.S. corporate tax
rate of 34% to income before income taxes) as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------- -------------------------
Amount % Amount %
------ - ------ -
<S> <C> <C> <C> <C>
Computed "expected" tax expense $ 1,996,977 % 34.0 $ 882,512 % 34.0
State income taxes, net of federal
income tax benefit 105,659 1.8 72,425 2.8
Meals and entertainment 10,201 .2 11,838 .5
Other 56,257 .9 88,744 3.4
------------ ------ ------------ -----
$ 2,169,094 % 36.9 $ 1,055,519 % 40.7
============ ====== ============ =====
</TABLE>
For the years ended November 30, 1997 and 1996, the deferred income tax
expense of $344,004 and $686,907, respectively, results from the
changes in temporary differences during the year. The tax effects of
temporary differences that give rise to deferred tax assets and
deferred tax liabilities as of November 30, 1997 and 1996, are as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Difference in carrying value of inventories $ 2,316 2,169
Vacation and other accruals 70,541 198,492
------------- --------
Gross deferred tax assets 72,857 200,661
Deferred tax liabilities:
Property, plant and equipment, principally
due to differences in depreciation methods $ (1,021,720) (824,380)
Prepaid property taxes and insurance (72,672) (53,812)
------------- --------
Gross deferred tax liabilities (1,094,392) (878,192)
------------- --------
Net deferred tax liabilities $ (1,021,535) (677,531)
============= ========
</TABLE>
(Continued)
<PAGE> 19
MERCER FORGE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
There was no valuation allowance as of November 30, 1997 and 1996, and no
change in the valuation allowance during the years ended November 30,
1997 and 1996. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those
temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future
taxable income and tax planning strategies in making this assessment.
Based upon the level of historical taxable income and projections for
future taxable income over the periods which the deferred tax assets
are deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible differences as
of November 30, 1997. The amount of the deferred tax assets considered
realizable, however, could be reduced in the near term if estimates of
future taxable income during the tax carryforward periods are reduced.
(9) Lease Commitments
The Company leases a building used in its manufacturing operations under
an operating lease that expires in November 1999. In addition, the
Company also leases machinery and equipment used in its manufacturing
operations under operating leases that expire at various times from
1998 through 2001.
Future minimum lease payments under noncancelable operating leases as of
November 30, 1997, are as follows:
<TABLE>
<CAPTION>
Year ending
November 30,
------------
<S> <C>
1998 $ 165,312
1999 140,112
2000 75,762
2001 6,600
----------
Total minimum lease payments $ 387,786
==========
</TABLE>
(Continued)
<PAGE> 20
MERCER FORGE CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements, Continued
Rental expense for operating leases during 1997 and 1996 was $233,923 and
$218,194, respectively. The Company rents various equipment
throughout the year on a short-term basis. These leases are
noncancelable but do not extend beyond the applicable fiscal year
end.
(10) Pension Plan
The Company participates in a defined benefit, non-contributory,
multi-employer plan pursuant to its collective bargaining agreement.
The Company's pension expense for this plan aggregated $170,818 and
$155,057 during 1997 and 1996, respectively.
In addition, the Company also participates in a non-contributory defined
benefit pension plan which is sponsored by the Company's parent. This
plan is designed to provide benefits, at age 65, to all
non-bargaining unit employees vested at the time of retirement. All
such employees who have attained age 21 and have completed one year
of service are eligible to participate. The Company's pension expense
for this plan aggregated $108,831 and $61,912 during 1997 and 1996,
respectively. As of January 1, 1997 (the date of the most recent
benefit valuation), the present value of accrued benefits for the
entire plan exceeded plan assets by approximately $953,000.
(11) Commitments and Contingencies
During January 1994, a former subsidiary of the Company (Subsidiary) and
the U.S. Environmental Protection Agency (EPA) entered into an
Administrative Order by Consent (AOC), pursuant to Section 106 of the
Comprehensive Environmental Response Compensation and Liability Act
of 1980. The Subsidiary agreed to perform certain investigatory and
removal activities relating to environmental contamination which
occurred prior to the Subsidiary's purchase of a metal forging
facility in Jackson, Michigan.
During August 1995, the Subsidiary executed an Amended Administrative
Order by Consent (AAOC), which required the performance of subsurface
removal actions in lieu of completion of the site investigation and
performance of an Engineering Evaluation and Cost Assessment. The
work is complete, and final sign-off is expected from the EPA. During
1997 and 1996, the Subsidiary incurred $229,373 and $1,060,135,
respectively, in remediation costs.
(Continued)
<PAGE> 21
MERCER FORGE CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
During 1997, the Company received and recorded $950,000 from the parties
responsible for causing this hazardous condition under the U.S.
Environmental Law relating to responsible parties to recoup costs of
the Company relating to this matter. In January 1998, the Company
received a letter from the EPA requesting the recovery of additional
costs of approximately $180,000. The Company intends to object to
this request and pursue all legal avenues available. Accordingly, no
provision has been made relating to the EPA's 1998 request in the
1997 or 1996 financial statements.
The Company is involved in other legal actions which arise in the normal
course of business. Management believes that the outcome of these
actions will not have a material effect on the consolidated financial
condition of the Company.
(12) Subsequent Event
On January 21, 1998, the Company signed a letter of intent with an
unrelated third party to sell the Company's common stock for
approximately $47 million. The consolidated financial statements have
been prepared without consideration given to the proposed change in
ownership.
<PAGE> 22
(b) Pro Forma Financial Information
NEENAH FOUNDRY COMPANY
UNAUDITED PRO FORMA CONDENSED 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 Mercer
Forge Corporation (Mercer) on April 3, 1998 and the acquisition of Deeter
Foundry Inc. (Deeter) on March 30, 1998 by Neenah Foundry Company (the
"Company") (collectively, the "Acquisitions"). The unaudited pro forma
consolidated balance sheet assumes the Mercer Acquisition had occurred on March
31, 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 Mercer,
including the notes thereto.
The Mercer Acquisition will be accounted for using the purchase method of
accounting. The total purchase price of approximately $47 million will be
allocated to the assets and liabilities of Mercer 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 Company, Mercer and Deeter have different fiscal year ends - September
30 for the Company, November 30 for Mercer, and December 31 for Deeter. The
unaudited pro forma consolidated statement of income for the year ended
September 30, 1997 includes the results of operations of the Company, Mercer and
Deeter for the twelve month periods ended September 30, 1997, November 30, 1997
and December 31, 1997, respectively. The unaudited proforma consolidated
statement of income for the six months ended March 31, 1998 includes the results
of operations of the Company, Mercer and Deeter for the six months ended March
31, 1998. Statement of income information of Mercer for the months of October
and November, 1997 and of Deeter for the months of October, November and
December, 1997 are included in both the annual and the interim proforma
consolidated statements of income.
<PAGE> 23
NEENAH FOUNDRY COMPANY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
March 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Historical
---------------------------------
Neenah Pro Forma
Foundry * Mercer Adjustments Pro Forma
------------ -------------- -------------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 3,427 $ 29 $ 6,362 (a) $ 9,818
Accounts receivable, net................................... 25,341 8,472 33,813
Inventories................................................ 25,635 2,361 185 (b) 28,181
Other current assets....................................... 987 1,726 2,713
Prepaid income taxes....................................... 1,921 - 1,921
Deferred income taxes...................................... 1,710 - 1,710
-------- -------- -------- --------
Total current assets......................... 59,021 12,588 6,547 78,156
Property, plant and equipment................................ 111,349 18,862 7,417 (b) 137,628
Less accumulated depreciation................................ 7,105 9,711 (9,711)(b) 7,105
-------- -------- -------- --------
104,244 9,151 17,128 130,523
Identifiable intangible assets, net.......................... 33,777 - 2,355 (b) 36,132
(121)(b)
Goodwill, net................................................ 130,775 121 21,320 (b) 152,095
125 (a)
(2,453)(b)
Other assets................................................. 3,714 2,529 1,102 (c) 5,013
-------- -------- -------- --------
$331,531 $ 24,389 $46,003 $401,919
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................... $ 9,572 $ 5,078 $ 14,650
Income taxes payable....................................... - 80 80
Accrued liabilities........................................ 18,818 1,330 (147)(a) 19,997
Current portion of long-term debt.......................... 60 2,680 (2,680)(a) 60
-------- -------- -------- --------
Total current liabilities.................... 28,450 9,168 (2,827) 34,787
(3,856)(a)
Long-term debt............................................... 197,390 3,856 55,000 (a) 252,390
Postretirement benefit obligations........................... 5,056 - 5,056
Deferred income taxes........................................ 45,074 1,051 8,000 (b) 54,125
Other liabilities............................................ 2,151 - 2,151
-------- -------- -------- --------
Total liabilities............................ 278,121 14,075 56,317 348,509
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 1 (1)(b) 100
Additional paid in capital................................. 48,750 6,033 (6,033)(b) 48,750
Retained earnings.......................................... 4,560 4,280 (4,280)(b) 4,560
-------- -------- -------- --------
Total stockholders' equity................... 53,410 10,314 (10,314) 53,410
-------- -------- -------- --------
$331,531 $ 24,389 $ 46,003 $401,919
======== ======== ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet.
* Includes the assets and liabilities of Deeter, which was acquired on March 30,
1998.
<PAGE> 24
NEENAH FOUNDRY COMPANY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
(a) Adjustment to reflect the net effect on cash of the Mercer Acquisition, as
follows:
<TABLE>
<S> <C> <C>
Proceeds from Tranche B Term Loan $ 55,000
Less deferred financing cost (1,102)
---------
53,898
Purchase price:
Acquisition of Mercer common stock $ (40,221)
Fees and expenses incurred in connection with
the Acquisition (507)
Satisfaction of Mercer outstanding indebtedness (including
$125 borrowed subsequent to March 31, 1998) (6,808)
----------
(47,536)
---------
$ 6,362
=========
(b) Adjustment to reflect the allocation of the $40,728 purchase cost:
Net assets acquired at historical cost $ 10,314
Fair value adjustments(1):
Inventory step-up(2) 185
Write-up property, plant, and equipment(3) 17,128
Record intangible assets(4) 2,355
Elimination of historical goodwill of Mercer (121)
Elimination of intercompany balances (2,453)
Record deferred income tax provision associated with the
valuation of Mercer assets and liabilities (8,000)
Cost in excess of net assets acquired- goodwill(5) 21,320
---------
$ 40,728
=========
</TABLE>
(c) Adjustment to record the transaction costs of $1,102 (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.
- ---------------------------------
(1) For all other recorded assets and liabilities of Mercer, the historical book
values were estimated to approximate their fair values at the balance
sheet date.
(2) Estimate of manufacturing profit portion of finished goods inventory
at the balance sheet date. An amortization period of six months will be
used because the inventory will be sold within six months.
(3) 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 91 n/a
Buildings and improvements 563 10 to 35 years
Machinery and equipment 16,474 5 to 15 years
</TABLE>
(4) The fair value of intangible assets was based on an outside valuation. For
purposes of the proforma financial information, $1,355 was allocated to
intangibles with an amortization period of 6 months and $1,000 was allocated
to intangibles with an average amortization period of 10 years.
(5) An amortization period of 40 years will be used for goodwill because the
period expected to be benefited exceeds 40 years.
<PAGE> 25
NEENAH FOUNDRY COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
Year Ended September 30, 1997
(In thousands)
<TABLE>
<CAPTION>
Neenah Foundry
---------------------------------------------------------------------------------
Predecessor Pro Forma Historical
------------------ ---------------- --------------------
Seven Months Seven Months Five Months
Ended Pro Forma Ended Ended
April 30, 1997 Adjustments April 30, 1997 September 30, 1997
------------------ ------------------ ------------------ --------------------
<S> <C> <C> <C> <C>
Net sales...................................... $ 92,963 $ - $ 92,963 $ 87,093
Cost of sales.................................. 65,101 506 65,607 60,166
------------------ ------------------ ------------------ --------------
Gross profit................................... 27,862 (506) 27,356 26,927
Selling, general and administrative expenses... 10,023 (2,042) 7,981 7,088
Amortization of intangible assets.............. - 2,869 2,869 3,678
------------------ ------------------ ------------------ --------------
Total operating expenses..................... 10,023 827 10,850 10,766
------------------ ------------------ ------------------ --------------
Operating income............................... 17,839 (1,333) 16,506 16,161
Net interest income (expense).................. 870 (12,946) (12,076) (8,832)
------------------ ------------------ ------------------ --------------
Income before income taxes..................... 18,709 (14,279) 4,430 7,329
Provision for income taxes..................... 6,927 (4,647) 2,280 3,479
------------------ ------------------ ------------------ --------------
Net income..................................... $ 11,782 $ (9,632) $ 2,150 $ 3,850
================== ================== ================== ==============
</TABLE>
<TABLE>
<CAPTION>
Neenah Foundry Historical
--------------------- -------------------------------------------
Pro Forma Mercer Deeter
-------------------- -------------------- --------------------
Year Ended Year Ended Year Ended
September 30, 1997 November 30, 1997 December 31, 1997
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Net sales...................................... $ 180,056 $ 43,220 $ 14,296
Cost of sales.................................. 125,773 33,105 7,873
-------------------- -------------------- --------------------
Gross profit................................... 54,283 10,115 6,423
Selling, general and administrative expenses... 15,069 3,437 5,954
Amortization of intangible assets.............. 6,547 25 -
-------------------- -------------------- --------------------
Total operating expenses..................... 21,616 3,462 5,954
-------------------- -------------------- --------------------
Operating income............................... 32,667 6,653 469
Net interest income (expense).................. (20,908) (780) (387)
-------------------- -------------------- --------------------
Income before income taxes..................... 11,759 5,873 82
Provision for income taxes..................... 5,759 2,169 -
-------------------- -------------------- --------------------
Net income..................................... $ 6,000 $ 3,704 $ 82
==================== ==================== ====================
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
Adjustments Pro Forma
---------------- ----------------
<S> <C> <C>
Net sales...................................... $ - $ 237,572
Cost of sales.................................. 1,893 (a) 168,644
---------------- ----------------
Gross profit................................... (1,893) 68,928
Selling, general and administrative expenses... 210 (a) 24,670
1,455 (a)
Amortization of intangible assets.............. 922 (a) 8,949
---------------- ----------------
Total operating expenses..................... 2,587 33,619
---------------- ----------------
Operating income............................... (4,480) 35,309
Net interest income (expense).................. (4,758)(b) (26,833)
---------------- ----------------
Income before income taxes..................... (9,238) 8,476
Provision for income taxes..................... (3,326)(c) 4,602
---------------- ----------------
Net income..................................... $ (5,912) $ 3,874
================ ================
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statements of Income.
<PAGE> 26
NEENAH FOUNDRY COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
Six Months Ended March 31, 1998
(In thousands)
<TABLE>
<CAPTION>
Historical
-------------------------------------------
Neenah Pro Forma
Foundry Mercer Deeter Adjustments Pro Forma
----------------------------- ------------- ----------------- ------------
<S> <C> <C> <C> <C> <C>
Net sales....................................... $ 89,825 $ 27,529 $ 5,916 $ - $ 123,270
Cost of sales................................... 64,079 20,632 3,407 947 (a) 89,065
--------------- ------------ ------------ ----------------- ------------
Gross profit.................................... 25,746 6,897 2,509 (947) 34,205
(778)(a)
Selling, general and administrative expenses.... 7,972 1,812 4,111 105 (a) 13,222
1,405 (a)
Amortization of intangible assets............... 2,459 41 - 461 (a) 4,366
--------------- ------------ ------------ ----------------- ------------
Total operating expenses...................... 10,431 1,853 4,111 1,193 17,588
--------------- ------------ ------------ ----------------- ------------
Operating income................................ 15,315 5,044 (1,602) (2,140) 16,617
Net interest income (expense)................... (10,489) (485) (196) (2,379)(b) (13,549)
--------------- ------------ ------------ ----------------- ------------
Income before income taxes...................... 4,826 4,559 (1,798) (4,519) 3,068
Provision for income taxes...................... 2,486 1,436 - (1,623)(c) 2,299
--------------- ------------ ------------ ----------------- ------------
Net income...................................... $ 2,340 $ 3,123 $ (1,798) $ (2,896) $ 769
=============== ============ ============ ================= ============
</TABLE>
See accompanying Notes to Unaudited Pro Forma Consolidated Statements of Income.
<PAGE> 27
NEENAH FOUNDRY COMPANY
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(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>
Year Ended September 30, 1997 Six Months Ended March 31, 1998
--------------------------------------------- -----------------------------------------
Proforma Proforma
Historical Proforma Adjustment Historical Proforma Adjustment
------------- ---------------- ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Depreciation of property, plant and
equipment:
Cost of sales $ 7,021 $ 8,914 $ 1,893 $ 3,888 $ 4,835 $ 947
Selling, general and administrative 1,876 2,086 210 1,245 1,350 105
Amortization of identifiable intangible
assets 5,319 6,774 1,455 1,515 2,920 1,405
Amortization of goodwill 1,253 2,175 922 985 1,446 461
Elimination of certain non-recurring
expenses incurred by Deeter prior to
Acquisition - - - - (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>
Year Ended Six Months Ended
September 30, 1997 March 31, 1998
------------------- ------------------
<S> <C> <C>
Tranche B Term Loan ($55,000 @ 8.25%) $ 4,538 $ 2,269
Amortization of deferred financing costs (over 5 years,
straight line) 220 110
------- -------
$ 4,758 $ 2,379
======= =======
</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> 28
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: June 12, 1998 /s/ Gary LaChey
-------------------------------------
Gary LaChey
Vice President-Finance, Secretary
& Treasurer
(Principal Financial Officer and
Duly Authorized Officer)
