1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
_X_/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 29,September 27, 1998.
OR
__/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________________ to
_________________------------------ -------------------
Commission File No. 333-11801 (Aetna Industries, Inc.)
Commission File No. 333-11801-01 (MS Acquisition Corp.)
AETNA INDUSTRIES, INC.
MS ACQUISITION CORP.
(Exact name of registrant as specified in its charter)
Delaware 38-200-7550/13-337-9803
- ---------------------------------------------------------------------------------------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organizationorganization) Identification No.)
24331 Sherwood Avenue, P.O. Box 3067, Centerline, Michigan 48015-0067
- -------------------------------------------------------------------------------1, rue Thomas Edison, Quartier des Chenes
78056 St. Quentin en Yvelines, France
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (810) 759-2200
(33-1) 39-412000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of April 26,October 25, 1998, there were 1,000 shares of Aetna Industries, Inc. common
stock outstanding and 3,899,9993,902,498 shares of MS Acquisition Corp. Class A common stock
outstanding.
1
2
TABLE OF ADDITIONAL REGISTRANTS
NONE
2
3INDEX
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1. FINANCIAL STATEMENTS OF AETNA INDUSTRIES, INC.
Condensed Consolidated Balance Sheets - 4
March 29,3
September 27, 1998 and December 28, 1997
Consolidated Statements of Operations - 54
three months and nine months ended March 29,September 27, 1998
and March 30,September 28, 1997
Condensed Consolidated Statements of Cash Flows - 6
three5
nine months ended March 29,September 27, 1998
and March 30,September 28, 1997
Notes to Consolidated Financial Statements 76
FINANCIAL STATEMENTS OF MS ACQUISITION CORP.
Condensed Consolidated Balance Sheets - 9
March 29,8
September 30, 1998 and December 28,31, 1997
Consolidated Statements of Operations - 109
three months and nine months ended March 29,September 30, 1998
and MarchSeptember 30, 1997
Condensed Consolidated Statements of Cash Flows - 11
three10
nine months ended March 29,September 30, 1998
and MarchSeptember 30, 1997
Notes to Consolidated Financial Statements 1211
Item 2. Management's Discussion and Analysis of
14
Financial Condition and Results of Operations 17
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17Not Applicable
PART II OTHER INFORMATION 1725
Description of Exhibits 26
Signatures 1827
EXHIBIT INDEX 1928
32
43
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
MARCH 29,SEPTEMBER 27, 1998 DECEMBER 28, 1997
-------------------------------- -----------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 26441 $ 23
Accounts receivable (less allowance for doubtful
accounts of $372$398 and $359, respectively) 46,98835,905 40,665
Inventories 7,5396,286 7,276
Tooling 19,33248,765 11,410
Other current assets 2,1862,249 1,661
----------- -----------
Total current assets 76,30993,246 61,035
----------- -----------
Property, plant and equipment, net 53,19459,327 51,572
Deferred costs and other assets 5,3415,989 5,489
Cost in excess of net assets acquired 24,773Goodwill 24,372 24,973
----------- -----------
$ 159,617182,934 $ 143,069
=========== ===========
LIABILITIES AND STOCKHOLDER'SSTOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 40,34848,985 $ 33,485
Accrued expenses 13,3947,645 9,508
Line of credit 18,80547,870 13,530
----------- -----------
Total current liabilities 72,547104,500 56,523
----------- -----------
Long-term debt 85,000 85,000
Deferred income taxes 7,4327,433 7,432
Stockholder's equity (deficit)
Common stock - $.01 par value; 1,000 shares - -
issued and outstanding -- --
Contributed capital 9,024 9,024
Accumulated deficit (14,386)(22,842) (14,910)
Cumulative translation adjustment (181) -
----------- -----------
(5,362)(13,999) (5,886)
----------- -----------
$ 159,617182,934 $ 143,069
=========== ===========
See accompanying notes to consolidated financial statements.
43
54
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED ----------------------
MARCH 29, MARCH 30,NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
1998 1997 1998 1997
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
Net sales $ 53,08532,308 $ 55,09745,599 $ 132,616 $ 149,388
Cost of sales 44,974 46,97532,541 41,022 121,206 130,709
------------ ----------- ---------- ----------
Gross profit (loss) (233) 4,577 11,410 18,679
Selling, general and administrative expenses 4,486 3,829
--------- ---------4,553 4,656 13,693 12,448
------------ ----------- ---------- ----------
Operating income 3,625 4,293(loss) (4,786) (79) (2,283) 6,231
Interest expense, net 2,866 2,561
--------- ---------3,623 2,716 9,676 7,986
------------ ----------- ---------- ----------
Income (loss) before income taxes 759 1,732(8,409) (2,795) (11,959) (1,755)
Income tax provision 235 669
--------- ---------(credit) (3,157) (1,119) (4,027) (702)
------------ ----------- ---------- ----------
Net income (loss) $ 524(5,252) $ 1,063(1,676) $ (7,932) $ (1,053)
============ =========== ========== ===================
See accompanying notes to consolidated financial statements.
54
65
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREENINE MONTHS ENDED
---------------------------
MARCH 29, MARCH 30,-----------------
SEPTEMBER 27, SEPTEMBER 28,
1998 1997
---- ----
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 524(7,932) $ 1,063(1,053)
Adjustments to reconcile net income to net cash
used for operating activities
Depreciation and amortization 1,941 1,8237,304 5,616
Deferred income taxes -- 10(53) (209)
Changes in other assets and liabilities (4,285) (6,867)
--------(16,668) (7,173)
---------- ------------
Net cash used for operating activities (1,820) (3,971)
-------- -----------(17,349) (2,819)
---------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (3,214) (3,005)(13,270) (8,460)
Increase in other assets -- (117)
--------(4,859) (663)
---------- ------------
Net cash used for investing activities (3,214) (3,122)
--------(18,129) (9,123)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in line of credit 5,275 3,117
--------34,340 8,427
(Increase) decrease in other assets 1,156 (323)
---------- ------------
Net cash provided by financing 5,275 3,117
--------activities 35,496 8,104
---------- ------------
Net increase (decrease) in cash 241 (3,976)18 (3,838)
Cash - beginning of year 23 4,011
-------- ---------- ------------
Cash - end of period $ 26441 $ 35
========173
========== ============
See accompanying notes to consolidated financial statements.
65
76
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION
Aetna Industries, Inc. ("Aetna") is a wholly-owned indirect subsidiary of
MS Acquisition Corp. ("MS Acquisition") and is a wholly-owned direct
subsidiary of Aetna Holdings, Inc. ("Aetna Holdings") and has two
wholly-owned subsidiaries Aetna Export Sales Corp. ("Export") and Aetna
Manufacturing Canada Ltd ("Aetna Canada"). MS Acquisition is a holding
company that was formed for the sole purpose of purchasing Aetna and does
not have any significant operations, other than its investments in its
subsidiaries assets, or liabilities, other than preferred stock, junior
subordinated debentures and accruals resulting from stock acquisition
transactions.
MS, Holdings, Export and Canada have fully and unconditionally guaranteed
the 11 7/8% Senior Notes due 2006 issued by Aetna in an aggregate principal
amount of $85,000,000 (the "Senior Notes"). Separate financial statements
or other disclosures relative to Aetna Holdings, Export or Aetna Canada
have not been presented as management has determined that such information
is not material to investors.
The accompanying unaudited condensed consolidated financial statements of
Aetna Industries, Inc. (Aetna) have been prepared in accordance with Rule
10-01 of Regulation S-X and do not include all the information and notes
required by generally accepted accounting principles for complete financial
statements. All adjustments, which include only normal recurring
adjustments that are, in the opinion of management, necessary for a fair
presentation of the results of the interim periods, have been made. The
results of operations for such interim periods are not necessarily
indicative of results of operations for a full year. The unaudited
condensed consolidated financial statements should be read in conjunction
with Aetna's consolidated financial statements and notes thereto for the
year ended December 28, 1997.
2. SUBSEQUENT EVENT
On April 14, 1998, the outstanding capital stock ofAetna's parent, MS Acquisition, completed a combination
with Societe Financiere de Developpement Industriel et Technologique S.A.,
a French societe anonyme (Sofedit) was(the Combination). In connection with
the Combination, Sofedit's former stockholders transferred the outstanding
capital stock of Sofedit to MS Acquisition Corp., the holding company for
Aetna, in consideration ofexchange for: (i) promissory
notes of MS Acquisition in an
aggregatethe principal amount of approximately $41$40.9 million; (ii)
a portiondividends in an amount of Sofedit's profits for fiscal year 1997 to be paid to the former
stockholdersapproximately $1.0 million; (iii) 270,000 shares
of Sofedit consistent with the past dividend policy of
Sofedit; (iii) $27 million in Series B Preferred Stockstock ($27.0 million stated value) of MS Acquisition;
and (iv) 3,000,0003.0 million shares of Class A Common Stock of MS Acquisition, (representingand (v) the
assumption of approximately 75% of MS Acquisition's common stock
ownership). In addition, MS Acquisition assumed approximately $12$12.0 million of debt of such former
stockholders. The Combination has been accounted for as a reverse
acquisition because the former owners of Sofedit group in connection with the transaction.
3. INVENTORIES
Inventories are comprisedown approximately 75% of
the following:
MARCH 29, DECEMBER 28,
1998 1997
---- ----
Inventories valued at LIFO
Raw materials $ 1,603 $ 483
Work-in-process 2,505 3,134
Finished goods 1,701 1,500
--------- ---------
5,809 5,117
LIFO reserve (200) (200)
--------- ---------
5,609 4,917
--------- ---------
Inventories valued at FIFO
Purchased parts and purchased labor 1,930 2,359
--------- ---------
Total inventories $ 7,539 $ 7,276
========= =========
fully diluted outstanding Common Stock of MS Acquisition as a result of
the Combination. For accounting purposes, Sofedit is considered to be the
acquirer of, and the predecessor to, MS Acquisition.
6
7 8
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
4.2. INVENTORIES
Inventories are comprised of the following:
SEPTEMBER 27, DECEMBER 28,
1998 1997
---- ----
Raw materials $ 902 $ 483
Work-in-process 2,107 3,134
Finished goods 1,394 1,500
Purchased parts and purchased labor 2,083 2,359
--------- ---------
6,486 7,476
Reserve (200) (200)
--------- ---------
Total inventories $ 6,286 $ 7,276
========= =========
3. STOCKHOLDER'S EQUITY (DEFICIT)
CUMULATIVE TOTAL
CONTRIBUTED ACCUMULATED TRANSLATION STOCKHOLDER'S
CAPITAL DEFICIT ADJUSTMENT EQUITY (DEFICIT)
------- ------- ---------------- ----------------
Balance at December 28, 1997 $ 9,024 $ (14,910) $ - $ (5,886)
Translation adjustment (181) (181)
Net income 524 524
--------loss (7,932) (7,932)
------------ ----------- ---------- -------------------
Balance at March 29,September 27, 1998 $ 9,024 $ (14,386)(22,842) $ (5,362)
========(181) $ (13,999)
============ =========== ========== ===================
84. COMPREHENSIVE INCOME
Aetna adopted SFAS No. 130 "Reporting Comprehensive Income". The impact of
adoption has been to include changes in foreign currency translation, which have
not been recognized in determining net income, in a new presentation of
comprehensive income, as presented below.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NINE MONTHS ENDED
-----------------------------------
SEPTEMBER 27, SEPTEMBER 27,
1998 1997
---- ----
Net income (loss) $ (7,932) $ (1,053)
Foreign currency translation (181) -
--------- ---------
Comprehensive income (loss) $ (8,113) $ (1,053)
========= =========
7
98
MS ACQUISITION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
MARCH 29,SEPTEMBER 30, 1998 DECEMBER 28,31, 1997
--------------- ------------------ -----------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 26411,307 $ 2311,626
Restricted cash 10,727 --
Accounts receivable (less allowance for doubtful
accounts of $372$1,921 and $359,$1,293 respectively) 46,832 40,439163,281 115,823
Inventories 7,539 7,27676,163 64,013
Tooling 19,332 11,41049,151 --
Other current assets 2,186 1,66113,694 36,826
--------- ---------
Total current assets 76,153 60,809324,323 228,288
--------- ---------
Property, plant and equipment, net 53,194 51,572193,674 122,028
Deferred costs and other assets 5,341 5,489
Cost in excess of net assets acquired 24,773 24,97313,526 5,430
Goodwill 65,914 6,166
--------- ---------
$ 159,461597,437 $ 142,843361,912
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 40,348174,730 $ 33,485109,876
Accrued expenses 13,522 9,848
Line of credit 18,805 13,53061,795 52,849
Customer deposits and advances 6,047 8,448
Deferred income taxes 4,773 4,882
Short-term borrowings 111,287 43,778
--------- ---------
Total current liabilities 72,675 56,863358,632 219,833
--------- ---------
Long-term debt 85,000 85,000185,333 71,416
Junior subordinated debenturesnotes 7,789 7,789--
Deferred interest, junior subordinated debentures 432notes 857 --
Deferred income taxes 7,432 7,432and other long-term liabilities 12,265 5,374
Redeemable preferred stock
Series A - $100 stated value;293,123 shares authorized;
13,689 13,328
135,096 and 127,962142,424 shares issued and outstanding respectively --14,440 --
Series B - $100 stated value; 2,000,000270,000 shares authorizedauthorized;
270,000 shares issued and outstanding 27,000 --
Stockholders' Equity (Deficit)
Class A, common stock - $.01 par value, 5,000,00012,000,000
shares authorized, 383,4093,902,498 shares issued and outstanding 4 4
Class B, common stock - $.01 par value, 5,000,000
shares authorized, 516,590 shares issued and outstanding 5 539 39
Additional paid-in capital 13,799 14,159
Accumulated deficit (34,088) (34,461)
Fair market value in excess of historical cost of net
assets acquired from entities partially under
common control (7,276) (7,276)39,132 41,654
Retained earnings (accumulated deficit) (47,984) 28,138
Cumulative translation adjustment (66) (4,542)
--------- ---------
(27,556) (27,569)(8,879) 65,289
--------- ---------
$ 159,461597,437 $ 142,843361,912
========= =========
See accompanying notes to consolidated financial statements.
98
109
MS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED -----------------------
MARCH 29, MARCHNINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
Net sales $ 53,085151,045 $ 55,097108,892 $ 473,296 $ 364,499
Cost of sales 44,974 46,975141,095 99,087 427,295 320,028
------------ ----------- ----------- ----------
Gross profit 9,950 9,805 46,001 44,471
Selling, general and administrative expenses 4,489 3,833
--------- ---------10,656 5,390 28,150 19,394
Research and development expenses 2,713 2,266 6,947 6,308
Other Expenses 1,671 30 3,657 2,138
------------ ----------- ----------- ----------
Operating income 3,622 4,289(loss) (5,090) 2,119 7,247 16,631
Interest expense, net 3,082 2,800
--------- ---------6,662 2,781 15,644 8,196
------------ ----------- ----------- ----------
Income (loss) before income taxes 540 1,489(11,752) (662) (8,397) 8,435
Income tax provision 167 576
--------- ---------(credit) (5,329) (1,353) (3,901) 1,240
------------ ----------- ----------- ----------
Income (loss) before discontinued operations (6,423) 691 (4,496) 7,195
Share in net income of equity investees
and minority interest (48) 107
Losses on discontinued operations (1,754) (1,788) (3,244) (3,162)
------------ ----------- ----------- ----------
Net income (loss) before
preferred stock dividend 373 913
--------- ---------dividends (8,177) $ (1,145) (7,740) $ 4,140
------------ =========== ---------- ===========
Preferred stock dividend requirements (360) (324)
--------- ---------dividends (381) (751)
------------ -----------
Net income available for common stockholders $ 13(8,558) $ 589
========= =========(8,491)
============ ===========
See accompanying notes to consolidated financial statements.
109
1110
MS ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREENINE MONTHS ENDED
---------------------------
MARCH 29, MARCH-----------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
---- ----
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 373(7,740) $ 9134,140
Equity income -- 102
Adjustments to reconcile net income to net cash
used for operating activities
Depreciation and amortization 1,941 1,823
Deferred interest 432 --
Deferred income taxes -- 1024,277 19,489
(Decrease) increase in other long-term liabilities (1,384) 1,034
Changes in other assets and liabilities (4,566) (5,672)7,588 1,406
-------- -----------------
Net cash used forprovided by operating activities (1,820) (2,926)22,741 26,171
-------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (3,214) (3,005)(31,617) (19,398)
Disposal of property, plant and equipment 4,408
Increase in restricted cash (10,727) --
(Increase) decrease in other assets -- (117)743 (4,094)
-------- ------------------
Net cash used for investing activities (3,214) (3,122)
--------- ---------(41,601) (19,084)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
RepaymentCapital increase -- 127
Dividends paid (2,396) (2,295)
Increase in long-term borrowings 12,943 22,475
Repayments of junior subordinated debentures -- (1,045)long-term debt (22,678) (25,299)
Net increase (decrease) in line of credit 5,275 3,11728,621 (703)
-------- -----------------
Net cash (used for) provided by financing 5,275 2,07216,490 (5,695)
-------- -----------------
Net increase (decrease)effect of exchange rates 2,051 (1,861)
-------- --------
Net decrease in cash 241 (3,976)(319) (469)
Cash - beginning of year 23 4,01111,626 11,350
-------- -----------------
Cash - end of period $ 26411,307 $ 3510,881
======== =================
See accompanying notes to consolidated financial statements.statements
10
11 12
MS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION
MS Acquisition Corp. (MS Acquisition)("MS Acquisition") is a holding company that was
formed primarily for the sole purpose of purchasing Aetna Industries, Inc. (Aetna). It("Aetna")
and does not have any significant operations, other than its investmentsinvestment in
its subsidiaries, assets or liabilities, other than preferred stock, junior
subordinated debentures and accruals.accruals resulting from stock acquisition
transactions. MS Acquisition has four direct and indirect U.S.
subsidiaries, Aetna, Aetna Holdings, Inc. ("Aetna Holdings"), Aetna Export
Sales Corp. ("Export") and Aetna Manufacturing Canada Ltd ("Aetna Canada").
It does not have any other direct or indirect U.S. subsidiaries.
MS, Holdings, Export and Canada have fully and unconditionally guaranteed
the 11 7/8% Senior Notes due 2006 issued by Aetna in an aggregate principal
amount of $85,000,000 (the "Senior Notes"). Separate financial statements
or other disclosures relative to Aetna Holdings, Export or Aetna Canada
have not been presented as management has determined that such information
is not material to investors.
The accompanying unaudited condensed consolidated financial statements of
MS Acquisition have been prepared in accordance with Rule 10-01 of
Regulation S-X and do not include all the information and notes required by
generally accepted accounting principles for complete financial statements.
All adjustments, which include only normal recurring adjustments that are,
in the opinion of management, necessary for a fair presentation of the
results of the interim periods, have been made. The results of operations
for such interim periods are not necessarily indicative of results of
operations for a full year. The unaudited condensed consolidated financial
statements should be read in conjunction with MS Acquisition'sthe consolidated financial
statements and notes thereto for the year ended December 28,31, 1997.
3. SUBSEQUENT EVENT
On April 14, 1998, the outstanding capital stock ofMS Acquisition completed a combination with Societe
Financiere de Developpement Industriel et Technologique S.A., a French
societe anonyme (Sofedit) was(the Combination). In connection with the
Combination, Sofedit's former stockholders transferred the outstanding
capital stock of Sofedit to MS Acquisition Corp., the holding company for
Aetna, in consideration ofexchange for: (i) promissory
notes of MS Acquisition in an
aggregatethe principal amount of approximately $41$40.9 million; (ii)
a portiondividends in an amount of Sofedit's profits for fiscal year 1997 to be paid to the former
stockholdersapproximately $1.0 million; (iii) 270,000 shares
of Sofedit consistent with the past dividend policy of
Sofedit; (iii) $27 million in Series B Preferred Stockstock ($27.0 million stated value) of MS Acquisition;
and (iv) 3,000,0003.0 million shares of Class A Common Stock of MS Acquisition, (representingand (v) the
assumption of approximately 75% of MS Acquisition's common stock
ownership). In addition, MS Acquisition assumed approximately $12$12.0 million of debt of such former
stockholders. The Combination has been accounted for as a reverse
acquisition because the former owners of Sofedit group in connection withown approximately 75% of
the transaction.fully diluted outstanding Common Stock of MS Acquisition as a result of
the Combination. For accounting purposes, Sofedit is considered to be the
acquirer of, and the predecessor to, MS Acquisition.
As a result of the Combination being accounted for as a reverse
acquisition, the financial statements included herein for December 31, 1997
and for the nine month period ended September 30, 1997 represent the
historical information of Sofedit, as predecessor. The consolidated balance
sheet at September 30, 1998 represents the consolidated financial position
of Sofedit and MS Acquisition. The statements of operations and cash flows
for the nine months ended September 30, 1998 represent the nine month
financial data of Sofedit, plus six months of financial data of MS
Acquisition (from April 1,1998). On a pro forma basis, MS Acquisition had
net sales of $526.4 million and $513.9 million, and pre-tax income (loss)
of ($7.9) million and $6.7 million, for the nine months ended September 30,
1998 and 1997, respectively.
11
12
131. BASIS OF PRESENTATION (CONTINUED)
The acquisition was accounted for using the purchase method. Therefore, the
purchase price was allocated to the identifiable assets and liabilities of
MS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
3.Acquisition, based upon independent appraisals and management estimates.
The initial purchase price allocations were based on preliminary estimates
of fair market value and are subject to revision. The excess of the
purchase price over the fair market value of assets and liabilities
aggregated $60,454 and has been recorded as goodwill and is being amortized
over forty years.
Estimated fair value:
MS Acquisition common stock $ 10,000
MS Acquisition's shareholders' deficit at
March 31, 1998 (27,565)
---------------
Excess purchase price $ 37,565
===============
This excess purchase price has been allocated to the assets and liabilities
of MS Acquisition as follows:
Inventory and tooling $ 811
Property, plant and equipment 7,280
Goodwill, previously recorded (24,773)
Goodwill 60,454
Accrued liability (2,500)
Deferred tax liability (3,707)
---------------
$ 37,565
===============
2. INVENTORIES
Inventories are comprised of the following:
MARCH 29,SEPTEMBER 30, DECEMBER 28,31,
1998 1997
---- ----
Inventories valued at LIFO
Raw materials $ 1,60327,025 $ 48319,189
Work-in-process 2,505 3,13431,909 30,214
Finished goods 1,701 1,500
--------- ---------
5,809 5,117
LIFO reserve (200) (200)
--------- ---------
5,609 4,917
--------- ---------
Inventories valued at FIFO17,632 16,819
Purchased parts and purchased labor 1,930 2,359
--------- ---------2,083 -
----------- -----------
78,649 66,222
Reserves (2,486) (2,209)
----------- -----------
Total inventories $ 7,53976,163 $ 7,276
========= =========64,013
=========== ===========
4.12
13
3. STOCKHOLDERS' EQUITY (DEFICIT)
FAIR MARKET
VALUE IN
EXCESS OF
HISTORICAL
CLASS A CLASS B ADDITIONAL COST OF TOTAL
COMMON COMMONCUMULATIVE
CAPITAL PAID-IN ACCUMULATED NET ASSETSRETAINED TRANSLATION STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT ACQUIREDEARNINGS ADJUSTMENT EQUITY -----(DEFICIT)
----- ------- ------- -------- ---------------- ----------------
Balance at December 28,31, 1997 $ 39 $ 41,654 $ 28,138 $ (4,542) $ 65,289
Dividends paid (1,685) (68,382) (70,067)
Translation adjustment 4,476 4,476
Common issued under
stock option plan 4 $ 5 $ 14,159 $ (34,461) $ (7,276) $ (27,569)
Net income 373 3734
Dividends on redeemable
preferred stock (360) (360)
------ -----(751) (751)
Stock issuance costs (90) (90)
Net loss (7,740) (7,740)
---------- ---------- --------- ------------- ---------- -------- ---------
Balance at March 29,September 30, 1998 $ 439 $ 539,132 $ 13,799(47,984) $ (34,088)(66) $ (7,276)(8,879)
========== ========== ========= ============= ==========
4. COMPREHENSIVE INCOME
MS Acquisition adopted SFAS No. 130 "Reporting Comprehensive Income". The impact
of adoption has been to include changes in foreign currency translation, which
have not been recognized in determining net income, in a new presentation of
comprehensive income, as presented below.
NINE MONTHS ENDED
-----------------
SEPTEMBER 30, DECEMBER 31
1998 1997
---- ----
Net income (loss) $ (27,556)
====== ===== ========= ========== ======== =========(8,491) $ 4,140
Foreign currency translation 4,476 (4,542)
----------- ------------
Comprehensive income (loss) $ (4,015) $ (402)
=========== ============
13
14
5. COMBINING FINANCIAL INFORMATION OF MS ACQUISITION
BALANCE SHEET AS OF SEPTEMBER 30, 1998
AETNA MS
AETNA HOLDINGS ACQUISITION SOFEDIT ELIMINATIONS TOTAL
Total current assets $ 93,246 $ - $ 586 $ 234,504 $ (4,013) $ 324,323
Property, plant and
equipment, net 59,327 6,916 127,431 193,674
Other long-term assets 30,361 7,845 135,422 13,753 (107,941) 79,440
--------- --------- ----------- ----------- ----------- -----------
Total assets $ 182,934 $ 7,845 $ 142,924 $ 375,688 $ (111,954) $ 597,437
========= ========= =========== =========== =========== ===========
Total current liabilities $ 104,500 $ (509) $ 55,217 $ 203,878 $ (4,454) $ 358,632
Long-term debt 85,000 100,333 185,333
Junior subordinated notes 7,789 7,789
Deferred interest,
junior subordinated notes 857 857
Deferred income taxes and
other long-term liabilities 7,433 3,464 1,368 12,265
Redeemable preferred stock
Series A 14,440 14,440
Series B 27,000 27,000
Class A, common stock -
$.01 par value,
12,000,000 shares
authorized, 3,902,498 39 39
shares issued and
outstanding
Additional paid-in capital 9,024 30,108 39,132
Retained earnings
(accumulated deficit) (22,842) (292) 12,656 69,994 (107,500) (47,984)
Cumulative translation
adjustment (181) 115 (66)
--------- ----------- ----------- ----------- ---------- ----------
(13,999) (292) 42,803 70,109 (107,500) (8,879)
--------- ----------- ----------- ----------- ---------- ----------
$ 182,934 $ 7,845 $ 142,924 $ 375,688 $(111,954) $ 597,437
========= =========== =========== =========== ========== ==========
14
15
5. COMBINING FINANCIAL INFORMATION OF MS ACQUISITION (CONTINUED)
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
AETNA MS
AETNA HOLDINGS ACQUISITION SOFEDIT ELIMINATIONS TOTAL
Net sales $ 79,531 $ - $ - $ 393,765 $ - $ 473,296
Cost of sales 76,195 589 350,511 427,295
----------- ---------- --------- ------------ ------------ -----------
Gross profit 3,336 (589) 43,254 46,001
Selling, general and
administrative expenses 8,521 46 19,583 28,150
Research and development
expenses 6,947 6,947
Other non-recurring
expenses 723 355 2,579 3,657
----------- ---------- --------- ----------- ------------ -----------
Operating income (loss) (5,908) (990) 14,145 7,247
Net interest expense 6,810 460 1,673 6,701 15,644
----------- ---------- --------- ----------- ------------ -----------
Income (loss) before income
taxes (12,718) (460) (2,663) 7,444 (8,397)
Income tax provision (credit) (4,262) (168) (933) 1,462 (3,901)
----------- ---------- --------- ----------- ------------ -----------
Income (loss) before
discontinued operations $ (8,456) $ (292) $ (1,730) $ 5,982 $ $ (4,496)
=========== ========== ========= =========== ============ ===========
15
16
5. COMBINING FINANCIAL INFORMATION OF MS ACQUISITION (CONTINUED)
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998
AETNA MS
AETNA HOLDINGS ACQUISITION SOFEDIT TOTAL
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by
operating activities $ (14,476) $ (519) $ (1,714) $ 38,877 $ 22,168
---------- ------------ ---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used for
investing activities (14,886) 1,714 (27,856) (41,028)
---------- ------------ ----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash provided by
financing 29,403 519 (13,432) 16,490
---------- ------------ ----------- ---------- -----------
Net effect of exchange
rates 2,051 2,051
---------- ------------ ----------- ---------- -----------
Net increase in cash 41 (360) (319)
Cash - beginning of year 11,626 11,626
---------- ------------ ----------- ---------- -----------
Cash - end of period $ 41 $ - $ - $ 11,266 $ 11,307
========== ============ =========== ========== ===========
16
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
AETNA
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, Aetna's and MS
Acquisition's statement of
operations expressed as a percentage of net sales. This table and subsequent
discussions should be read in conjunction with the condensed consolidated
financial statements and related notes thereto of Aetna and MS Acquisition included elsewhere
herein. MS Acquisition was formed
primarily for the purpose of purchasing Aetna, and it does not have any
significant assets or liabilities, other than preferred stock, junior
subordinated debentures and accruals. Additionally, MS Acquisition does not have
any incremental net sales or significant expenses, other than the interest
expense associated with the junior subordinated debentures and the related
income tax benefit.
THREE MONTHS ENDED MARCH 29, 1998 COMPARED TO THREE MONTHS ENDED MARCH 30, 1997
AS A PERCENTAGE OF NET SALES
THREE MONTHS ENDED MARCH 29,NINE MONTHS ENDED
------------------------------------ ----------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
1998 MARCH 30, 1997 -------------- --------------
MS MS
AETNA ACQUISITION AETNA ACQUISITION
----- ----------- ----- -----------1998 1997
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 84.7 84.7 85.3 85.3100.7 90.0 91.4 87.5
----------- ----------- --------- -----------
Gross profit 15.3 15.3 14.7 14.7(0.7) 10.0 8.6 12.5
Selling, general &and
administrative expenses 8.5 8.5 6.9 6.914.1 10.2 10.3 8.3
----------- ----------- --------- -----------
Operating income 6.8 6.8 7.8 7.8(loss) (14.8) (0.2) (1.7) 4.2
Interest expense, net 11.2 6.0 7.3 5.4
5.8 4.7 5.0----------- ----------- --------- -----------
Income (loss) before
income taxes 1.4 1.0 3.1 2.8(26.0) (6.2) (9.0) (1.2)
Income tax provision 0.4 0.3 1.2 1.1(credit) (9.8) (2.5) (3.0) (0.5)
----------- ----------- --------- -----------
Net income 1.0% 0.7% 1.9% 1.7%loss (16.2) (3.7) (6.0) (0.7)
=========== =========== ========= ===========
THREE MONTHS ENDED SEPTEMBER 27, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
28, 1997
NET SALES: Net sales for Aetna and MS Acquisition for the firstthird quarter of 1998 were $53.1$32.3 million, or 3.7%,29.1%
lower than firstthird quarter 1997 sales of $55.1$45.6 million. Production sales of $52.6$27.6
million in the firstthird quarter of 1998 were down $1.2$16.9 million from $53.8$44.5 million
in the firstthird quarter of 1997, while toolingdue to the planned ramp-up of the new Grand
Cherokee and the eight-week strike at General Motors. Tooling and prototype
sales were down $0.8up $ 3.6 million for the same period. Production sales
were unfavorably impacted byAlso contributing to the
disposal of low volume, marginally profitable
roll form jobs anddecrease was the balancephase out of production related to the General Motors'
C/K truck sales due to a platform change that was begun last year. This decrease
was partially offset by an increase in Jeep Cherokee (XJ) sales.short-term customer factory assist work.
GROSS PROFIT: Aetna's and MS Acquisition's grossGross profit was $8.1$(0.2) million, or 15.3%(.7)% of net sales, for the
firstthird quarter of 1998 compared to $8.1$ 4.6 million, or 14.7%10.0% of net sales, for the
same period in 1997. The decrease in gross profit was primarily the result of
the impact of the UAW strike General Motors (GM) and the ramp-up of the Grand
Cherokee production in May.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expenses for the
third quarter of 1998 were $4.6 million, or 14.1 % of net sales, compared to $
4.7 million, or 10.2% of net sales, for the same period in 1997. The increase asis
due principally to ongoing launch costs for Saturn, WJ and CAMI platforms, and
costs incurred relative to quote preparation for a percentage
of sales, was due to short-term factory assist work running more efficiently in
the first quarter compared to previous quarters.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expensessignificant OEM platform with
worldwide launch planned for Aetna
and MS Acquisition for the first quarter of 1998 were $4.5 million, or 8.5% of
net sales, compared to $3.8 million, or 6.9% of net sales, for the same period
in 1997. The increase, as a percentage of sales, was due to start up costs and
additional staff in support of new platforms, especially the new Chrysler Jeep
Grand Cherokee, the Saturn LS and new CAMI J2 programs.
14model year 2002.
17
1518
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
INTEREST EXPENSE: Aetna's interestInterest expense for the firstthird quarter of 1998 was $2.9$3.6
million, or 5.4%11.2% of net sales, compared to $2.6$2.7 million or 4.7%6.0% of net sales
for the same period in 1997. Interest expense was impacted by higher levels of
short-term debt outstanding. MS Acquisition also had additional interest expenseused to finance the launch of $0.2 million, or 0.4%the Saturn and WJ programs,
production inefficiencies increased during the GM strike and the planned ramp-up
of sales, which is attributed to the junior
subordinated debentures.Jeep Grand Cherokee production.
INCOME TAXES: The income tax provision for Aetnacredit in the firstthird quarter of 1998 was $0.2$3.2
million with an effective tax rate of 31.0%37.5% as compared to a provisioncredit of $0.7$1.1
million with an effective tax rate of 38.6%40.0% for the same period in 1997.
NINE MONTHS ENDED SEPTEMBER 27, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 28,
1997
NET SALES: Net sales for the nine months ended September 27, 1998 were $132.6
million, down from the $149.4 million reported for the nine months ended
September 28, 1997. Production sales decreased $22.9 million, while tooling and
prototype sales increased $ 6.1 million for the same period.
GROSS PROFIT: Gross profit was $11.4 million, or 8.6% of net sales, for the nine
months ended September 27, 1998 compared to $18.7 million, or 12.5 % of net
sales, for the same period in 1997. The income tax provisiondecline in gross profit was primarily
due to the strike at GM and the transition to the new Grand Cherokee. The eight
week GM strike that occurred from June through early August of this year
resulted in approximately $5.3 million of lost revenue with an estimated $0.8
million loss in earnings before interest and taxes (EBIT).
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expenses for MS Acquisitionthe
nine months ended September 27, 1998 were $13.7 million, or 10.3% of net sales,
compared to $12.4 million, or 8.3% of net sales, for the same period in 1997.
The increase was due principally to the interruption of production sales during
the GM strike along with ongoing launch costs for Saturn, WJ and CAMI platforms,
and costs incurred relative to quote preparation for a significant OEM platform
with worldwide launch planned for model year 2002.
INTEREST EXPENSE: Interest expense for the nine months ended September 27,1998
was $9.7 million, or 7.3% of net sales, compared to $8.0 million or 5.4% of net
sales for the same period in the firstprior year. Working capital requirements
necessary to fund tooling expenditures relating to the three major program
launches resulted in higher interest expense year over year. The full effect on
sales of these new jobs will be realized in 1999 as two of the new platforms are
launched by the fourth quarter of 1998 and the third platform is planned to
launch in the second quarter of 1999.
INCOME TAXES: The income tax credit for the nine months ended September 27, 1998
was $0.2$4.0 million with an effective tax rate of 30.9%33.7% as compared to a provisioncredit of
$0.6$ 0.7 million with an effective tax rate of 38.7%40.0% for the same period in 1997.the
prior year.
LIQUIDITY AND CAPITAL RESOURCES
Aetna's and MS Acquisition's principal capital requirements are to fund working capital needs, to
meet required debt payments and to complete planned maintenance and expansion
expenditures.
On April 14, 1998, the outstanding capital stock of Societe Financiere de
Developpement Industriel et Technologique, a French societe anonyme (Sofedit)
was transferred to MS Acquisition in consideration of (i) promissory notes of MS
Acquisition in an aggregate principal amount of approximately $41 million; (ii)
a portion of Sofedit's profits for fiscal year 1997 to be paid to the former
stockholders of Sofedit consistent with the past dividend policy of Sofedit;
(iii) $27 million in Series B Preferred Stock of MS Acquisition; and (iv)
3,000,000 shares of Class A Common Stock of MS Acquisition (representing
approximately 75% of MS Acquisition's common stock ownership). In addition, MS
Acquisition assumed approximately $12 million of debt of the Sofedit group in
connection with the transaction.18
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
At March 29,September 27, 1998 there was $15.0$1.4 million available under the Credit Agreement
dated as of May 2, 1996 among Aetna, MS Acquisition, Aetna Holdings, Inc. (Aetna
Holdings) and Aetna Export Sales Corp. and NBD Bank, as amended (Senior
Revolving Credit Facility). In March 1998, the Company obtained a commitment for
an additional $20.0 million under the Senior
Revolving Credit Facility to
support Saturn tooling expenditure requirements.Facility. Management currently anticipates that its operating
cash flow, together with available borrowings under the Senior Revolving Credit
Facility, will be sufficient to meet working capital requirements, capital
expenditure requirements, and interest requirements on debt obligations through June 30,
1999, the current termobligations.
The terms of the indenture pursuant to which the Senior Revolving Credit Facility.Notes were issued
contains certain restrictive covenants which include restrictions on the
ability of Aetna, Aetna Canada and Export from paying dividends or making
certain other payments to Aetna Holdings or MS Acquisition.
CASH FLOWS
Net cash flowflows used for operations for the threenine months ended March 29,September 27, 1998
aggregated $1.8 million for Aetna and MS Acquisition.$17.4 million. This compares to net cash used for operations of $4.0$ 2.8
million and $2.3 million for Aetna and MS
Acquisition, respectively, for the same period in 1997. The decrease was
attributableis due primarily to a prior year new job pricing issue that was later resolved that
led to a build-up in accounts receivable. The decrease was partially offset by
anlower net
income and increase in tooling inventory, for new Mitsubishipartially offset by increased
depreciation and Saturn platforms as well
as WJ prototypes.
15
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCESamortization expenses.
Net cash flowflows used for investing activities aggregated $3.2$18.1 million for the
threenine months ended March 29,September 27, 1998 as compared to $3.1$9.1 million for the same
period in 1997 at both Aetna and MS Acquisition and consists principally of capital expenditures. The major
capital projects during 1998 have been the renovation of Plant 7 which will be
used to stamp the majority of the new Saturn LS jobs at Aetna and the purchase of
equipment for the start up of the Aetna Manufacturing Canada plant in London,
Ontario serving CAMI's J2J II platform.
Net cash flows provided by financing aggregated $5.3$35.5 million for the nine
months ended September 27, 1998 as compared to $8.1 million for the same period
in the prior year and in both cases represented increases in the Senior
Revolving Credit FacilityFacility.
19
20
MS ACQUISITION
RESULTS OF OPERATIONS
On April 14, 1998, MS Acquisition completed a combination with Societe
Financiere de Developpement Industriel et Technologique S.A., a French societe
anonyme (Sofedit) (the Combination). In connection with the Combination,
Sofedit's former stockholders transferred the outstanding capital stock of
Sofedit to MS Acquisition in exchange for: (i) promissory notes of MS
Acquisition in the principal amount of $40.9 million; (ii) dividends in an
amount of approximately $1.0 million; (iii) 270,000 shares of Series B Preferred
stock ($27.0 million stated value) of MS Acquisition; (iv) 3.0 million shares of
Common Stock of MS Acquisition, and (v) the assumption of approximately $12.0
million of debt of such former stockholders. The Combination has been accounted
for Aetnaas a reverse acquisition because the former owners of Sofedit own
approximately 75% of the fully diluted outstanding Common Stock of MS
Acquisition as a result of the Combination. For accounting purposes, Sofedit is
considered to be the acquirer of, and predecessor of MS Acquisition.
As a result of the Combination being accounted for as a reverse acquisition, the
financial statements included herein for December 31, 1997 and for the nine
month period ended September 30, 1997 represent the historical information of
Sofedit, as predecessor. The consolidated balance sheet at September 30, 1998
represents the consolidated financial position of Sofedit and MS Acquisition.
In addition,The statements of operations and cash flows for the nine months ended September
30, 1998 represent the nine month financial data of Sofedit, plus six months of
financial data of MS Acquisition paid $1.0(from April 1, 1998).
The following table sets forth, for the periods indicated, MS Acquisition's
statement of operations expressed as a percentage of net sales. This table and
subsequent discussions should be read in conjunction with the condensed
consolidated financial statements and related notes thereto of MS Acquisition
included elsewhere herein.
AS A PERCENTAGE OF NET SALES
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 93.4 91.0 90.3 87.8
-------------- ------------- -------------- -------------
Gross profit 6.6 9.0 9.7 12.2
Selling, general and administrative expenses 7.1 4.9 5.9 5.3
Research and development expenses 1.8 2.1 1.5 1.7
Other non-recurring expenses 1.1 - 0.8 0.6
-------------- ------------- -------------- -------------
Operating income (loss) (3.4) 2.0 1.5 4.6
Interest expense, net 4.4 2.6 3.3 2.3
-------------- ------------- -------------- -------------
Income (loss) before income taxes (7.8) (0.6) (1.8) 2.3
Income tax provision (credit) (3.5) (1.2) (0.8) 0.3
Share in net income of equity
investees and minority interests - - - -
Losses in discontinued operations (1.1) (1.6) (0.7) (0.9)
-------------- ------------- -------------- -------------
Net income (loss) before preferred stock dividends (5.4) (1.0) (1.7) 1.1
============== ============= ============== =============
20
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1997
NET SALES: Net sales were $151.0 million, of its junior subordinated
debentures duringup from the $108.9 million for the
three months ended MarchSeptember 30, 1997. ToNet sales in Europe were up 9% in the
extent dividendsthird quarter 1998 from 1997, or 5.8% excluding the effects of foreign exchange.
The increase in European sales was due to both a general growth in the car
market and to the launch of new products in 1997 which reach full production in
1998.
GROSS PROFIT: Gross profit was $10.0 million, or 6.6% of net sales, for the nine
months ended September 30, 1998 compared to $9.8 million, or 9.0% of net sales,
for the same period in 1997. The decrease in gross profit was due to higher
launch costs and related manufacturing inefficiencies.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expenses for the
nine months ended September 30,1998 were $10.7 million, or 7.1% of net sales,
compared to $5.4 million, or 4.9% of net sales, for the same period in 1997.
Increased costs were due to increased project team activity and the
reinforcement of the current management structure.
INTEREST EXPENSE: Interest expense for the three months ended September 30, 1998
was $6.7 million, or 4.4% of net sales, compared to $2.8 million, or 2.6% of net
sales in the same period in the prior year. The increase in interest expense is
due principally to the Combination.
INCOME TAXES: The income tax credit for the three months ended September 30,
1998 was $5.3 million with an effective tax rate of 45.3% as compared to a
credit of $1.4 million with an effective tax rate of 204.4% for the same period
in the prior year. The change in the effective tax rate was due to a reduction
in the French research & development tax credit.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1997
NET SALES: Net sales were $473.3 million, up from the $364.5 million for the
nine months ended September 30, 1997. The increase in net sales is primarily
attributable to the Combination with MS Acquisition, which had sales of $79.5
million for the six months since the date of Combination. The remaining increase
of $29.3 million is due primarily to increased sales at Sofedit, partially
offset by the negative effect of currency fluctuation.
GROSS PROFIT: Gross profit was $46.0 million, or 9.7% of net sales, for the nine
months ended September 30, 1998 compared to $44.5 million, or 12.2% of net
sales, for the same period in 1997. The gross profit decrease, as a percentage
of sales, is due primarily to higher launch costs and related manufacturing
inefficiencies.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expenses for the
nine months ended September 30,1998 were $28.2 million, or 5.9% of net sales,
compared to $19.4 million, or 5.3% of net sales, for the same period in 1997.
INTEREST EXPENSE: Interest expense for the nine months ended September 30, 1998
was $15.6 million, or 3.3% of net sales, compared to $8.2 million, or 2.3% of
net sales in the same period in the prior year. The increase in interest expense
is due principally to the Combination.
21
22
INCOME TAXES: The income tax credit for the nine months ended September 30, 1998
was $ 3.9 million with an effective tax rate of 46.5% as compared to a provision
of $1.2 million with an effective tax rate of 14.7% for the same period in the
prior year.
LIQUIDITY AND CAPITAL RESOURCES
MS Acquisition's primary sources of liquidity are cash generated from operations
and short-term and long-term debt, including the sale of receivables. MS
Acquisition's principal use for these funds is to finance working capital needs,
debt payments and planned maintenance and expansion activities. The Company's
liquidity is affected by both the cyclical nature of its business and its level
of net sales. The Company believes that operating cash flow and its line of bank
credit will be sufficient to cover its short-term and long-term capital
expenditures and debt payment obligations. Nevertheless, MS Acquisition's
ability to meet these liquidity demands will depend upon future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond MS
Acquisition's control.
FINANCIAL CONDITION
At September 30, 1998, MS Acquisition had available cash, cash equivalents and
marketable securities totaling $22.0 million, compared to $11.6 million at
December 31. At September 30, 1998, MS Acquisition had current assets of $324.3
million, compared to $358.6 million in current liabilities, giving it negative
working capital of $34.3 million, compared to $8.5 million at December 31, 1997.
At September 30, 1998, MS Acquisition had $1.4 million available under its
Amended and Restated Credit Agreement among Aetna, MS Acquisition, Aetna
Holdings, Inc. (Aetna Holdings) whichAetna Export Sales Co., Aetna Canada and NBD Bank (the "Senior
Revolving Credit Facility"). Restricted cash of $10.7 million at September 30,
1998 represents cash held by Sofedit in a mutual fund cash
interest paymentsuntil February 1999 to
warranty an additional line of credit for Aetna Industries.
On September 30, 1998, short-term debt consisted of a line of credit of $11.7
million, promissary notes of $40.9 million, discount on the Junior Subordinated Debenturesnotes of $1.3
million, assumed debt of $12.0 million and notes payable of $47.9 million.
Long-term debt consisted of Senior notes of $85.0 million, long-term bank loans
of $66.1 million, leasing contracts of $34.2 million and junior debt of $8.6
million.
CASH FLOWS
Net cash payments on the
unfunded contractual obligationsprovided by operating activities was $22.2 million compared to former option holders are permitted under
the 11-7/8% Senior Note Indenture and the Senior Revolving Credit Facility,
interest on the Junior Subordinated Debentures and the contractual obligations
will be funded by cash dividends by Aetna to Aetna Holdings. Additionally, up to
$2.5$26.2
million in the aggregate principal amountsame period of the Junior Subordinated
Debenturesprior year. The principal reason for the
decrease in cash provided by operating activities is attributable to lower net
income, tooling inventory increases, partially offset by increased depreciation
and amortization.
Net cash used for investing activities was $41.0 million and $19.1 million for
the nine months ended September 30, 1998 and 1997, respectively. The change was
due principally to increased capital expenditures.
Net cash provided by financing was $16.5 million compared to cash used of 5.7
million for the nine months ended September 30, 1998 and 1997 respectively. This
change was principally due to an increase in line of credit borrowings in 1998.
22
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
EUROPEAN MONETARY UNION
Since substantial portions of MS Acquisition's activities are carried out in
Europe, MS Acquisition is actively preparing for the introduction of a single
European currency. After January 1, 1999, MS Acquisition will be required, upon
the request of any party with which it transacts to use the euro as a currency
of payment in its European commercial activities in certain financial
transactions and in dealings with administrative bodies. On the basis of
currently available information, MS Acquisition does not expect that expenses to
be redeemed by Aetna Holdings from timeincurred in connection with the introduction of the euro as a currency of
payment for MS Acquisition will have a material adverse effect on the results of
operations or financial position of MS Acquisition.
YEAR 2000
MS Acquisition has conducted a review of its computer systems to time
to the extent dividends to Aetna Holdings are permitted toidentity those
areas that may not be paid by the
11-7/8% Senior Note Indenture and the Senior Revolving Credit Facility. Aetna is
in default under the IndentureYear 2000 compliant and is thereforedeveloping a plan to resolve
the issue. MS Acquisition believes that by modifying existing software and
obtaining new releases of licensed software, the Year 2000 transition can be
carried out without significant operational expenses or significant investments
in computer systems improvements. On the basis of currently available
information, MS Acquisition does not permitted to makeexpect that expenses be incurred in
connection with the continuing identification of systems which are not Year 2000
compliant and with their replacement or upgrade will have a distribution to Aetna Holdings. The amount of deferred interest at March 29,
1998 representing interestmaterial adverse
impact on the debentures was $0.4 million.results of operations or financial position of MS Acquisition.
There can be, however, no assurances of the absence of any disruptions in MS
Acquisition's own systems or those of its customers and suppliers. MS
Acquisition considers that sufficient resources have been dedicated to address
these issues in a timely manner.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 addresses the accounting for
derivative instruments. This statement is not expected to have a material effect
on MS Acquisition's financial position or results of operations.
In April 1998, the Accounting Standards Executive Committee issued Statement of
Position 98-5 ("SOP") 98-5), "Reporting on the Costs of Start-up Activities.
This statement prescribes accounting treatment for start-up activities and is
effective for fiscal years beginning after December 15, 1998. This statement is
not expected to have a material effect on MS Acquisition's financial position or
result of operations.
In February, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132 ("SFAS 132"), "Employers' Disclosure
about Pension and Other post-Retirement Benefits." SFAS 132 revises employers'
disclosures about pension and other post-retirement benefit plans but does not
change the measurement or recognition of those plans. This statement is not
expected to have a material effect on MS Acquisition's financial position or
results of operation.
23
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
FUTURE OPERATING RESULTS
With the exception of historical matters, the matters discussed in this
Quarterly Report on Form 10-Q are forward-looking statements that involve risks
and uncertainties, including, but not limited to, factors related to the highly
competitive nature of the automotive supplier industry and its sensitivity to
changes in general economic conditions, the results of financing efforts and
other factors discussed in Aetna's andor MS Acquistion'sAcquisition's filings with the
Securities and Exchange Commission (including the April 14, 1998 transaction
with Sofedit).Commission. Such factors could affect Aetna's andcause MS Acquisition's
actual results during the remainder of 1998 and beyond to differ materially from
those expressed in any forward-looking statement made by or on behalf of Aetna
or MS Acquisition. There can be no assurance that additional sources of
financing will not be required during the next twelve months as a result of
unanticipated cash demands or opportunities for expansion or acquisition,
changes in growth strategy or adverse operating results. There can be no
assurance that any additional funds required, by Aetna or MS Acquisition, whether within the next twelve
months or thereafter, will be available to Aetna or MS Acquisition on
satisfactory terms.
1624
17
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.25
PART II. OTHER INFORMATION
ITEM 1 TO1. NOT APPLICABLE
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On August 13, 1998, a former employee excercised an option to acquire
2,500 shares of MS Acquisition Series A-3 Common Stock for $1,875.
ITEM 3. NOT APPLICABLE
ITEM 4. NOT APPLICABLE
ITEM 5. Not applicable.NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBITS
25
26
EXHIBIT NO. DESCRIPTION OF EXHIBITS
4.1 First Supplemental Indenture dated as of August 3, 1998 among Aetna
Industries, Inc., MS Acquisition Corp., Aetna Holdings, Inc., Aetna
Export Sales Corp., Aetna Manufacturing Canada Ltd. and Norwest Bank
Minnesota National Association.
4.2 Second Amendment to Credit Agreement dated as of August 6, 1998 among
Aetna Industries, Inc., the Guarantors party thereto, the lenders party
thereto and NBD Bank
27.1 Financial Data Schedule for Aetna Industries, Inc. (EDGAR Filing Only)
27.2 Financial Data Schedule for MS Acquisition Corp. (EDGAR Filing Only)
(b) No reportsReports on Form 8-K
were filed by the registrants during the three
months ended March 29, 1998.
17(1) MS Acquisition Corp. Current Report on Form 8-K dated September 15,
1998 reporting Item 6 - Changes in registrant's certifying accountants
26
1827
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrants have duly caused this report to be signed on their behalf by the
undersigned thereunto duly authorized.
The signatory hereby acknowledges and adopts the typed form of his name in the
electronic filing of this document with the Securities and Exchange Commission.
Aetna Industries, Inc.
Date: May 6,November 11, 1998 By: s/ Harold A. Brown
-------------------
Harold A. Brown
Secretary, Vice President, Finance
and Secretary
(PrincipalChief Financial and Accounting
Officer)Officer
MS Acquisition Corp.
Date: May 6,November 11, 1998
By: s/ Harold A. Brown
-------------------
Harold A. Brown
Secretary, Vice President Finance and Secretary
(Principal Financial and Accounting
Officer)
18North America
27
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EXHIBIT INDEX
Exhibit No. Description of Exhibits
- ----------- -----------------------4.1 First Supplemental Indenture dated as of August 3, 1998 among Aetna
Industries, Inc.; MS Acquisition Corp., Aetna Holdings, Inc., Aetna
Export Sales Corp., Aetna Manufacturing Canada Ltd. and Norwest Bank
Minnesota National Association.
4.2 Second Amendment to Credit Agreement dated as of August 6, 1998 among
Aetna Industries, Inc., the Guarantors party thereto, the lenders party
thereto and NBD Bank
27.1 Financial Data Schedule for Aetna Industries, Inc.
27.2 Financial Data Schedule for MS Acquisition Corp.
1928