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, 1998.31, 1999.
OR
__ TRANSITION__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. 333-11801-01 Trianon Industries Corp.
Commission File No. 333-11801 (Aetna Industries, Inc.)
Commission File No. 333-11801-01 (MS Acquisition Corp.TRIANON INDUSTRIES CORP.
(FORMERLY KNOWN AS MS ACQUISITION CORP.)
AETNA INDUSTRIES, INC.
MS ACQUISITION CORP.
(Exact name of registrant as specified in its charter)
Delaware 38-200-7550/13-337-980313-337-9803/38-200-7550
- ------------------------------------------------------------------------------------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organizationorganization) Identification No.)
(Address of principal executive offices) (Zip Code)
1, rue Thomas Edison, Quartier des Chenes
78056 St. Quentin en Yvelines, France
24331 Sherwood Avenue, P.O. Box 3067, Centerline, Michigan 48015-0067
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (33-1) 39-412000
(810) 759-2200
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, 1998,May 14, 1999, there were 1,000 shares of Aetna Industries, Inc. common
stock outstanding and 3,899,9993,902,498 shares of MS AcquisitionTrianon Industries 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 TRIANON INDUSTRIES CORP.
Condensed Consolidated Balance Sheets -
March 31, 1999 and December 31, 1998 3
Consolidated Statements of Operations and
Comprehensive Income - three months ended March 31,
1999 and March 31, 1998 4
Condensed Consolidated Statements of Cash Flows -
three months ended March 31, 1999
and March 31, 1998 5
Notes to Consolidated Financial Statements 6
FINANCIAL STATEMENTS OF AETNA INDUSTRIES, INC.
Condensed Consolidated Balance Sheets -
4
March 29, 1998April 2, 1999 and December 28, 199731, 1998 11
Consolidated Statements of Operations and
Comprehensive Income (Loss) - 5 three months ended
April 2, 1999 and March 29, 1998 and March 30, 199712
Condensed Consolidated Statements of Cash Flows -
6
three months ended April 2, 1999
and March 29, 1998 and March 30, 199713
Notes to Consolidated Financial Statements 7
FINANCIAL STATEMENTS OF MS ACQUISITION CORP.
Condensed Consolidated Balance Sheets - 9
March 29, 1998 and December 28, 1997
Consolidated Statements of Operations - 10
three months ended March 29, 1998
and March 30, 1997
Condensed Consolidated Statements of Cash Flows - 11
three months ended March 29, 1998
and March 30, 1997
Notes to Consolidated Financial Statements 1214
Item 2. Management's Discussion and Analysis of
14
Financial Condition and Results of Operations 16
Item 3. Qualitative and Quantitative and Qualitative DisclosuresDisclosure About
Market Risk 1723
Item 4. Submission of Matters to a Vote of Security Holders. 24
PART II OTHER INFORMATION 1730
Description of Exhibits 31
Signatures 1832
EXHIBIT INDEX 19
32
43
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TRIANON INDUSTRIES CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
MARCH 31, 1999 DECEMBER 31, 1998
-------------- -----------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and marketable securities $18,958 $26,092
Accounts receivable (less allowance for doubtful
accounts of $1,721 and $1,921 respectively) 174,126 181,375
Inventories 114,709 115,287
Other current assets 10,316 9,801
-------------- ------------
Total current assets 318,109 332,555
-------------- ------------
Property, plant and equipment, net 193,426 203,271
Deferred costs and other assets 24,720 22,969
Goodwill 64,454 65,367
-------------- ------------
TOTAL ASSETS $600,709 $624,162
============== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $188,555 $173,517
Accrued expenses 48,639 82,250
Current portion of long term and short term debt (145,441) 157,004
-------------- ------------
Total current liabilities 377,433 412,771
-------------- ------------
Long-term debt, less current portion 182,125 167,477
Deferred income taxes and other long-term liabilities 18,717 19,370
Redeemable preferred stock 42,302 41,157
Series A - $100 stated value; 293,123 shares authorized;
142,424 shares issued and outstanding
Series B - $100 stated value; 270,000 shares authorized;
270,000 shares issued and outstanding
Stockholders' Equity (Deficit)
Class A, common stock - $.01 par value, 12,000,000
shares authorized, 3,902,498 shares issued and outstanding 39 39
Contributed paid-in capital 40,708 40,708
Retained earnings (accumulated deficit) (54,795) (54,910)
Accumulated other comprehensive income (loss) (5,820) (2,450)
-------------- ------------
TOTAL LIABILITIES, PREFERRED STOCK AND
SHAREHOLDER'S EQUITY (DEFICIT) $600,709 $624,162
============== ============
See accompanying notes to consolidated financial statements.
3
4
TRIANON INDUSTRIES CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
------------------
MARCH 31, MARCH 31,
1999 1998
---- ----
(UNAUDITED)
Net sales $218,157 $136,873
Cost of sales 191,932 120,735
------------ -----------
Gross profit 26,225 16,138
Selling, general and administrative expenses and
research and development expenses 14,673 9,833
------------ -----------
Operating income (loss) 11,552 6,305
Interest expense, net 7,268 2,170
------------ -----------
Income (loss) before income taxes 4,284 4,135
Income tax provision (credit) 2,251 1,185
------------ -----------
Income (loss) before discontinued operations 2,033 2,950
Losses on discontinued operations, net of tax 772 0
------------ -----------
Net income (loss) before
preferred stock dividends 1,261 2,950
Preferred stock dividends 1,146 0
------------ -----------
Net income available for common stockholders $115 $2,950
============ ===========
Other comprehensive income (loss):
Foreign currency translation adjustment (3,370) 6,165
------------ -----------
Comprehensive income (loss) $ (3,255) $ 9,115
============ ===========
See accompanying notes to consolidated financial statements
4
5
TRIANON INDUSTRIES CORP.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREE
MONTHS
ENDED
MARCH 31, MARCH 31,
1999 1998
---- ----
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 1,261 $ 2,950
Adjustments to reconcile net income to net cash
used for operating activities:
Depreciation and amortization 8,879 5,154
Deferred income taxes 411
Other non cash charges 100 753
Changes in other assets and liabilities (8,565) 3,493
----------- ------------
Net cash provided by (used for) operating activities 1,675 12,761
----------- ------------
Cash flows from investing activities
Additions to property, plant and equipment (7,485) (5,895)
Increase in other assets (2) (5)
----------- ------------
Net cash provided by (used for) investing activities (7,487) (5,900)
----------- ------------
Cash flows from financing activities
Net decrease in borrowings under line of credit (1,298) (1,138)
Repayment of long term debt (9,825) (3,608)
Borrowings of long term debt 11,776 --
----------- ------------
Net cash provided by (used for) financing activities 653 (4,746)
----------- ------------
Exchange Rate Variation (1,975) (548)
Net increase (decrease) in cash (7,134) 1,567
Cash - beginning of year 26,092 11,626
----------- ------------
Cash - end of period $18,958 $ 13,193
=========== ============
See accompanying notes to consolidated financial statements
5
6
TRIANON INDUSTRIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Effective May 12, 1999, MS Acquisition Corp changed its name to Trianon
Industries Corp.
Trianon Industries Corp. ("the Company") is the name of the group formed by
the combination of the activities of SOFEDIT S.A. and Trianon Industries
Corp.
Trianon Industries Corp. ("Trianon Industries"), through Aetna Industries
Inc. ("Aetna"), its wholly-owned subsidiary, is a leading direct supplier
of high quality modules, welded subassemblies and chassis parts used as
original equipment components in the North American automobile industry.
SOFEDIT S.A., ("Sofedit") a direct and indirect wholly-owned subsidiary of
the Company, is a leading direct supplier of welded subassemblies, body in
white parts, clutch, brake and accelerator pedal modules, fuel tanks and
crossmembers and chassis parts used as original equipment components by
manufacturers in the European automobile industry.
Trianon Industries and its direct and indirect wholly-owned United States
subsidiaries (i.e., Aetna Holdings, Inc., a Delaware corporation ("Aetna
Holdings"), Aetna Manufacturing Canada Ltd., a Michigan corporation ("Aetna
Canada"), and Aetna Export Sales Corp., a U.S. Virgin Islands corporation
("Export")) have fully and unconditionally guaranteed the 11 7/8% Senior
Notes due 2006 issued by Aetna in an aggregate principal amount of $85.0
million (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.
On April 14, 1998, Trianon Industries 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 Trianon Industries in exchange for: (i)
promissory notes of Trianon Industries 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
Trianon Industries; (iv) 3.0 million shares of Common Stock of Trianon
Industries, and (v) the assumption of approximately $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 own approximately
75% of the fully diluted outstanding Common Stock of Trianon Industries as
a result of the Combination. For accounting purposes, Sofedit is considered
to be the acquirer of, and the predecessor to, Trianon Industries.
As a result of the Combination being accounted for as a reverse
acquisition, the financial statements included herein for the three month
period ended March 31,1998 represent the historical information of Sofedit,
as predecessor. The consolidated balance sheet at March 31, 1999 represents
the consolidated financial position of Sofedit and Trianon Industries.
The accompanying unaudited condensed consolidated financial statements of
Trianon Industries 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 the consolidated financial
statements and notes thereto for the year ended December 31, 1998.
The statements of operations and cash flows for the three months ended
March 31, 1999 represent the three month financial data of Sofedit plus
Trianon Industries. On a pro forma basis, Trianon Industries had net sales
of $189.9 million, and pre-tax income of $3.6 million, for the three
months ended March 31, 1998.
6
7
TRIANON INDUSTRIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
2. INVENTORIES
Inventories are comprised of the following:
MARCH 31, DECEMBER 31,
1999 1998
---- ----
Raw materials $ 23,923 $ 27,131
Work-in-process 22,542 31,976
Finished goods 15,980 18,839
Tooling 55,691 40,724
------------ ---------------
Inventories, gross 118,136 118,670
Less valuation allowance (3,427) (3,383)
------------ ---------------
Total inventories $114,709 $115,287
------------ ---------------
Tooling inventory at Sofedit is included in work in process at December 31, 1998
and has been included in tooling at March 31, 1999
3. STOCKHOLDERS' EQUITY (DEFICIT)
ACCUMULATED
ADDITIONAL RETAINED OTHER TOTAL
CONTRIBUTED PAID IN EARNINGS COMPREHENSIVE STOCKHOLDER'S
CAPITAL CAPITAL (DEFICIT) ADJUSTMENT EQUITY (DEFICIT)
Balance at December 31, 1998 $39 $40,708 ($54,910) ($2,450) ($16,613)
Translation adjustment (3,370) (3,370)
Preferred Stock dividends (1,146) (1,146)
Net income (loss) 1,261 1,261
------------- -------------- ------------ ------------------- -----------------
Balance at March 31, 1999 $39 $40,708 $(54,795) ($5,820) $(19,868)
------------- -------------- ------------ ------------------- -----------------
7
8
TRIANON INDUSTRIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
4. COMBINING FINANCIAL INFORMATION OF TRIANON INDUSTRIES
CORP BALANCE SHEET AS OF MARCH 31, 1999
AETNA TRIANON
AETNA HOLDINGS INDUSTRIES SOFEDIT ELIMINATIONS TOTAL
Total current assets $ 82,720 $ - $ 5,789 $ 254,207 $ (24,607) $ 318,109
Property, plant and
equipment, net 70,744 6,552 116,130 193,426
Other long-term assets 32,372 8,247 131,745 21,781 (104,971) 89,174
-------- --------- --------- ---------- ---------- ---------
Total assets $185,836 $ 8,247 $ 144,086 $ 392,118 $ (129,578) $ 600,709
======== ========= ========= ========= ========== =========
Total current liabilities 104,859 (201) 46,114 235,100 (8,439) 377,433
Long-term debt 88,125 17,032 79,922 (12,031) 173,048
Junior subordinated notes 9,077 9,077
Deferred income taxes and
other long-term liabilities 5,496 3,478 9,743 18,717
Redeemable preferred stock 42,302 42,302
Class A, common stock -
$.01 par value,
12,000,000 shares
authorized, 3,902,498
outstanding 39 1,274 (1,274) 39
Additional paid-in capital 14,024 32,151 23,969 (29,436) 40,708
Retained earnings
(accumulated deficit) (26,494) (629) 2,970 47,740 (78,382) (54,795)
Cumulative translation -
adjustment (174) (5,630) (16) (5,820)
-------- --------- --------- --------- ---------- ---------
Total stockholders equity
(deficit) $(12,644) $ (629) $ 35,121 $ 67,079 $ (107,834) $ (19,907)
======== ========= ========= ========== ========== =========
Total liabilities and
shareholders equity
(deficit) $ 185,836 $ 8,247 $ 144,086 $ 392,118 $ (129,578) $ 600,709
========= ========= ========= ========= ========== =========
8
9
TRIANON INDUSTRIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
4. COMBINING FINANCIAL INFORMATION OF TRIANON INDUSTRIES CORP. (CONTINUED)
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,1999
AETNA TRIANON
AETNA HOLDINGS INDUSTRIES SOFEDIT TOTAL
Net sales $66,820 $ -- $ -- $151,337 $218,157
Cost of sales 58,704 182 133,046 191,932
------- ------- -------- -------- --------
Gross profit 8,116 -- (182) 18,291 26,225
Selling, general and administrative
expenses 4,560 204 9,499 14,263
Other expenses 411 -- -- (1) 410
------- ------- -------- -------- --------
Operating income (loss) 3,145 -- (386) 8,793 11,552
Net interest expense 3,815 245 837 2,371 7,268
------- ------- -------- -------- --------
Income (loss) before income taxes (670) (245) (1,223) 6,422 4,284
Income tax provision (credit) (126) (83) (415) 2,875 2,251
Income (loss) before discontinued
operations and preferred stock
dividend (544) (162) (808) 3,547 2,033
Discontinued Operations 772 772
Preferred stock dividend -- -- 1,146 -- 1,146
------- ------- -------- -------- --------
Net income available to common
stockholders $ (544) $ (162) $ (1,954) $ 2,775 $ 115
------- ------- -------- -------- --------
Other comprehensive income (loss):
Foreign currency translation
adjustment (174) -- -- (3,196) (3,370)
------- ------- -------- -------- --------
Comprehensive income (loss) ($718) ($162) ($1,954) $ (421) $ (3,255)
======= ======= ======== ======== ========
9
10
TRIANON INDUSTRIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
4. COMBINING FINANCIAL INFORMATION OF TRIANON INDUSTRIES (CONTINUED)
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31,1999
AETNA TRIANON
AETNA HOLDINGS INDUSTRIES SOFEDIT ELIM TOTAL
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by
operating activities $ 6,577 $(432) $ - $(4,470) - $ 1,675
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used for investing activities (704) - (5,000) (6,783) 5,000 (7,487)
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash provided by financing (7,100) 432 5,000 7,321 (5,000) 653
Net effect of exchange rate 70 (2,045) - (1,975)
Net increase in cash (1,157) - - (5,977) - (7,134)
Cash - beginning of year 1,185 - - 24,907 - 26,092
Cash - end of period $ 28 $ - $ - $18,930 $ - $18,958
5. SEGMENT INFORMATION
The Company operates in one line of business, the design and manufacture of
highly engineered metal-formed components, complex modules and mechanical
assemblies for automotive OEM's in Europe and North America.
The Company manages the business under two segments, Europe and North America.
The accounting policy of the reportable segments are the same as those described
in the summary of significant accounting policies in the Company's annual report
on form 10-K. The Company evaluates performance based on earnings before
interest, income taxes, net income of equity investees, minority interests and
discontinued operations (EBIT).
MARCH 31, 1999 MARCH 31, 1998 DECEMBER 1998
-------------- -------------- -------------
OPERATING NORTH NORTH NORTH
SEGMENTS EUROPE AMERICA TOTAL EUROPE AMERICA TOTAL EUROPE AMERICA TOTAL
- --------- ------ ------- ----- ------ -------- ----- ------ ------- -----
Revenues 151,337 $ 66,820 $218,157 $136,873 $ - $136,673 $542,037 $168,809 $710,848
EBIT 8,793 2,759 11,552 6,305 - 6,305 19,255 7,569 26,824
Depreciation
and amortization 6,087 2,792 8,879 $ 5,154 - $ 5,154 23,405 8,438 31,843
Total assets $392,118 $208,591 $600,709 $355,602 - $355,602 $408,915 $215,249 $624,164
6. COMMON STOCK AND PREFERRED STOCK
As of May 12, 1999 the capital structure of authorized shares of common stock
and preferred stock as amended in the Certificate of Amendment of Restated
Certification of Incorporation of Trianon Industries Corp are as follows:
Common Stock Shares: 20,000,000
Preferred Stock Shares:
SERIES A - 405,000
SERIES B - 270,000
New Preferred - 2,000,000
Any dividends accruing on shares of Series A preferred Stock may be paid, in
lieu of cash dividends, by the issuance of additional shares of Series A
Preferred Stock (including fractional shares) having an aggregate Stated Value
at the time of such payment equal to the amount of the dividend to be paid.
With respect to the Preferred Stock dividends, such dividends shall be payable
semi-annually on the 13th day of February and August of each year, commencing on
the date of issuance of such shares with respect to the Series A Preferred Stock
and April 14, 1999 with respect to the Series B Preferred Stock (each such date
hereinafter referred to as "Dividend Period"), except that if such date is not a
Business Day, then such dividend shall be payable to the next succeeding
Business Day, to the holders of record as they appear on the register of the
Corporation for the Shares.
10
11
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITIONTRIANON INDUSTRIES CORP.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
MARCH 29,APRIL 2, DECEMBER 31,
1999 1998
DECEMBER 28, 1997
-------------- --------------------- ----
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 264 $ 23$28 $1,185
Accounts receivable (less allowance for doubtful
accounts of $372$424 and $359,$411, respectively) 46,988 40,66540,953 38,793
Inventories 7,539 7,276
Tooling 19,332 11,41047,444 47,764
Other current assets 2,186 1,661
----------- -----------3,310 3,390
--------------- ------------------
Total current assets 76,309 61,035
----------- -----------91,735 91,132
--------------- ------------------
Property, plant and equipment, net 53,194 51,57270,744 71,922
Deferred costs and other assets 5,341 5,489
Cost in excess of net assets acquired 24,773 24,973
----------- -----------
$ 159,617 $ 143,069
=========== ===========5,393 5,717
Goodwill 23,971 24,172
--------------- ------------------
Total Assets $191,843 $192,943
=============== ==================
LIABILITIES AND STOCKHOLDER'SSTOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 40,348 $ 33,485$50,971 $48,874
Accrued expenses 13,394 9,508
Line9,267 10,896
Current portion of credit 18,805 13,530
----------- -----------long term and short term debt 44,620 56,720
--------------- ------------------
Total current liabilities 72,547 56,523
----------- -----------104,858 116,490
--------------- ------------------
Long-term debt, 85,000 85,000less current portion 94,131 88,125
Deferred income taxes 7,432 7,4325,498 5,498
Stockholder's equity (deficit)
Common stock - $.01 par value; 1,000 shares
issued and outstanding -- --- -
Contributed capital 9,02414,024 9,024
Accumulated deficit (14,386) (14,910)
----------- -----------
(5,362) (5,886)
----------- -----------
$ 159,617 $ 143,069
=========== ===========(26,494) (25,950)
Accumulated other comprehensive income (174) (244)
--------------- ------------------
Total shareholder equity (12,644) (17,170)
--------------- ------------------
Total liabilities and shareholder equity (deficit) $191,843 $192,943
=============== ==================
See accompanying notes to consolidated financial statements.
411
512
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITIONTRIANON INDUSTRIES CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
THREE MONTHS
ENDED
----------------------APRIL 2, MARCH 29,
MARCH 30,1999 1998 1997
---- ----
(UNAUDITED)
Net sales $ 53,085 $ 55,097Sales $66,820 $53,085
Cost of salesSales 58,704 44,974
46,975------- -------
Gross Profit (loss) 8,116 8,111
Selling, general and administrative expenses 4,971 4,486
3,829
--------- ---------------- -------
Operating income (loss) 3,145 3,625 4,293
Interest expense, net 3,815 2,866
2,561
--------- ---------------- -------
Income (loss) before income taxes (670) 759 1,732
Income tax provision (credit) (126) 235
669
--------- ---------------- -------
Net income (loss) $ (544) $ 524
======= =======
Other Comprehensive income (loss):
Foreign currency translation adjustment (70) --
------- -------
Comprehensive income (loss) $ 1,063
========== =========(474) $ 524
======= =======
See accompanying notes to consolidated financial statements.
512
613
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITIONTRIANON INDUSTRIES CORP.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREE MONTHS
ENDED
---------------------------APRIL 2, MARCH 29,
MARCH 30,1999 1998 1997
---- ----
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $(loss) (544) 524 $ 1,063
Adjustments to reconcile net income to net cash
used for operating activitiesactivities:
Depreciation and amortization 2,406 1,941 1,823
Deferred income taxes -- 10- -
Changes in other assets and liabilities 4,715 (4,285)
(6,867)
-------- ------------------------ --------------
Net cash used for operating activities 6,577 (1,820)
(3,971)
-------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (3,214) (3,005)Cash flows from investing activities
Increase in other assets -- (117)
-------- ----------(704) (3,214)
-------------- --------------
Net cash used for investing activities (704) (3,214)
(3,122)
-------- ----------
CASH FLOWS FROM FINANCING ACTIVITIESCash flows from financing activities -
-
Net (decrease) increase in borrowings under line
of credit (12,100) 5,275
3,117
-------- ----------Capital Contribution 5,000
-------------- --------------
Net cash provided by financing activities (7,100) 5,275
3,117
-------- ------------------------ --------------
Exchange Rate Variation 70 -
Net increase (decrease) in cash (1,157) 241 (3,976)
Cash - beginning of year 1,185 23
4,011
-------- ------------------------ --------------
Cash - end of period $ 28 $ 264
$ 35
======== ======================== ==============
See accompanying notes to consolidated financial statements.
613
714
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITIONTRIANON INDUSTRIES 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
Trianon Industries Corp. ("Trianon Industries") 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"). Trianon Industries 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, preferred stock and junior
subordinated debentures.
Trianon Industries, 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.
On April 14, 1998, Aetna's parent, Trianon Industries Corp. (Trianon
Industries) 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
Trianon Industries in exchange for: (i) promissory notes of Trianon
Industries 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 Trianon Industries; (iv)
3.0 million shares of Common Stock of Trianon Industries, and (v) the
assumption of approximately $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 own approximately 75% of
the fully diluted outstanding Common Stock of Trianon Industries as a
result of the Combination. For accounting purposes, Sofedit is considered
to be the acquirer of, and the predecessor to, Trianon Industries.
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, 1997.31, 1998.
14
15
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
TRIANON INDUSTRIES CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
2. SUBSEQUENT EVENT
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 Corp., the holding company for
Aetna, 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.
3. INVENTORIES
Inventories are comprised of the following:
MARCH 29,31, DECEMBER 28,31,
1999 1998
1997
---- ---------------- ------------
Inventories valued at LIFO
Raw materials $ 1,6031,048 $ 483881
Work-in-process 2,505 3,1342,668 2,333
Finished goods 1,701 1,500
--------- ---------
5,809 5,117
LIFO reserve (200) (200)
--------- ---------
5,609 4,917
--------- ---------1,441 1,670
Tooling 39,463 40,724
------------ ------------
Inventories valued at FIFO 44,620 45,608
LIFO Reserve (200) (200)
------------ ------------
46,420 45,408
Purchased parts and purchased labor 1,930 2,359
--------- ---------3,024 2,356
------------ ------------
Total inventories $ 7,53947,444 $ 7,276
========= =========47,764
============ ============
7
8
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
4.3. 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)
Net income 524 524
-------- ---------- --------
Balance at March 29, 1998 $ 9,024 $ (14,386) $ (5,362)
======== ========== ========
8
9
MS ACQUISITION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
MARCH 29, 1998 DECEMBER 28, 1997
--------------- ------------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 264 $ 23
Accounts receivable (less allowance for doubtful
accounts of $372 and $359, respectively) 46,832 40,439
Inventories 7,539 7,276
Tooling 19,332 11,410
Other current assets 2,186 1,661
--------- ---------
Total current assets 76,153 60,809
--------- ---------
Property, plant and equipment, net 53,194 51,572
Deferred costs and other assets 5,341 5,489
Cost in excess of net assets acquired 24,773 24,973
--------- ---------
$ 159,461 $ 142,843
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 40,348 $ 33,485
Accrued expenses 13,522 9,848
Line of credit 18,805 13,530
--------- ---------
Total current liabilities 72,675 56,863
--------- ---------
Long-term debt 85,000 85,000
Junior subordinated debentures 7,789 7,789
Deferred interest, junior subordinated debentures 432 --
Deferred income taxes 7,432 7,432
Redeemable preferred stock
Series A - $100 stated value;293,123 shares authorized; 13,689 13,328
135,096 and 127,962 shares issued and outstanding, respectively -- --
Series B - $100 stated value; 2,000,000 shares authorized
Stockholders' Equity
Class A, common stock - $.01 par value, 5,000,000
shares authorized, 383,409 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 5
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)
--------- ---------
(27,556) (27,569)
--------- ---------
$ 159,461 $ 142,843
========= =========
See accompanying notes to consolidated financial statements.
9
10
MS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
-----------------------
MARCH 29, MARCH 30,
1998 1997
---- ----
(UNAUDITED)
Net sales $ 53,085 $ 55,097
Cost of sales 44,974 46,975
Selling, general and administrative expenses 4,489 3,833
--------- ---------
Operating income 3,622 4,289
Interest expense, net 3,082 2,800
--------- ---------
Income before income taxes 540 1,489
Income tax provision 167 576
--------- ---------
Net income before preferred stock dividend 373 913
--------- ---------
Preferred stock dividend requirements (360) (324)
--------- ---------
Net income available for common stockholders $ 13 $ 589
========= =========
See accompanying notes to consolidated financial statements.
10
11
MS ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED
---------------------------
MARCH 29, MARCH 30,
1998 1997
---- ----
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 373 $ 913
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 -- 10
Changes in other assets and liabilities (4,566) (5,672)
-------- ---------
Net cash used for operating activities (1,820) (2,926)
-------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (3,214) (3,005)
Increase in other assets -- (117)
-------- ----------
Net cash used for investing activities (3,214) (3,122)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of junior subordinated debentures -- (1,045)
Net increase in line of credit 5,275 3,117
-------- ---------
Net cash provided by financing 5,275 2,072
-------- ---------
Net increase (decrease) in cash 241 (3,976)
Cash - beginning of year 23 4,011
-------- ---------
Cash - end of period $ 264 $ 35
======== =========
See accompanying notes to consolidated financial statements.
11
12
MS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION
MS Acquisition Corp. (MS Acquisition) was formed primarily for the purpose
of purchasing Aetna Industries, Inc. (Aetna). It 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.
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's consolidated
financial statements and notes thereto for the year ended December 28,
1997.
3. SUBSEQUENT EVENT
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 Corp., the holding company for
Aetna, 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.
12
13
MS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
3. INVENTORIES
Inventories are comprised 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
========= =========
4. STOCKHOLDERS' EQUITY
FAIR MARKET
VALUE IN
EXCESS OF
HISTORICAL
CLASS A CLASS B ADDITIONAL COST OF TOTAL
COMMON COMMON PAID-IN ACCUMULATED NET ASSETS STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT ACQUIRED EQUITY
----- ----- ------- ------- -------- ------
Balance at December 28, 199731,1998 $ 49,024 $ 5(25,950) $ 14,159(244) $ (34,461) $ (7,276) $ (27,569)(17,170)
Translation adjustment - - 70 70
Capital Contribution 5,000 5,000
Net income 373 373
Dividends on redeemable
preferred stock (360) (360)
------ ----- --------- ---------- -------- ---------loss (544) - (544)
----------- -------------- ----------- ---------------
Balance at March 29, 199831, 1999 $ 414,024 $ 5(26,494) $ 13,799(174) $ (34,088) $ (7,276) $ (27,556)
====== ===== ========= ========== ======== =========(12,644)
----------- -------------- ----------- ---------------
1315
1416
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
TRIANON INDUSTRIES
RESULTS OF OPERATIONS
On April 14, 1998, Trianon Industries 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 Trianon Industries in exchange for: (i) promissory notes of Trianon
Industries 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 Trianon Industries; (iv) 3.0 million shares of
Common Stock of Trianon Industries, and (v) the assumption of approximately
$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 own
approximately 75% of the fully diluted outstanding Common Stock of Trianon
Industries as a result of the Combination. For accounting purposes, Sofedit is
considered to be the acquirer of, and predecessor of Trianon Industries.
As a result of the Combination being accounted for as a reverse acquisition, the
statements of operations and cash flows included herein for the three month
period ended March 31, 1998 represent the historical information of Sofedit, as
predecessor. The consolidated balance sheet at March 31, 1999 and December 31,
1998 represents the consolidated financial position of Sofedit and Trianon
Industries. The statements of operations and cash flows for the three months
ended March 31, 1999 represent the consolidated three month financial data of
Sofedit and Trianon Industries.
The following table sets forth, for the periods indicated, Aetna's and MS
Acquisition'sTrianon Industries's
statement of operations expressed as a percentage of net sales.sales for three months
ended March 31, 1999 and proforma statement of operations for the three months
ended March 31, 1998. This table and subsequent discussions should be read in
conjunction with the condensed consolidated financial statements and related
notes thereto of Aetna
and MS AcquisitionTrianon Industries 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, 199716
17
AS A PERCENTAGE OF NET SALES
THREE
MONTHS
ENDED
MARCH 29,31, MARCH 31,
1999 1998
MARCH 30, 1997
-------------- --------------
MS MS
AETNA ACQUISITION AETNA ACQUISITION
----- ----------- ----- --------------- ----
Net sales 100.0% 100.0%
100.0% 100.0%
Cost of sales 84.7 84.7 85.3 85.388.0% 87.3%
------------- -------------
Gross profit 15.3 15.3 14.7 14.712.0% 12.7%
Selling, general &and
administrative expenses 8.5 8.5 6.9 6.96.8% 7.6%
------------- -------------
Operating income 6.8 6.8 7.8 7.8(loss) 5.2% 5.1%
Interest expense, net 5.4 5.8 4.7 5.03.3% 3.2%
------------- -------------
Income (loss) before
income taxes 1.4 1.0 3.1 2.81.9% 1.9%
------------- -------------
Income tax provision 0.4 0.3 1.2 1.1(credit) 1.0% 0.4%
Net income 0.0% 1.0%
0.7% 1.9% 1.7%============= =============
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
NET SALES: Net sales for Aetna and MS Acquisitionwere $218.1 million, up 14.8 % from the $189.9 million for
the three months ended March 31, 1999. Net sales in North America was 25.9%
higher in the first quarter of 1998three months in 1999 than 1998. Net sales in Europe were $53.1 million, or 3.7%, lower than first quarter 1997 sales of $55.1
million. Production sales of $52.6 millionup
10.5% in the first quarter 1999 from 1998, or 6.0% excluding the effects of
1998 were
down $1.2 million from $53.8 millionforeign exchange. The increase in European sales was due to both a general
growth in the first quartercar market and to the launch of 1997, while tooling
and prototype sales were down $0.8 million for the same period. Production sales
were unfavorably impacted by the disposal of low volume, marginally profitable
roll form jobsRenault Clio II, Peugeot 20,
and the balance out ofMercedes Class S in 1998 which reach full 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.1999.
GROSS PROFIT: Aetna's and MS Acquisition's grossGross profit was $8.1$26.2 million, or 15.3%12.0% of net sales, for the
first quarter of 1998three months ended March 31, 1999 compared to $8.1$24.1 million, or 14.7%12.7% of net
sales, for the same period in 1997.1998. In North America, gross profit was $8.1
million for three months ended 1999 and 1998. In Europe, gross profit reached
$18.3 million or 12.1% of net sales, versus $16.1 million or 11.8% of net sales
in 1998. The increase as a percentage
of sales, wasin European gross margin is mainly due to short-term factory assist work running more efficiently inreducing launch
and project costs and to the first quarter compared to previous quarters.effect of cost saving plan implemented at
several production facilities.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expenses for Aetna
and MS Acquisition for the
first quarter of 1998three months ended March 31,1999 were $4.5$14.7 million, or 8.5%6.8 % of net sales,
compared to $3.8$14.5 million, or 6.9%7.6% of net sales, for the same period in 1997. The increase, as a percentage of sales, was1998.
Increased costs were due to start up costsincreased project team activity and additional staff in supportthe
reinforcement of new platforms, especially the new Chrysler Jeep
Grand Cherokee, the Saturn LS and new CAMI J2 programs.
14
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)current management structure.
INTEREST EXPENSE: Aetna's interestInterest expense for the first quarter of 1998three months ended March 31, 1999 was
$2.9$7.3 million, or 5.4%3.3% of net sales, compared to $2.6$6.1 million, or 4.7%3.2% of net
sales in the same period in the prior
17
18
year. The increase in interest expense is due principally to a sharp increase
in tooling inventory relating to two major projects in North America. In
Europe, interest expense was $2.4 million or 1.6% of sales, versus $2.2 million
for the same period in 1997. Interest expense was impacted by higher
levels1998. Excluding the effect of debt outstanding. MS Acquisition also had additionalexchange rate
fluctuations, interest expense of $0.2in Europe raised by 4.7%. The increase is mainly
due to a $7.3 million or 0.4% of sales, which is attributed to the junior
subordinated debentures.increase in medium and short term debt.
INCOME TAXES: The income tax provision for Aetna in the first quarter of 1998three months ended March 31, 1999 was $0.2$2.3
million with an effective tax rate of 31.0%52.5% as compared to a provision of $0.7$1.0
million with an effective tax rate of 38.6%28.5% for the same period in 1997.the prior
year. The income tax provision for MS Acquisitionchange in the first quarter of 1998 was
$0.2 million with an effective tax rate of 30.9% as comparedis mainly due to a provision of
$0.6 million with an effectiveloss incurred in
North America and to reduced research and development tax rate of 38.7% for the same periodcredit in 1997.France.
LIQUIDITY AND CAPITAL RESOURCES
Aetna'sTrianon Industries's primary sources of liquidity are cash generated from
operations and MS Acquisition'sshort-term and long-term debt, including the sale of receivables.
Trianon Industries's principal capital requirements areuse for these funds is to fundfinance working capital
needs, to meet required debt payments and to complete planned maintenance and expansion expenditures.
On April 14, 1998,activities. The
Company's liquidity is affected by both the outstanding capital stockcyclical nature of Societe Financiere de
Developpement Industriel et Technologique, a French societe anonyme (Sofedit)
was transferred to MS Acquisition in considerationits business and
its level 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.
At March 29, 1998 there was $15.0 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, thenet sales. The Company obtained a commitment for
an additional $20.0 million under the Senior Revolving Credit Facility to
support Saturn tooling expenditure requirements.
Management currently anticipatesbelieves that its operating cash flow together with
available borrowings under the Senior Revolving Credit Facility,and its
line of bank credit will be sufficient to cover its short-term and long-term
capital expenditures and debt payment obligations. Nevertheless, Trianon
Industries'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 Trianon
Industries's control.
FINANCIAL CONDITION
At March 31, 1999, Trianon Industries had available cash, cash equivalents and
marketable securities totaling $19.0 million, compared to $26.1 million at
December 31, 1998. At March 31, 1999, Trianon Industries had current assets of
$318.1 million, compared to $377.4 million in current liabilities, giving it
negative working capital requirements, capital expenditure
requirements,of $59.3 million, compared to $80.2 million at
December 31, 1998.
At March 31, 1999, Trianon Industries had $16.5 million available under its
Amended and interest requirements on debt obligations through June 30,
1999, the current term of the SeniorRestated Credit Agreement among Aetna, Trianon Industries, Aetna
Holdings, Aetna Export Sales Co., Aetna Canada and NBD Bank (the "Senior
Revolving Credit Facility.Facility"). Restricted cash of $10.7 million at March 31, 1999
represents cash held by Sofedit in a mutual fund until June 1999 to warranty
an additional line of credit for Aetna Industries.
On March 31, 1999, short-term debt consisted of $13.0 million of bank overdraft,
$56.7 million of line of credit, $30.9 million bank borrowing, promissory notes
of $40.9 million. Long-term debt consisted of Senior notes of $85.0 million,
long-term bank loans of $60.5 million, leasing contracts of $27.5 million and
junior debt of $9.1 million.
CASH FLOWS
Net cash flow used for operations for the three months ended March 29, 1998
aggregated $1.8provided by operating activities was $1.6 million for Aetna and MS Acquisition. This comparescompared to net cash
used for operations of $4.0$10.9
million and $2.3 million for Aetna and MS
Acquisition, respectively, forin the same period of the prior year. The principal reason for the
decrease in 1997. The decrease wascash provided by operating activities is attributable to a prior year new job pricing issue that was later resolved that
led to a build-up in accounts receivable. The decrease waslower net
income, tooling inventory increases, partially offset by an increase in tooling inventory for new Mitsubishiincreased 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.
Net cash flow used for investing activities aggregated $3.2was $7.5 million and $9.0 million for the
three months ended March 29,31, 1999 and 1998, asrespectively. The change was due
principally to decreased capital expenditures in North America. Capital
expenditures in Europe reached $6.8 million for the three months ended March 31,
1999, compared to $3.1$5.9 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 J2 platform.1998.
18
19
Net cash flows provided by financing aggregated $5.3was $0.7 million and represented
increases in the Senior Revolving Credit Facilitycompared to cash provided of
$0.5 million for Aetna and MS Acquisition.
In addition, MS Acquisition paid $1.0 million of its junior subordinated
debentures during the three months ended March 30, 1997.
To31, 1999 and 1998 respectively.
This change was principally due to an increase in medium term loans in Europe
in 1999.
EUROPEAN MONETARY UNION
Since substantial portions of Trianon Industries's activities are carried out in
Europe, Trianon Industries is actively preparing for the extent dividends to Aetna Holdings, Inc. (Aetna Holdings) which fund cash
interest payments on the Junior Subordinated Debentures and cash payments on the
unfunded contractual obligations 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 million in the aggregate principal amountintroduction of the Junior Subordinated
Debenturesa
single European currency. After January 1, 1999, Trianon Industries 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, Trianon Industries 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 Trianon Industries will have a material adverse effect
on the results of operations or financial position of Trianon Industries.
YEAR 2000
Trianon Industries 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. Trianon Industries 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, Trianon Industries 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 Trianon Industries. There can be, however, no assurances of the
absence of any disruptions in Trianon Industries's own systems or those of its
customers and suppliers. Trianon Industries 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 Trianon Industries'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. The adoption of
this statement did not have a material effect on Trianon Industries's financial
position or result of operations.
19
20
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 and MS Acquistion'sor Trianon Industries's filings with the
Securities and Exchange Commission (including the April 14, 1998 transaction
with Sofedit).Commission. Such factors could affect Aetna's and MS Acquisition'scause Trianon
Industries's actual results during the remainder of 19981999 and beyond to differ
materially from those expressed in any forward-looking statement made by or on
behalf of Aetna or MS
Acquisition.Trianon Industries. 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 AcquisitionTrianon Industries
on satisfactory terms.
16AETNA
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, Aetna'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 included elsewhere
herein.
20
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AS A PERCENTAGE OF NET SALES
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
THREE MONTHS ENDED
MARCH 31, MARCH 31,
1999 1998
---- ----
Net sales 100.0% 100.0%
Cost of sales 87.9% 84.7%
------------- -------------
Gross profit 12.1% 15.3%
Selling, general and
administrative expenses 7.4% 8.5%
------------- -------------
Operating income (loss) 4.7% 6.8%
Interest expense, net 5.7% 5.4%
------------- -------------
Income (loss) before
income taxes (1.0%) 1.4%
------------- -------------
Income tax provision (credit) (0.2%) 0.4%
Net loss (0.8%) 1.0%
============= =============
NET SALES: Net sales for the first quarter of 1999 were $66.8 million, or 25.9%
higher than first quarter 1998 sales of $53.1 million. Production sales of $58.8
million in the first quarter of 1999 were up $6.3 million from $52.5 million in
the first quarter of 1998, due to Daimler Chrysler Jeep Grand Cherokee and the
Cami Grand Vitara. Tooling and prototype sales were up $ 7.7 million for the
same period.
GROSS PROFIT: Gross profit was 8.1 million, or 12.1% of net sales, for the first
quarter of 1999 compared to $ 8.1 million, or 15.3 % of net sales, for the same
period in 1998. The decrease in gross profit was primarily the result of higher
tooling sales with little or no associated margin and the loss of higher margin
products such as Daimler Chrysler's mini-van.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expenses for the
first quarter of 1999 were $5.0 million, or 7.4% of net sales, compared to $ 4.5
million, or 8.5% of net sales, for the same period in 1998. As a percent of net
sales, the decrease was a result of launch expense that is no longer being
incurred.
INTEREST EXPENSE: Interest expense for the first quarter of 1999 was $3.8
million, or 5.7% of net sales, compared to $2.9 million or 5.4% of net sales for
the same period in 1998. Interest expense was impacted by higher levels of
short-term debt used to finance the launch of the Saturn and WJ programs, and
other working platform capital requirements.
INCOME TAXES: The income tax credit in the first quarter of 1999 was $0.1
million as compared to income tax of $ 0.2 million for the same period in 1998.
21
22
LIQUIDITY AND CAPITAL RESOURCES
Aetna's principal capital requirements are to fund working capital needs, to
meet required debt payments and to complete planned maintenance and expansion
expenditures.
At March 31, 1999 there was $16.5 million available under the Senior Revolving
Credit 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.
The terms of the indenture pursuant to which the Senior 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 Trianon Industries.
CASH FLOWS
Net cash flows provided by (used for) operations for the three months ended
March 31, 1999 aggregated $6.6 million. This compares to net cash used for
operations of $ 1.8 million for the same period in 1998. The increase is due
primarily to decrease in tooling inventory and increased depreciation and
amortization expenses.
Net cash flows provided by (used for) investing activities aggregated $0.7
million for the three months ended March 31, 1999 as compared to $3.2 million
for the same period in 1998 and consists principally of capital expenditures.
The major capital projects during 1999 have been the purchase of robots for the
Saturn Innovate launch, equipment to support Aetna's development lab for 3
dimensional remote welding, and the purchase and installation of robots to
support increased volume requirements for the GM rear suspension assembley.
Net cash flows provided by (used for) financing aggregated $7.1 million for the
three months ended March 31, 1999 as compared to $5.3 million for the same
period in the prior year and in both cases represented increases in the Senior
Revolving Credit Facility.
Item 4. Submission of Matters to a Vote of Security Holders
Pursuant to a Consent in Lieu of Special Meeting of the
Stockholders of Trianon which was distributed to its stockholders on December
17, 1998, the Board of Directors proposed an amendment to Tiranon's Restated
Certificate of Incorporation to (i) change the name of the corporation from MS
Acquisition Corp. to Trianon Industries Corp., (ii) increase the number of
authorized shares of Trianon's Series A Preferred Stock from 293,123 shares to
405,000 shares and (iii) provide Trianon's Board of Directors the election to
pay dividends accruing on shares of Series A Preferred Stock, in lieu of cash
dividends, in additional shares of Series A Preffered Stock. The amendment is
attached to this Quarterly Report on Form 10-Q as exhibit 3(i).
The proposal was adopted by the votes indicated (which
constituted the affirmative vote of more than one-half of the shares voting for
each class and series of stock).
Common Stock Preferred Stock
------------------------------------- ------------------------
Series A-1 Series A-2 Series A-3 Series A Series B
---------- ---------- ---------- -------- --------
For the Proposal: 1,391,193 1,235,507 885,213 112,760.18 235,169
Against the Proposal: 0 0 0 0 0
Abstaining: 282,525 90,775 17,285 2,207.20 34,831
22
23
ITEM 3.5. DISCLOSURE OF QUANTITATIVE AND QUALITATIVE DISCLOSUREINFORMATION ABOUT MARKET
RISK
Not applicable.RISKS
The financial condition and results of operations of the Company's operating
entities are reported in various foreign currencies (principally Euro and
British pounds sterling) and then translated into U.S. dollars at the applicable
exchange rate for inclusion in the Company's financial statements. As a result,
an appreciation of the dollar against these foreign currencies will have a
negative impact on the reported sales and operating profit of the Company.
Conversely, depreciation of the dollar against these foreign currencies will
have a positive impact. In addition, the Company incurs currency transaction
risk whenever it or one of its subsidiaries enters into either a purchase or
sale transaction using a different currency than the relevant entity's
functional currency. However, the nature of the Company's business results in
the Company generally matching revenues and expenses of the same currency.
Therefore, the Company does not currently use financial instruments to limit its
exposure to foreign transaction exposure risk. The Company does not currently
use financial instruments to limit its exposure to interest rate variations. The
portion of the company's outstanding debt obligations tied to variable interest
rates totals $125.9 million as of December 31, 1998.
23
24
PART II. OTHER INFORMATION
ITEM 11. NOT APPLICABLE
ITEM 2. NOT APPLICABLE
ITEM 3. NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A
VOTE OF SECURITY HOLDERS
ITEM 5. Not applicable.NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBITS
24
25
EXHIBIT NO. DESCRIPTION OF EXHIBITS
3.1(i) Amendment to Trianon Industries Corp. Restated Certificate of
Incorporation filed with the Delaware Secretary of State on May 12,
1999.
4.1 Fifth Amendment to Credit Agreement dated as of February 12, 1999, by
and among Aetna Industries, Inc., the Guarantors party thereto, the
lenders, NBD Bank as the agent.
27.1 Financial Data Schedule for Aetna Industries, Inc. (EDGAR Filing Only)
27.2 Financial Data Schedule for Trianon 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.
17None
30
1826
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, 199814, 1999 By: s/ Harold A. Brown
-------------------
Harold A. Brown
Secretary, Vice President, Finance
and Secretary
(PrincipalChief Financial and Accounting
Officer)
MS AcquisitionOfficer
Trianon Industries Corp.
Date: May 6, 199814, 1999
By: s/ Harold A. Brown
-------------------
Harold A. Brown
Secretary, Vice President Finance and Secretary
(Principal Financial and Accounting
Officer)
18North America
31
1927
EXHIBIT INDEX
Exhibit No. Description of Exhibits
- ----------- -----------------------
3.1(i) Amendment to Trianon Industries Corp. Restated Certificate of
Incorporation filed with the Delaware Secretary of State on May
12, 1999.
4.1 Fifth Amendment to Credit Agreement dated as of February 12,
1999, by and among Aetna Industries, Inc., the Guarantors party
thereto, the lenders, NBD Bank as the agent.
27.1 Financial Data Schedule for Aetna Industries, Inc.
27.2 Financial Data Schedule for MS AcquisitionTrianon Industries Corp.
1932