1
SECURITIES AND EXCHANGE COMMISSION
Washington,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 June 28,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 character)charter)
Delaware 38-200-7550/13-337-9803
- --------------------------------------------------------------------------------------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) 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) 39-4120.0039-412000
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 August 7,October 25, 1998, there were 1,000 shares of Aetna Industries, Inc. common
stock outstanding and 3,899,9983,902,498 shares of MS Acquisition Corp. Class A common stock
outstanding.
1
2
INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1. FINANCIAL STATEMENTS OF AETNA INDUSTRIES, INC.
Condensed Consolidated Balance Sheets - 3
June
PART I FINANCIAL INFORMATION PAGE
Item 1. FINANCIAL STATEMENTS OF AETNA INDUSTRIES, INC.
Condensed Consolidated Balance Sheets - 3
September 27, 1998 and December 28, 1997
Consolidated Statements of Operations - 4
three months and nine months ended September 27, 1998
and September 28, 1997
Condensed Consolidated Statements of Cash Flows - 5
nine months ended September 27, 1998
and September 28, 1997
Notes to Consolidated Financial Statements 6
FINANCIAL STATEMENTS OF MS ACQUISITION CORP.
Condensed Consolidated Balance Sheets - 8
September 30, 1998 and December 31, 1997
Consolidated Statements of Operations - 9
three months and nine months ended September 30, 1998
and September 30, 1997
Condensed Consolidated Statements of Cash Flows - 10
nine months ended September 30, 1998
and September 30, 1997
Notes to Consolidated Financial Statements 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 17
Item 3. Not Applicable
PART II OTHER INFORMATION 25
Description of Exhibits 26
Signatures 27
EXHIBIT INDEX 28
1998 and December 28, 1997
Consolidated Statements of Operations - 4
three months and six months ended June 28, 1998
and June 29, 1997
Condensed Consolidated Statements of Cash Flows - 5
six months ended June 28, 1998
and June 29, 1997
Notes to Consolidated Financial Statements 6
FINANCIAL STATEMENTS OF MS ACQUISITION CORP.
Condensed Consolidated Balance Sheets - 8
June 30, 1998 and December 31, 1997
Consolidated Statements of Operations - 9
and six months ended June 30, 1998
and June 30, 1997
Condensed Consolidated Statements of Cash Flows - 10
six months ended June 30, 1998
and June 30, 1997
Notes to Consolidated Financial Statements 11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
Item 3. Quantitative and Qualitative Disclosures About 24
Market Risk
PART II OTHER INFORMATION 24
Signatures 25
Description of Exhibits 26
EXHIBIT INDEX 27
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3
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)
JUNE 28,SEPTEMBER 27, 1998 DECEMBER 28, 1997
------------------------------- -----------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 21541 $ 23
Accounts receivable (less allowance for doubtful
accounts of $385$398 and $359, respectively) 29,22635,905 40,665
Inventories 7,1286,286 7,276
Tooling 30,27048,765 11,410
Other current assets 2,2802,249 1,661
----------- -----------
Total current assets 69,11993,246 61,035
----------- -----------
Property, plant and equipment, net 57,53459,327 51,572
Deferred costs and other assets 6,0315,989 5,489
Goodwill 24,57224,372 24,973
----------- -----------
$ 157,256182,934 $ 143,069
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 37,37648,985 $ 33,485
Accrued expenses 10,0347,645 9,508
Line of credit 25,98147,870 13,530
----------- -----------
Total current liabilities 73,391104,500 56,523
----------- -----------
Long-term debt 85,000 85,000
Deferred income taxes 7,4317,433 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 (17,590)(22,842) (14,910)
Cumulative translation adjustment (181) -
----------- -----------
(8,566)(13,999) (5,886)
----------- -----------
$ 157,256182,934 $ 143,069
=========== ===========
See accompanying notes to consolidated financial statements.
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AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED SIXNINE MONTHS ENDED
------------------ ----------------
JUNE-----------------
SEPTEMBER 27, SEPTEMBER 28, JUNE 29, JUNESEPTEMBER 27, SEPTEMBER 28, JUNE 29,
1998 1997 1998 1997
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
Net sales $ 47,22332,308 $ 48,69245,599 $ 100,308132,616 $ 103,789149,388
Cost of sales 43,405 42,712 88,379 89,687
-----------32,541 41,022 121,206 130,709
------------ ----------- ---------- ----------
Gross profit 3,818 5,980 11,929 14,102(loss) (233) 4,577 11,410 18,679
Selling, general and administrative expenses 4,940 3,963 9,426 7,792
-----------4,553 4,656 13,693 12,448
------------ ----------- ---------- ----------
Operating income (loss) (1,122) 2,017 2,503 6,310(4,786) (79) (2,283) 6,231
Interest expense, net 3,187 2,709 6,053 5,270
-----------3,623 2,716 9,676 7,986
------------ ----------- ---------- ----------
Income (loss) before income taxes (4,309) (692) (3,550) 1,040(8,409) (2,795) (11,959) (1,755)
Income tax provision (1,105) (252) (870) 417
-----------(credit) (3,157) (1,119) (4,027) (702)
------------ ----------- ---------- ----------
Net income (loss) $ (3,204)(5,252) $ (440)(1,676) $ (2,680)(7,932) $ 623
===========(1,053)
============ =========== ========== ==========
See accompanying notes to consolidated financial statements.
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AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
SIXNINE MONTHS ENDED
----------------
JUNE-----------------
SEPTEMBER 27, SEPTEMBER 28, JUNE 29,
1998 1997
---- ----
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (2,680)(7,932) $ 623(1,053)
Adjustments to reconcile net income to net cash
used for operating activities
Depreciation and amortization 4,927 3,7097,304 5,616
Deferred income taxes --(53) (209)
Changes in other assets and liabilities (4,163) (3,921)(16,668) (7,173)
---------- ----------------------
Net cash provided by (used for)used for operating activities (1,916) 202(17,349) (2,819)
---------- ----------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (9,389) (5,939)(13,270) (8,460)
Increase in other assets (954) (410)(4,859) (663)
---------- ----------------------
Net cash used for investing activities (10,343) (6,349)(18,129) (9,123)
---------- ----------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in line of credit 12,451 2,17634,340 8,427
(Increase) decrease in other assets 1,156 (323)
---------- ----------------------
Net cash provided by financing activities 12,451 2,17635,496 8,104
---------- ----------------------
Net increase (decrease) in cash 192 (3,971)18 (3,838)
Cash - beginning of year 23 4,011
---------- ----------------------
Cash - end of period $ 21541 $ 40173
========== ======================
See accompanying notes to consolidated financial statements.
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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.
On April 14, 1998, Aetna's parent, MS Acquisition, Corp. completed a combination
with Societe Financiere d' Etude et 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,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 as a reverse
acquisition because the former owners of Sofedit own approximately 75% of
the fully diluted outstanding Common Stock of the CompanyMS Acquisition as a result of
the Combination. For accounting purposes, Sofedit is considered to be the
acquiroracquirer of, and the predecessor to, the Company.
2. INVENTORIES
Inventories are comprised of the following:
JUNE 28, DECEMBER 28,
1998 1997
---- ----
Raw materials $ 531 $ 483
Work-in-process 1,503 3,134
Finished goods 2,694 1,500
Purchased parts and purchased labor 2,400 2,359
--------- ---------
7,128 7,476
--------- ---------
LIFO reserve -- (200)
--------- ---------
Total inventories $ 7,128 $ 7,276
========= =========
MS Acquisition.
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7
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
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 loss (2,680) (2,680)(7,932) (7,932)
------------ ----------- ---------- -----------
---------
Balance at June 28,September 27, 1998 $ 9,024 $ (17,590)(22,842) $ (8,566)(181) $ (13,999)
============ =========== ========== ===========
4. 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)
========= =========
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MS ACQUISITION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
JUNESEPTEMBER 30, 1998 DECEMBER 31, 1997
------------- ------------------ -----------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 22,92511,307 $ 11,626
Restricted cash 10,727 --
Accounts receivable (less allowance for doubtful
accounts of $1,797$1,921 and $1,293 respectively) 152,366163,281 115,823
Inventories 66,02076,163 64,013
Tooling 30,65549,151 --
Other current assets 43,54913,694 36,826
------------ --------------------- ---------
Total current assets 315,515324,323 228,288
------------ --------------------- ---------
Property, plant and equipment, net 183,012193,674 122,028
Deferred costs and other assets 11,59713,526 5,430
Goodwill 65,79565,914 6,166
------------ --------------------- ---------
$ 575,919597,437 $ 361,912
============ ===================== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 154,793174,730 $ 109,876
Accrued expenses 78,87361,795 52,849
Customer deposits and advances 7,6146,047 8,448
Deferred income taxes 15,7294,773 4,882
Short-term borrowings 55,537111,287 43,778
------------ --------------------- ---------
Total current liabilities 312,546358,632 219,833
------------ --------------------- ---------
Long-term debt 214,201185,333 71,416
Junior subordinated notes 7,789 --
Deferred interest, junior subordinated notes 432857 --
Deferred income taxes and other long-term liabilities 5,12212,265 5,374
Redeemable preferred stock
Series A - $100 stated value; 293,123 shares authorized;
135,096142,424 shares issued and outstanding 14,05914,440 --
Series B - $100 stated value; 270,000 shares authorized;
270,000 shares issued and outstanding 27,000 --
Stockholders' Equity (Deficit)
Class A, common stock - $.01 par value, 12,000,000
shares authorized, 3,899,9983,902,498 shares issued and outstanding 39 39
Additional paid-in capital 39,60139,132 41,654
Retained earnings (accumulated deficit) (39,805)(47,984) 28,138
Cumulative translation adjustment (5,065)(66) (4,542)
------------ ------------
(5,230)--------- ---------
(8,879) 65,289
------------ --------------------- ---------
$ 575,919597,437 $ 361,912
============ ===================== =========
See accompanying notes to consolidated financial statements.
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MS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
SIXTHREE MONTHS ENDED --------------------------
JUNENINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, JUNESEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
Net sales $ 322,251151,045 $ 255,608108,892 $ 473,296 $ 364,499
Cost of sales 285,951 220,941141,095 99,087 427,295 320,028
------------ ----------- ------------------------ ----------
Gross profit 36,300 34,6679,950 9,805 46,001 44,471
Selling, general and administrative expenses 18,168 14,00410,656 5,390 28,150 19,394
Research and development expenses 4,234 4,0422,713 2,266 6,947 6,308
Other expenses, net 1,560 2,108Expenses 1,671 30 3,657 2,138
------------ ----------- ------------------------ ----------
Operating income 12,338 14,513
Net interest(loss) (5,090) 2,119 7,247 16,631
Interest expense, 8,982 5,415net 6,662 2,781 15,644 8,196
------------ ----------- ------------------------ ----------
Income (loss) before income taxes 3,356 9,098(11,752) (662) (8,397) 8,435
Income tax provision 1,428 2,593(credit) (5,329) (1,353) (3,901) 1,240
------------ ----------- ------------------------ ----------
Income (loss) before discontinued operations 1,928 6,505
----------- -------------(6,423) 691 (4,496) 7,195
Share in net income of equity investees
and minority interest (155)(48) 107
Losses on discontinued operations 1,490 1,374(1,754) (1,788) (3,244) (3,162)
------------ ----------- ------------------------ ----------
Net income (loss) before
preferred stock dividends 438(8,177) $ 5,286
----------- =============(1,145) (7,740) $ 4,140
------------ =========== ---------- ===========
Preferred stock dividends (362)(381) (751)
------------ -----------
Net income available for common stockholders $ 76(8,558) $ (8,491)
============ ===========
See accompanying notes to consolidated financial statements.
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MS ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
SIXNINE MONTHS ENDED
--------------------------
JUNE-----------------
SEPTEMBER 30, JUNESEPTEMBER 30,
1998 1997
---- ----
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 438(7,740) $ 5,2864,140
Equity income -- (12)102
Adjustments to reconcile net income to net cash
used for operating activities
Depreciation and amortization 15,844 14,92724,277 19,489
(Decrease) increase in other long-term liabilities (45) 1,364(1,384) 1,034
Changes in other assets and liabilities 15,027 (2,158)
----------- -----------7,588 1,406
-------- --------
Net cash provided by operating activities 31,264 19,407
----------- -----------22,741 26,171
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (18,864) (7,877)(31,617) (19,398)
Disposal of property, plant and equipment 2,224 1,851
Additions to intangible4,408
Increase in restricted cash (10,727) --
(Increase) decrease in other assets and other, net (1,089) (4,228)
----------- -----------743 (4,094)
-------- --------
Net cash used for investing activities (17,729) (10,254)
----------- -----------(41,601) (19,084)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital increase -- 127
Dividends paid (2,377) (2,349)(2,396) (2,295)
Increase in long-term borrowings 4,508 5,81812,943 22,475
Repayments of long-term debt (14,975) (13,772)(22,678) (25,299)
Net increase (decrease) in line of credit 10,603 3,050
----------- -----------28,621 (703)
-------- --------
Net cash used for(used for) provided by financing (2,241) (7,253)
----------- -----------16,490 (5,695)
-------- --------
Net effect of exchange rates and other 5 (1,330)
----------- -----------2,051 (1,861)
-------- --------
Net increasedecrease in cash 11,299 570(319) (469)
Cash - beginning of year 11,626 11,336
----------- -----------11,350
-------- --------
Cash - end of period $ 22,92511,307 $ 11,906
=========== ===========10,881
======== ========
See accompanying notes to consolidated financial statements
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MS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION
MS Acquisition Corp. ("MS Acquisition") is a holding company that was
formed for the sole purpose of purchasing Aetna Industries, Inc. ("Aetna")
and does not have any significant operations, other than its investment in
its subsidiaries, assets or liabilities, other than preferred stock, junior
subordinated debentures and 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 the consolidated financial
statements and notes thereto for the year ended December 31, 1997.
On April 14, 1998, MS Acquisition completed a combination with Societe
Financiere d'Etude et 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 Acquisiton;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 as a reverse
acquisition because the former owners of Sofedit own approximately 75% of
the fully diluted outstanding Common Stock of the CompanyMS Acquisition as a result of
the Combination. For accounting purposes, Sofedit is considered to be the
acquiroracquirer of, and the predecessor to, the Company.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 sixnine month period ended June 30,1997September 30, 1997 represent the
historical information of Sofedit, as predecessor. The consolidated balance
sheet at JuneSeptember 30, 1998 represents the consolidated financial position
of Sofedit and MS Acquisition. The statements of operations and cash flows
for the sixnine months ended JuneSeptember 30, 1998 represent the sixnine month
financial data of Sofedit, plus threesix months of financial data of MS
Acquisition (from April 1, 1998)1,1998). On a pro forma basis, MS Acquisition had
net sales of $375.3$526.4 million and $359.4$513.9 million, and pre-tax income (loss)
of $5.3($7.9) million and $9.9$6.7 million, for the sixnine months ended JuneSeptember 30,
1998 and 1997, respectively.
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1. 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, 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 $60,091$60,454 and has been recorded as goodwill and is being amortized
over forty years.
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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 CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)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:
JUNESEPTEMBER 30, DECEMBER 31,
1998 1997
---- ----
Raw materials $ 21,85527,025 $ 19,189
Work-in-process 29,15031,909 30,214
Finished goods 17,57017,632 16,819
Purchased parts and purchased labor 2,083 -
----------- -----------
68,57578,649 66,222
Reserves (2,555)(2,486) (2,209)
----------- -----------
Total inventories $ 66,02076,163 $ 64,013
=========== ===========
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3. STOCKHOLDERS' EQUITY (DEFICIT)
ADDITIONAL CUMULATIVE
CAPITAL PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
STOCK CAPITAL EARNINGS ADJUSTMENT EQUITY (DEFICIT)
----- ------- -------- ---------- ----------------------
Balance at December 31, 1997 $ 39 $ 41,654 $ 28,138 $ (4,542) $ 65,289
Dividends paid (2,053) (68,381) (70,434)(1,685) (68,382) (70,067)
Translation adjustment (523) (523)4,476 4,476
Common issued under
stock option plan 4 4
Dividends on redeemable
preferred stock (751) (751)
Stock issuance costs (90) (90)
Net income 438 438loss (7,740) (7,740)
---------- ---------- --------- ------------- ----------
Balance at JuneSeptember 30, 1998 $ 39 $ 39,60139,132 $ (39,805)(47,984) $ (5,065)(66) $ (5,230)(8,879)
========== ========== ========= ============= ==========
124. 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) $ (8,491) $ 4,140
Foreign currency translation 4,476 (4,542)
----------- ------------
Comprehensive income (loss) $ (4,015) $ (402)
=========== ============
13
13
4.14
5. COMBINING FINANCIAL INFORMATION OF THE COMPANYMS ACQUISITION
BALANCE SHEET AS OF JUNESEPTEMBER 30, 1998
AETNA MS
AETNA HOLDINGS ACQUISITION SOFEDIT ELIMINATIONS TOTAL
----- -------- ----------- ------- ------------ -----
Total current assets $ 69,11993,246 $ 7,631- $ 13,949586 $ 245,692234,504 $ (20,876)(4,013) $ 315,515324,323
Property, plant and
equipment, net 57,534 7,098 118,380 183,01259,327 6,916 127,431 193,674
Other long-term assets 30,603 641 142,378 8,770 (105,000) 77,392
-----------30,361 7,845 135,422 13,753 (107,941) 79,440
--------- --------- ----------- ----------- --------------------- -----------
Total assets $ 157,256182,934 $ 8,2727,845 $ 163,425142,924 $ 372,842375,688 $ (125,876)(111,954) $ 575,919
===========597,437
========= ========= =========== =========== ===================== ===========
Total current liabilities $ 73,391104,500 $ 316(509) $ 51,32955,217 $ 227,815203,878 $ 7,431(4,454) $ 312,546358,632
Long-term debt 85,000 3,593 77,872 214,201100,333 185,333
Junior subordinated notes 7,789 7,789
Deferred interest,
junior subordinated notes 432 432857 857
Deferred income taxes and
other long-term liabilities 7,431 5,122 (7,431) 5,1227,433 3,464 1,368 12,265
Redeemable preferred stock
Series A 14,059 14,05914,440 14,440
Series B 27,000 27,000
Class A, common stock -
$.01 par value,
12,000,000 shares
authorized, 3,899,9983,902,498 39 39
shares issued and
outstanding
39 39
Additional paid-in capital 9,024 (575) 52,028 (20,876) 39,60130,108 39,132
Retained earnings
(accumulated deficit) (17,590) 310 15,377 67,098 (105,000) (39,805)(22,842) (292) 12,656 69,994 (107,500) (47,984)
Cumulative translation
adjustment (5,065) (5,065)
-----------(181) 115 (66)
--------- ----------- ----------- ----------- ---------- -----------
(8,566) (265) 67,444 (60,326) 26,726 (5,230)
---------------------
(13,999) (292) 42,803 70,109 (107,500) (8,879)
--------- ----------- ----------- ----------- ---------- ---------------------
$ 157,256182,934 $ 8,2727,845 $ 163,425142,924 $ 372,842375,688 $(111,954) $ (125,876) $ 575,919
===========597,437
========= =========== =========== =========== ========== =====================
1314
14
4.15
5. COMBINING FINANCIAL INFORMATION OF THE COMPANYMS ACQUISITION (CONTINUED)
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIXNINE MONTHS ENDED
JUNESEPTEMBER 30, 1998
AETNA MS
AETNA HOLDINGS ACQUISITION SOFEDIT ELIMINATIONS TOTAL
----- -------- ----------- ------- ------------ -----
Net sales $ 47,22379,531 $ --- $ --- $ 275,028393,765 $ --- $ 322,251473,296
Cost of sales 43,405 407 242,139 285,95176,195 589 350,511 427,295
----------- ---------- --------- -------- ---------- ----------------------- ------------ -----------
Gross profit 3,818 (407) 32,899 36,3003,336 (589) 43,254 46,001
Selling, general and
administrative expenses 4,740 -- 206 13,222 18,1688,521 46 19,583 28,150
Research and development
expenses 4,234 4,2346,947 6,947
Other expense, net 200 1,360 1,560non-recurring
expenses 723 355 2,579 3,657
----------- ---------- --------- -------- ---------- ----------- ------------ -----------
Operating income (loss) (1,122) (614) 14,073 12,338(5,908) (990) 14,145 7,247
Net interest expense 3,187 432 837 4,742 (216) 8,9826,810 460 1,673 6,701 15,644
----------- ---------- --------- -------- ---------- ----------- ------------ -----------
Income (loss) before income
taxes (4,309) (432) (1,451) 9,331 216 3,356(12,718) (460) (2,663) 7,444 (8,397)
Income tax provision (1,105) 54 (419) 3,006 (757) 1,428(credit) (4,262) (168) (933) 1,462 (3,901)
----------- ---------- --------- -------- ---------- ----------- ------------ -----------
Income (loss) before
discontinued operations $ (3,204)(8,456) $ (378)(292) $ (1,032)(1,730) $ 6,3255,982 $ 216 $ 1,928(4,496)
=========== ========== ========= ======== ========== =========== ============ ===========
1415
15
4.16
5. COMBINING FINANCIAL INFORMATION OF THE COMPANYMS ACQUISITION (CONTINUED)
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIXNINE MONTHS ENDED JUNESEPTEMBER 30,
1998.1998
AETNA MS
AETNA HOLDINGS ACQUISITION SOFEDIT TOTAL
----- -------- ----------- ------- -----
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by
operating activities $ (1,916)(14,476) $ --(519) $ --(1,714) $ 33,18038,877 $ 31,264
--------- --------22,168
---------- --------------------- ---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used for
investing activities (10,343) -- -- (7,386) (17,729)
--------- --------(14,886) 1,714 (27,856) (41,028)
---------- --------------------- ----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash provided by
financing 12,451 -- -- (14,692) (2,241)
--------- --------29,403 519 (13,432) 16,490
---------- --------------------- ----------- ---------- -----------
Net effect of exchange
rates and others 5 5
--------- --------2,051 2,051
---------- ------------ ----------- ---------- -----------
Net increase in cash 192 11,107 11,29941 (360) (319)
Cash - beginning of year 23 11,603 11,626 --------- --------11,626
---------- --------------------- ----------- ---------- -----------
Cash - end of period $ 21541 $ --- $ --- $ 22,71011,266 $ 22,925
========= ========11,307
========== ===================== =========== ========== ===========
16
1617
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 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.
AS A PERCENTAGE OF NET SALES
THREE MONTHS ENDED SIXNINE MONTHS ENDED
------------------------------------ ----------------------------------
JUNESEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
1998 JUNE 29, 1997 JUNE 28, 1998 JUNE 29, 1997
------------- ------------- ------------- ----------------- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 91.9 87.7 88.1 86.4
----- ----- ----- -----100.7 90.0 91.4 87.5
----------- ----------- --------- -----------
Gross profit 8.1 12.3 11.9 13.6(0.7) 10.0 8.6 12.5
Selling, general and
administrative expenses 10.5 8.1 9.4 7.5
----- ----- ----- -----14.1 10.2 10.3 8.3
----------- ----------- --------- -----------
Operating income (2.4) 4.1 2.5 6.1
Net interest(loss) (14.8) (0.2) (1.7) 4.2
Interest expense, 6.7 5.6net 11.2 6.0 5.1
----- ----- ----- -----7.3 5.4
----------- ----------- --------- -----------
Income (loss) before
income taxes (9.1) (1.4) (3.5) 1.0(26.0) (6.2) (9.0) (1.2)
Income tax provision (2.3)(credit) (9.8) (2.5) (3.0) (0.5)
(0.9) 0.4
----- ----- ----- ---------------- ----------- --------- -----------
Net loss (6.8)% (0.9)% (2.7)% 0.6%
===== ===== ===== =====(16.2) (3.7) (6.0) (0.7)
=========== =========== ========= ===========
THREE MONTHS ENDED JUNE 28,SEPTEMBER 27, 1998 COMPARED TO THREE MONTHS ENDED JUNE 29,SEPTEMBER
28, 1997
NET SALES: Net sales for the secondthird quarter of 1998 were $47.2$32.3 million, or 3.1%,29.1%
lower than secondthird quarter 1997 sales of $48.7$45.6 million. Production sales of $42.2$27.6
million in the secondthird quarter of 1998 were down $4.8$16.9 million from $47.0$44.5 million
in the secondthird 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 up $3.3$ 3.6 million for the same period. Also contributing to the
decrease was the phase out of short-term customer factory assist work.
GROSS PROFIT: Gross profit was $3.8$(0.2) million, or 8.1%(.7)% of net sales, for the
secondthird quarter of 1998 compared to $6.0$ 4.6 million, or 12.3%10.0% of net sales, for the
same period in 1997. The decrease in gross profit was primarily the result of
the negative impact of the UAW strike General Motors (GM) strike in June and the balance
outramp-up of the Grand
Cherokee production in May.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expenses for the
secondthird quarter of 1998 were $4.9$4.6 million, or 10.5%14.1 % of net sales, compared to $4.0$
4.7 million, or 8.1%10.2% of net sales, for the same period in 1997. The increase is
due principally to 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.
1617
1718
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
INTEREST EXPENSE: Interest expense for the secondthird quarter of 1998 was $3.2$3.6
million, or 6.7%11.2% of net sales, compared to $2.7 million or 5.6%6.0% of net sales
for the same period in 1997. Interest expense was impacted by higher levels of
short-term borrowings outstanding.debt used to finance the launch of the Saturn and WJ programs,
production inefficiencies increased during the GM strike and the planned ramp-up
of the Jeep Grand Cherokee production.
INCOME TAXES: The income tax credit in the secondthird quarter of 1998 was $3.2
million with an effective tax rate of 37.5% as compared to a credit of $1.1
million with an effective tax rate of 25.6% as compared to a provision of $0.3
million with an effective tax rate of 36.4%40.0% for the same period in 1997.
SIXNINE MONTHS ENDED JUNE 28,SEPTEMBER 27, 1998 COMPARED TO SIXNINE MONTHS ENDED JUNE 29,1997SEPTEMBER 28,
1997
NET SALES: Net sales for the second half ofnine months ended September 27, 1998 were $100.3$132.6
million, down from the $103.8$149.4 million reported for the sixnine months ended
June 30,September 28, 1997. Production sales of $94.8decreased $22.9 million, in the second half of 1998 were down $6.0 million from
$100.8 million in the second quarter of 1997, while tooling and
prototype sales increased $2.5$ 6.1 million for the same period.
GROSS PROFIT: Gross profit was $11.9$11.4 million, or 11.9%8.6% of net sales, for the sixnine
months ended June 28,September 27, 1998 compared to $14.1$18.7 million, or 13.6%12.5 % of net
sales, for the same period in 1997. The decline in gross profit inwas primarily
due to the first half of 1998
was related principally to two events which occurred in the second quarter
including the balance out of production of the Grand Cherokeestrike at GM and the transition to the new Grand Cherokee. The eight
week GM strike.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 the
sixnine months ended June 28,September 27, 1998 were $9.4$13.7 million, or 9.4%10.3% of net sales,
compared to $7.8$12.4 million, or 7.5%8.3% of net sales, for the same period in 1997.
The increase iswas 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 sixnine months ended June 28,1998September 27,1998
was $6.1$9.7 million, or 6.0%7.3% of net sales, compared to $5.3$8.0 million or 5.1%5.4% of net
sales for the same period in the prior year. InterestWorking capital requirements
necessary to fund tooling expenditures relating to the three major program
launches resulted in higher interest expense was impactedyear 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 higher levelsthe fourth quarter of debt outstanding.1998 and the third platform is planned to
launch in the second quarter of 1999.
INCOME TAXES: The income tax credit for the sixnine months ended June 28,1998September 27, 1998
was $0.9$4.0 million with an effective tax rate of 24.5%33.7% as compared to a provisioncredit of
$0.4$ 0.7 million with an effective tax rate of 40.1%40.0% for the same period in the
prior year.
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.
1718
1819
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
At June 28,September 27, 1998 there was $24.3$1.4 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 MS Acquisition.
CASH FLOWS
Net cash flowflows used for operations for the sixnine months ended June 28,September 27, 1998
aggregated $1.9 for Aetna.$17.4 million. This compares to net cash provided byused for operations of $0.2$ 2.8
million for the same period in 1997. The decrease is due primarily to lower net
income and increase in tooling inventory, partially offset by increased
depreciation and amortization expenses and changes in deferred income taxes.expenses.
Net cash flowflows used for investing activities aggregated $10.3$18.1 million for the
sixnine months ended June 28,September 27, 1998 as compared to $6.3$9.1 million for the same
period in 1997 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 and the purchase of
equipment for the start up of the Aetna Manufacturing Canada plant in London,
Ontario serving CAMI's J II platform.
Net cash flows provided by financing aggregated $12.5$35.5 million for the sixnine
months ended June 28,September 27, 1998 as compared to $2.2$8.1 million for the same period
in the prior year and in both cases represented increases in the Senior
Revolving Credit Facility.
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 filings with the Securities and Exchange Commission.
Such factors could affect 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 the Company. 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 the Company, whether
within the next twelve months or thereafter, will be available to Aetna on
satisfactory terms.19
20
MS ACQUISITION
- --------------
RESULTS OF OPERATIONS
On April 14, 1998, MS Acquisition completed a combination with Societe
Financiere d'Etude et 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 Acquisiton;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 as a reverse acquisition because the former owners of Sofedit own
approximately 75% of the fully diluted outstanding Common Stock of the CompanyMS
Acquisition as a result of the Combination. For accounting purposes, Sofedit is
considered to be the acquiror to,acquirer of, and predecessor to the Company.
18
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)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 sixnine
month period ended June 30,1997September 30, 1997 represent the historical information of
Sofedit, as predecessor. The consolidated balance sheet at JuneSeptember 30, 1998
represents the consolidated financial position of Sofedit and MS Acquisition.
The statements of operations and cash flows for the sixnine months ended JuneSeptember
30, 1998 represent the sixnine month financial data of Sofedit, plus threesix months of
financial data of MS Acquisition (from April 1,1998)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
SIX
THREE MONTHS ENDED ----------------
JUNENINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 JUNE 30, 1997 ------------- -------------1998 1997
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 88.7 86.4
----- -----93.4 91.0 90.3 87.8
-------------- ------------- -------------- -------------
Gross profit 11.3 13.66.6 9.0 9.7 12.2
Selling, general and administrative expenses 5.6 5.57.1 4.9 5.9 5.3
Research and development expenses 1.3 1.61.8 2.1 1.5 1.7
Other non-recurring expenses net 0.51.1 - 0.8 ----- -----0.6
-------------- ------------- -------------- -------------
Operating income 3.8 5.7(loss) (3.4) 2.0 1.5 4.6
Interest expense, net 2.8 2.1
----- -----4.4 2.6 3.3 2.3
-------------- ------------- -------------- -------------
Income (loss) before income taxes 1.0 3.6(7.8) (0.6) (1.8) 2.3
Income tax provision 0.4 1.0(credit) (3.5) (1.2) (0.8) 0.3
Share in net income of equity
investees and minority interests -- (0.1)- - - -
Losses in discontinued operations 0.6 0.5
----- -----(1.1) (1.6) (0.7) (0.9)
-------------- ------------- -------------- -------------
Net income (loss) before preferred stock dividends 0.1% 2.1%
===== =====(5.4) (1.0) (1.7) 1.1
============== ============= ============== =============
1920
2021
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
SIXTHREE MONTHS ENDED JUNE 28,SEPTEMBER 30, 1998 COMPARED TO SIXTHREE MONTHS ENDED JUNE 29,SEPTEMBER
30, 1997
NET SALES: Net sales was $322.3were $151.0 million, up from the $255.6 million for the six
months ended June 30, 1997. The increase in net sales is primarily attributable
to the Combination with MS Acquisition, which had sales of $47.2$108.9 million for the
three months sinceended September 30, 1997. Net sales in Europe were up 9% in the
datethird quarter 1998 from 1997, or 5.8% excluding the effects of Combination.foreign exchange.
The remaining increase in European sales was due to both a general growth in the car
market and to the launch of $19.5
million is due primarily to increased sales at Sofedit, partially offset by the
negative effect of currency fluctuation.new products in 1997 which reach full production in
1998.
GROSS PROFIT: Gross profit was $36.3$10.0 million, or 11.3%6.6% of net sales, for the sixnine
months ended JuneSeptember 30, 1998 compared to $34.7$9.8 million, or 13.6%9.0% of net sales,
for the same period in 1997. The decrease in gross profit decrease, as a percentage of sales, iswas due primarily to (i) a significant steel price increase in Europe; (ii) a change
in sales mix leading to increased purchases of components; (iii) approximately
$2.0 million in non-recurring chargeshigher
launch costs and related to the bankruptcy of an equipment
supplier.manufacturing inefficiencies.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expenses for the
sixnine months ended JuneSeptember 30,1998 were $18.2$10.7 million, or 5.6%7.1% of net sales,
compared to $14.0$5.4 million, or 5.5%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 sixthree months ended JuneSeptember 30, 1998
was $9.0$6.7 million, or 2.8%4.4% of net sales, compared to $5.4$2.8 million, or 2.1%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 provisioncredit for the sixthree months ended JuneSeptember 30,
1998 was $ 1.4$5.3 million with an effective tax rate of 42.5%45.3% as compared to a
provisioncredit of $2.6$1.4 million with an effective tax rate of 28.5%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
The Company'sMS Acquisition's primary sources of liquidity are cash generated from operations
and short-term and long-term debt, including the sale of receivables. The
Company'sMS
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, the Company'sMS 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 the Company'sMS
Acquisition's control.
FINANCIAL CONDITION
At JuneSeptember 30, 1998, the CompanyMS Acquisition had available cash, cash equivalents and
marketable securities totaling $22.9$22.0 million, compared to $11.6 million at
December 31. At JuneSeptember 30, 1998, the CompanyMS Acquisition had current assets of $315.5$324.3
million, compared to $312.5$358.6 million in current liabilities, giving it anegative
working capital $3.0of $34.3 million, compared to $8.5 million at December 31, 1997.
20
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
FINANCIAL CONDITION (CONTINUED)
At JuneSeptember 30, 1998, the Company was committed to capital expenditures of
approximately $11.4 million through the end of 1998 for welding and assembly
machinery and press automation. The Company expects to cover these commitments
through cash flows from operating activities and leasing contracts.
At June 30, 1998, the CompanyMS Acquisition had $24.3$1.4 million available under its
Amended and Restated Credit Agreement among Aetna, the Company,MS Acquisition, Aetna
Holdings, Aetna Export Sales Co., Aetna Canada and NBD Bank (the "Senior
Revolving Credit Facility"). In addition, the Company had outstanding,Restricted cash of $10.7 million at JuneSeptember 30,
1998 $55.5represents cash held by Sofedit in a mutual fund until 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, under a receivables sales program.promissary notes of $40.9 million, discount on the notes 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 provided by operating activities was $31.3$22.2 million compared to $19.4$26.2
million in the same period of the prior year. The principal reason for the
increasedecrease in cash provided by operating activities is attributable to improvements in working capital accounts, particularly sales
of receivables.lower net
income, tooling inventory increases, partially offset by increased depreciation
and amortization.
Net cash used for investing activities was $17.7$41.0 million and $10.3$19.1 million for
the sixnine months ended JuneSeptember 30, 1998 and 1997, respectively. The increase ischange was
due principally to increased capital expenditures.
Net cash used forprovided by financing was $2.2$16.5 million and $7.3compared to cash used of 5.7
million for the sixnine months ended JuneSeptember 30, 1998 and 1997.1997 respectively. This
decreasechange was principally due to a higheran increase in line of credit borrowings in 1998 as compared to 1997.
The Company had net outstanding debt of $278.0 million, including $55.5 million
in short-term debt and $222.5 million in long-term debt. Short-term debt
consisted primarily of short-term bank loans and borrowings under the Senior
Revolving Credit Facility plus $15.3 million in bank overdrafts. Long-term debt
consisted of $85.0 million under the 11 7/8% Senior Notes of Aetna plus $109.6
million in long-term bank loans and $27.9 million amounts due under
leasing contracts.
OTHER BANK DEBT OF THE COMPANY
On June 30,1998, the Company and its subsidiaries had approximately $56.5
million of bank term loans outstanding and $31.5 million remaining outstanding
under leasings. These loans and leasings contain terms and conditions which are
standard in France and the United States.
211998.
22
2223
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
EUROPEAN MONETARY UNION
Since a substantial portionportions of the Company'sMS Acquisition's activities are carried out in
Europe, the CompanyMS Acquisition is actively preparing for the introduction of a single
European currency. After January 1, 1999, the CompanyMS 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, the CompanyMS Acquisition does not expect that expenses to
be incurred in connection with the introduction of the euro as a currency of
payment for the CompanyMS Acquisition will have a material adverse effect on the results of
operations or financial position of the Company.MS Acquisition.
YEAR 2000
The CompanyMS Acquisition has conducted a review of its computer systems to identity those
areas that may not be Year 2000 compliant and is developing a plan to resolve
the issue. The CompanyMS 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, the CompanyMS Acquisition does not expect 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 material adverse
impact on the results of operations or financial position of the Company.MS Acquisition.
There can be, however, no assurances of the absence of any disruptions in the Company'sMS
Acquisition's own systems or those of its customers and suppliers. The CompanyMS
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 anya material effect
on the
Company'sMS 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:.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 the Company'sMS 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 the Company'sMS Acquisition's financial position or
results of operation.
2223
2324
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 or MS Acquisition's filings with the
Securities and Exchange Commission. Such factors could affectcause 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, whether within the next twelve
months or thereafter, will be available to Aetna or MS Acquisition on
satisfactory terms.
2324
24
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable25
PART II. OTHER INFORMATION
ITEM 1. NOT APPLICABLE.APPLICABLE
ITEM 2. Changes in Securities and Use of Proceeds.CHANGES IN SECURITIES AND USE OF PROCEEDS
On April 14,August 13, 1998, Aetna's parent, MS Acquisition Corp. completed a combination with Societe Financiere de Development Industrial 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 Sofeditemployee excercised an option to MS Acquisition in exchange for: (i) promissory notesacquire
2,500 shares 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
Acquisiton; (iv) shares ofA-3 Common Stock of MS Acquisition, and (v)
the assumption of approximately $12.0 million of debt of 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 the Company as
a result of the Combination. Ms Acquisition relied on the private
offering exemption of Section 4(2) of the Securities Act of 1933
with respect to the issuance of Shares of Common Stock and Series B
Preferred Stock.$1,875.
ITEM 3. NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A unanimous written consent of Stockholders dated April 14, 1998,
consented to and approved the Restated Certificate of Incorporation
filed with the Secretary of State of the State of Delaware on April
14, 1998. The Restated Certificate was filed in connection with the
consummation of the Combination. A copy of the Restated Certificate
was filed as an exhibit to MS Acquisition Corp.'s Current Report on
Form 8-K dated April 14, 1998 and filed April 29, 1998 with the
Securities and Exchange Commission.NOT APPLICABLE
ITEM 5. NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2425
25
EXHIBIT NO. DESCRIPTION OF EXHIBITS
4.1 Amended and Restated Credit Agreement dated April 10, 1998 among Aetna Industries, Inc., the Guarantors
party thereto, the lenders party thereto and NBD Bank
4.2 First Amendment to Credit Agreement May 20,26
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)
27.3 Amended Financial Data Schedule for MS Acquisition Corp. (EDGAR Filing Only)
(b) Reports on Form 8-K.8-K
(1) No reports on Form 8-K were filed by Aetna during the three months
ended June 28, 1998
(2) MS Acquisition Corp. Current Report on Form 8-K dated April 14, 1998
and filed April 29,September 15,
1998 reporting Item 56 - Other Events with respect
to the Combination.
(3) MS Acquisition Corp. Amended Current Report on Form 8-K/A dated April
14, 1998 and filed June 29, 1998 reporting financial statements of
Sofedit, SA and pro forma financial statements.
25Changes in registrant's certifying accountants
26
2627
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: AugustNovember 11, 1998 By: /s/s/ Harold A. Brown
-------------------
Harold A. Brown
Secretary, Vice President, Finance
and Secretary
(PrincipalChief Financial and Accounting
Officer)Officer
MS Acquisition Corp.
Date: AugustNovember 11, 1998
By: /s/s/ Harold A. Brown
---------------------------------------
Harold A. Brown
Secretary, Vice President Finance and Secretary
(Principal Financial and Accounting
Officer)
26North America
27
2728
EXHIBIT INDEX
Exhibit No. Description of Exhibits
- ----------- -----------------------
4.1 AmendedFirst 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 RestatedNorwest Bank
Minnesota National Association.
4.2 Second Amendment to Credit Agreement dated April 10,as of August 6, 1998 among
Aetna Industries, Inc., the Guarantors party thereto, the lenders party
thereto and NBD Bank.
4.2 First Amendment to Credit Agreement May 20, 1998
among Aetna Industries, Inc., the Guarantors party thereto, the
lenders party thereto and NBD Bank.Bank
27.1 Financial Data Schedule for Aetna Industries, Inc.
27.2 Financial Data Schedule form MS Acquisition Corp.
27.3 Amended Financial Data Schedule for MS Acquisition Corp.
28