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 September 27, 1998.June 30, 1999.
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. 333-11801-01 Trianon Industries Corp. Commission File No.
333-11801 (AetnaAetna 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 organization) Identification No.)
24331 Sherwood Avenue, P.O. Box 3067, Centerline, Michigan 48015-0067(Address of principal executive offices) (Zip Code)
1, rue Thomas Edison, Quartier des Chenes
78056 St. Quentin en Yvelines, France
(Address of principal executive offices) (Zip Code)24331 Sherwood Avenue, P.O. Box 3067, Centerline, Michigan 48015-0067
Registrant's telephone number, including area code (33-1) 39-412000
(810) 759-2200
(33-1) 39-412000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ------------------
As of October 25, 1998,August 16, 1999, there were 1,000 shares of Aetna Industries, Inc. common
stock outstanding and 3,902,498 shares of MS AcquisitionTrianon Industries Corp. common stock
outstanding.
1
2
INDEX
PART I FINANCIAL INFORMATION
PAGE
Item 1. FINANCIAL STATEMENTS OF TRIANON INDUSTRIES CORP.
Condensed Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998 3
Consolidated Statements of Operations and
Comprehensive Income (Loss)- three and six months ended
June 30, 1999 and June 30, 1998 4
Condensed Consolidated Statements of Cash Flows -
six months ended June 30, 1999 and June 30, 1998 5
Notes to Consolidated Financial Statements 6
FINANCIAL STATEMENTS OF AETNA INDUSTRIES, INC.
Condensed Consolidated Balance Sheets -
3
September 27, 1998July 4, 1999 and December 28, 199731, 1998 12
Consolidated Statements of Operations and
Comprehensive Income (Loss) - 4
three months and ninesix months ended
September 27,July 4, 1999 and June 28, 1998 and September 28, 199713
Condensed Consolidated Statements of Cash Flows -
5
ninesix months ended September 27,July 4, 1999 and June 28, 1998 and September 28, 199714
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 1115
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 17
Item 3. Not ApplicableQualitative and Quantitative Disclosure About
Market Risk 23
Item 4. Submission of Matters to a Vote of Security Holders. 23
PART II OTHER INFORMATION 25
Description of Exhibits 26
Signatures
27
EXHIBIT INDEX 28Exhibit Index
2
3
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
AETNATRIANON INDUSTRIES INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPTEMBER 27,JUNE 30, 1999 DECEMBER 31, 1998
DECEMBER 28, 1997
------------------------------- -----------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and marketable securities $ 4131,138 $ 2326,092
Accounts receivable (less allowance for doubtful
accounts of $398$2,143 and $359,$1,921 respectively) 35,905 40,665191,727 181,375
Inventories 6,286 7,276
Tooling 48,765 11,410106,880 115,287
Other current assets 2,249 1,661
----------- -----------13,288 9,801
--------- ---------
Total current assets 93,246 61,035
----------- -----------343,033 332,555
--------- ---------
Property, plant and equipment, net 59,327 51,572187,153 203,271
Deferred costs and other assets 5,989 5,48925,228 22,969
Goodwill 24,372 24,973
----------- -----------62,878 65,367
--------- ---------
TOTAL ASSETS $ 182,934618,292 $ 143,069
=========== ===========624,162
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 48,985186,340 $ 33,485173,517
Accrued expenses 7,645 9,508
Line53,464 82,250
Current portion of credit 47,870 13,530
----------- -----------long term and short term debt 180,823 157,004
--------- ---------
Total current liabilities 104,500 56,523
----------- -----------420,627 412,771
--------- ---------
Long-term debt, 85,000 85,000less current portion 158,654 167,477
Deferred income taxes 7,433 7,432
Stockholder's equity (deficit)
Commonand other long-term liabilities 18,402 19,370
Redeemable preferred stock 42,715 41,157
Series A - $100 stated value; 405,000 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; 1,000value, 20,000,000
shares - -authorized, 3,902,498 shares issued and outstanding 39 39
Contributed paid-in capital 9,024 9,02441,658 40,708
Retained earnings (accumulated deficit) (56,358) (54,910)
Accumulated deficit (22,842) (14,910)
Cumulative translation adjustment (181) -
----------- -----------
(13,999) (5,886)
----------- -----------other comprehensive income (loss) (7,445) (2,450)
--------- ---------
Total shareholders' equity (deficit) (22,106) (16,613)
TOTAL LIABILITIES, PREFERRED STOCK AND
SHAREHOLDER'S EQUITY (DEFICIT) $ 182,934618,292 $ 143,069
=========== ===========624,162
========= =========
See accompanying notes to consolidated financial statements.
3statements
4
AETNATRIANON INDUSTRIES INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED NINESIX MONTHS ENDED
------------------ -----------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,----------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1999 1998 19971999 1998 1997
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
----------- -----------
Net sales $ 32,308207,652 $ 45,599188,101 $ 132,616425,810 $ 149,388322,251
Cost of sales 32,541 41,022 121,206 130,709
------------ ----------- ---------- ----------181,047 168,080 372,980 285,951
--------- --------- --------- ---------
Gross profit (loss) (233) 4,577 11,410 18,67926,605 20,021 52,830 36,300
Selling, general and administrative expenses 4,553 4,656 13,693 12,448
------------ ----------- ---------- ----------and
research and development expenses 16,869 14,549 31,543 23,962
--------- --------- --------- ---------
Operating income (loss) (4,786) (79) (2,283) 6,2319,736 5,472 21,287 12,338
Interest expense, net 3,623 2,716 9,676 7,986
------------ ----------- ---------- ----------7,409 6,929 14,677 8,982
--------- --------- --------- ---------
Income (loss) before income taxes (8,409) (2,795) (11,959) (1,755)2,327 (1,457) 6,610 3,356
Income tax provision (credit) (3,157) (1,119) (4,027) (702)
------------ ----------- ---------- ----------2,150 96 4,400 1,428
--------- --------- --------- ---------
Income (loss) before discontinued operations 177 (1,553) 2,210 1,928
Share in net income of equity investees
and minority interest 199 -- 199 --
Losses on discontinued operations, net of tax 385 959 1,157 1,490
--------- --------- --------- ---------
Net income (loss) before
Preferred stock dividends (407) (2,512) 854 438
Preferred stock dividends 1,156 362 2,302 362
--------- --------- --------- ---------
Net income (loss) available for common stockholders ($ 1,563) ($ 2,874) ($ 1,447) $ (5,252) $ (1,676) $ (7,932) $ (1,053)
============ =========== ========== ==========76
--------- --------- --------- ---------
Other comprehensive income/(loss):
Foreign currency translation adjustment (1,625) (6,688) (4,995) (523)
--------- --------- --------- ---------
Comprehensive income ($ 3,188) ($ 9,562) ($ 6,442) ($ 447)
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
4statements
5
AETNATRIANON INDUSTRIES INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
NINESIX MONTHS ENDED
-----------------
SEPTEMBER 27, SEPTEMBER 28,JUNE 30, JUNE 30,
1999 1998 1997
---- ----
(UNAUDITED)
CASH FLOWSFLOW FROM OPERATING ACTIVITIES
Net income (loss) $ (7,932)854 $ (1,053)438
Adjustments to reconcile net income to net cash
used forprovided by (used for) operating activitiesactivities:
Depreciation and amortization 7,304 5,616
Deferred income taxes (53) (209)18,244 15,844
Other non cash charges 1,768 (45)
Changes in other assets and liabilities (16,668) (7,173)
---------- ------------(1,188) 15,027
-------- --------
Net cash used forprovided by (used for) operating activities (17,349) (2,819)
---------- ------------19,678 31,264
-------- --------
CASH FLOWSFLOW FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (13,270) (8,460)
Increase in other assets (4,859) (663)
---------- ------------
Net cash used for investing activities (18,129) (9,123)
---------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in line of credit 34,340 8,427(15,086) (18,864)
(Increase) decrease in other assets 1,156 (323)
---------- ------------(3,657) 1,135
-------- --------
Net cash provided by (used for) investing activities (18,743) (17,729)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Dividends paid -- (2,377)
Net increase (decrease) in borrowings under line of credit 36,432 10,603
Repayment of long term debt (81,362) (14,975)
Borrowings of long term loan 51,988 4,508
-------- --------
Net cash provided by (used for) financing activities 35,496 8,104
---------- ------------7,058 (2,241)
-------- --------
Exhange Rate Variation (2,947) 5
Net increase (decrease) in cash 18 (3,838)5,046 11,299
Cash - beginning of year 23 4,011
---------- ------------26,092 11,626
-------- --------
Cash - end of period $ 4131,138 $ 173
========== ============22,925
======== ========
See accompanying notes to consolidated financial statements.
5statements
6
AETNATRIANON INDUSTRIES INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION 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 indirect subsidiary of
MS Acquisition Corp. ("MS Acquisition") andthe 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 direct
subsidiary ofUnited States
subsidiaries (i.e., Aetna Holdings, Inc., a Delaware corporation ("Aetna
Holdings"), Aetna Manufacturing Canada Ltd., a Michigan corporation ("Aetna
Canada"), and has two
wholly-owned subsidiaries Aetna Export Sales Corp., a U.S. Virgin Islands corporation
("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$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.
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,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 MS AcquisitionTrianon Industries in exchange for: (i)
promissory notes of MS AcquisitionTrianon 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
MS Acquisition;Trianon Industries; (iv) 3.0 million shares of Common Stock of MS Acquisition,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 MS AcquisitionTrianon Industries as
a result of the Combination. For accounting purposes, Sofedit is considered
to be the acquirer of, and the predecessor to, MS Acquisition.
6
7
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
2. INVENTORIES
Inventories are comprisedTrianon Industries.
As a result 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 (7,932) (7,932)
------------ ----------- ---------- -----------
Balance at September 27, 1998 $ 9,024 $ (22,842) $ (181) $ (13,999)
============ =========== ========== ===========
4. COMPREHENSIVE INCOME
Aetna adopted SFAS No. 130 "Reporting Comprehensive Income".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 impact of
adoption has been to include changes in foreign currency translation, which have
not been recognized in determining net income, in a new presentation of
comprehensive income, as presented below.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
NINE MONTHS ENDED
-----------------------------------
SEPTEMBER 27, SEPTEMBER 27,
1998 1997
---- ----
Net income (loss) $ (7,932) $ (1,053)
Foreign currency translation (181) -
--------- ---------
Comprehensive income (loss) $ (8,113) $ (1,053)
========= =========
7
8
MS ACQUISITION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash $ 11,307 $ 11,626
Restricted cash 10,727 --
Accounts receivable (less allowance for doubtful
accounts of $1,921 and $1,293 respectively) 163,281 115,823
Inventories 76,163 64,013
Tooling 49,151 --
Other current assets 13,694 36,826
--------- ---------
Total current assets 324,323 228,288
--------- ---------
Property, plant and equipment, net 193,674 122,028
Deferred costs and other assets 13,526 5,430
Goodwill 65,914 6,166
--------- ---------
$ 597,437 $ 361,912
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 174,730 $ 109,876
Accrued expenses 61,795 52,849
Customer deposits and advances 6,047 8,448
Deferred income taxes 4,773 4,882
Short-term borrowings 111,287 43,778
--------- ---------
Total current liabilities 358,632 219,833
--------- ---------
Long-term debt 185,333 71,416
Junior subordinated notes 7,789 --
Deferred interest, junior subordinated notes 857 --
Deferred income taxes and other long-term liabilities 12,265 5,374
Redeemable preferred stock
Series A - $100 stated value; 293,123 shares authorized;
142,424 shares issued and outstanding 14,440 --
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, 3,902,498 shares issued and outstanding 39 39
Additional paid-in capital 39,132 41,654
Retained earnings (accumulated deficit) (47,984) 28,138
Cumulative translation adjustment (66) (4,542)
--------- ---------
(8,879) 65,289
--------- ---------
$ 597,437 $ 361,912
========= =========
See accompanying notes toconsolidated balance sheet at June 30, 1999
represents the consolidated financial statements.
8
9
MS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
Net sales $ 151,045 $ 108,892 $ 473,296 $ 364,499
Cost of sales 141,095 99,087 427,295 320,028
------------ ----------- ----------- ----------
Gross profit 9,950 9,805 46,001 44,471
Selling, general and administrative expenses 10,656 5,390 28,150 19,394
Research and development expenses 2,713 2,266 6,947 6,308
Other Expenses 1,671 30 3,657 2,138
------------ ----------- ----------- ----------
Operating income (loss) (5,090) 2,119 7,247 16,631
Interest expense, net 6,662 2,781 15,644 8,196
------------ ----------- ----------- ----------
Income (loss) before income taxes (11,752) (662) (8,397) 8,435
Income tax provision (credit) (5,329) (1,353) (3,901) 1,240
------------ ----------- ----------- ----------
Income (loss) before discontinued operations (6,423) 691 (4,496) 7,195
Share in net income of equity investees
and minority interest (48) 107
Losses on discontinued operations (1,754) (1,788) (3,244) (3,162)
------------ ----------- ----------- ----------
Net income (loss) before
preferred stock dividends (8,177) $ (1,145) (7,740) $ 4,140
------------ =========== ---------- ===========
Preferred stock dividends (381) (751)
------------ -----------
Net income available for common stockholders $ (8,558) $ (8,491)
============ ===========
See accompanying notes to consolidated financial statements.
9
10
MS ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
NINE MONTHS ENDED
-----------------
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
---- ----
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (7,740) $ 4,140
Equity income -- 102
Adjustments to reconcile net income to net cash
used for operating activities
Depreciation and amortization 24,277 19,489
(Decrease) increase in other long-term liabilities (1,384) 1,034
Changes in other assets and liabilities 7,588 1,406
-------- --------
Net cash provided by operating activities 22,741 26,171
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (31,617) (19,398)
Disposal of property, plant and equipment 4,408
Increase in restricted cash (10,727) --
(Increase) decrease in other assets 743 (4,094)
-------- --------
Net cash used for investing activities (41,601) (19,084)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital increase -- 127
Dividends paid (2,396) (2,295)
Increase in long-term borrowings 12,943 22,475
Repayments of long-term debt (22,678) (25,299)
Net increase (decrease) in line of credit 28,621 (703)
-------- --------
Net cash (used for) provided by financing 16,490 (5,695)
-------- --------
Net effect of exchange rates 2,051 (1,861)
-------- --------
Net decrease in cash (319) (469)
Cash - beginning of year 11,626 11,350
-------- --------
Cash - end of period $ 11,307 $ 10,881
======== ========
See accompanying notes to consolidated financial statements
10
11
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 purposeposition of purchasing Aetna Industries, Inc. ("Aetna")Sofedit 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.Trianon
Industries.
The accompanying unaudited condensed consolidated financial statements of
MS AcquisitionTrianon 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, 1997.1998.
The statements of operations and cash flows for the six months ended June
30, 1998 represent the six month financial data of Sofedit plus three
months financial data of Trianon Industries. On a pro forma basis, Trianon
Industries had net sales of $375.3 million, and pre-tax income of $2.7
million, for the six months ended June 30, 1998.
7
TRIANON INDUSTRIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
2. INVENTORIES
Inventories are comprised of the following:
JUNE 30, DECEMBER 31,
1999 1998
--------- ---------
Raw materials $ 22,797 $ 27,131
Work-in-process 25,619 31,976
Finished goods 13,547 18,839
Tooling 47,529 40,724
--------- ---------
Inventories, gross 109,492 118,670
Less valuation allowance (2,612) (3,383)
--------- ---------
Total inventories $ 106,880 $ 115,287
========= =========
Tooling inventory at Sofedit is included in work in process at December 31, 1998
and has been included in tooling at June 30, 1999
3. STOCKHOLDERS' EQUITY (DEFICIT)
ACCUMULATED
ADDITIONAL RETAINED OTHER TOTAL
CONTRIBUTED PAID IN EARNINGS COMPREHENSIVE STOCKHOLDER'S
CAPITAL CAPITAL (DEFICIT) INCOME (LOSS) EQUITY (DEFICIT)
Balance at December 31, 1998 $ 39 $ 40,708 ($54,910) ($2,450) ($16,613)
Reversal of Stock Offering Costs 950 950
Translation adjustment (4,995) (4,995)
Preferred Stock dividends -- -- (2,302) (2,302)
Net income (loss) -- -- 854 854
------- -------- -------- ------- --------
Balance at June 30, 1999 $ 39 $ 41,658 ($56,358) ($7,445) ($22,106)
------- -------- -------- ------- --------
8
TRIANON INDUSTRIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
4. ACQUISITION OF EMARC
The Company acquired 20% of the outstanding share capital of EMARC in
October 1998. Pursuant to a share purchase agreement dated May 21, 1999 and
amended on June 23, 1999, the Company agreed to pay an aggregate cash
consideration of approximately $15.8 million and to issue 192,800 shares of
its Common Stock to acquire the remaining 80% of the outstanding capital of
EMARC. Pursuant to the terms of the amended share purchase agreement, the
Company made a cash payment to acquire 10% of the outstanding capital of
EMARC in June, 1999 and placed the remaining funds in an escrow account. In
November 1999, the Company will release the remaining funds from escrow and
will issue the 192,800 shares of its Common Stock to EMARC's shareholders
and acquire the remaining 70% of the share capital of EMARC. In addition,
under the share purchase agreement, the former EMARC shareholders have been
granted the option to require the Company to repurchase the 192,800 shares
between June 15, 2001 and December 31, 2001, for approximately $15.
million. Furthermore, pursuant to the share purchase agreement, the Company
has agreed to employ a selling shareholder of EMARC in a management
position at the Company for a period of five years beginning in 1999. The
Company will also assume $40.6 million of existing debt of EMARC.
5. SUBSEQUENT EVENT - ACQUISTION OF ZENITH
Pursuant to a stock purchase agreement executed on May 10, 1999, TRIANON
Industries Corp. (as more specifically defined in the subsequent filing of
the 8-K on July 28, 1999) acquired all of the outstanding shares of Zenith
Industrial Corporation, a Michigan corporation ("Zenith"), on July 13,
1999, from its existing shareholders (the "Acquisition"), for an initial
purchase price of $101.0 million. In addition to such initial purchase
price, TRIANON Industries Corp. has agreed to make annual contingent
payments to the former shareholders of Zenith, based on income targets over
a period of three years. Moreover, TRIANON Industries Corp. has agreed to
pay to the former shareholders of Zenith additional compensation of an
aggregate amount of $6.0 million in three installments of $2.0 million each
over three years. On July 13, 1999, Zenith entered into a five year senior
secured reducing revolving credit facility for an aggregate amount of
$125.0 million. The revolving credit facility is fully guaranteed by
TRIANON Industries Corp., Zenith and Aetna Holdings Inc. a wholly-owned
direct Delaware subsidiary of TRIANON Industries Corp. Zenith plans to use
the funds under this credit facility to finance the $101.0 million initial
purchase price and for ongoing general corporate purposes.
6. OTHER EVENT - TENDER OFFER
On July 29, 1999, Aetna Industries announced the cash tender offer and
consent solicitation relating to its $85.0 million outstanding principal
amount of 11 7/8% Senior notes due 2006, Series B. Aetna will finance the
purchase price and the consent payments with the proceeds of a planned new
credit facility and a planned new offering of notes by Aetna's parent,
Trianon Industries Corp. ("Trianon"). The tender offer is conditioned upon,
among other things, the receipt of the consents and Trianon's completion of
the new offering of notes. Banc One Capital Markets, Inc. is acting as the
dealer manager for the tender offer and the consent solicitation. The
depositary for the offer is Norwest Bank Minnesota National Association.
9
7. SHORT TERM & LONG TERM DEBT
In March, 1999, Trianon Industries entered into a revolving line of credit
with its principal bank for up to $10,000,000. The loans have been used to
make equity contributions to Aetna, and may be used to make additional
contributions or, if permitted, subordination loans to Aetna. The credit
agreement provides that funds borrowed will bear interest, (i) prior to
July 30, 1999, at Trianon Industries' option, at either (a) the bank's
prime rate or (b) .25% over LIBOR (as adjusted for reserve requirements of
the Federal Reserve System) and (ii) after July 30, 1999, at 2% over the
greater of the federal funds rate or the bank's prime rate. Trianon
Industries must also pay a commitment fee of 1/2% per annum on the unused
amount of the commitment. The loans were payable on June 30, 1999. As of
June 30, 1999, Trianon Industries had outstanding borrowings under the
credit agreement totaling $9,000,000. The credit agreement contains
certain restrictive covenants including covenants relating to financial
statement ratios.
In May, 1999, Trianon Industries entered into a line of credit with its
principal bank for $41,300,000. The loans were used to finance the
repurchase $40,968,000 aggregate principal amount of Trianon Industries'
promissory notes and accrued interest thereon. The credit agreement
provides that funds borrowed will bear interest, (i) prior to July 30,
1999, at either (a) the bank's prime rate or (b) a rate mutually agreed
upon by Trianon Industries and the bank and (ii) after July 30, 1999, at
2% over the greater of the bank's prime rate or 1% over the federal funds
rate. The loans were payable on June 30, 1999. As of June 30, 1999,
Trianon Industries had outstanding borrowings under the credit agreement
totaling $55,925,000. The credit agreement contains restrictive covenants
including covenants relating to financial statement ratios.
8. COMBINING FINANCIAL INFORMATION OF TRIANON INDUSTRIES CORP BALANCE SHEET AS
OF JUNE 30, 1999
AETNA
AETNA HOLDINGS TRIANON SOFEDIT ELIMINATIONS TOTAL
Total current assets $ 107,084 $ - $ 40 $ 255,336 $ (19,427) $ 343,033
Property, plant and
Equipment, net 70,338 6,370 110,445 - 187,153
Other long-term assets 28,715 15,845 123,751 23,933 (104,138) 88,106
----------- ------------- -------------- ------------ --------------- -------------
Total assets $ 206,137 $ 15,845 $ 130,161 $ 389,714 $ (123,565) $ 618,292
=========== ============= ============== ============ =============== =============
Total current liabilities 122,905 (438) 55,050 251,903 (8,793) 420,626
Long-term debt 88,125 - 12,032 61,452 (12,032) 149,577
Junior subordinated notes 9,077 9,077
Deferred income taxes and
other long-term liabilities 5,498 - 3,478 9,426 18,402
Redeemable preferred stock 42,715 42,715
Class A, common stock
$.01 par value,
12,000,000 shares
Authorized, 3,902,498
Outstanding 39 1,215 (1,215) 39
Additional paid-in capital 17,024 8,000 16,748 22,865 (22,979) 41,658
Retained earnings
(accumulated deficit) (27,428) (794) 99 39,110 (67,345) (56,358)
Cumulative translation
Adjustment 13 - - 3,743 (11,201) (7,445)
----------- ------------- -------------- ------------ --------------- -------------
Total shareholders equity
(deficit) (10,391) 7,206 16,886 66,933 (102,740) (22,106)
---------- -------------- --------------- ------------- ---------------- -------------
Total liabilities and
shareholders equity (deficit) $ 206,137 $ 15,845 $ 130,161 $389,714 $ (123,565) $ 618,292
========== ============== =============== ============= ================ ==============
10
TRIANON INDUSTRIES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
8. COMBINING FINANCIAL INFORMATION OF TRIANON INDUSTRIES CORP. (CONTINUED)
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1999
AETNA
AETNA HOLDINGS TRIANON SOFEDIT TOTAL
Net sales $ 132,480 $0 $0 $293,330 $425,810
Cost of sales 116,137 - - 256,843 372,980
--------- ------- ----------- ------------- ----------
Gross profit 16,343 - - 36,487 52,830
Selling, general and
Administrative expenses 10,008 - 943 18,854 29,805
Other expenses 812 - 355 570 1,737
--------- ------- ----------- ------------- ----------
Operating income (loss) 5,523 - (1,298) 17,063 21,228
Net interest expense 7,660 495 1,792 4,730 14,677
--------- ------- ----------- ------------- ----------
Income (loss) before income
Taxes (2,137) (495) (3,090) 12,333 6,611
Income tax provision (credit) (660) (168) (1,035) 6,263 4,400
--------- ------- ----------- ------------- ----------
Income (loss) before discontinued operations,
Preferred stock dividends, and equity investees (1,477) (327) (2,055) 6,070 2,210
Share in net income of equity investees - - - 199 199
Discontinued Operations - - - 1,157 1,157
Preferred stock dividend - - 2,302 - 2,302
--------- ------- ----------- ------------- -----------
Net income available to common
Stockholders $ (1,477) $ (327) $ (4,357) $ 4,714 $ (1,447)
--------- -------- ----------- ------------- -----------
Other comprehensive income (loss):
Foreign currency translation
Adjustment 257 - - $ (538) (4,995)
--------- ------- ------------ ------------- -----------
Comprehensive income (loss) $ (1,220) $ (327) $ (4,357) $ (5,252) $ 1,836
========= ======= ============ ============= ===========
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
8. COMBINING FINANCIAL INFORMATION OF TRIANON INDUSTRIES (CONTINUED)
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999
AETNA
AETNA HOLDINGS TRIANON SOFEDIT ELIM TOTAL
CASH FLOW FROM OPERATING ACTIVITIES
Net cash provided by (used in)
operating activities $(8,364) $(432) $ 465 $28,008 $ - $ 19,678
CASH FLOW FROM INVESTING ACTIVITIES
Net cash used for (provided by)
investing activities (2,080) - (1,197) (15,466) - (18,743)
CASH FLOW FROM FINANCING ACTIVITIES
Net cash provided by financing 9,080 432 813 (3,267) - 7,058
Net effect of exchange rate 254 (51) (3,150) - (2,947)
Net increase in cash (1,110) - 30 6,126 - 5,046
Cash - beginning of year 1,185 - - 24,907 - 26,092
Cash - end of period $ 75 $ - $ 30 $31,033 $ - $ 31,138
9. 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).
June 30, June 30, December 31,
1999 1998 1998
OPERATING North North North
SEGMENTS Europe America Total Europe America Total Europe America Total
Revenues $ 293,330 $ 132,480 $ 425,810 $ 221,943 $ 100,308 $ 322,251 $ 542,037 $ 168,809 $ 710,846
EBIT 17,063 4,225 21,288 9,835 2,503 12,338 19,255 (7,569) 11,686
Depreciation and
Amortization 12,571 5,673 18,244 10,917 4,927 15,844 23,405 8,438 31,843
Total assets $ 389,714 $ 228,578 $ 618,292 $ 418,663 $ 157,256 $ 575,919 $ 408,915 $ 215,247 $ 624,162
10. 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.
12
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
TRIANON INDUSTRIES CORP.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
JULY 4, DECEMBER 31,
1999 1998
---- ----
ASSETS (UNAUDITED)
CURRENT ASSETS:
Cash $ 75 $ 1,18
Accounts receivable (less allowance for doubtful
accounts of $437 and $411, respectively) 61,737 38,793
Inventories 41,268 47,764
Other current assets 4,004 3,390
--------- ---------
Total current assets 107,084 91,132
--------- ---------
Property, plant and equipment, net 70,338 71,922
Deferred costs and other assets 4,944 5,717
Goodwill 23,771 24,172
--------- ---------
Total Assets $ 206,137 $ 192,943
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 52,712 $ 48,874
Accrued expenses 12,393 10,896
Current portion of long term and short term debt 57,800 56,720
--------- ---------
Total current liabilities 122,905 116,490
--------- ---------
Long-term debt, less current portion 88,125 88,125
Deferred income taxes 5,498 5,498
Stockholder's equity (deficit)
Common stock - $.01 par value; 1,000 shares
issued and outstanding - -
Contributed capital 17,024 9,024
Accumulated deficit (27,428) (25,950)
Cumulative translation adjustment 13 (244)
--------- ---------
Total shareholders' equity (deficit) (10,391) (17,170)
--------- ---------
Total liabilities and shareholder equity $ 206,137 $ 192,943
(deficit) ========= =========
See accompanying notes to consolidated financial statements
13
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
TRIANON INDUSTRIES CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 4, JUNE 28, JULY 4, JUNE 28,
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited) (Unaudited)
Net Sales $ 65,660 $ 47,223 $ 132,480 $ 100,308
Cost of Sales 57,433 43,405 116,137 88,379
--------- --------- --------- ---------
Gross Profit 8,227 3,818 16,343 11,929
Selling, general and administrative expenses 5,848 4,940 10,820 9,426
--------- --------- --------- ---------
Operating income (loss) 2,379 (1,122) 5,523 2,503
Interest expense, net 3,845 3,187 7,660 6,053
--------- --------- --------- ---------
Income (loss) before income taxes (1,466) (4,309) (2,137) (3,550)
Income tax provision (credit) (534) (1,105) (660) (870)
--------- --------- --------- ---------
Net income (loss) ($932) ($3,204) ($1,477) ($2,680)
========= ========= ========= =========
Other Comprehensive income (loss):
Foreign currency translation adjustment 187 - 257 -
--------- --------- --------- ---------
Comprehensive income (loss) ($745) ($3,204) ($1,220) ($2,680)
========= ========= ========= =========
See accompanying notes to consolidated financial statements
14
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
TRIANON INDUSTRIES CORP.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
SIX MONTHS ENDED
JULY 4, JUNE 28,
1999 1998
---- ----
CASH FLOW FROM OPERATING ACTIVITIES (UNAUDITED)
Net income (loss) $ (1,477) $ (2,680)
Adjustments to reconcile net income to net cash
Provided by (used for) operating activities:
Depreciation and amortization 4,837 4,927
Changes in other assets and liabilities (11,724) (4,163)
-------- --------
Net cash provided by (used for) operating activities (8,364) (1,916)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant, and equipment (2,507) (9,389)
Increase in other assets 427 (954)
-------- --------
Net cash used for investing activities (2,080) (10,343)
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in borrowings under line of credit 1,080 12,451
Capital Contribution 8,000 -
-------- --------
Net cash provided by (used for) financing activities 9,080 12,451
-------- --------
Exchange Rate Variation 254 -
Net increase (decrease) in cash (1,110) 192
Cash - beginning of year 1,185 23
-------- --------
Cash - end of period $ 75 $ 215
======== ========
See accompanying notes to consolidated financial statements
15
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
TRIANON 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, MS AcquisitionAetna'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 MS AcquisitionTrianon Industries in exchange for: (i) promissory notes
of MS AcquisitionTrianon 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
MS Acquisition;Trianon Industries; (iv) 3.0 million shares of Common Stock of MS Acquisition,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
MS AcquisitionTrianon Industries as a result of the Combination. For accounting
purposes, Sofedit is considered to be the acquirer of, and the
predecessor to, MS Acquisition.
AsTrianon Industries.
The accompanying unaudited condensed consolidated financial statements
of 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 resultfair
presentation of the Combination being accountedresults of the interim periods, have been made. The
results of operations for assuch interim periods are not necessarily
indicative of results of operations for a reverse
acquisition, thefull year. The unaudited
condensed consolidated financial statements included hereinshould be read in
conjunction with Aetna's consolidated financial statements and notes
thereto for the year ended December 31, 1997
and for the nine month period ended September 30, 1997 represent the
historical information of Sofedit, as predecessor. The consolidated balance
sheet at September 30, 1998 represents the consolidated financial position
of Sofedit and MS Acquisition. The statements of operations and cash flows
for the nine months ended September 30, 1998 represent the nine month
financial data of Sofedit, plus six months of financial data of MS
Acquisition (from April 1,1998). On a pro forma basis, MS Acquisition had
net sales of $526.4 million and $513.9 million, and pre-tax income (loss)
of ($7.9) million and $6.7 million, for the nine months ended September 30,
1998 and 1997, respectively.
111998.
12
1. BASIS16
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY 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 $60,454 and has been recorded as goodwill and is being amortized
over forty years.
Estimated fair value:
MS Acquisition common stock $ 10,000
MS Acquisition's shareholders' deficit at
March 31, 1998 (27,565)
---------------
Excess purchase price $ 37,565
===============
This excess purchase price has been allocated to the assets and liabilities
of MS Acquisition as follows:
Inventory and tooling $ 811
Property, plant and equipment 7,280
Goodwill, previously recorded (24,773)
Goodwill 60,454
Accrued liability (2,500)
Deferred tax liability (3,707)
---------------
$ 37,565
===============
TRIANON INDUSTRIES CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
2. INVENTORIES Inventories are comprised of the following:
SEPTEMBER 30,JULY 4, DECEMBER 31,
1999 1998 1997
---- ----
(UNAUDITED)
-----------
Raw materials $ 27,0251,256 $ 19,189881
Work-in-process 31,909 30,2144,253 2,333
Finished goods 17,632 16,8191,835 1,670
Tooling 30,112 40,724
-------- --------
Inventories valued at FIFO 37,456 45,608
LIFO Reserve (201) (200)
-------- --------
37,255 45,408
Purchased parts and purchased labor 2,083 -
----------- -----------
78,649 66,222
Reserves (2,486) (2,209)
----------- -----------4,013 2,356
-------- --------
Total inventories $ 76,16341,268 $ 64,013
=========== ===========47,764
======== ========
12
13
3. STOCKHOLDERS'STOCKHOLDER'S EQUITY (DEFICIT)
ADDITIONAL CUMULATIVEACCUMULATED
OTHER TOTAL
CONTRIBUTED ACCUMULATED COMPREHENSIVE STOCKHOLDER'S
CAPITAL PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
STOCK CAPITAL EARNINGS ADJUSTMENTDEFICIT INCOME EQUITY (DEFICIT)
----- ------- -------- ---------- ----------------
Balance at December 31, 19971998 $ 399,024 $(25,951) $ 41,654 $ 28,138 $ (4,542) $ 65,289
Dividends paid (1,685) (68,382) (70,067)(244) $(17,171)
Translation adjustment 4,476 4,476
Common issued under
stock option plan 4 4
Dividends on redeemable
preferred stock (751) (751)
Stock issuance costs (90) (90)-- -- 257 257
Capital Contribution 8,000 -- -- 8,000
Net loss (7,740) (7,740)
---------- ---------- --------- ------------- ------------ (1,477) -- (1,477)
-------- -------- -------- --------
Balance at September 30, 1998July 4, 1999 $ 3917,024 $(27,428) $ 39,132 $ (47,984) $ (66) $ (8,879)
========== ========== ========= ============= ==========13 $(10,391)
-------- -------- -------- --------
4. COMPREHENSIVE INCOME
MS Acquisition adopted SFAS No. 130 "Reporting Comprehensive Income"OTHER EVENT - TENDER OFFER
On July 29, 1999, Aetna Industries announced the cash tender offer and
consent solicitation relating to its $85.0 million outstanding
principal amount of 11 7/8% Senior notes due 2006, Series B. Aetna will
finance the purchase price and the consent payments with the proceeds
of a planned new credit facility and a planned new offering of notes by
Aetna's parent, Trianon Industries Corp. ("Trianon"). The impacttender offer
is conditioned upon, among other things, the receipt of adoption has been to include changes in foreign currency translation, which
have not been recognized in determining net income, in athe consents
and Trianon's completion of the new presentationoffering of comprehensive income,notes. Banc One Capital
Markets, Inc. is acting 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
14
5. COMBINING FINANCIAL INFORMATION OF MS ACQUISITION
BALANCE SHEET AS OF SEPTEMBER 30, 1998
AETNA MS
AETNA HOLDINGS ACQUISITION SOFEDIT ELIMINATIONS TOTAL
Total current assets $ 93,246 $ - $ 586 $ 234,504 $ (4,013) $ 324,323
Property, plant and
equipment, net 59,327 6,916 127,431 193,674
Other long-term assets 30,361 7,845 135,422 13,753 (107,941) 79,440
--------- --------- ----------- ----------- ----------- -----------
Total assets $ 182,934 $ 7,845 $ 142,924 $ 375,688 $ (111,954) $ 597,437
========= ========= =========== =========== =========== ===========
Total current liabilities $ 104,500 $ (509) $ 55,217 $ 203,878 $ (4,454) $ 358,632
Long-term debt 85,000 100,333 185,333
Junior subordinated notes 7,789 7,789
Deferred interest,
junior subordinated notes 857 857
Deferred income taxes and
other long-term liabilities 7,433 3,464 1,368 12,265
Redeemable preferred stock
Series A 14,440 14,440
Series B 27,000 27,000
Class A, common stock -
$.01 par value,
12,000,000 shares
authorized, 3,902,498 39 39
shares issued and
outstanding
Additional paid-in capital 9,024 30,108 39,132
Retained earnings
(accumulated deficit) (22,842) (292) 12,656 69,994 (107,500) (47,984)
Cumulative translation
adjustment (181) 115 (66)
--------- ----------- ----------- ----------- ---------- ----------
(13,999) (292) 42,803 70,109 (107,500) (8,879)
--------- ----------- ----------- ----------- ---------- ----------
$ 182,934 $ 7,845 $ 142,924 $ 375,688 $(111,954) $ 597,437
========= =========== =========== =========== ========== ==========
14
15
5. COMBINING FINANCIAL INFORMATION OF MS ACQUISITION (CONTINUED)
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1998
AETNA MS
AETNA HOLDINGS ACQUISITION SOFEDIT ELIMINATIONS TOTAL
Net sales $ 79,531 $ - $ - $ 393,765 $ - $ 473,296
Cost of sales 76,195 589 350,511 427,295
----------- ---------- --------- ------------ ------------ -----------
Gross profit 3,336 (589) 43,254 46,001
Selling, general and
administrative expenses 8,521 46 19,583 28,150
Research and development
expenses 6,947 6,947
Other non-recurring
expenses 723 355 2,579 3,657
----------- ---------- --------- ----------- ------------ -----------
Operating income (loss) (5,908) (990) 14,145 7,247
Net interest expense 6,810 460 1,673 6,701 15,644
----------- ---------- --------- ----------- ------------ -----------
Income (loss) before income
taxes (12,718) (460) (2,663) 7,444 (8,397)
Income tax provision (credit) (4,262) (168) (933) 1,462 (3,901)
----------- ---------- --------- ----------- ------------ -----------
Income (loss) before
discontinued operations $ (8,456) $ (292) $ (1,730) $ 5,982 $ $ (4,496)
=========== ========== ========= =========== ============ ===========
15
16
5. COMBINING FINANCIAL INFORMATION OF MS ACQUISITION (CONTINUED)
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
1998
AETNA MS
AETNA HOLDINGS ACQUISITION SOFEDIT TOTAL
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by
operating activities $ (14,476) $ (519) $ (1,714) $ 38,877 $ 22,168
---------- ------------ ---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used for
investing activities (14,886) 1,714 (27,856) (41,028)
---------- ------------ ----------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash provided by
financing 29,403 519 (13,432) 16,490
---------- ------------ ----------- ---------- -----------
Net effect of exchange
rates 2,051 2,051
---------- ------------ ----------- ---------- -----------
Net increase in cash 41 (360) (319)
Cash - beginning of year 11,626 11,626
---------- ------------ ----------- ---------- -----------
Cash - end of period $ 41 $ - $ - $ 11,266 $ 11,307
========== ============ =========== ========== ===========
16the dealer manager for the tender offer and
the consent solicitation. The depositary for the offer is Norwest Bank
Minnesota National Association.
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
AETNA
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, Aetna's 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 NINE MONTHS ENDED
------------------------------------ ----------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 27, SEPTEMBER 28,
1998 1997 1998 1997
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 100.7 90.0 91.4 87.5
----------- ----------- --------- -----------
Gross profit (0.7) 10.0 8.6 12.5
Selling, general and
administrative expenses 14.1 10.2 10.3 8.3
----------- ----------- --------- -----------
Operating income (loss) (14.8) (0.2) (1.7) 4.2
Interest expense, net 11.2 6.0 7.3 5.4
----------- ----------- --------- -----------
Income (loss) before
income taxes (26.0) (6.2) (9.0) (1.2)
Income tax provision (credit) (9.8) (2.5) (3.0) (0.5)
----------- ----------- --------- -----------
Net loss (16.2) (3.7) (6.0) (0.7)
=========== =========== ========= ===========
THREE MONTHS ENDED SEPTEMBER 27, 1998 COMPARED TO THREE MONTHS ENDED SEPTEMBER
28, 1997
NET SALES: Net sales for the third quarter of 1998 were $32.3 million, or 29.1%
lower than third quarter 1997 sales of $45.6 million. Production sales of $27.6
million in the third quarter of 1998 were down $16.9 million from $44.5 million
in the third quarter of 1997, due to the planned ramp-up of the new Grand
Cherokee and the eight-week strike at General Motors. Tooling and prototype
sales were up $ 3.6 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 $(0.2) million, or (.7)% of net sales, for the
third quarter of 1998 compared to $ 4.6 million, or 10.0% of net sales, for the
same period in 1997. The decrease in gross profit was primarily the result of
the impact of the UAW strike General Motors (GM) and the ramp-up of the Grand
Cherokee production in May.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expenses for the
third quarter of 1998 were $4.6 million, or 14.1 % of net sales, compared to $
4.7 million, or 10.2% of net sales, for the same period in 1997. The increase 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.
17
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
INTEREST EXPENSE: Interest expense for the third quarter of 1998 was $3.6
million, or 11.2% of net sales, compared to $2.7 million or 6.0% of net sales
for the same period in 1997. Interest expense was impacted by higher levels of
short-term 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 third 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 40.0% for the same period in 1997.
NINE MONTHS ENDED SEPTEMBER 27, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER 28,
1997
NET SALES: Net sales for the nine months ended September 27, 1998 were $132.6
million, down from the $149.4 million reported for the nine months ended
September 28, 1997. Production sales decreased $22.9 million, while tooling and
prototype sales increased $ 6.1 million for the same period.
GROSS PROFIT: Gross profit was $11.4 million, or 8.6% of net sales, for the nine
months ended September 27, 1998 compared to $18.7 million, or 12.5 % of net
sales, for the same period in 1997. The decline in gross profit was primarily
due to the strike at GM and the transition to the new Grand Cherokee. The eight
week GM strike that occurred from June through early August of this year
resulted in approximately $5.3 million of lost revenue with an estimated $0.8
million loss in earnings before interest and taxes (EBIT).
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expenses for the
nine months ended September 27, 1998 were $13.7 million, or 10.3% of net sales,
compared to $12.4 million, or 8.3% of net sales, for the same period in 1997.
The increase was due principally to the interruption of production sales during
the GM strike along with ongoing launch costs for Saturn, WJ and CAMI platforms,
and costs incurred relative to quote preparation for a significant OEM platform
with worldwide launch planned for model year 2002.
INTEREST EXPENSE: Interest expense for the nine months ended September 27,1998
was $9.7 million, or 7.3% of net sales, compared to $8.0 million or 5.4% of net
sales for the same period in the prior year. Working capital requirements
necessary to fund tooling expenditures relating to the three major program
launches resulted in higher interest expense year over year. The full effect on
sales of these new jobs will be realized in 1999 as two of the new platforms are
launched by the fourth quarter of 1998 and the third platform is planned to
launch in the second quarter of 1999.
INCOME TAXES: The income tax credit for the nine months ended September 27, 1998
was $4.0 million with an effective tax rate of 33.7% as compared to a credit of
$ 0.7 million with an effective tax rate of 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.
18
19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
At September 27, 1998 there was $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 flows used for operations for the nine months ended September 27, 1998
aggregated $17.4 million. This compares to net cash used for operations of $ 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.
Net cash flows used for investing activities aggregated $18.1 million for the
nine months ended September 27, 1998 as compared to $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 $35.5 million for the nine
months ended September 27, 1998 as compared to $8.1 million for the same period
in the prior year and in both cases represented increases in the Senior
Revolving Credit Facility.
19
20
MS ACQUISITIONTRIANON INDUSTRIES
RESULTS OF OPERATIONS
On April 14, 1998, MS AcquisitionTrianon 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 MS AcquisitionTrianon Industries in exchange for: (i) promissory notes of MS
AcquisitionTrianon
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 MS Acquisition;Trianon Industries; (iv) 3.0 million shares of
Common Stock of MS Acquisition,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 MS
AcquisitionTrianon
Industries as a result of the Combination. For accounting purposes, Sofedit is
considered to be the acquirer of, and predecessor of MS Acquisition.Trianon Industries.
As a result of the Combination being accounted for as a reverse acquisition, the
financial statements of operations and cash flows included herein for December 31, 1997 and for the ninesix month period
ended SeptemberJune 30, 19971998 represent the historical information of Sofedit, as
predecessor. The consolidated balance sheet at SeptemberJune 30, 1999 and December 31,
1998 represents the consolidated financial position of Sofedit and MS Acquisition.Trianon
Industries. The statements of operations and cash flows for the ninesix months ended
SeptemberJune 30, 19981999 represent the nineconsolidated six month financial data of Sofedit plus six monthsand
Trianon Industries.
On August 28, 1999, Aetna Industries, Inc. launched a cash tender offer and
consent solicitation relating to it $85 million outstanding principal amount of
financial data11 7/8% Senior Notes due 2006, Series B. Aetna will finance the purchase price
and the consent payments with the proceeds of MS Acquisition (from April 1, 1998)a new credit facility and a new
offering of notes by Aetna's parent, Trianon Industries Corp ("Trianon"). The
tender offer is conditioned upon, among other things, the receipt of the
consents and Trianon's completion of the new offering of notes.
The following table sets forth, for the periods indicated, MS Acquisition'sTrianon Industries's
statement of operations expressed as a percentage of net sales.sales for six months
ended June 30, 1999 and proforma statement of operations for the six months
ended June 30, 1998. This table and subsequent discussions should be read in
conjunction with the condensed consolidated financial statements and related
notes thereto of MS AcquisitionTrianon Industries included elsewhere herein.
AS A PERCENTAGE OF NET SALES
THREE MONTHS ENDED NINESIX MONTHS ENDED
------------------ -----------------
SEPTEMBER----------------
JUNE 30, SEPTEMBERJUNE 30, SEPTEMBERJUNE 30, SEPTEMBERJUNE 30,
1999 1998 19971999 1998 1997
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 93.4 91.0 90.3 87.8
--------------87.2% 89.4% 87.6% 88.2%
------------ ------------ ------------- -------------- -------------
Gross profit 6.6 9.0 9.7 12.212.8% 10.6% 12.4% 11.8%
Selling, general and administrative expenses 7.1 4.9 5.9 5.3
Research and development expenses 1.8 2.1 1.5 1.7
Other non-recurring expenses 1.1 - 0.8 0.6
--------------8.1% 7.7% 7.4% 7.6%
------------ ------------ ------------- -------------- -------------
Operating income (loss) (3.4) 2.0 1.5 4.64.7% 2.9% 5.0% 4.1%
Interest expense, net 4.4 2.6 3.3 2.3
--------------3.6% 3.7% 3.4% 3.4%
------------ ------------ ------------- -------------- -------------
Income (loss) before income taxes (7.8) (0.6) (1.8) 2.31.2% (0.8%) 1.6% 0.7%
Income tax provision (credit) (3.5) (1.2) (0.8) 0.31.0% 0.1% 1.0% 0.3%
Share in net income of equity
investeesInvestees and minority interests - - - -0.1% 0.0% 0.0% 0.0%
Losses in discontinued operations (1.1) (1.6) (0.7) (0.9)
--------------0.2% 0.5% 0.3% 0.4%
------------ ------------ ------------- -------------- -------------
Net income (loss) before preferred stock dividends (5.4) (1.0) (1.7) 1.1
==============(0.2%) (1.3%) 0.2% 0.0%
============ ============ ============= ============== =============
20
21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)18
THREE MONTHS ENDED SEPTEMBERJUNE 30, 19981999 COMPARED TO THREE MONTHS ENDED SEPTEMBERJUNE
30, 19971998
NET SALES: Net sales were $151.0$207.7 million, up 10.4% from the $108.9$188.1 million for
the three months ended SeptemberJune 30, 1997.1999. Net sales in North America were 39.0%
higher in the three months ended June 30, 1999 than 1998. The increase in North
America Sales was due to lower sales in the second quarter 1998 because of the
model change over and subsequent launch of the DaimlerChrysler's Jeep Grand
Cherokee, and the launch of the CAMI Vitara, as well as an increase in tooling
and prototype sales. Net sales in Europe were up 9%0.8% in the thirdsecond quarter 1999
from 1998, from 1997, or 5.8%3.3% excluding the effects of foreign exchange. The increase in
European sales was due to both a general growth in the car market and to the
launch of new productsthe Renault Clio II, Peugeot 206, and the Mercedes Class S in 19971998
which reachreached full production in 1998.1999.
GROSS PROFIT: Gross profit was $10.0$26.6 million, or 6.6%12.8% of net sales, for the
ninethree months ended SeptemberJune 30, 19981999 compared to $9.8$20.0 million, or 9.0%10.6% of net
sales, for the same period in 1997. The decrease in1998. In North America, gross profit was $8.2
million for three months ended June 30, 1999 compared to $3.8 million for the
same period in 1998. North American gross profit was higher due to the increased
margin associated with higher Jeep Grand Cherokee sales and the margin
associated with the CAMI Vitara. In Europe, gross profit reached $18.2 million
or 12.8% of net sales, versus $16.6 million or 11.8% of net sales in 1998. The
increase in European gross margin is mainly due to reducing launch and project
costs and related manufacturing inefficiencies.to the first effect of cost saving plans implemented at several
production facilities.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expenses for the
ninethree months ended September 30,1998June 30, 1999 were $10.7$16.9 million, or 7.1%8.1 % of net sales,
compared to $5.4$14.5 million, or 4.9%7.7% of net sales, for the same period in 1997.1998.
Increased costs were due to increased project team activity and the
reinforcement of the current management structure.
INTEREST EXPENSE: Interest expense for the three months ended SeptemberJune 30, 19981999 was
$6.7$7.4 million, or 4.4%3.6% of net sales, compared to $2.8$6.9 million, or 2.6%3.7% of net
sales in the same period in the prior 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 1.7%
of sales, versus $2.7 million for the Combination.same period in 1998. Excluding the effect
of exchange rate fluctuations, interest expense in Europe decreased by 10.1%.
INCOME TAXES: The income tax credit for the three months ended SeptemberJune 30, 19981999 was $5.3$2.2
million with an effective tax rate of 45.3%92.4% as compared to a creditprovision of $1.4$0.1
million with an effective tax rate of 204.4% for the same period in the prior year. The change in the effective tax
rate wasis mainly due to a reductionthe loss incurred in the FrenchNorth America and to reduced research
&and development tax credit.
NINEcredit in France.
SIX MONTHS ENDED SEPTEMBERJUNE 30, 19981999 COMPARED TO NINEPROFORMA SIX MONTHS ENDED SEPTEMBERJUNE 30,
19971998
NET SALES: Net sales were $473.3$425.8 million, up 13.5% 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$375.3 million for
the six months sinceended June 30, 1999. Net sales in North America were 32.1% higher
in the datefirst six months in 1999 than 1998. The increase in North America Sales
was due to the second quarter 1998 model change over and subsequent launch of
Combination.the DaimlerChrysler's Jeep Grand Cherokee, and the launch of the CAMI Vitara, as
well as an increase in tooling and prototype sales. Net sales in Europe were up
6.7% in the second quarter 1999 from 1998, or 6.0% excluding the effects of
foreign exchange. The remaining increase in European sales was due to both a general
growth in the car market and to the launch of $29.3 million is due primarily to increased sales at Sofedit, partially
offset by the negative effect of currency fluctuation.Renault Clio II, Peugeot 206,
and the Mercedes Class S in 1998 which reached full production in 1999.
GROSS PROFIT: Gross profit was $46.0$52.8 million, or 9.7%12.4% of net sales, for the ninesix
months ended SeptemberJune 30, 19981999 compared to $44.5$44.2 million, or 12.2%11.8% of net sales, for
the same period in 1997. The1998. In North America, gross profit decrease, as a percentage
of sales,was $16.3 million for
six months ended June 30, 1999 compared to $11.3 million in 1998. Gross profit
increase North America is due to primarily increased profit from the Jeep Grand
Cherokee and the CAMI Vitara. In Europe, gross profit reached $36.5 million or
12.4% of net sales, versus $32.9 million or 12.0% of net sales in 1998. The
increase in European gross margin is mainly due to higherreducing launch and project
costs and related manufacturing
inefficiencies.to the first effect of cost saving plans implemented at several
production facilities.
19
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expenses for the ninesix
months ended September 30,1998June 30, 1999 were $28.2$31.5 million, or 5.9%7.4 % of net sales, compared
to $19.4$28.7 million, or 5.3%7.6% of net sales, for the same period in 1997.1998. Increased
costs were due to increased project team activity and the reinforcement of the
current management structure.
INTEREST EXPENSE: Interest expense for the ninesix months ended SeptemberJune 30, 19981999 was
$15.6$14.7 million, or 3.3%3.5% of net sales, compared to $8.2$12.9 million, or 2.3%3.4% of net
sales in the same period in the prior 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 $4.7 million or 1.6%
of net sales, versus $4.7 million for the Combination.
21
22same period in 1998. Excluding the
effect of exchange rate fluctuations, interest expense in Europe decreased by
0.8%.
INCOME TAXES: The income tax credit for the ninesix months ended SeptemberJune 30, 19981999 was $ 3.9$4.4
million with an effective tax rate of 46.5%66.6% as compared to a provision of $1.2
million with an effective tax rate of 14.7%42.5% for the same period in the prior
year. The change in the effective tax rate is mainly due to loss incurred in
North America and to reduced research and development tax credit in France.
LIQUIDITY AND CAPITAL RESOURCES
MS Acquisition'sTrianon Industries's primary sources of liquidity are cash generated from
operations and short-term and long-term debt, including the sale of receivables.
MS
Acquisition'sTrianon Industries's principal use for these funds is to finance working capital
needs, debt payments and planned maintenance and expansion activities. The
Company's liquidity is affected by both the cyclical nature of its business and
its level of net sales. The Company believes that operating cash flow and its
line of bank credit will be sufficient to cover its short-term and long-term
capital expenditures and debt payment obligations. Nevertheless, MS Acquisition'sTrianon
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 MS
Acquisition'sTrianon
Industries's control.
FINANCIAL CONDITION
At SeptemberJune 30, 1998, MS Acquisition1999, Trianon Industries had available cash, cash equivalents and
marketable securities totaling $22.0$31.1 million, compared to $11.6$26.1 million at
December 31.31, 1998. At SeptemberJune 30, 1998, MS Acquisition1999, Trianon Industries had current assets of
$324.3$343.0 million, compared to $358.6$420.6 million in current liabilities, giving it
negative working capital of $34.3$77.6 million, compared to $8.5negative $80.2 million at
December 31, 1997.1998.
At SeptemberJune 30, 1998, MS Acquisition1999, Trianon Industries had $1.4$3.1 million available under its
Amended and Restated Credit Agreement among Aetna, MS Acquisition,Trianon Industries, Aetna
Holdings, Aetna Export Sales Co., Aetna Canada and NBD Bank (the "Senior
Revolving Credit Facility").
Restricted cash of $10.7 million at SeptemberOn June 30, 1998 represents 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$16.4 million of bank overdraft,
$106.1 million of lines of credit, of $11.7$58.3 million 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.bank borrowing. Long-term
debt consisted of Senior notes of $85.0 million, long-term bank loans of $66.1$38.3
million, leasing contracts of $34.2$26.3 million and junior debt of $8.6$9.1 million.
CASH FLOWS
Net cash provided by operating activities was $22.2$19.7 million compared to $26.2$31.3
million in the same period of the prior year. The principal reason for the
decrease in cash provided by operating activities is attributable to lower net
income, tooling
inventory increases, partially offset by increased depreciation and
amortization.
Net cash used for investing activities was $41.0$18.7 million and $19.1$17.7 million for
the ninesix months ended SeptemberJune 30, 19981999 and 1997,1998, respectively. The change was due
principally to increaseddecreased capital expenditures.expenditures in North America. Capital
expenditures in Europe reached $12.5 million for the six months ended June 30,
1999, compared to $12.8 million for the same period in 1998.
Net cash provided by financing was $16.5$7.1 million compared to cash used for
financing of 5.7$2.2 million for the ninesix months ended SeptemberJune 30, 19981999 and 19971998
respectively. This change was principally due to an increase in line of credit borrowingsmedium term
loans in 1998.
22Europe in 1999.
23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)20
EUROPEAN MONETARY UNION
Since substantial portions of MS Acquisition'sTrianon Industries's activities are carried out in
Europe, MS AcquisitionTrianon Industries is actively preparing for the introduction of a
single European currency. After January 1, 1999, MS AcquisitionTrianon 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, MS AcquisitionTrianon Industries does not expect that
expenses to be incurred in connection with the introduction of the euro as a
currency of payment for MS AcquisitionTrianon Industries will have a material adverse effect
on the results of operations or financial position of MS Acquisition.Trianon Industries.
YEAR 2000
MS AcquisitionTrianon Industries 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. MS AcquisitionTrianon 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, MS AcquisitionTrianon Industries 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 MS Acquisition.Trianon Industries. There can be, however, no assurances of the
absence of any disruptions in MS
Acquisition'sTrianon Industries's own systems or those of its
customers and suppliers. MS
AcquisitionTrianon 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 MS Acquisition'sTrianon 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. ThisThe adoption of
this statement isdid not expected to have a material effect on MS Acquisition'sTrianon Industries's financial
position or result of operations.
In February, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132 ("SFAS 132"), "Employers' Disclosure
about Pension and Other post-Retirement Benefits." SFAS 132 revises employers'
disclosures about pension and other post-retirement benefit plans but does not
change the measurement or recognition of those plans. This statement is not
expected to have a material effect on MS Acquisition's financial position or
results of operation.
23
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
FUTURE OPERATING RESULTS
With the exception of historical matters, the matters discussed in this
Quarterly Report on Form 10-Q are forward-lookingforward- 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'sTrianon Industries's filings with the
Securities and Exchange Commission. Such factors could cause MS Acquisition'sTrianon
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, whether within the next
twelve months or thereafter, will be available to Aetna or MS AcquisitionTrianon Industries on
satisfactory terms.
21
AETNA RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, Aetna's proforma
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 SIX MONTHS ENDED
------------------ ----------------
JUNE 30, JUNE 28, JUNE 30, JUNE 28,
1999 1998 1999 1998
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 87.5% 91.9% 87.7% 88.1%
------------- ------------- ------------- -------------
Gross profit 12.5% 8.1% 12.3% 11.9%
Selling, general and
Administrative expenses 8.9% 10.5% 8.2% 9.4%
------------- ------------- ------------- -------------
Operating income (loss) 3.6% (2.4%) 4.2% 2.5%
Interest expense, net 5.9% 6.7% 5.8% 6.0%
------------- ------------- ------------- -------------
Income (loss) before
Income taxes (2.2%) (9.1%) (1.6%) (3.5%)
------------- ------------- ------------- -------------
Income tax provision (credit) (0.8%) (2.3%) (0.5%) (0.9%)
Foreign currency translation
Adjustment 0.3% 0.0% 0.2% 0.0%
Net loss (1.1%) (6.8%) (0.9%) (2.7%)
============= ============= ============= =============
THREE MONTHS ENDED JULY 4, 1999 COMPARED TO PROFORMA THREE MONTHS ENDED JUNE
28, 1998
NET SALES: Net sales for the second quarter of 1999 were $65.7 million, or 39.2%
higher than second quarter 1998 sales of $47.2 million. Production sales of
$61.8 million in the second quarter of 1999 were up $19.6 million from $42.2
million in the same period of 1998, due to the second quarter 1998 model change
over and subsequent launch of the DaimlerChrysler's Jeep Grand Cherokee, and the
launch of the CAMI Vitara. Tooling and prototype sales were down $1.0 million
for the same period.
GROSS PROFIT: Gross profit was $8.2 million, or 12.5% of net sales, for the
second quarter of 1999 compared to $3.8 million, or 8.1 % of net sales, for the
same period in 1998. The increase in gross profit was primarily the result of
higher production sales associated with DaimlerChrysler's Jeep Grand Cherokee
and the margin contribution of the recently launched CAMI Vitara.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expenses for the
second quarter of 1999 were $5.8 million, or 8.8% of net sales, compared to $5.0
million, or 10.5% of net sales, for the same period in 1998. As a percent of net
sales, the decrease was a result of launch expense associated with the
DaimlerChrysler's Jeep Grand Cherokee and the CAMI Vitara that is no longer
being incurred.
INTEREST EXPENSE: Interest expense for the second quarter of 1999 was $3.9
million, or 5.9% of net sales, compared to $3.2 million or 6.7% of net sales for
the same period in 1998. Interest expense increased due to higher short - term
debt levels precipitated by outstanding tooling invoices associated with the
Saturn launch of the mid - size passenger car Epsilon platform.
22
INCOME TAXES: The income tax credit in the second quarter of 1999 was $0.5
million with an effective tax rate of 36.4% as compared to an income tax credit
of $1.1 million with an effective tax rate of 25.6% for the same period in 1998.
SIX MONTHS ENDED JULY 4, 1999 COMPARED TO SIX MONTHS ENDED JUNE 28, 1998
NET SALES: Net sales for the six months ended 1999 were $132.5 million, or 32.1%
higher than second quarter 1998 sales of $100.3 million. Production sales of
$120.6 million for six months ended 1999 were up $25.9 million from $94.7
million for the same period in 1998, due to second quarter 1998 model change
over and subsequent launch of the DaimlerChrysler's Jeep Grand Cherokee, and the
launch of the CAMI Vitara. Tooling and prototype sales were up $6.6 million for
the same period.
GROSS PROFIT: Gross profit was $16.3 million, or 12.3% of net sales, for the six
months ended 1999 compared to $11.9 million, or 11.9 % of net sales, for the
same period in 1998. The increase in gross profit was primarily the result of
higher production sales associated with DaimlerChrysler's Jeep Grand Cherokee
and the launch of the CAMI Vitara.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expenses for the six
months ended 1999 were $10.8 million, or 8.2% of net sales, compared to $9.4
million, or 9.4% of net sales, for the same period in 1998. As a percent of net
sales, the decrease was a result of launch expense associated with the Grand
Cherokee and the CAMI Vitara that is no longer being incurred.
INTEREST EXPENSE: Interest expense for six months ended 1999 was $7.7 million,
or 5.8% of net sales, compared to $6.1 million or 6.1% of net sales for the same
period in 1998. Interest expense increased due to higher short - term debt
levels precipitated by outstanding tooling invoices associated with the Saturn
launch of the mid - size passenger car Epsilon platform.
INCOME TAXES: The income tax credit for six months ended 1999 was $0.7 million
with an effective tax rate of 30.9% as compared to an income tax credit of $0.9
million with an effective tax rate of 24.5% for the same period in 1998.
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 July 4, 1999 there was $0.8 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
and the significant payment of outstanding tooling invoices associated with the
Saturn launch, 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 used for operations for the six months ended July 4, 1999
aggregated $8.5 million. This compares to net cash used for operations of $1.9
million for the same period in 1998. The decrease in net cash from operations is
due primarily to account receivable invoicing for Saturn tooling and remaining
DaimlerChrysler's Jeep Grand Cherokee tooling invoices.
23
Net cash flows used for investing activities aggregated $2.4 million for the six
months ended July 4, 1999 as compared to $10.3 million for the same period in
1998 and consists principally of capital expenditures. The major capital
projects during 1999 have been the purchase of 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 assembly.
Net cash flows provided by financing aggregated $9.8 million for the six months
ended July 4, 1999 as compared to cash provided of $12.5 million for the same
period in the prior year. 1999 included an $8.0 million capital contribution
from Trianon, and an increase in borrowings under the Senior Revolving Credit
Facility of $1.1 million, while 1998 represented an increase in the borrowings
under the Senior Revolving Credit Facility.
ITEM 3. DISCLOSURE OF QUANTITATIVE AND QUALITATIVE INFORMATION ABOUT MARKET
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders of Trianon Industries Corp. held
on June 14, 1999 (the "Annual Meeting"), the following persons were nominated
for and elected as Director of Trianon Industries Corp. by the holders of Series
A-1 Common Stock:
NUMBER OF SHARES
----------------
NOMINEE FOR WITHHELD
- ------- --- --------
Francis Barge 1,673,718 0
Felix Domenech 1,673,718 0
Jean-Rene Hergoualc'h 1,673,718 0
At the Annual Meeting, the following persons were nominated for and elected
as Director of Trianon Industries Corp. by the holders of Series A-2 Common
Stock:
NUMBER OF SHARES
----------------
NOMINEE FOR WITHHELD
- ------- --- --------
Gery Edouard Lanthier 1,326,282 0
Jean-Philippe Larramendy 1,326,282 0
At the Annual Meeting, the following persons were nominated for and elected
as Director of Trianon Industries Corp. by the holders of Series A-3 Common
Stock:
NUMBER OF SHARES
----------------
NOMINEE FOR WITHHELD
- ------- --- --------
David Howe 902,498 0
Michael Delaney 902,498 0
24
The number of shares of broker non-votes for the election of Directors was none.
The following proposal of the Board of Directors was submitted for adoption. The
board proposal was adopted by the votes indicated (which constituted the
affirmative vote of more than one-half of the shares voting).
The appointment of Arthur Andersen LLP as independent public accountants to
audit Trianon Industries Corp.'s consolidated financial statements for the
fiscal year ending December 31, 1999 was approved.
For the Proposal: 3,902,498
Against the Proposal: 0
Abstaining: 0
The number of shares of broker non-votes in the above
25
PART II. OTHER INFORMATION
ITEM 1. NOT APPLICABLE
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On August 13, 1998, a former employee excercised an option to acquire
2,500 shares of MS Acquisition Series A-3 Common Stock for $1,875.NOT APPLICABLE
ITEM 3. NOT APPLICABLE
ITEM 4. NOT APPLICABLESUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ITEM 5. NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
25
26
EXHIBIT NO. DESCRIPTION OF EXHIBITS
4.1 First Supplemental Indenture3.1(i) Amendment to Trianon Industries Corp. Restated Certificate of
Incorporation filed with the Delaware Secretary of State on
May 12, 1999.
10.1 Revolving Credit Agreement 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 SecondMarch 31, 1999.
10.2 Sixth Amendment to Credit Agreement dated as of August 6, 1998, 1999, by and
among Aetna Industries, Inc., the Guarantors party thereto, the
lenders, party
theretoNBD Bank as the agent.
10.3 Credit Authorization between Bank One, Michigan and NBD BankTrianon
Industries Corp., dated as of May 17, 1999.
10.4 Credit Agreement dated as of July 13, 1999.
27.1 Financial Data Schedule for Aetna Industries, Inc. (EDGAR Filing
Only)
27.2 Financial Data Schedule for MS AcquisitionTrianon Industries Corp. (EDGAR
Filing Only)
(b) Reports on Form 8-K
(1) MS Acquisition Corp. Current Report on Form 8-K dated September 15,
1998 reporting Item 6 - Changes in registrant's certifying accountants
26(c) None
27
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: November 11, 1998August 16, 1999 By: s//s/ Harold A. Brown
-----------------------------------------------------
Harold A. Brown
Secretary, Vice President, Finance
and Chief Financial Officer
MS AcquisitionTrianon Industries Corp.
Date: November 11, 1998August 16, 1999 By: s//s/ Harold A. Brown
-----------------------------------------------------
Harold A. Brown
Secretary, Vice President North America
27
28
EXHIBIT INDEX
Exhibit No. Description of Exhibits
4.1 First Supplemental Indenture- ----------- -----------------------
3.1(i) Amendment to Trianon Industries Corp. Restated Certificate of
Incorporation filed with the Delaware Secretary of State on
May 12, 1999.
10.1 Revolving Credit Agreement 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 SecondMarch 31, 1999.
10.2 Sixth Amendment to Credit Agreement dated as of August 6, 1998, 1999, by and
among Aetna Industries, Inc., the Guarantors party thereto, the
lenders, party
theretoNBD Bank as the agent.
10.3 Credit Authorization between Bank One, Michigan and NBD BankTrianon
Industries Corp., dated as of May 17, 1999.
10.4 Credit Agreement dated as of July 13, 1999.
27.1 Financial Data Schedule for Aetna Industries, Inc.
27.2 Financial Data Schedule for MS AcquisitionTrianon Industries Corp.
28