<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ---ACT OF 1934
For the quarterly period ended September 28, 1997.
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ---ACT OF 1934
For the transition period from to
---------------------------
- --------------
Commission File No. 333-11801 (Aetna Industries, Inc.)
Commission File No. 333-11801-01 (MS Acquisition Corp.)
AETNA INDUSTRIES, INC.
MS ACQUISITION CORP.
(Exact name of registrant as specified in its charter)
Delaware 38-200-7550/13-3379803
- --------------------------------------------------------------------------------
(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)
Registrant's telephone number, including area code (810) 759-2200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No __
---
As of October 26, 1997, 1,000 shares of Aetna Industries, Inc. common stock,
383,409 shares of MS Acquisition Corp. Class A common stock and 516,590 shares
of MS Acquisition Corp. Class B common stock were outstanding.
<PAGE> 2
TABLE OF ADDITIONAL REGISTRANTS
NONE
2
<PAGE> 3
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE
Item 1. FINANCIAL STATEMENTS OF AETNA INDUSTRIES, INC.
<S> <C> <C>
Condensed Consolidated Balance Sheets - 4
September 28, 1997 and December 29, 1996
Consolidated Statements of Operations - 5
three months and nine months ended
September 28, 1997 and September 29, 1996
Condensed Consolidated Statements of Cash Flows - 6
nine months ended September 28, 1997
and September 29, 1996
Notes to Consolidated Financial Statements 7
FINANCIAL STATEMENTS OF MS ACQUISITION CORP.
Condensed Consolidated Balance Sheets - 8
September 28, 1997 and December 29, 1996
Consolidated Statements of Operations - 9
three months and nine months ended
September 28, 1997 and September 29, 1996
Condensed Consolidated Statements of Cash Flows - 10
nine months ended September 28, 1997
and September 29, 1996
Notes to Consolidated Financial Statements 11
Item 2. Management's Discussion and Analysis of 13
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
EXHIBIT INDEX 19
</TABLE>
3
<PAGE> 4
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 28, 1997 DECEMBER 29, 1996
------------------ -----------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash $ 173 $ 4,011
Accounts receivable (less allowance for doubtful
accounts of $346 and $510, respectively) 42,153 32,753
Inventories, including tooling 12,351 10,348
Other current assets 1,086 969
---------- -----------
Total current assets 55,763 48,081
---------- -----------
Property, plant and equipment, net 53,298 49,434
Deferred costs and other assets 6,336 5,769
Cost in excess of net assets acquired 25,173 25,774
---------- -----------
$ 140,570 $ 129,058
========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 30,489 $ 24,958
Accrued expenses 10,910 12,104
Current portion of long-term debt 8,427 -
---------- -----------
Total current liabilities 49,826 37,062
---------- -----------
Long-term debt, less current portion 85,000 85,000
Deferred income taxes 7,937 8,136
Stockholder's equity
Common stock - $.01 par value; 1,000 shares
issued and outstanding - -
Contributed capital 9,024 9,024
Accumulated deficit (11,217) (10,164)
---------- -----------
(2,193) (1,140)
---------- -----------
$ 140,570 $ 129,058
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29,
1997 1996 1997 1996
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $ 45,599 $ 48,861 $ 149,388 $ 163,805
Cost of sales 41,022 42,886 130,709 141,358
Selling, general and administrative expenses 4,656 4,050 12,448 11,421
--------- --------- --------- ---------
Operating income (loss)
(79) 1,925 6,231 11,026
Interest expense, net 2,716 2,269 7,986 6,401
--------- -------- ---------- ---------
Income (loss) before income taxes (2,795) (344) (1,755) 4,625
Income tax provision (credit) (1,119) (346) (702) 1,816
--------- --------- --------- ---------
Income (loss) before extraordinary item (1,676) 2 (1,053) 2,809
Extraordinary item (net of income taxes of $594) -- 1,153 -- 1,153
--------- --------- --------- --------
Net income (loss) $ (1,676) $ (1,151) $ (1,053) $ 1,656
========= ======== ========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(1,053) $ 1,656
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities
Depreciation and amortization 5,616 5,374
Deferred income taxes (209) (398)
Changes in other assets and liabilities (7,173) (2,296)
------- ----------
Net cash provided by (used for) operating activities (2,819) 4,336
------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (8,460) (3,552)
Disposals of property, plant and equipment - 393
Increase in other assets (663) --
------- ----------
Net cash used for investing activities (9,123) (3,159)
------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt - 85,000
Principal payments on long-term debt - (62,558)
Net increase (decrease) in line of credit 8,427 (7,305)
Dividends paid - (11,082)
Debt issue costs - (5,506)
Increase in other assets (323) --
------- ----------
Net cash provided by (used for) financing 8,104 (1,451)
------- ----------
Net decrease in cash (3,838) (274)
Cash - beginning of year 4,011 291
------- ----------
Cash - end of period $ 173 $ 17
======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION
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 29, 1996.
2. INVENTORIES
<TABLE>
<CAPTION>
Inventories are comprised of the following:
SEPTEMBER 28, DECEMBER 29,
1997 1996
---- ----
<S> <C> <C>
Inventories valued at LIFO
Raw materials $ 2,164 $ 1,758
Work-in-process 2,911 3,458
Finished goods 1,709 2,195
--------- ---------
6,784 7,411
LIFO reserve (335) (335)
--------- ---------
6,449 7,076
--------- ---------
Inventories valued at FIFO
Tooling 3,753 1,592
Purchased parts and purchased labor 2,149 1,680
--------- ---------
Total inventories, including tooling $ 12,351 $ 10,348
========= =========
</TABLE>
3. STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
TOTAL
CONTRIBUTED ACCUMULATED STOCKHOLDER'S
CAPITAL DEFICIT EQUITY
------- ------- ------
<S> <C> <C> <C>
Balance at December 29, 1996 $ 9,024 $ (10,164) $ (1,140)
Net loss (1,053) (1,053)
------- --------- --------
Balance at September 28, 1997 $ 9,024 $ (11,217) $ (2,193)
======= ========= ========
</TABLE>
7
<PAGE> 8
MS ACQUISITION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 28, 1997 DECEMBER 29, 1996
------------------ ------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 173 $ 4,011
Accounts receivable (less allowance for doubtful
accounts of $346 and $510, respectively) 39,530 32,113
Inventories, including tooling 12,351 10,348
Other current assets 1,086 969
---------- ----------
Total current assets 53,140 47,441
---------- ----------
Property, plant and equipment, net 53,298 49,434
Deferred costs and other assets 6,336 5,769
Cost in excess of net assets acquired 25,173 25,774
---------- ----------
$ 137,947 $ 128,418
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 30,489 $ 24,958
Accrued expenses 11,034 12,361
Current portion of long-term debt 9,414 2,427
---------- ----------
Total current liabilities 50,937 39,746
---------- ----------
Long-term debt, less current portion 85,000 85,000
Junior subordinated debentures 6,802 6,802
Deferred income taxes 7,937 8,136
Redeemable preferred stock
Series A - $100 stated value; 293,123 shares authorized;
127,962 and 114,967 shares issued and outstanding, respectively 12,977 11,979
Series B - $100 stated value; 2,000,000 shares authorized - -
Stockholders' Equity
Class A, common stock - $.01 par value, 5,000,000
shares authorized, 383,409 shares issued and outstanding 4 4
Class B, common stock - $.01 par value, 5,000,000
shares authorized, 516,590 shares issued and outstanding 5 5
Additional paid-in capital 14,510 15,509
Accumulated deficit (32,949) (31,487)
Fair market value in excess of historical cost of net
assets acquired from entities partially under
common control (7,276) (7,276)
---------- ----------
(25,706) (23,245)
---------- ----------
$ 137,947 $ 128,418
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE> 9
MS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29,
1997 1996 1997 1996
---- ---- ---- ----
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $45,599 $ 48,861 $149,388 $ 163,805
Cost of sales 41,022 42,886 130,709 141,358
Selling, general and administrative expenses 4,660 4,050 12,458 11,421
------- -------- -------- ----------
Operating income (loss) (83) 1,925 6,221 11,026
2,929 2,400 8,657 6,532
Interest expense, net ------- -------- -------- ----------
(3,012) (475) (2,436) 4,494
Income (loss) before income taxes (1,205) (393) (974) 1,770
Income tax provision (credit) ------- -------- -------- ----------
(1,807) (82) (1,462) 2,724
Income (loss) before extraordinary item - 1,153 - 1,153
Extraordinary item (net of income taxes of $594) ------- -------- -------- ----------
(1,807) $ (1,235) (1,462) $ 1,571
Net income (loss) before preferred stock dividend ------- ======== -------- ==========
(343) (999)
Preferred stock dividend requirements ------- --------
Net income (loss) available for common $(2,150) $ (2,461)
stockholders ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE> 10
MS ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
SEPTEMBER 28, SEPTEMBER 29,
1997 1996
---- ----
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(1,462) $ 1,571
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities
Depreciation and amortization 5,616 5,374
Deferred income taxes (209) (398)
Changes in other assets and liabilities (5,323) (2,211)
------- --------
Net cash provided by (used for) operating activities (1,378) 4,336
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (8,460) (3,552)
Disposals of property, plant and equipment - 393
Increase in other assets (663) --
------- --------
Net cash used for investing activities (9,123) (3,159)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt - 85,000
Repayment of long-term debt and junior subordinated debentures (1,441) (62,558)
Net increase (decrease) in line of credit 8,427 (7,305)
Dividends paid - (21,082)
Equity contributions - 10,000
Debt issue costs - (5,506)
Increase in other assets (323) -
------- --------
Net cash provided by (used for) financing 6,663 (1,451)
------- --------
Net decrease in cash (3,838) (274)
Cash - beginning of year 4,011 291
------- --------
Cash - end of period $ 173 $ 17
======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE> 11
MS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
1. BASIS OF PRESENTATION
MS Acquisition Corp. (MS Acquisition) was formed primarily for the purpose
of purchasing Aetna . It does not have any significant assets or
liabilities, other than preferred stock, junior subordinated debentures and
accruals.
The accompanying unaudited condensed consolidated financial statements of
MS Acquisition have been prepared in accordance with Rule 10-01 of
Regulation S-X and do not include all the information and notes required by
generally accepted accounting principles for complete financial statements.
All adjustments, which include only normal recurring adjustments that are,
in the opinion of management, necessary for a fair presentation of the
results of the interim periods, have been made. The results of operations
for such interim periods are not necessarily indicative of results of
operations for a full year. The unaudited condensed consolidated financial
statements should be read in conjunction with MS Acquisition's consolidated
financial statements and notes thereto for the year ended December 29,
1996.
2. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 28, DECEMBER 29,
1997 1996
---- ----
<S> <C> <C>
Inventories valued at LIFO
Raw materials $ 2,164 $ 1,758
Work-in-process 2,911 3,458
Finished goods 1,709 2,195
--------- ---------
6,784 7,411
LIFO reserve (335) (335)
--------- ---------
6,449 7,076
--------- ---------
Inventories valued at FIFO
Tooling 3,753 1,592
Purchased parts and purchased labor 2,149 1,680
--------- ---------
Total inventories, including tooling $ 12,351 $ 10,348
========= =========
</TABLE>
11
<PAGE> 12
MS ACQUISITION CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
3. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FAIR MARKET
VALUE IN
EXCESS OF
HISTORICAL
CLASS A CLASS B ADDITIONAL COST OF TOTAL
COMMON COMMON PAID-IN ACCUMULATED NET ASSETS STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT ACQUIRED EQUITY
----- ----- ------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 29, 1996 $ 4 $ 5 $ 15,509 $ (31,487) $ (7,276) $(23,245)
Net loss (1,462) (1,462)
Dividends on redeemable
preferred stock (999) (999)
------- ----- -------- --------- -------- --------
Balance at September 28, 1997 $ 4 $ 5 $ 14,510 $ (32,949) $ (7,276) $(25,706)
======= ===== ======== ========= ======== ========
</TABLE>
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, Aetna's and MS
Acquisition's statement of operations expressed as a percentage of net sales.
This table and subsequent discussions should be read in conjunction with the
condensed consolidated financial statements and related notes thereto of Aetna
and MS Acquisition included elsewhere herein. MS Acquisition was formed
primarily for the purpose of purchasing Aetna, and it does not have any
significant assets or liabilities, other than preferred stock, junior
subordinated debentures and accruals. Additionally, MS Acquisition does not
have any incremental net sales or significant expenses, other than the interest
expense associated with the junior subordinated debentures and the related
income tax benefit.
THREE MONTHS ENDED SEPTEMBER 28, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
29, 1996
AS A PERCENTAGE OF NET SALES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------
SEPTEMBER 28, 1997 SEPTEMBER 29, 1996
-------------------------------------------------
MS MS
AETNA ACQUISITION AETNA ACQUISITION
----- ----------- ------- -----------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 90.0 90.0 87.8 87.8
Gross profit 10.0 10.0 12.2 12.2
Selling, general &
administrative expenses 10.2 10.2 8.3 8.3
Operating income (loss) (0.2) (0.2) 3.9 3.9
Interest expense, net 6.0 6.4 4.6 4.9
Income (loss) before
income taxes (6.2) (6.6) (0.7) (1.0)
Income tax provision (credit) (2.5) (2.6) (0.7) (0.8)
Income (loss) before
extraordinary item (3.7) (4.0) 0.0 (0.2)
Extraordinary item - - 2.4 2.4
Net income (loss) (3.7)% (4.0)% (2.4)% (2.6)%
</TABLE>
NET SALES: Net sales for Aetna and MS Acquisition for the third quarter of
1997 were $45.6 million, or 6.7% lower than third quarter 1996 sales of $48.9
million. Production sales of $44.5 million in the third quarter of 1997 were up
$0.1 million from $44.4 million in the third quarter of 1996, while tooling and
prototype sales were down $3.4 million for the same period of the prior year.
Production sales were favorably impacted by several new Chrysler car models and
increased Chrysler mini-van sales, partially offset by decreased Chrysler Jeep
Cherokee (XJ) sales. Tooling sales in the third quarter of 1996 included
Chrysler Jeep Grand Cherokee (WJ) platform work.
GROSS PROFIT: Aetna's and MS Acquisition's gross profit was $4.6 million, or
10.0% of net sales, for the third quarter of 1997, compared to $6.0 million, or
12.2% of net sales, for the same period in 1996. The decrease in gross profit
from the prior year was due to purchasing rather than manufacturing certain
parts.
13
<PAGE> 14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expenses for Aetna
and MS Acquisition for the third quarter of 1997 were $4.7 million, or 10.2% of
net sales compared to $4.1 million, or 8.3% of net sales, for the same period
in 1996. The increase, as a percentage of sales, was due to non-recurring
merger and acquisition expenses and additional engineering and quality
assurance staff in support of new platforms.
INTEREST EXPENSE: Aetna's interest expense for the third quarter of 1997 was
$2.7 million, or 6.0% of net sales, compared to $2.3 million or 4.6% of net
sales in the same period in the prior year. Interest expense was impacted by
higher levels of debt outstanding. MS Acquisition also had additional interest
expense of $0.2 million, or 0.4% of sales, which is attributed to the junior
subordinated debentures.
INCOME TAXES: The income tax credit for Aetna in the third quarter of 1997 was
$1.1 million with an effective tax rate of 40.0% as compared to a credit of
$0.3 million with an effective tax rate of 100% in the same period in the prior
year. The income tax credit for MS Acquisition in the third quarter of 1997
was $1.2 million with an effective tax rate of 40.0% as compared to a credit of
$0.4 million with an effective tax rate of 82.7% in the same period in the
prior year. The effective rates in both periods and for both Aetna and MS
Acquisition differed from the statutory rate due principally to the effect of
non-deductible amortization of cost in excess of net assets acquired.
EXTRAORDINARY ITEM: During the quarter ended September 29, 1996, Aetna and MS
Acquisition prepaid outstanding subordinated debt. The resulting prepayment
penalty has been shown as an extraordinary item.
NINE MONTHS ENDED SEPTEMBER 28, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER
29, 1996
AS A PERCENTAGE OF SALES
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------------------
SEPTEMBER 28, 1997 SEPTEMBER 29, 1996
------------------ ---------------------
MS MS
AETNA ACQUISITION AETNA ACQUISITION
----- ----------- ----- -----------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 87.5 87.5 86.3 86.3
Gross profit 12.5 12.5 13.7 13.7
Selling, general &
administrative expenses 8.3 8.4 7.0 7.0
Operating income (loss) 4.2 4.1 6.7 6.7
Interest expense, net 5.4 5.8 3.9 4.0
Income (loss) before
income taxes (1.2) (1.7) 2.8 2.7
Income tax provision (credit) (0.5) 0.7 1.1 1.1
Income (loss) before
extraordinary item (0.7) (1.0) 1.7 1.6
Extraordinary item - - 0.7 0.7
Net income (loss) (0.7)% (1.0)% 1.0% 0.9%
</TABLE>
14
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
NET SALES: Net sales for Aetna and MS Acquisition for the nine months ended
September 28, 1997 were $149.4 million, down from the $163.8 million
reported for the nine months ended September 29, 1996. Production sales
decreased $8.4 million, while tooling sales decreased $6.0 million. The
decrease in production sales was principally due to the five week Chrysler
strike and the planned phase out of two General Motors programs (the cargo van
floor pan and side rail assemblies and the small truck door beam program)
during the second quarter of 1996.
GROSS PROFIT: Aetna's and MS Acquisition's gross profit was $18.7 million, or
12.5% of net sales, for the nine months ended September 28, 1997 compared to
$22.4 million, or 13.7% of net sales, for the same period in 1996. The
decrease in gross profit from the prior year was due to the lower sales volumes
and purchasing rather than manufacturing certain parts.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expenses for Aetna
and MS Acquisition for the nine months ended September 28, 1997 were $12.5
million, or 8.3% and 8.4% of net sales, respectively, compared to $11.4
million, or 7.0% of net sales, for the same period in 1996. As a percentage of
sales, the increase was due to the interruption of production sales during the
Chrysler strike and additional engineering and quality assurance staff in
support of new platforms.
INTEREST EXPENSE: Aetna's interest expense for the nine months ended September
28, 1997 was $8.0 million, or 5.4% of net sales, compared to $6.4 million or
3.9% of net sales in the same period in the prior year. Interest expense was
impacted by higher levels of debt outstanding. MS Acquisition also had
additional interest expense of $0.7 million of interest expense, or 0.4% of
sales, which is attributed to the junior subordinated debentures.
INCOME TAXES: The income tax credit for Aetna for the nine months ended
September 28, 1997 was $0.7 million with an effective tax rate of 40.0% as
compared to a provision of $1.8 million with an effective tax rate of 39.3% in
the same period in the prior year. The income tax credit for MS Acquisition
for the nine months ended September 29, 1997 was $1.0 million with an effective
tax rate of 40.0% as compared to a provision of $1.8 million with an effective
tax rate of 39.4% in the same period in the prior year. The effective rates in
both periods and for both Aetna and MS Acquisition differed from the statutory
rate due principally to the effect of non-deductible amortization of cost in
excess of net assets acquired.
EXTRAORDINARY ITEM: During the quarter ended September 29, 1996, Aetna and MS
Acquisition prepaid outstanding subordinated debt. The resulting prepayment
penalty has been shown as an extraordinary item.
15
<PAGE> 16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
Aetna's and MS Acquisition's principal capital requirements are to fund working
capital needs, to meet required debt payments and to complete planned
maintenance and expansion expenditures. At September 28, 1997 there was $25.3
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 in the near term. During 1998, the
Company anticipates securing a separate credit line to support Saturn tooling
expenditure requirements.
Net cash flow used for operations for the nine months ended September 28, 1997
aggregated $2.8 million and $1.4 million for Aetna and MS Acquisition,
respectively. This compares to net cash provided by operations of $4.3 million
for both Aetna and MS Acquisition in the same period in the prior year. The
decrease at Aetna and MS Acquisition was attributable to a decrease in net
income. The decrease was partially offset by an increase in accounts
receivable due to a progress billing made on the new Jeep Grand Cherokee (WJ)
weld assembly program and an increase in accounts payable due to the
construction of Plant 10 which will be used in the production of the WJ. Net
cash used for operations at MS Acquisition is also offset by an increase in
intercompany balances aggregating $1.9 million.
Net cash flow used for investing activities aggregated $9.1 million for
the nine months ended September 28, 1997 as compared to $3.2 million for the
same period in the prior year at both Aetna and MS Acquisition and consists
principally of capital expenditures. The major capital projects during 1997
have been the construction of Plant 10 and the renovation of Plant 7. As part
of its growth strategy, the Company continues to seek and review acquisition
candidates.
Net cash flows provided by financing aggregated $8.1 million and represented
increases in the Senior Revolving Credit Facility for Aetna and MS Acquisition.
In addition, MS Acquisition paid $1.4 million of its junior subordinated
debentures during the nine months ended September 28, 1997. Net cash used for
financing in the same period in 1996 totaled $1.5 million and represented
principally the repayment of long-term debt and dividends, partially offset by
the proceeds of the issuance of Senior Notes.
To the extent dividends to Aetna Holdings, Inc. (Aetna Holdings) to fund the
interest payments on the Junior Subordinated Debentures and interest payments
on the unfunded contractual obligations to former option holders are permitted
under the 11-7/8% Senior Note Indenture and the Senior Revolving Credit
Facility, interest on the Junior Subordinated Debentures and the contractual
obligations will be funded by cash dividends by Aetna to Aetna Holdings.
Additionally, up to $2.5 million in the aggregate principal amount of the
Junior Subordinated Debentures will be required to be redeemed by Aetna
Holdings from time to time to the extent dividends to Aetna Holdings are
permitted to be paid by the 11-7/8% Senior Note Indenture and the Senior
Revolving Credit Facility. In February, May and August 1997, Aetna paid $1.5
million, $0.6 million and $0.2 million, respectively, representing interest and
prepayment of principal on these debentures and obligations on behalf of Aetna
Holdings.
16
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
John Wurster, a member of the Board of Directors of each of Aetna and MS
Acquisition, passed away. The Board of Directors of each of Aetna and MS
Acquisition currently is seeking a replacement director.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBITS
27.1 Financial Data Schedule for Aetna Industries, Inc. (EDGAR Filing Only)
27.2 Financial Data Schedule for MS Acquisition Corp. (EDGAR Filing Only)
(b) No reports on Form 8-K were filed by the registrants during the
three months ended September 28, 1997.
17
<PAGE> 18
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: October 31, 1997 By: s/ Harold A. Brown
-------------------------------
Harold A. Brown
Vice President, Finance and Secretary
(Principal Financial and Accounting
Officer)
MS Acquisition Corp.
Date: October 31, 1997
By: s/ Harold A. Brown
-------------------------------
Harold A. Brown
Vice President, Finance and Secretary
(Principal Financial and Accounting
Officer)
18
<PAGE> 19
EXHIBIT INDEX
Exhibit No. Description of Exhibits
27.1 Financial Data Schedule for Aetna Industries, Inc.
27.2 Financial Data Schedule for MS Acquisition Corp.
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS AND THE CONSOLIDATED BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<NAME> AETNA INDUSTRIES, INC.
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> SEP-28-1997
<CASH> 173
<SECURITIES> 0
<RECEIVABLES> 42,499
<ALLOWANCES> 346
<INVENTORY> 12,351
<CURRENT-ASSETS> 55,763
<PP&E> 90,961
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<BONDS> 85,000
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<COMMON> 0
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<TOTAL-LIABILITY-AND-EQUITY> 140,570
<SALES> 149,388
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<CGS> 130,709
<TOTAL-COSTS> 130,709
<OTHER-EXPENSES> 12,448
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,986
<INCOME-PRETAX> (1,755)
<INCOME-TAX> (702)
<INCOME-CONTINUING> (1,053)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,053)
<EPS-PRIMARY> 0
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<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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<CIK> 0001021907
<NAME> MS ACQUISITION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
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