<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 8-K/A
(Amendment No. 1)
Current report
pursuant to Section 13 or 15 (d)
of the Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported): April 14, 1998
--------------
MS Acquisition Corp.
--------------------
(Exact name of registrant as specified in charter)
--------------------------------------------------
Delaware 333-11801-01 13-3379803
---------------------------- ---------------- -------------------
(State or Other Jurisdiction (Commission File (IRS Employer
of Incorporation) Number) 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
---------------------------
1
<PAGE> 2
Amendment No.1
The undersigned registrant hereby amends the following items, financial
statements, exhibit or other portions of its current report on Form 8-K dated
April 14,1998 and filed on April 29, 1998 as set forth in the pages attached
hereto:
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Businesses Acquired
(b) Pro Forma Financial Information
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MS Acquisition Corp.
Date: June 29, 1998 By: /s/ Harold A. Brown
------------- -------------------
(Registrant)
Harold. A. Brown
Vice President, Finance
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired filed with this Report
are the following audited financial statements of Sofedit, SA
(Sofedit)
(1) Audited Balance Sheet as of December 31, 1997 and 1996
(2) Audited Statements of Income and Cash Flows for the years
ended December 31, 1997, 1996, and 1995
(b) Pro Forma Financial Information filed with this report are the
following unaudited pro forma financial statements of the
registrant
(1) Pro Forma Consolidated Balance Sheet as of March 31, 1998
(2) Pro Forma Consolidated Statement of Operations for the
Year Ended December 31, 1997
(3) Pro Forma Consolidated Statement of Operations for the
Three Months Ended March 31, 1998
2
<PAGE> 3
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and the Board of Directors of SOFEDIT SA:
We have audited the accompanying consolidated balance sheets of SOFEDIT SA and
subsidiaries (the Company) as of December 31, 1996 and 1997, and the related
consolidated statements of income, cash flows and changes in shareholders'
equity for each of the three years in the period ended December 31, 1997, all
expressed in French francs. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in France and in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of SOFEDIT SA and its
subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles
in France.
Accounting practices used by the Company in preparing the accompanying financial
statements conform with generally accepted accounting principles in France, but
do not conform with accounting principles generally accepted in the United
States of America. A description of these differences and a reconciliation of
the consolidated net income for the years ended December 31, 1996 and 1997 and
shareholders' equity as of December 31, 1996 and 1997 to U.S. generally accepted
accounting principles is set forth in Note 23 of the notes to the consolidated
financial statements.
Our audits also comprehended the translation of the French franc amounts into
U.S. dollar amounts and, in our opinion, such translation has been made in
conformity with the basis stated in Note 1. Such U.S. dollar amounts are
presented solely for the convenience of the readers in the United States of
America.
BARBIER FRINAULT & AUTRES
Arthur Andersen
Paris, France
May 15, 1998
3
<PAGE> 4
SOFEDIT SA AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
NOTE 1995 1996 1997 1997
---------- ---------- ---------- ---------- --------
(in thousands of French francs, USD
except per share data)
<S> <C> <C> <C> <C> <C>
NET SALES................................... (20) 2,436,743 2,590,697 2,970,454 495,902
Cost of sales............................... -2,068,620 -2,258,669 -2,621,680 -437,676
Selling, General and administrative expenses -169,605 -182,368 -166,870 -27,858
Research and development expenses........... -8,765 -39,885 -56,549 -9,441
OPERATING INCOME............................ 189,753 109,775 125,355 20,927
Financial income............................ (4) -84,378 -63,031 -56,463 9,426
---------------------------------------------------------
OPERATING INCOME AFTER FINANCING 105,375 46,744 68,892 11,501
Other expenses, net......................... (5) -8,676 4,268 -41,999 -7,011
---------------------------------------------------------
PRE-TAX INCOME.............................. 96,699 51,012 26,893 4,490
Income tax.................................. (6) -15,384 -2,272 -5,737 -958
---------------------------------------------------------
INCOME BEFORE SHARE IN NET INCOME OF EQUITY 81,315 48,740 21,156 3,532
INVESTEES AND MINORITY INTERESTS............
Share in net income of equity 1,218 288 81 13
investees................................... --------- ---------- --------- --------
INCOME BEFORE MINORITY INTERESTS............ 82,533 49,028 21,237 3,545
Minority interests.......................... 630 137
--------- ---------- --------- --------
NET INCOME.................................. 81,903 48,891 21,237 3,545
========= ========== ========= ========
EARNINGS PER SHARE:
Basic................................ 913.29 523.19 213.82 35.7
Diluted.............................. 843.66 484.79 213.82 35.7
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
4
<PAGE> 5
SOFEDIT SA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------
NOTE 1996 1997 1997
(NOTE 1)
------ ----------- ----------- -------------
(in thousands of French francs) (in thousands
of U.S.
dollars)
<S> <C> <C> <C> <C>
ASSETS
GOODWILL, net.......................... (7) 45,319 41,085 6,859
INTANGIBLE ASSETS, net................. 40,772 29,676 4,938
PROPERTY, PLANT AND EQUIPMENT, net..... (8) 744,939 764,420 127,616
Share in net assets of equity
investees.............................. (9) 9,208 1,740 290
Other financial fixed assets, net...... (10) 2,484 25,518 4,260
---------- --------- -------
FINANCIAL FIXED ASSETS, net............ 11,692 27,258 4,550
INVENTORIES AND CONTRACTS IN
PROCESS, NET........................... (11) 390,289 417,537 69,706
Trade receivables, net................. (12) 712,432 693,559 115,786
Other accounts receivables, net........ (13) 217,607 199,968 33,384
Deferred taxes......................... (6) 27,675 30,627 5,113
---------- --------- -------
RECEIVABLES, NET....................... 957,714 924,154 154,283
Cash and marketable securities......... (14) 59,369 69,618 11,622
---------- --------- -------
SHORT TERM INVESTMENTS AND CASH AND CASH
EQUIVALENTS............................ 59,369 69,618 11,622
---------- --------- -------
TOTAL ASSETS........................... 2,250,094 2,273,747 379,590
========== ========= =======
</TABLE>
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
5
<PAGE> 6
SOFEDIT SA AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------------
NOTE 1996 1997 1997
(NOTE 1)
------ ----------- ------------------ ----------
(in thousands of French francs) (in thousands
of U.S.
dollars)
<S> <C> <C> <C> <C>
SHAREHOLDERS' EQUITY, PROVISIONS AND LIABILITIES
Capital stock: FF (100) nominal value;
(102,812 and 95,410 at December 31, 1997 and
1996 respectively) shares....................... 9,541 10,281 1,716
Additional paid-in capital......................
Retained earnings............................... 431,834 483,188 80,666
Cumulative translation adjustments.............. 5,815 10,459 1,746
--------- --------- -------
SHAREHOLDERS' EQUITY............................ (15) 447,190 503,928 84,128
MINORITY INTERESTS.............................. (16) 2,565
Provisions for losses and contingencies:
Provisions for risks and charges............... (17) 21,480 11,770 1,965
Accrued pension and retirement benefits......... 181
Borrowings, bonds, and notes issued............. 679,087 638,253 106,553
Bank overdrafts................................. 74,499 74,965 12,515
--------- --------- -------
FINANCIAL DEBT.................................. (18) 753,586 713,218 119,068
(OF WHICH LONG TERM PORTION)
Customers' deposits and advances................ 98,654 50,586 8,445
Trade payables.................................. 686,049 708,881 118,344
Deferred taxes.................................. (6) 28,212 42,900 7,162
Other payables and accrued expenses............. (19) 212,177 242,464 40,478
--------- --------- -------
TOTAL OTHER LIABILITIES......................... 1,025,092 1,044,831 174,429
--------- --------- -------
TOTAL SHAREHOLDERS' EQUITY, PROVISIONS AND
LIABILITIES..................................... 2,250,094 2,273,747 379,590
========= ========= =======
</TABLE>
Commitments and contingencies (Note 21)
The accompanying Notes are an integral part of these Consolidated Financial
Statements.
6
<PAGE> 7
SOFEDIT SA AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTE NUMBER OF CAPITAL RETAINED CUMULATIVE SHAREHOLDERS'
SHARES STOCK EARNINGS TRANSLATION EQUITY
OUTSTANDING ADJUSTMENT
------ ----------- -------- -------- ----------- -------------
(in thousands of French francs)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994.. 88,283 8,829 329,281 3,294 341,404
Capital increase.............. 3,564 356 356
Translation adjustment........ -3,329 -3,329
Net income.................... 81,903 81,903
Dividends paid................ -10,593 -10,593
Other......................... -3,219 -3,219
----------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995.. 91,847 9,185 397,372 -35 406,522
Capital increase 3,563 356 356
Translation adjustment........ 5,850 5,850
Net income.................... 48,891 48,891
Dividends paid................ -12,863 -12,863
Other......................... -1,566 -1,566
------- ------ ------- ------ -------
BALANCE AT DECEMBER 31, 1996.. 95,410 9,541 431,834 5,815 447,190
Capital increase 7,402 740 44,449 45,189
Translation adjustment........ 4,644 4,644
Net income.................... 21,237 21,237
Dividends paid................ -13,357 -13,357
Other......................... -975 -975
------- ------ ------- ------ -------
BALANCE AT DECEMBER 31, 1997.. 102,812 10,281 483,188 10,459 503,928
======= ====== ======= ====== =======
</TABLE>
The accompanying Notes are an integral part of these Consolidated
Financial Statements.
7
<PAGE> 8
SOFEDIT SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1- DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
SOFEDIT SA (the Company) specializes in the manufacturing of welded and stamped
parts and components for the automotive industry.
The Company was formed in 1989. Since its formation the Company has been
directly or indirectly owned 63.16% by BDHI S.A and for the remaining by 12
financial institutions.
The financial statements are stated in French francs. The translations of the
French franc amounts into U.S. dollar amounts are included solely for the
convenience of readers in the United States of America and have been made at the
rate of exchange of FF 5.99 to $1 U.S., the approximate rate of exchange on
December 31, 1997. Such translations should not be construed as representations
that the French franc amounts could be converted into U.S. dollars at that or
any other rate.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
The Consolidated Financial Statements of the Company are prepared in accordance
with French generally accepted accounting principles.
(a) CONSOLIDATION METHODS
Investments over which the Company has direct or indirect control of more than
50% of the outstanding voting shares, or over which it exercises effective
control, are fully consolidated, except for some companies, not significant in
aggregate, that were not consolidated for practical reasons.
Investees in which the Company has an equity interest of 20% to 50% over which
the Company exercises significant influence but not control are accounted for
under the equity method.
Sales and results of operations of consolidated subsidiaries acquired or
disposed of during the year are recognized in the Consolidated Income Statements
as from the date of acquisition or up to the date of disposal, respectively.
All significant intercompany transactions are eliminated.
A list of the Company's major consolidated subsidiaries and investees and the
applicable method of consolidation is provided in NOTE 3.
8
<PAGE> 9
SOFEDIT SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(b) USE OF ESTIMATES
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of the revenues and expenses during the
reporting period. Management reviews its estimates, on an ongoing basis using
currently available information. Changes in facts and circumstances may result
in revised estimates, and actual results could differ from those estimates.
(c) REVENUE RECOGNITION
Revenues from the sale of finished goods are recognized at their delivery date.
Certain development costs are contractually financed by the customers through an
identified increase in the selling price of the corresponding finished products.
Those costs are capitalized in work in process and reversed to income based on
deliveries.
(d) TRANSLATION OF FINANCIAL STATEMENTS DENOMINATED IN FOREIGN CURRENCIES
The functional currency of the company's foreign subsidiaries is the applicable
local currency. The assets and liabilities of foreign subsidiaries are
translated into French francs at the year-end rate of exchange, and their income
statements and cash flow statements are converted at the average annual rate of
exchange. The resulting translation adjustment is included in shareholders'
equity as "Cumulative translation adjustments."
(e) FOREIGN CURRENCY TRANSACTIONS
Gains and losses relating to foreign currency transactions not denominated in
the functional currency are recorded in the consolidated income statements.
Foreign currency transactions are translated into local currency at the rate of
exchange applicable to the transaction. At year-end, foreign currency assets and
liabilities to be settled are translated into local currency at the rate of
exchange prevailing at that date.
9
<PAGE> 10
SOFEDIT SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(f) FINANCIAL INSTRUMENTS
The Company does not use any off-balance sheet financial instruments for any
purpose.
(g) GOODWILL
Goodwill represents the excess of purchase price over the fair value of the
assets and liabilities acquired in a business combination. Initial estimates of
fair values are finalized within a one year allocation period. Subsequent to
this period, releases of unneeded provisions resulting from the purchase price
allocation and use of acquired, unrecognized tax loss carryforwards are applied
to goodwill. Goodwill is amortized on the straight-line basis over its estimated
useful life, over a maximum twenty year period. Amortization periods of up to
twenty years reflect the nature of the Company's infrastructure business and the
resulting long-term relationships with its customers.
At the balance sheet date, whenever events or changes in the market indicate a
potential impairment of intangible assets and property, plant and equipment, a
detailed review is carried out based on the projected operating performance of
the related businesses. Whenever such review indicates that there is an
impairment, the carrying amount of such assets is reduced to their recoverable
value.
(h) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at historical cost for the Company.
Depreciation is computed using the straight-line method over the following
estimated useful lives:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIFE
IN YEARS
------------------
<S> <C>
Buildings 10-20
Machinery and equipment 6-10
Tools, furniture and fixtures and other 3-10
</TABLE>
Capital lease arrangements and long-term rentals are capitalized.
(i) OTHER INVESTMENTS
Investments are recorded at the lower of historical cost or net realizable
value, assessed on an individual investment basis. For long-term investments,
the net realizable value is calculated using the following parameters: equity
value, profitability and expected cash flow from the investment.
10
<PAGE> 11
SOFEDIT SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(j) INVENTORIES
Raw materials and supplies, industrial work in progress, and finished products
are stated at the lower of cost, using the weighted average cost method (which
approximates FIFO) or market value. Inventory costs include direct costs and
applicable manufacturing overheads.
(k) SHORT-TERM INVESTMENTS, CASH AND CASH EQUIVALENTS
Marketable securities included in short-term investments and cash and cash
equivalents are recorded at the lower of cost or market, on a line by line
basis.
Cash and cash equivalents consist of cash and liquid investments with an initial
maturity of less than three months.
(l) DEFERRED TAXATION
Deferred taxes are calculated for each taxable entity for temporary differences
arising between tax and financial reporting. A deferred tax liability is
recognized for taxes payable in each future year. Deferred tax assets are
recorded up to their expected recoverable amount. Deferred tax amounts are
adjusted for changes in the applicable tax rate upon enactment. Deferred tax
liabilities include non-recoverable withholding taxes payable on the portion of
the current year earnings of consolidated subsidiaries or equity investees
expected to be remitted to the parent company. No provision is made for income
taxes on accumulated earnings of consolidated subsidiaries or equity method
investees for which no distribution is planned.
(m) RESEARCH AND DEVELOPMENT AND PREPRODUCTION COSTS
Research and development and preproduction costs are capitalized when they
relate to products for which firm orders are received. They are amortized over a
maximum of 5 years.
(n) EMPLOYEE BENEFITS
The estimated cost of providing benefits to employees is accrued during the
years in which the employees render services.
For defined contribution plans and multi-employer pension plans, expenses are
recorded as incurred. For defined benefit indemnities, retirement plans, and
post-retirement benefit plans, liabilities and prepaid expenses are accrued over
the estimated term of service of the employee using actuarial methods.
Differences caused by actuarial gains or losses arising from changes in
actuarial assumptions are amortized over the residual working life of the
employees.
11
<PAGE> 12
SOFEDIT SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(o) RESTRUCTURING
Restructuring costs are accrued when management determines the need to close
facilities, or to reduce or relocate the workforce. Such costs may include
estimated facility closing costs, reductions in the useful lives of assets, and
employees' severance and termination benefits.
(p) NON-RECURRING INCOME
Non-recurring income, if any, includes the impact of changes in accounting
policies and a limited number of specific factors: (i) disposal of significant
business activities and (ii) exceptional items, such as those which are outside
the scope of ordinary activities and that do not arise on a recurring basis.
There was no non-recurring income in the periods presented.
(q) EARNINGS PER SHARE
Basic earnings per share are computed by dividing net income by the weighted
average number of shares outstanding during each year. There were no dilutive
securities outstanding during the periods presented.
(r) STATEMENT OF CASH FLOWS
Provisions related to long-term contracts have been considered as operating
activities, including amounts provided on losses at completion.
NOTE 3 - MAJOR CONSOLIDATED SUBSIDIARIES AND INVESTEES
<TABLE>
<CAPTION>
COMPANY COUNTRY OWNERSHIP %
- ------------------------------------------------------------------------------------------
<S> <C> <C>
SOFEDIT France
AUBECQ France 100%
BONIN France 100%
SERTE France 100%
CABRIT France 100%
BROUILLET France 100%
LEBRANCHU PROTOTYPES France 100%
C.L.A. France 100%
C.T.A.A. France 100%
LAPRADE France 100%
LEBRANCHU LE THEIL France 100%
SAUFEDIT ASSURANCES France 50%
SOTRAMEX France 100%
SOFEDIT IBERICA Spain 100%
COVENTRY United Kingdom 100%
LEBRANCHU UK United Kingdom 100%
TOWERSTREAM United Kingdom 100%
</TABLE>
A list of all subsidiaries is available upon request at the Company's head
office.
12
<PAGE> 13
SOFEDIT SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
NOTE 4 - FINANCIAL INCOME
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 1996 1997
--------------- ---------------- ---------------
(in thousands of French francs)
<S> <C> <C> <C>
Interest income................................................... 986 2,342 1,513
------- -------- -------
Interest expense.................................................. -79,925 -70,768 -60,022
NET INTEREST INCOME............................................... -78,939 -68,426 -58,509
Other financial items, net........................................ -5,439 5,395 2,046
------- -------- -------
FINANCIAL INCOME.................................................. -84,378 -63,031 -56,463
======= ======== =======
NOTE 5 - OTHER EXPENSES, NET
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 1996 1997
--------------- ---------------- ---------------
(in thousands of French francs)
<S> <C> <C> <C>
Net gain on disposal of assets ................................... 777 7,618 -15,177
Restructuring costs............................................... -14,552
Amortization of goodwill.......................................... -1,972 -2,326 -3,018
Employee profit sharing........................................... -12,207 -6,536 -7,943
Other, net........................................................ 4,726 5,512 -1,309
------- -------- -------
OTHER EXPENSES, NET............................................... -8,676 4,268 -41,999
======= ======== =======
NOTE 6 - INCOME TAX
INCOME TAX EXPENSE:
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 1996 1997
--------------- ---------------- ---------------
(in thousands of French francs)
<S> <C> <C> <C>
Current income tax expense........................................ -9,583 10,312 5,995
Deferred tax income/(expense)..................................... -5,801 -12,584 -11,732
------- -------- -------
TOTAL INCOME TAX EXPENSE.......................................... -15,384 2,272 -5,737
======= ======== =======
</TABLE>
13
<PAGE> 14
SOFEDIT SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The differences between the income tax provision and the statutory French income
tax rate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1997
--------------- ---------------
<S> <C> <C>
PRE-TAX INCOME 51,013 31,279
TAXES COMPUTED AT THE STATUTORY RATE OF 36.67% FOR 1995 AND 1996
AND 41.67% FOR 1997................................................. -18,722 - 13,012
Increase resulting from :
Amortization of goodwill non-deductible for tax................. -854 - 1,259
Other permanent differences..................................... -599 - 3,887
Variation in valuation allowance................................ -3,536 - 4,043
Other taxes and tax credits..................................... 21,439 16,464
-------- -------
INCOME TAX EXPENSE.................................................. -2,272 -5,737
======== =======
EFFECTIVE TAX RATE................................................... 4.5% 18.3%
</TABLE>
The Company consolidates most of its French operations for tax purposes. At
December 31, 1997 there were tax net operating losses carryforwards principally
related to taxing jurisdictions in France, which aggregated approximately FF
(13,384). Tax loss carryforwards amounting to FF 5,156 expire in 2000. FF 8,228
have no expiration date.
Tax credits relate mainly to income tax reductions based on research and
development expenses.
DEFERRED TAX BALANCES
The principal deferred tax assets and liabilities in the balance sheet are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
1996 1997
---------------- ---------------
(in thousands of French francs)
<S> <C> <C>
Profit sharing, annual leave and pension accruals not yet deductible...... 7,071 9,418
Provisions and other expenses not currently deductible.................... 564 4,400
Tax loss carryforwards.................................................... 1,711
Other..................................................................... 20,039 15,095
------ ------
DEFERRED TAX ASSETS....................................................... 27,674 30,624
====== ======
Accelerated depreciation for tax purposes.................................
Contract revenues not currently taxable...................................
Deferred tax on deferred expenses......................................... 11,114 15,767
Deferred income related to leasing transactions........................... 17,001 23,914
Inventory valuation methods...............................................
Other .................................................................... 97 3,219
------ ------
28,212 42,900
DEFERRED TAXLIABILITIES...................................................
====== ======
</TABLE>
14
<PAGE> 15
SOFEDIT SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - GOODWILL, NET
<TABLE>
<CAPTION>
------------------------------------------------------------------
NET VALUE ADDITIONS AMORTIZATION TRANSLATION NET VALUE
DECEMBER AND OTHER ADJUSTMENTS DECEMBER
31, 1996 CHANGES 31, 1997
------------------------------------------------------------------
(in thousands of French francs)
<S> <C> <C> <C> <C> <C>
C.L.A. 13,077 -1,763 11,314
Cabrit 11,518 -517 11,001
Aubecq 7,996 -300 7,696
Lebranchu 6,230 -226 6,004
Other 6,499 -1,594 -229 -12 4,664
------------------------------------------------------------
GOODWILL, NET 45,320 -1,594 -3,035 -12 40,679
============================================================
</TABLE>
The gross value of goodwill is FF 72,084 thousands as at December 31, 1996 and
1997.
15
<PAGE> 16
SOFEDIT SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 - PROPERTY, PLANT AND EQUIPMENT, NET
A) CHANGES IN PROPERTY, PLANT, AND EQUIPMENT
(EXCLUDING FIXED ASSETS IN PROCESS AND ADVANCES PAID)
<TABLE>
<CAPTION>
GROSS VALUE
------------------------------------------------------------------------------
Machinery Others
Land Buildings and Total
equipment
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 41,509 321,465 984,406 75,034 1,422,414
Additions 36 51,069 104,215 11,191 166,511
Disposals - 400 - 54,240 - 8,408 - 63,048
Changes in scope of consolidation - 11,400 19,400 - 6,360 - 1,640 0
Other movements (*) 3,900 13,960 815 18,675
-----------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1996 30,145 395,434 1,041,981 76,992 1,544,552
Additions 262 59,574 109,535 8,441 177,812
Disposals -9,301 - 15,182 - 5,772 - 30,255
Changes in scope of consolidation - 9,012 - 2,393 - 11,405
Other movements (*) 3,060 12,543 645 16,248
-----------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 30,407 448,767 1,139,865 77,913 1,696,952
=============================================================================
</TABLE>
(*) Including translation adjustments
Fixed assets in process amount to FF 29,995 thousand, FF 19,496 thousand, FF
8,944 thousand at December 31, 1995, 1996 and 1997 respectively. Advances paid
amount to FF 3,914 thousand, FF 8,823 thousand, FF 194 thousand at December 31,
1995, 1996 and 1997 respectively.
b) CHANGES IN ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
(EXCLUDING DEPLETION ON FIXED ASSETS IN PROCESS )
<TABLE>
<CAPTION>
ACCUMULATED DEPRECIATION
------------------------------------------------------------------------------
Machinery Tools,
Land Buildings and furniture, Total
equipment fixtures and
others
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 5,136 160,357 612,424 49,383 827,300
Depreciation charge 578 25,685 107,550 8,185 141,998
Write-offs - 1,769 - 23,604 - 2,513 -27,886
Changes in scope of consolidation - 5,735 - 1,668 -7,403
Other movements (*) 341 6,859 459 7,659
-----------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 5,714 184,614 697,494 53,846 941,668
=============================================================================
</TABLE>
(*) Including translation adjustments
The gross value of fixed assets financed through finance lease transactions
amounted to FF 439,284 thousands and to FF 490,751 thousands as at December 31,
1996 and 1997, respectively. Depletion on fixed assets in process amount to FF
423 thousand, FF 634 thousand at December 31, 1995, 1996 respectively.
16
<PAGE> 17
SOFEDIT SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 - EQUITY INVESTEES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1997
--------------- ---------------
(in thousands of French francs)
<S> <C> <C>
Emairel 7,485 0
Other 1,723 1,740
--------------- ---------------
9,208 1,740
=============== ===============
</TABLE>
The Company's major equity investee at December 31, 1996 was the 50% in Emairel.
This investment was sold in 1997.
NOTE 10 - OTHER FINANCIAL FIXED ASSETS, NET
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1997
--------------- ---------------
(in thousands of French francs)
<S> <C> <C>
Unconsolidated companies:
Investments at cost, net of valuation provisions............ 101 23,108
Loans 691 990
Other............................................................. 1,692 1,420
--------------- ---------------
OTHER FINANCIAL FIXED ASSETS, NET................................. 2,484 25,518
=============== ===============
</TABLE>
In 1997, the Company purchased a 15% stake in Euralcom for a price of FF 23,108
thousands. Euralcom is a Dutch company specializing in aluminum parts and
components for the automotive industry.
17
<PAGE> 18
SOFEDIT SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11 - INVENTORIES AND CONTRACTS IN PROCESS, NET
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1997
--------------- ---------------
(in thousands of French francs)
<S> <C> <C>
Raw materials and supplies.............................. 97,014 114,905
Work in progress........................................ 212,005 215,283
Finished products....................................... 89,841 100,576
INVENTORIES, GROSS 398,860 430,764
Less valuation allowance................................ -8,571 -13,227
--------------- ---------------
INVENTORIES AND CONTRACTS IN PROCESS, NET............... 390,289 417,537
=============== ===============
</TABLE>
NOTE 12 - TRADE RECEIVABLES, NET
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1997
--------------- ---------------
(in thousands of French francs)
<S> <C> <C>
Trade receivables....................................... 718,642 701,304
--------------- ---------------
Less valuation allowance................................ -6,210 -7,745
--------------- ---------------
TRADE RECEIVABLES, NET.................................. 712,432 693,559
=============== ===============
</TABLE>
18
<PAGE> 19
SOFEDIT SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - OTHER ACCOUNTS RECEIVABLE, NET
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1997
--------------- ---------------
(in thousands of French francs)
<S> <C> <C>
Income tax and other government receivables...................... 102,955 106,287
Advances paid to suppliers....................................... 46,097 12,953
Prepaid expenses................................................. 12,545 15,885
Other............................................................ 56,010 64,843
--------------- ---------------
OTHER ACCOUNTS RECEIVABLE, NET................................... 217,607 199,968
=============== ===============
</TABLE>
NOTE 14 - CASH AND MARKETABLE SECURITIES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1997
--------------- ---------------
(in thousands of French francs)
<S> <C> <C>
Cash............................................................. 55,034 63,470
Marketable securities 4,335 6,148
--------------- ---------------
TOTAL 59,369 69,618
=============== ===============
</TABLE>
Cash and cash equivalents include cash at banks and cash on hand of FF 63,470
thousands and FF 55,034 thousands at December 31, 1996 and 1997, respectively.
The fair value of the investments is not materially different from their book
value.
19
<PAGE> 20
SOFEDIT SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 - SHAREHOLDERS' EQUITY
CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL
Weighted average shares outstanding used in the calculation of basic earnings
per share were 89,679, 93,447 and 99,324 in the years ended December 31, 1995,
1996, and 1997, respectively. There were no dilutive securities outstanding
during these periods.
As at December 31, 1996, the Company had 7,402 warrants outstanding, each
allowing the subscription of one share. All warrants were exercised in July
1997.
Under French law, the net profits, if any, related to the French legal entities
are allocated at a rate of 5% each year to a legal reserve (restricted retained
earnings) until the legal reserve is equal to 10% of the nominal share capital
of each entity. The legal reserve is distributable only upon liquidation of the
entity. At December 31, 1997, the aggregate legal reserve of such French legal
entities was FF 918.
NOTE 16 - MINORITY INTERESTS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1997
--------------- ---------------
(in thousands of French francs)
<S> <C> <C>
Balance beginning of year........................................ 2,428 2,565
Share of net income.............................................. 137
Other changes ................................................... -2,565
--------------- ---------------
BALANCE END OF YEAR.............................................. 2,565 0
=============== ===============
</TABLE>
20
<PAGE> 21
SOFEDIT SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17 - PROVISIONS FOR RISKS AND CHARGES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1997
--------------- ---------------
(in thousands of French francs)
<S> <C> <C>
Badwill......................................................... 425 406
Tax provision................................................... 4,681
Tax on asset revaluation........................................ 16,374 11,364
------ ------
TOTAL........................................................... 21,480 11,770
====== ======
</TABLE>
NOTE 18 - FINANCIAL DEBT
ANALYSIS BY NATURE
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1997
--------------- ---------------
(in thousands of French francs)
<S> <C> <C>
Bonds and notes issued.......................................... 45,189 0
Borrowings ..................................................... 413,459 379,335
Other financial debts........................................... 42,488 53,361
Bank overdrafts................................................. 69,145 70,125
Debts related to leases ........................................ 183,305 210,397
------- -------
TOTAL........................................................... 753,586 713,218
Of which Long-term portion...................................... 512,760 449,943
Short-term portion..................................... 240,826 263,275
</TABLE>
Interest rates on substantially all short-term debt are based on the LIBOR and
the PIBOR for relevant currencies. Long-term debt includes mainly borrowings
denominated in French francs. Interest rates on long-term debt ranges from 4.6%
to 12.8% depending on the currency.
21
<PAGE> 22
SOFEDIT SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 1997, the repayment schedule of borrowings and leases is as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
OTHER FINANCIAL DEBTS DEBTS RELATED TO LEASES
--------------------- ----------------------
<S> <C> <C>
1998 141,193 40,231
1999 111,413 34,032
2000 64,649 31,918
2001 30,909 21,904
2002 31,171 14,396
2003 and beyond 67,917
TOTAL 379,335 210,398
</TABLE>
No interest charge paid has been capitalized during each period presented.
NOTE 19 - OTHER PAYABLES AND ACCRUED EXPENSES
<TABLE>
<Capion>
DECEMBER 31,
------------------------------------
1996 1997
--------------- ---------------
(in thousands of French francs)
<C> <C>
Social debt and taxes...................................... 166,646 186,214
Employee profit sharing.................................... 19,857 23,427
Other...................................................... 25,674 32,823
--------------- ---------------
Total other payables and accrued expenses.................. 212,177 242,464
=============== ===============
</TABLE>
As part of the Company's commercial strategy, it has taken a number of
restructuring measures to adapt the scale of its industrial operations to
changes in the market place.
At December 31, 1996, accrued restructuring provisions for exit and redundancy
costs aggregating FF 2,241 thousands existed on the balance sheet. Such
redundancy costs related to approximately 12 individuals. The majority of the
redundancy provisions related to operations in France. During the year ended
December 31, 1997, expenditures for restructuring payments made were
approximately FF 2,200 thousands, which included payments for 12 employee
redundancies. At December 31, 1997, accrued restructuring provisions for exit
and redundancy costs aggregated FF 14,552 thousands, which included provisions
for employee redundancies amounting to FF 11,591 thousands for 62 individuals
and fixed assets write-off amounting to FF 3,000 thousands.
22
<PAGE> 23
SOFEDIT SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 20 - GEOGRAPHIC INFORMATION:
<TABLE>
<CAPTION>
---------- --------- ----------- ----------
REST OF
FRANCE UK EUROPE TOTAL
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
1995
Sales...................... 1,957 220 260 2,437
1996
Sales...................... 2,064 259 267 2,590
1997
Sales...................... 2,315 317 338 2,970
</TABLE>
Sales are classified by the location of the subsidiary that invoices the
customer. Long-lived assets include property, plant, and equipment, goodwill,
and financial fixed assets.
23
<PAGE> 24
SOFEDIT SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21 - COMMITMENTS AND CONTINGENCIES
(A) COMMITMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1996 1997
--------------- ---------------
(in thousands of French francs)
<S> <C> <C>
Discounted notes receivable............................. 202,395 117,123
Retirement indemnities.................................. 15,579 20,815
Fixed assets pledged.................................... 114,183 102,603
Investments pledged..................................... 41,200 28,700
Other.................................................... 1,516
--------------- ---------------
Total............................................... 374,873 269,241
</TABLE>
(B) CONTINGENCIES
LITIGATION: The Company is the defendant in several legal proceedings incidental
to the normal conduct of its business. The Company believes that the outcome of
these proceedings will not have a material effect on its consolidated financial
position or its results of operations.
ENVIRONMENTAL: The Company's operations are subject to numerous environmental
regulations in each of the jurisdictions in which it operates, including local,
national and international laws and regulations for the protection of the
environment relating to the handling, transport, disposal and emission of
hazardous materials. Compliance with environmental regulations has not had a
material effect on its results of operations.
NOTE 22 - PAYROLL, STAFF, AND EMPLOYEE PROFIT SHARING
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------
1995 1996 1997
--------------- ---------------- ---------------
(in thousands of French francs, except number of
employees)
<S> <C> <C> <C>
Total wages and salaries................................... 353,046 384,801 424,233
Social security taxes and other benefits................... 142,424 151,044 158,564
Employee profit sharing ................................... 12,207 6,536 7,943
Total employees ........................................... 3,015 3,119 3,587
</TABLE>
24
<PAGE> 25
SOFEDIT SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 23 - SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY THE
COMPANY AND U.S. GAAP
The accompanying consolidated financial statements have been prepared in
accordance with the accounting principles described in NOTE 2 above ("French
GAAP") which differ in certain significant respects from those applicable in the
United States of America ("US GAAP"). These differences relate mainly to the
items which are described below and which are summarized in the following
tables. Such differences affect both the determination of net income and
shareholders' equity, as well as the classification and format of the
consolidated financial statements.
ITEMS AFFECTING NET INCOME AND SHAREHOLDERS' EQUITY
(A) INVENTORY VALUATION
The Company includes in inventory cost certain administrative expenses. Under US
GAAP, those expenses would be expensed as incurred.
(B) INVESTMENTS SUBSIDIES
The Company received subsidies from government to acquire property, plant and
equipment. Under French GAAP, the subsidies are recorded as retained earnings
and amortized through profit and loss statement over the life of the
corresponding assets. Under US GAAP, subsidies are deducted from the asset
acquisition cost.
(C) RESEARCH AND DEVELOPMENT AND DEFERRED EXPENSES
The Company capitalized certain research and development expenses and start up
costs. Under US GAAP, these costs would be expensed as incurred.
(D) BADWILL
The Company presents badwill as a long term accrual. Under US GAAP, badwill
would have been deducted from the value of the intangible assets purchased.
(E) GOODWILL ALLOCATION
Under French GAAP, although the allocation of purchase price is mandatory,
purchased finished goods inventories are kept at cost. Under US GAAP, these
inventories would have been written up to their selling price reduced by selling
expenses.
25
<PAGE> 26
SOFEDIT SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(F) PENSION, TERMINATION AND POST-RETIREMENT BENEFITS - DEFINED BENEFIT PLANS
The Company does not accrue the costs of pension, termination and
post-retirement benefits. Under US GAAP, such benefit expense is determined
using a specified actuarial method.
(G) UNREALIZED EXCHANGE GAINS
Under French GAAP, unrealized exchange gains are deferred until realization.
Under US GAAP, they would be accounted for as profit at year-end.
26
<PAGE> 27
SOFEDIT SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1996 1997 1997
(NOTE 1)
---------------- -------------------- --------------
(in thousands of French francs) (in thousand
of US
dollars)
<S> <C> <C> <C>
NET INCOME AS REPORTED IN THE CONSOLIDATED INCOME
STATEMENT (BEFORE MINORITY INTEREST)............ 49,029 21,237 3,544
(a) Inventory valuation.......................... -179 45 8
(b) Research and development expenses and deferred
expenses..................................... -12,537 12,634 2,109
(c) Equity variation............................. 1,391 -80 -13
(d) Goodwill allocation.......................... 473 473 79
(e) Pension, termination and postretirement indemnities -3,193 -2,687 -449
(f) Provision on assets -5,377
(g) Unrealized exchange gains.................... 202 151 25
---------------- -------------------- --------------
Tax effects on the above adjustments............. 7,805 -4,168 -694
37,614 27,605 4,609
NET INCOME ACCORDING TO U.S. GAAP................
================ ==================== ==============
</TABLE>
27
<PAGE> 28
SOFEDIT SA AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1996 1997 1997
(NOTE 1)
---------------- -------------------- --------------
(in thousands of French francs) (in thousand
of U.S.
dollars)
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY AS REPORTED IN THE CONSOLIDATED 447,190 503,928 84,128
BALANCE SHEETS ...
(a) Inventory -3,107 -3,058 -511
valuation..........................................
(b) Investment -34,693 -32,188 -5,374
subsidies..........................................
(c) Research and development expenses and deferred -106,053 -88,277 -14,737
expenses...........................................
(d) Badwill........................................ 425 406 68
(e) Goodwill -12,139 -11,666 -1,948
allocation.........................................
(f) Pension, termination and postretirement indemnities -8,208 -8,548 -1,427
(g) Unrealized exchange 250 401 67
gains..............................................
(h) Gain on interco -1,618 -270
sales..............................................
Tax effects of the above adjustments 43,287 37,995 6,343
...................................................
---------------- -------------------- --------------
SHAREHOLDERS' EQUITY ACCORDING TO U.S. GAAP 326,952 397,375 66,339
...................................................
================ ==================== ==============
</TABLE>
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130") "Reporting Comprehensive
Income." SFAS 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. This Statement will
require the Company to present a reconciliation or statement of comprehensive
income in future years.
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 131 ("SFAS 131") "Disclosures about segments
of an Enterprise and Related Information." SFAS 131 required the company to
disclose information about its business segments, based on the information used
by management to measure performance and to allocate resources.
In February, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132 ("SFAS 132") "Employers' Disclosure about
Pension and Other Postretirement Benefits." SFAS 132 revises employers'
disclosures about pension and other postretirement benefit plans but does not
change the measurement or recognition of those plans.
28
<PAGE> 29
SOFEDIT SA AND SUBSIDIARIES
ADDITIONAL INFORMATION
1 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNDER US GAAP)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1995 1996 1997 1997
(NOTE 1)
------------- ----------------- ---------------- ------------------
(in thousands of French francs) (in thousand
of U.S.
dollars)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES :
Net 64,524 37,678 27,605 4,607
income....................................
(Of which share of net income in equity 630 288 81 14
investees)................................
Non cash
items.....................................
Amortization.............................. 187,479 127,138 160,584 26,809
(Decrease) increase in other provisions,
net....................................... -3,082 15,254 5,346 892
Other -777 -7,618 1,661 277
Change in operating working capital -18,162 -102,744 19,343 3,230
------- -------- ------- ------
NET CASH PROVIDED BY (USED IN) OPERATING 229,983 69,708 214,538 35,816
ACTIVITIES...................................
------- -------- ------- ------
Cash flows from investing activities :
Additions to intangible assets -2,214 -1,147 -11,439 -1,910
Additions to property, plant and equipment - -170,020 -87,890 -14,673
-232,762
Disposal of intangible & tangible assets 18,841 71,147 4,725 789
Additions to financial assets -2,631 -735 -24,203 -4,041
Disposal of financial asset 10 793 -3,682 -614
------- ------- ------- ------
NET CASH PROVIDED BY (USED IN) INVESTING - -99,962 -122,489 -20,449
ACTIVITIES................................... 218,756
------- ------- ------- ------
Cash flows from financing activities :
Variation in MLA 342 342
Issuance of share capital 356 356
Dividends paid -10,593 -12,863 -13,357 -2,230
Increase in financial long term debts 127,815 149,756 116,456 19,442
Reimbursement of financial long term debts -79,925 -189,659 -182,058 -30,394
Variation in financial long term debts 3,037 21,017 466 78
------- ------- ------- ------
NET CASH (USED IN) FINANCING 41,032 -31,051 -78,493 -13,104
activities...................................
------- ------- ------- ------
Net effect of exchange rate 2,852 -169 -3,307 -552
changes......................................
------- ------- ------- ------
NET INCREASE (DECREASE) IN CASH AND CASH 55,111 -61,474 10,249 1,711
EQUIVALENTS..................................
Cash and cash equivalents at beginning 65,732 120,843 59,369 9,911
of year......................................
------- ------- ------- ------
CASH AND CASH EQUIVALENTS AT END OF 120,843 59,369 69,618 1,711
year....................................
======= ======= ======= ======
</TABLE>
The accompanying notes are an integral part of these Consolidated
Financial Statements.
29
<PAGE> 30
SOFEDIT SA AND SUBSIDIARIES
ADDITIONAL INFORMATION (CONTINUED)
2-RETIREMENT, TERMINATION AND POST-RETIREMENT BENEFITS
The Company provides various types of retirement and termination benefits to its
employees. The type of benefits offered to an individual employee group is
related to local legal requirements as well as the historical operating
practices of the specific business unit.
Termination benefits are generally lump sum payments based upon an individual's
years of credited service and annualized salary at retirement or termination of
employment. Pension benefits are generally determined using a formula which uses
the employee's years of credited service and average final earnings. Most
defined-benefit pension liabilities are funded through separate pension funds.
Pension plan assets related to funded plans are invested mainly in equities and
debt securities. Other supplemental defined-benefit pension plans sponsored by
the Company for certain employees are funded from the Company's assets as they
become due.
The actuarial assumptions used vary by business unit and country, based upon
local considerations, with the following averages:
<TABLE>
<S> <C>
Benefit obligation discount rate 7%
Estimated annual rate of increase in future
compensation 4%
Expected rate of return on plan assets................ 7%
</TABLE>
30
<PAGE> 31
SOFEDIT SA AND SUBSIDIARIES
ADDITIONAL INFORMATION (CONTINUED)
The funded status of pension plans is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1997
-------------- ---------------
(in thousands of French francs)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation.......................
Non-vested benefit obligation................... - 24,800 - 17,600
-------------- ---------------
ACCUMULATED BENEFIT OBLIGATION - 24,800 - 17,600
Effect of salary increase.......................... 0 - 4,900
-------------- ---------------
PROJECTED BENEFIT OBLIGATION - 24,800 - 22,500
Plan assets at fair value.......................... 3,400 3,300
-------------- ---------------
FUNDED STATUS - 21,400 - 19,200
Unrecognized net transition amount................. 2,400 2,000
Unrecognized prior service cost....................
Unrecognized net actuarial gain (losses)........... - 3,700
-------------- ---------------
Net pension asset (liability)...................... - 19,000 - 20,900
============== ===============
</TABLE>
The net pension asset (liability) is analyzed as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1996 1997
-------------- ---------------
(in thousands of French francs)
<S> <C> <C>
Prepaid asset......................................
Accrual............................................ 21,400 20,900
-------------- ---------------
Net pension asset (liability)...................... 21,400 20,900
============== ===============
</TABLE>
Non-funded obligations relate mainly to British subsidiaries and correspond to
the excess of book over tax accrued benefit obligations.
MULTI EMPLOYER PLANS
Certain employees of the Company participate on a co-mingled basis with other
(non-group) companies in defined benefit pension plans. Such co-mingled plans
are known as multi-employer pension plans. Pension expense for multi-employer
pension plans is recorded based upon the agreed funding requirements, and was FF
17,736 thousands, and FF 19,074 thousands for the years ended December 31 1996,
and 1997, respectively.
31
<PAGE> 32
PRO FORMA CONDENSED FINANCIAL DATA OF
MS ACQUISITION CORP. AND SOFEDIT, SA
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
On April 14, 1998, MS Acquisition Corp. (the "Registrant") and Sofedit, SA
("Sofedit"), pursuant to the terms of a Stock Purchase Agreement, completed a
transaction whereby the outstanding capital stock of Sofedit was transferred to
the Registrant in consideration of: (i) Promissory Notes of the Registrant in
the principal amount of $40,968; (ii) a portion of Sofedit's profits for the
fiscal year 1997 to be paid to the former stockholders of Sofedit consistent
with the past dividend policy of Sofedit; (iii) $27 million in Series B
Preferred Stock of the Registrant; (iv) 3 million shares of Class A Common Stock
of the Registrant, and (v) assumption of approximately $12 million of debt of
the Sofedit group. The dividends to the former stockholders discussed in (ii)
above were subsequently declared in the amount of FF 5,922 or $988. After giving
effect to the transaction, the stockholders of Sofedit own approximately 75% of
the common stock of the Registrant.
The following unaudited pro forma balance sheet as of March 31, 1998 gives pro
forma effect to the combination of the Registrant and Sofedit as if such
transaction had occurred on March 31, 1998. The transaction is accounted for as
a reverse acquisition as the shareholders of Sofedit own approximately 75% of
the fully diluted outstanding common stock of the Registrant after the
combination. Accordingly, the Registrant is treated as the acquired company and
Sofedit is considered the acquiring company. Purchase accounting has been
applied to the assets and liabilities of the Registrant based on the estimated
fair value of such assets and liabilities at the acquisition date. The pro forma
adjustments represent management's preliminary determination of the purchase
accounting adjustments and are based upon available information and certain
assumptions that management believes to be reasonable in the circumstances. An
independent valuation of the Registrant's common equity securities is expected
to be finalized in July 1998. Consequently, upon receipt of such independent
valuation, the amount allocated to goodwill is subject to change and the final
purchase price allocation may differ from amounts shown in the accompanying
unaudited pro forma balance sheet as of March 31, 1998. Management believes the
above preliminary allocations of the purchase price are reasonable and will not
materially change upon completion of the appraisal.
The unaudited pro forma statement of operations for the year ended December 31,
1997 gives pro forma effect to the combination as if such transaction had
occurred on January 1, 1997. The unaudited pro forma statement of operations for
the three months ended March 31, 1998 gives pro forma effect to the combination
as if such transaction had occurred on January 1, 1998.
The pro forma condensed financial data are intended for informational purposes,
and do not purport to represent what the combined entity's results of operations
or financial position would actually have been had the transaction in fact
occurred at the assumed dates, or project the results for any future date or
period.
32
<PAGE> 33
PRO FORMA CONDENSED FINANCIAL DATA OF
MS ACQUISITION CORP. AND SOFEDIT, SA
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
BALANCE SHEET DATA AS OF MARCH 31, 1998
<TABLE>
<CAPTION>
MS ACQUISITION SOFEDIT PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
ASSETS
Cash $ 264 $ 13,192 $ - $ 13,456
Accounts receivable 46,832 140,851 187,683
Inventory 7,539 61,621 424 (a) 69,584
Tooling 19,332 387 (a) 19,719
Other current assets 2,186 11,748 13,934
----------- ----------- -------- -------------
76,153 227,412 811 304,376
----------- ----------- -------- -------------
Property, plant, equipment, net 53,194 118,010 7,280 (a) 178,484
Deferred costs and other long term
assets 5,341 4,406 9,747
Goodwill 24,773 5,774 33,181 (a) 63,728
----------- ----------- -------- -------------
Total assets $ 159,461 $ 355,602 $ 41,272 $ 556,335
=========== =========== ======== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 40,348 $ 148,062 $ - $ 188,410
Accrued expenses 13,522 21,105 988 (b) 35,615
Line of credit 18,805 38,082 56,887
----------- ----------- -------- -------------
72,675 207,249 988 280,912
----------- ----------- -------- -------------
Long-term debt 85,000 72,675 50,499 (c) 208,174
Junior subordinated debentures 7,789 7,789
Deferred interest 432 432
Deferred income taxes and
other long term liabilities 7,432 9,310 3,707 (a) 20,449
Preferred stock, Series A 13,689 13,689
Preferred stock, Series B 27,000 (d) 27,000
Stockholders equity:
Common stock, Class A 4 30 (d) 34
Common stock, Class B 5 5
Common stock - Sofedit 1,660 1,660
Additional paid-in capital 13,799 (13,799) (d)
Retained earnings
(accumulated deficit) (34,088) 63,020 (34,429) (d) (5,497)
Cumulative translation adjustment 1,688 1,688
Fair market value in excess of
historical cost of net assets
acquired from entities partially
under common control (7,276) 7,276 (d)
----------- ----------- -------- -------------
Total liabilities
and stockholders' equity $ 159,461 $ 355,602 $ 41,272 $ 556,335
=========== =========== ======== =============
</TABLE>
The accompanying notes are an integral part of the pro forma condensed combined
financial statements.
33
<PAGE> 34
PRO FORMA CONDENSED FINANCIAL DATA OF
MS ACQUISITION CORP. AND SOFEDIT, SA
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
FOR THE STATEMENT OF OPERATIONS DATA FOR THE
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MS
ACQUISITION SOFEDIT PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
Net sales $ 205,741 $ 495,902 $ - $ 701,643
Cost of sales 181,336 437,668 728 (e) 619,732
Selling, general and administrative expenses 17,615 42,546 648 (e) 60,809
-------------- ----------- ---------- -----------
Operating income 6,790 15,688 (1,376) 21,102
Interest expense, net 11,148 9,426 3,346 (c) 23,920
-------------- ----------- ---------- -----------
Income (loss) before income taxes (4,358) 6,262 (4,722) (2,818)
Income tax provision (credit) (1,384) 1,654 (1,426) (f) (1,156)
-------------- ----------- ---------- -----------
Net income (loss) before preferred
stock dividend (2,974) 4,608 (3,296) (1,662)
Preferred stock dividend requirements (1,350) (2,970) (g) (4,320)
-------------- ----------- ---------- -----------
Net income (loss) available for
common stockholders $ (4,324) $ 4,608 $ (6,266) $ (5,982)
============== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the pro forma condensed combined
financial statements.
34
<PAGE> 35
PRO FORMA CONDENSED FINANCIAL DATA OF
MS ACQUISITION CORP. AND SOFEDIT, SA
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
FOR THE STATEMENT OF OPERATIONS DATA FOR THE QUARTER ENDED MARCH 31, 1998:
<TABLE>
<CAPTION>
MS
ACQUISITION SOFEDIT PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
<S> <C> <C> <C> <C>
Net sales $ 53,085 $ 136,873 $ - $ 189,958
Cost of sales 44,974 120,735 182 (e) 165,891
Selling, general and administrative expenses 4,489 9,833 162 (e) 14,484
------------- ------------- ------------ -----------
Operating income 3,622 6,305 (344) 9,583
Interest expense, net 3,082 2,170 836 (c) 6,088
------------- ------------- ------------ -----------
Income before income taxes 540 4,135 (1,180) 3,495
Income tax provision (credit) 167 1,185 (356) (f) 996
------------- ------------- ---------- -----------
Net income (loss) before preferred
stock dividend 373 2,950 (824) 2,499
Preferred stock dividend requirements (360) (743) (g) (1,103)
------------- ------------- ---------- -----------
Net income (loss) available for
common stockholders $ 13 $ 2,950 $ (1,567) $ 1,396
============= ============= ========== ===========
</TABLE>
The accompanying notes are an integral part of the pro forma condensed combined
financial statements.
35
<PAGE> 36
PRO FORMA CONDENSED FINANCIAL DATA OF
MS ACQUISITION CORP. AND SOFEDIT, SA
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
(a) These pro forma adjustments reflect the allocation to the assets and
liabilities of MS Acquisition of the difference between the estimated fair
value of MS Acquisition and MS Acquisition's book value ( the "excess
purchase price"). MS Acquisition's book value is its shareholders' deficit.
<TABLE>
<S> <C>
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
===============
</TABLE>
This excess purchase price has been allocated to the assets and liabilities
of MS Acquisition as follows:
<TABLE>
<S> <C>
Inventory and tooling $ 811
Property, plant and equipment 7,280
Goodwill, previously recorded (24,773)
Goodwill 57,954
Deferred tax liability (3,707)
---------------
$ 37,565
===============
</TABLE>
The preliminary allocations of the excess purchase price are based upon
current estimates and available information. Property, plant and equipment
reflect the adjustment to estimated fair market values of these assets
based upon an independent appraisal. Goodwill, previously recorded,
reflects the elimination of goodwill that is included in MS Acquisition's
historical balance sheet. Goodwill reflects the amount of excess purchase
price remaining after allocations to all other assets and liabilities. The
deferred tax liability reflects the deferred tax liabilities related to
these allocations.
36
<PAGE> 37
PRO FORMA CONDENSED FINANCIAL DATA OF
MS ACQUISITION CORP. AND SOFEDIT, SA
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
The goodwill recorded as a result of these allocations will be amortized
over a 40 year life. In determining the estimated useful life,
management considered the nature, competitive position, life cycle
position, and historical and expected future operating income of MS
Acquisition. After the transaction, the combined company will
continually review whether subsequent events and circumstances have
occurred that indicated the remaining estimated useful life of goodwill
may warrant revision or that the remaining balance of goodwill may not
be recoverable. If events and circumstances indicate that goodwill
related to a particular business should be reviewed for possible
impairment, the combined company will use projections to assess whether
future operating income on a non-discounted basis (before goodwill
amortization) of the company is likely to exceed the goodwill
amortization over the remaining life of the goodwill, to determine
whether a write-down of goodwill to recoverable value is appropriate.
The ultimate allocation of the purchase price to the net assets
acquired, goodwill, other intangible assets and liabilities assumed is
subject to final determination of their respective fair values.
(b) This pro forma adjustment gives effect to the dividends declared by
Sofedit to certain of its former stockholders, in June 1998 which
aggregated $988.
(c) This pro forma adjustment for long-term debt and interest reflects the
issuance of promissory notes and the assumption of debt as follows.
<TABLE>
<CAPTION>
DESCRIPTION AMOUNT DISCOUNT NET ANNUAL QUARTERLY
INTEREST INTEREST
EXPENSE EXPENSE
<S> <C> <C> <C> <C> <C>
Promissory note $ 40,968 $ 2,501 $ 38,467 $ 2,501 $ 625
Assumed debt 12,032 12,032 845 211
-------- ------------- ----------- ----------- --------
$ 53,000 $ 2,501 $ 50,499 $ 3,346 $ 836
======== ============= =========== ========== ========
</TABLE>
The promissory note by its terms is non-interest bearing until the
earlier of (a) one year from the date of the transaction, or (b) the
consummation of an initial public offering. For purposes of these pro
forma statements, the Company has assumed an interest rate of LIBOR + 2%
(6.5% at March 31,1998). This interest rate is consistent with the terms
of the promissory note should interest be payable in the future. The
assumed debt bears interest at an estimated rate of LIBOR + 2% (6.5% at
March 31,1998).
37
<PAGE> 38
PRO FORMA CONDENSED FINANCIAL DATA OF
MS ACQUISITION CORP. AND SOFEDIT, SA
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
(d) This transaction has been accounted for as a reverse acquisition. The
issuance of notes, preferred stock, and assumption of debt by the
registrant, as well as the payment of dividends discussed in (b) above,
have been treated as distributions to the former stockholders of Sofedit
and, accordingly, charged to retained earnings. In addition, as required
under reverse acquisition accounting, the historical stockholders' equity
of the registrant, less the estimated fair market value of the registrant's
common stock, has been eliminated. Following is a summary of the pro forma
adjustments to equity;
<TABLE>
<S> <C>
(1) Elimination of historical additional paid-in capital $ (13,799)
===============
(2) Issuance of notes and assumption of debt $ (50,499)
Issuance of preferred stock (27,000)
Issuance of Common Stock, Class B, par
value $0.01 (30)
Elimination of historical accumulated deficit of
MS Acquisition 34,088
Estimated fair value of registrant's stock 10,000
Dividends declared - previous Sofedit
stockholders (988)
---------------
$ (34,429)
===============
(3) Elimination of historical fair market value in excess of
historical cost of net assets acquired from entities partially
under common control $ 7,276
===============
</TABLE>
(e) These pro forma adjustments reflect the impact of the allocation of the
purchase price to the assets and liabilities of MS Acquisition on the pro
forma condensed statement of operations. The ultimate allocation of the
negotiated purchase price (which was determined principally based on
relative market values of multiples of EBIT and EBITDA as compared with
recently completed transactions in the industry) to the net assets
acquired, goodwill and other intangible assets and liabilities assumed of
MS Acquisition is subject to final determination of their respective fair
values, and as a result, these adjustments could change. Management does
not anticipate any material effect on the results of operations as the
result of any changes. The following table reflects the pro forma
condensed statement of operations impact of the purchase accounting
adjustments:
38
<PAGE> 39
PRO FORMA CONDENSED FINANCIAL DATA OF
MS ACQUISITION CORP. AND SOFEDIT, SA
(UNAUDITED)
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
COST OF SELLING, GENERAL
SALES AND ADMINISTRATIVE TOTAL
<S> <C> <C> <C>
Additional depreciation $ 728 $ - $ 728
Amortization of previously
recorded goodwill (801) (801)
Incremental goodwill
amortization on transaction 1,449 1,449
--------- ---------- --------
Year ended December 31, 1997 $ 728 $ 648 $ 1,376
========= ========== ========
Three months ended
March 31,1998 $ 182 $ 162 $ 344
========= ========== ========
</TABLE>
(f) Adjustments represent the estimated income tax effect of the pro forma
adjustments, excluding goodwill, which will not be deductible for tax
purposes, using an effective income tax rate of 35%.
(g) Preferred stock dividends required under the agreement are calculated as
follows:
<TABLE>
<S> <C>
Series B preferred stock $27,000
Stated dividend rate 11%
Annual dividend $ 2,970
Quarterly dividend $ 743
</TABLE>
39
