<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Amendment No.1
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 For the fiscal year ended December 29, 1996
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
Commission File No. 333-11801-01
AETNA INDUSTRIES, INC.
MS ACQUISITION CORP.
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(Exact name of registrant as specified in its charter)
Delaware 38-200-7550 / 13-337-9803
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(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 officer) (Zip Code)
Registrant's telephone number, including area code (810) 759-2200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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
----- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X
-----
The registrant is a privately-held corporation. As such, there is no
practicable method to determine the aggregate market value of the voting stock
held by non-affiliates of the Registrant.
As of March 21, 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.
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TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
I.R.S. EMPLOYEE
EXACT NAME OF REGISTRANT AS JURISDICTION OF IDENTIFICATION
SPECIFIED IN ITS CHARTER INCORPORATION NUMBER
<S> <C> <C>
None.
</TABLE>
2
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PART I
Item 1. Business
GENERAL
Aetna Industries, Inc. (Aetna) is a wholly-owned indirect, subsidiary of MS
Acquisition Corp. (MS Acquisition) and is a wholly-owned, direct subsidiary of
Aetna Holdings, Inc. (Aetna Holdings) and has one wholly-owned subsidiary which
does not have any significant independent operations, Aetna Export Sales Corp.
(Export). MS Acquisition is a holding company that was formed for the sole
purpose of purchasing Aetna and does not have any significant operations, other
than its investments in its subsidiaries, assets or liabilities, other than
preferred stock, junior subordinated debentures and certain accruals. Aetna is
a leading Tier I or direct supplier of high-quality modules, welded
subassemblies and stampings used as original equipment components by OEMs in
the North American automobile industry. Aetna's core products, which in 1996
represented over 80% of its net sales, are complex, high value-added modules
and welded subassemblies. With wide-bed press capabilities in excess of 150
inches, Aetna is one of a small group of independent suppliers capable of
producing large bed-size stampings and assemblies. Aetna produces over 200
products that are used in the production of 51 different models (23 different
platforms). 88% of Aetna's 1996 net sales were derived from sales of products
manufactured for the light truck sector (consisting of sport utility vehicles,
mini-vans, utility vans and light pick-up trucks), which has recently
experienced stronger growth than the passenger car sector. Aetna has been a
direct supplier to Chrysler and GM since 1941, with net production sales to
these customers in 1996 accounting for 61% and 33%, respectively, of Aetna's
and MS Acquisition's net production sales. Since 1991, Aetna has implemented
new manufacturing and marketing practices that management believes have
improved Aetna's manufacturing productivity and quality and have enhanced and
expanded Aetna's customer relationships.
The OEM Supplier Industry
Management believes that Aetna is benefiting from certain industry-wide
structural developments that are altering the competitive environment for parts
suppliers to OEMs, including cost-driven purchasing by OEMs of integrated
modules and subassemblies. Because of increasing global competition, OEMs have
been upgrading their supplier policies, reducing the number of strategic
suppliers that may bid for awards and outsourcing an increasing percentage of
their production requirements. Chrysler and GM have indicated that by July 31,
1997 and December 31, 1997, respectively, only Tier I suppliers with QS 9000
certification will be allowed to bid on new manufacturing business. Aetna is
already QS 9000 certified at all of its manufacturing facilities.
Strategic suppliers to Chrysler and GM are invited to bid on the manufacture
and assembly of specific products to be incorporated in both new and existing
automotive platforms. If the model or platform already exists, the current
supplier may be favored by the OEM because of the supplier's familiarity with
the existing product as well as its existing investment in the manufacturing
process and tooling. As a result, it is considered unusual for incumbent
suppliers to be removed from existing contracts, particularly if they have
consistently been able to deliver the existing products on time, within agreed
quality levels and at competitive prices.
On new platforms, there has been an increasing trend toward involving potential
suppliers much earlier in the design and development process in order to
encourage the suppliers to share some of the design and development
responsibility. Management believes that early involvement in the design and
engineering of new components affords Aetna a competitive advantage in securing
new business and provides its customers with significant cost reduction
opportunities. Once selected, an OEM supplier generally manufactures and/or
purchases the necessary tooling and supplies the product on a sole-source basis
for the life of a vehicle model or platform, which typically ranges from five
to seven years. In most cases, it will be at least two years before a Tier I
OEM supplier sees its products incorporated into new models or platforms.
Consequently, the key success factors for suppliers to OEMs have changed from
pure cost minimization to total program management that encompasses
state-of-the-art design, manufacture and delivery of high-quality products at
competitive prices.
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Business Strategy
Aetna has developed and is implementing a business strategy to enhance the
effectiveness of its core operating strengths, to respond to industry-wide
structural developments in the OEM parts supplier industry and to increase
sales and profitability. Key elements of this strategy are as follows:
- - FOCUS ON HIGH-GROWTH VEHICLE CATEGORIES. While Aetna's products are
generally used on a diverse group of automotive platforms (23) and models
(51), Aetna's sales and marketing efforts have been directed towards
sectors of the automotive market that have experienced strong consumer
demand and growth in sales. In 1996, 88% or $186.1 million of Aetna's and
MS Acquisition's net sales were derived from sales of products
manufactured for sport utility vehicles, mini-vans, utility vans and light
pick-up trucks, versus 60% or $73.7 million in 1991. 55% of Aetna's and MS
Acquisition's net sales in 1996 were derived from the sale of products
manufactured for sport utility vehicles as compared to 27% in 1991.
- - PRODUCTION OF MORE COMPLEX, HIGH VALUE-ADDED ASSEMBLIES. Aetna's business
strategy includes seeking awards for more complex, high value-added
modules and welded subassemblies which typically generate higher dollar
content per vehicle for Aetna than individual stampings. In 1996, modules
and welded subassemblies accounted for approximately 81% of Aetna's and MS
Acquisition's total net sales, versus 56% in 1991. Structural changes
within the automotive manufacturing industry have substantially increased
the reliance of OEMs on purchasing integrated modules and subassemblies
from independent suppliers such as Aetna. Management believes that this
continuing shift will create new opportunities for Aetna to utilize its
capability to produce large bed-size stampings and assemblies, along with
its broad range of services, including process and design engineering
capabilities and low-cost quality manufacturing. For example, after seven
years of collaboration with Chrysler, Aetna was awarded the rear floor pan
module for the new generation Chrysler Jeep Grand Cherokee due out in
model year 1999, an example of a complex module with sophisticated
engineering requirements.
- - LOW-COST STRUCTURE. An integral part of Aetna's business strategy has been
to achieve a low-cost structure by maximizing asset utilization, reducing
manufacturing costs and rationalizing Aetna's component parts and services
supplier base. Over the past four years, Aetna's manufacturing initiatives
have significantly improved its productivity and asset utilization and
have enabled Aetna to achieve, in 1996, adjusted net production sales per
employee and per square foot of manufacturing space of $159,590 and $312.6
respectively, compared to $129,850 and $282.7, respectively, in 1995. By
maximizing productivity, Aetna has been able to rapidly adjust its
operations to changes in market demand and manufacturing volumes. In
addition, Aetna's average labor rate for hourly employees of approximately
$15 per hour, inclusive of benefits, is substantially below the comparable
average labor rate of approximately $40 per hour of its OEM customers.
This low labor cost structure enables Aetna to provide its customers with
a cost-effective source of modules and welded subassemblies and has
enabled Aetna to participate in the OEMs' outsourcing of an increasing
percentage of their component needs. Aetna has also benefitted from steel
purchasing arrangements with Chrysler and GM that allow Aetna to pass
through price changes to these customers. As a result of these
arrangements, the effect of changes in the cost of steel, which
represented 36% of Aetna's and MS Acquisition's net sales in 1996, has
been substantially mitigated. Moreover, Aetna purchases certain component
parts and services for its modules and subassemblies, which in 1996
represented approximately 16% of net sales. Aetna believes that it will be
able to achieve further cost reductions by implementing its strategy of
reducing its component parts and services supplier base to those suppliers
who are able to provide continuous quality improvement on a cost effective
basis. Much as Aetna's customers have achieved cost reductions by
concentrating their purchases with larger, more cost-effective stamping
suppliers, Aetna plans to implement a program concentrating purchases of
small components (such as fasteners, small stampings, and weld supplies)
and outside services (such as painting, plating and heat treating) with a
select number of suppliers. In addition to pricing, these suppliers will
be judged on overall quality, stocking policies and delivery capabilities,
ability to communicate data electronically, and a program
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at the supplier which addresses continuous cost reductions in the
supplier's operations.
- - AETNA PRODUCTION SYSTEM. Aetna has implemented the "Aetna Production
System", a production process which is based upon the "Total Elimination
of Waste" manufacturing philosophy. Aetna's manufacturing processes have
been realigned to streamline work flow, achieve flexibility, promote
quality and lower manufacturing costs. Aetna has developed a cellular
manufacturing strategy by producing and assembling in a single location
all of the stampings that comprise a module or subassembly. As a result of
Aetna's commitment to quality and its investment in quality assurance
education and control systems, none of Aetna's products has been subject
to a recall. All of Aetna's manufacturing facilities have achieved QS 9000
certification, the standard recently adopted by AIAG. Chrysler and GM have
indicated that by July 1, 1997 and December 31, 1997, respectively, they
will allow only Tier I suppliers with QS 9000 certification to bid on new
manufacturing business.
Products
Aetna manufactures, assembles and assists in the design of its core products
which consist of a broad range of complex, high value-added modules and welded
subassemblies, including floor pans and ladders, radiator supports, frame
extensions, bumpers and crossmembers. In recent years, Aetna has focused on
producing modules and welded subassemblies as OEMs have increasingly relied on
outside suppliers of these components in order to contain rising labor and
production costs. Over 80% of Aetna's and MS Acquisition's 1996 net sales,
compared to 74% in 1995, were generated by complex, high value-added modules
and welded subassemblies. Aetna produces over 200 products on 23 different
platforms (51 different models) in its nine plants at five manufacturing
locations. 88% of Aetna's and MS Acquisition's 1996 net sales were derived from
products manufactured for sport utility vehicles; mini-vans, utility vans and
light pick-up trucks, compared to 86% in 1995.
Aetna's multiple press lines and flexible manufacturing capacity enable it to
produce a broad array of products, including smaller stampings, such as oil
pans, wheel retainers and headlight brackets, and intermediate-sized stampings,
such as crossmembers, rails, heat shields, wheelhouses and door hinge pillars.
Aetna's wide-bed presses (i.e., over 150 inches) make it one of approximately
six independent suppliers capable of producing large bed-size stampings and
assemblies. Aetna also has extensive roll-forming production capabilities,
which are utilized in conjunction with the manufacturing of complete modules
and subassemblies. Roll-forming processes have been used for many years to
produce various sizes and shapes of window channels.
Customers
Management believes that Aetna's long-standing industry relationships are based
on its reputation for low cost, quality products and on-time service. Aetna's
primary customers are Chrysler and GM, which accounted for approximately 61%
and 33% of 1996 net production sales, respectively. Aetna has been a direct
supplier to GM and Chrysler since 1941, and Aetna has long-standing
relationships with buying and engineering personnel at both companies. For both
Chrysler and GM, Aetna has been designated a "strategic supplier" for stamping
and assembly work, as part of a limited group of preferred suppliers invited to
bid for platform work. Aetna has been producing the rear floor pan module for
the Jeep Grand Cherokee underbody since the model's introduction in 1992, and
produces modules and subassemblies for Chrysler's standard Jeep Cherokee and
other vehicles. More recently, Aetna was also awarded the rear floor pan module
for the new generation Jeep Grand Cherokee due out in model year 1999. Aetna is
also one of GM's strategic stamping suppliers, and produces modules,
subassemblies and details for GM's passenger car, mini-van and light truck
divisions.
Aetna also produces roll-form jobs for window channels for the principal
automotive window manufacturers, including PPG Industries, Inc.,
Libbey-Owens-Ford and Guardian Industries Corp.
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Sales and Marketing
Aetna's marketing efforts are currently concentrated on the light truck sector
(consisting of sport utility vehicles, mini-vans, utility vans and light
pick-up trucks), one of the fastest growing sectors in vehicle sales. Aetna's
and MS Acquisition's combined net sales of products used on sport utility
vehicles, mini-vans, utility vans and light pick-up trucks increased from
$181.4 million in 1995 to $186.1 million in 1996. Management believes that this
strong sales performance has been based on its established reputation for low
cost, on-time and high-quality production.
Aetna competes for work both at the beginning of the development of new model
platforms and upon the redesign of existing models. New model development
generally begins two to four years prior to the marketing of these models to
the public. Module, subassembly and stamping jobs are generally awarded one to
three years prior to the initial production period. Once a producer has been
designated to supply parts to a new program, it will generally continue to be a
sole source supplier for these parts for the life of the program. In the case
of Chrysler and GM, anticipated production volumes are generally confirmed
three months in advance, and releases are given to Aetna on a weekly basis.
Typically, these arrangements remain in place for the production life of a car
or truck platform and continue through a platform's redesign period. Production
generally runs five to seven years, but on occasion can be substantially longer
or shorter, and then ceases with the discontinuance of the respective model.
Aetna has increasingly been partnering with OEMs during the early stages of
platform development. OEMs have focused on shortening design cycles and
reducing design and production costs, and have involved component suppliers
earlier in the process of designing a vehicle. Aetna has been increasingly
given the opportunity to participate in the design of subassemblies, such as
the floor pan and ladder subassembly, radiator supports and crossmember
assemblies, which are designed at an early stage in the development of new
vehicles or model revisions. This has resulted in opportunities to add
additional value by furnishing engineering and process design services and
managing the subassembly process for the manufacturer. It also creates
opportunities for early identification of a broad range of components and
related subassemblies which could be manufactured by Aetna. Partnering also
involves sharing with the OEMs tooling, design and other start-up costs.
Aetna also seeks work producing components of existing vehicle models
previously made by an OEM in-house. Production by outside suppliers allows OEMs
to free-up critical capacity which can be redemployed in other areas, in
particular during the final years of model production when additional in-house
capacity is required for the try-out of an OEM's new vehicle models. Aetna's
sales of value-added modules and subassemblies have increased in part as a
result of its availability for and successful completion of this type of
"factory assist" work. For example, Aetna's factory assist work on the standard
Chrysler Jeep Cherokee led to its selection for subsequent platform work in
connection with the Chrysler Jeep Grand Cherokee and the redesigned Chrysler
Jeep Grand Cherokee platforms. Aetna does not issue express warranties to the
purchasers of its products. However, Aetna may be subject to warranty
obligations as part of standard purchasing terms and conditions used by its OEM
customers. For example, Chrysler's Facilities and Materials Purchasing General
Terms and Conditions provide that suppliers to Chrysler are to indemnify and
hold Chrysler harmless against all claims and liabilities resulting from
negligence of the supplier, its employees or its subcontractors. None of
Aetna's products has ever been subject to a recall.
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Manufacturing
Aetna has supported its "Total Elimination of Waste" philosophy by instituting
the "Aetna Production System", a closed loop production planning methodology
based on QS 9000 quality standards, and by realigning its manufacturing
processes in order to monitor more effectively and control labor and overhead
costs and to ensure the maximum utilization of production resources. In
addition, Aetna has introduced a cellular manufacturing strategy which has
consisted of consolidating all detailed stampings that comprise a module or
subassembly into a single production location. For example, Aetna relocated its
roll-forming equipment from separate locations, allowing Aetna to increase its
production capacity while reducing production space. Aetna believes these
changes in its production system have improved scheduling flexibility, lowered
inventory carrying costs, increased the utilization of manufacturing floor
space, improved scheduling efficiencies and productivity and reduced fixed
costs and product costs. As a result of the implementation of these changes,
Aetna and MS Acquisition achieved, in 1996, adjusted net production sales per
employee and per square foot of manufacturing space of $159,590 and $312.6
respectively, compared to $129,850 and $282.7, respectively, in 1995. Three key
programs have been instituted as part of the Aetna Production System:
- - JUST-IN-TIME MANUFACTURING. Aetna has implemented a progressive
production strategy based on a just-in-time ("Just-in-Time" or "JIT")
manufacturing process specifically designed to promote efficient
production and eliminate various unnecessary costs. Just-in-Time
manufacturing is characterized by flexible work center scheduling as well
as vendor scheduling, quality "in place" as opposed to inspection of
vendor deliveries and reduced work queues and inventory levels. These
productivity improvements in the manufacturing process have helped lower
indirect labor costs associated with setup time.
- - CERTIFIED QUALITY STANDARDS. As a result of Aetna's commitment to quality
and its investment in quality assurance education and control systems,
none of Aetna's products has been subject to a recall. All of Aetna's
manufacturing facilities have achieved the QS 9000 certification, the
standard recently adopted by the AIAG. Chrysler and GM have indicated
that by July 1, 1997 and December 31, 1997, respectively, they will allow
only Tier I suppliers with QS 9000 certification to bid on new
manufacturing business.
- - MANUFACTURING RESOURCE PLANNING II. As OEMs continue to rely on outside
suppliers for modules and subassemblies, production planning and
inventory management have become increasingly important factors in
Aetna's competitiveness. In order to control costs, respond to shifting
OEM production demands and develop a more efficient inventory management
and production planning process, Aetna has instituted a closed-loop
manufacturing resource planning program which uses OEM releases to
generate forecasts and assign the material and labor required for
production on a weekly basis.
Suppliers and Raw Materials
Since 1994, Aetna has participated in Chrysler's "Extended Enterprise" program,
a collaborative program undertaken by Chrysler with its Tier I suppliers
designed to promote, between such Tier I suppliers and their respective Tier II
suppliers, production and sales practices which are comparable to those
required by Chrysler of its Tier I suppliers. As a result, Aetna has recently
begun to rationalize its component parts and services supplier base. Aetna
believes that it will be able to achieve further cost reduction by implementing
its strategy of reducing its supplier base to those suppliers who are able to
provide continuous quality improvement on a cost-effective basis.
Aetna's principal raw material is steel, which represented 36% of Aetna's and
MS Acquisition's net sales in 1996. Aetna's purchasing department typically
buys approximately 15,000 tons per month of flat-rolled steel. Steel coil
purchases include quantities of hot-rolled, cold-rolled, high strength
galvanized, aluminized and stainless, depending upon production requirements.
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Aetna currently participates in steel buying programs with both Chrysler and GM
under which Aetna has substantially mitigated the effects of steel price
volatility and is provided a steady source of steel. Aetna believes that on a
going forward basis, both Chrysler and GM will continue these arrangements so
that Aetna will not recognize a steel price increase unless it receives a
matching sales price increase from the OEM.
Competition
Aetna currently competes for large-scale production work with a limited group
of approximately five independent suppliers that have the physical assets and
technical skills to produce large bed-size stampings and assemblies.
Competitors with wide bed-size presses (i.e., over 150 inches) and substantial
technical resources include The Budd Company, Lobdell-Emery Corporation, Magna
International Inc., Active Tool & Manufacturing Co., Inc. and Checker Motors
Corporation. Moreover, Aetna believes that the high fixed asset and set-up
costs associated with production of large-sized metal stamping and
subassemblies are likely to limit the number of OEM parts suppliers entering
the large-scale stampings market.
Employees
As of December 29, 1996, Aetna's workforce included 1,325 employees of which
257 were salaried workers and 1,068 were hourly paid employees. Aetna believes
that relations with its employees are good. Aetna's hourly employees are
covered by six collective bargaining agreements with two locals of the UAW. Of
the six collective bargaining agreements, only one will expire within one year
and is thus subject to re-negotiation at the option of Aetna or the UAW. The
collective bargaining agreement covering the 145 hourly employees of Aetna's
Plant #7 expired on August 18, 1996 and Plant #7 was closed effective September
16, 1996. Aetna and Local 155 negotiated an agreement on matters relating to
the effects of the facility's closure on the employees represented by the UAW
local. As a result of this agreement, there is no liability for current or
future employee severance benefits. Charges associated with closing Plant #7
were minimal and did not have a material adverse effect on Aetna. The
collective bargaining agreement covering 53 hourly employees of Aetna's Plant
#5 expired on February 9, 1997 and was successfully re-negotiated to extend one
year to expire on February 12, 1998.
In the last round of negotiations in 1995, Aetna reached early contract
settlement with four of its UAW contingents. The contracts' four to five year
terms provide a significant benefit to Aetna in its efforts to plan its future
operations.
Environmental Matters
Aetna is subject to a wide range of evolving federal, state and local
environmental laws and regulations relating to the protection of the
environment, worker health and safety and the emission, discharge, storage,
treatment and disposal of hazardous materials. The laws include the Clean Air
Act, the Resource Conservation and Recovery Act, the Federal Water Pollution
Control Act and the Comprehensive Environmental Response, Compensation and
Liability Act ("Superfund" or "CERCLA").
Aetna believes that it is in material compliance with applicable federal, state
and local environmental laws and regulations. Compliance with these laws and
regulations has not in the past had any material adverse effect on Aetna's
financial condition or results of operations; however, the effect of such
compliance in the future cannot be determined.
CERCLA imposes strict, joint and several liability upon owners or operators of
facilities at, from or to which a release of hazardous substances has occurred,
upon parties who generated hazardous substances that were released at such
facilities and upon parties who arranged for the transportation or disposal of
hazardous substances to such facilities. A majority of states have adopted
"Superfund" statutes similar to and, in some cases, more stringent than CERCLA.
Due to Aetna's current and historic use, generation and disposal of hazardous
substances and petroleum products, the possibility exists that spills and
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releases of such substances may have occurred at certain of Aetna's facilities
with respect to which Aetna could incur liability under CERCLA or similar state
laws. Aetna could also be subject to liability under CERCLA or similar state
laws as a result of its generation and off-site disposal of such substances. To
date, Aetna's liability under CERCLA and similar state laws has not had a
material adverse effect on Aetna's financial condition or results of
operations; however, the effect of any such liabilities on Aetna in the future
cannot be determined.
Item 2. Properties
Aetna and MS Acquisition are headquartered in Centerline, Michigan, a suburb of
Detroit. Aetna currently owns or leases a total of approximately seventeen
properties used for various purposes, including three parcels of land. Aetna's
facilities houses its blanking, stamping, roll-forming and assembly operations,
as well as its warehousing and shipping functions and administrative offices
for various functional departments. All but one of Aetna's manufacturing
facilities are located within one mile of its headquarters, while the remaining
manufacturing facility and the product development center are located within
eight miles of its headquarters. Aetna continually seeks to reduce its costs
and increase the efficiency of its operations through maximizing utilization of
its facilities. Management believes that its facilities and equipment are in
good condition and are adequate for present and anticipated future operations.
Item 3. Legal Proceedings
Aetna is from time to time involved in routine litigation incident to its
operations. Aetna believes that the litigation currently pending or threatened
against it will not have a material adverse effect on its consolidated
financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholders
Matters
There is no established trading market for the common stock of Aetna or MS
Acqusition.
As of December 29, 1996, Aetna Holdings was the only holder of the common stock
of Aetna. Aetna Holdings in turn is a wholly-owned subsidiary of MS
Acquisition, a privately owned company, the capital stock of which is held by
Citicorp Venture Capital, Ltd., members of management and other private
investors. There have been no cash dividends declared on the common stock.
Item 6. Selected Financial Data
The following table sets forth selected historical financial data of Aetna and
MS Acquisition for the five years ended December 29, 1996.
<TABLE>
<CAPTION>
AETNA MS ACQUISITION AETNA AND MS ACQUISITION
---------------------------------------------
FISCAL YEAR
---------------------------------------------------------------------------
1996 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales $ 211,462 $ 211,462 $ 211,905 $ 204,850 $ 162,908 $ 128,905
Cost of sales 180,998 180,998 183,542 172,428 139,499 112,830
Gross profit 30,464 30,464 28,363 32,422 23,409 16,075
Selling, general and
administrative expenses 15,544 15,650 13,331 12,898 12,544 9,984
Operating profit 14,820 14,814 15,032 19,524 10,864 6,091
Interest expense, net 9,022 9,406 8,579 8,929 9,020 9,206
Income (loss) before effect of
accounting changes and
extraordinary item(a) 3,693 3,436 4,576 6,595 915 (2,768)
Net income (loss) 2,540 2,283 4,576 6,595 (3,856) (2,768)
OTHER FINANCIAL DATA
Depreciation and
amortization 7,965 7,965 6,579 6,150 6,009 5,902
Capital expenditures 7,023 7,023 10,103 6,125 3,474 1,736
Cash flows from operating
activities 1,893 1,893 14,564 22,040 13,156 5,406
Cash flows from investing
activities (6,447) (6,447) (10,252) (6,454) (4,337) (1,676)
Cash flows from financing
activities 8,274 8,274 (4,184) (15,433) (9,401) (3,601)
Ratio of earnings to fixed
charges (b) 1.7 1.5 1.7 2.1 1.2 -
</TABLE>
<TABLE>
<CAPTION>
AETNA AND MS ACQUISITION
FISCAL YEAR END
---------------------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA- AETNA
Total assets $ 129,058 $ 118,242 $ 113,331 $ 109,587 $ 105,414
Long-term debt 85,000 57,741 57,744 69,238 75,390
Stockholder's equity (deficit) (1,140) 7,402 2,827 (3,768) 88
BALANCE SHEET DATA- MS ACQUISITION
Total assets $ 128,418 $ 118,242 $ 113,331 $ 109,587 $ 105,414
Long-term debt 85,000 57,741 57,744 69,238 75,390
Stockholders' equity (deficit) (23,245) 4,994 728 (5,597) (1,506)
</TABLE>
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(a) Effective December 28, 1992, Aetna and MS Acquisition adopted SFAS No.
109, "Accounting for Income Taxes", which resulted in a one-time,
non-cash, after tax charge of $4,771. During the third quarter of 1996,
Aetna and MS Acquisition prepaid existing subordinated debt resulting in
an after-tax charge of $1,153.
(b) For purposes of the ratio of earnings to fixed charges, (i) earnings
include earnings before income taxes, the effect of changes in accounting
and fixed charges and (ii) fixed charges include interest on all
indebtedness, amortization of deferred financing costs and the portion of
rental expense (one-third) that Aetna and MS Acquisition believe to be
representative of interest. Aetna's and MS Acquisition's earnings were
insufficient to cover fixed charges by $3.1 million for the year ended
December 27, 1992.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Aetna Industries, Inc. (Aetna) is a wholly-owned indirect subsidiary of MS
Acquisition Corp. (MS Acquisition) and is a wholly-owned, direct subsidiary of
Aetna Holdings, Inc. (Aetna Holdings) and has one wholly-owned subsidiary,
Aetna Export Sales Corp. (Export). MS Acquisition is a holding company that was
formed for the sole purpose of purchasing Aetna and does not have any
significant operations, other than its investment in its subsidiaries, assets or
liabilities, other than preferred stock, junior subordinated debentures
and certain accruals. Aetna is a leading Tier I supplier of high-quality
modules, welded subassemblies and stampings used as original equipment
components by OEMs in the production of sport utility vehicles, mini-vans,
utility vans, light pick-up trucks and passenger cars. Aetna's core products
include complex, high value-added modules and welded subassemblies, such as
rear floor pan modules that form a section of a vehicle underbody, and
individual stampings, such as oil pans, wheel retainers, headlight brackets,
crossmembers, rails, heat shields and door hinge pillars. Aetna's manufacturing
processes include roll forming, blanking and stamping and, since 1991, Aetna
has implemented new manufacturing processes including a cellular manufacturing
strategy that has increased production capacity and labor efficiency. Aetna
regularly pursues and receives long-term OEM factory assist jobs, producing
components of existing vehicle models previously made by an OEM in-house. OEM
factory assist jobs can be the result of (i) short term production requirements
prior to or during model change-overs which allow the OEMs to retool their
plants, (ii) cost reduction initiatives resulting in increased outsourcing by
OEMs or (iii) capacity constraints after the introduction of a new platform.
Aetna also participates with its OEM customers in process engineering
activities.
On August 13, 1996, Aetna issued $85 million of 11-7/8% Senior Notes due 2006
(the Notes). The proceeds of this issuance were used to (a) repay all of the
outstanding indebtedness, accrued interest and prepayment penalties of the
Company (b) to fund in the amount of $11.1 million payable to former
stockholders of MS Acquisition in connection with a recapitalization of MS
Acquisition, (c) to pay approximately $651,000 to terminate certain outstanding
employee options, (d) to pay fees and expenses of approximately $5 million in
connection with the transactions, (e) to pay approximately $570,000 of bonuses
and accrued compensation to certain directors and officers of Aetna, (f) to pay
$250,000 in accrued management fees and (g) for general corporate purposes.
11
<PAGE> 12
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
consolidated financial statements and related notes thereto of Aetna and MS
Acquisition.
<TABLE>
<CAPTION>
AETNA MS ACQUISITION AETNA AND MS ACQUISITION
1996 1996 1995 1994
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 85.6 85.6 86.6 84.2
Gross profit 14.4 14.4 13.4 15.8
Selling, general & administrative expenses 7.4 7.4 6.3 6.3
Operating profit 7.0 7.0 7.1 9.5
Interest expense 4.3 4.4 4.0 4.4
Income before income taxes and
extraordinary item 2.7 2.6 3.0 5.2
Income tax provision 1.0 1.0 0.9 2.0
Extraordinary item 0.5 0.5
Net income 1.2% 1.1% 2.2% 3.2%
</TABLE>
TWELVE MONTHS ENDED DECEMBER 29, 1996 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1995
NET SALES: Net sales for Aetna and MS Acquisition for the twelve months ended
December 29, 1996 were $211.5 million, down slightly from net sales of $211.9
million for the same period in 1995. Production sales decreased $8.0 million
while tooling sales increased $7.6 million. The decrease in production sales
was principally due to the planned successful completion of a factory assist
job which ran for 16 months from early 1994 to mid-1995. Partially offsetting
this decrease was an increase of 10.8% in net sales to Chrysler (excluding
factory assist work). Net sales to General Motors decreased 12% in 1996
compared to 1995 as a result of the planned phase out of the cargo van program
offset by higher sales on two new passenger car platforms. The decrease in
total sales was also offset by two factory assist jobs awarded in the fourth
quarter of 1996.
GROSS PROFIT: Aetna's and MS Acquisition's gross profit was $30.5 million, or
14.4% of net sales, for the twelve months ended December 29, 1996, compared to
$28.4 million or 13.4% of net sales, for the twelve months ended December 31,
1995. Cost reduction programs implemented in the fourth quarter of 1995
resulted in a 1.1% reduction of manufacturing labor and overhead costs as a
percentage of sales in 1996.
SELLING GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: For the twelve months
ended December 29, 1996, Aetna's and MS Acquisition's SG&A expenses were $15.6
million, or 7.4% of sales, up 17.3% from $13.3 million, or 6.3% of sales, for
the same period last year. SG&A expenses were negatively impacted by $0.6
million of non-recurring costs associated with the issuance of $85.0 million in
Senior Notes and other related costs, $.4 million of bad debt expense and
additional engineering expenses of $1.2 million to support new platform awards.
INTEREST EXPENSE: Aetna's interest expense for the twelve months ended December
29, 1996 was $9.0 million, or 4.3% of net sales, compared to $8.6 million, or
4.0% of net sales, for the twelve months ended December 31, 1995. MS
Acquisition also had additional interest expense of $0.4 million, or 0.1% of
net sales, which is attributed to the junior subordinated debentures. The
increase in both Aetna's and MS Acquisition's interest expense is attributable
to increased levels of debt outstanding in 1996 as compared to the prior year.
INCOME TAXES: The provisions for income taxes for Aetna and MS Acquisition for
the twelve months
12
<PAGE> 13
ended December 29, 1996 were $2.1 million and $2.0 million, respectively, with
effective rates of 36.3%, as compared to $1.9 million, for both Aetna and MS
Acquisition with effective tax rates of 29.1% in the same period of the prior
year. The prior year effective tax rate was lower than the statutory rate
primarily as a result of the effect of the graduated rates on the deferred tax
balances and the reversal of reserves no longer required, offset by the impact
of non-deductible cost in excess of assets acquired. The current year effective
tax rate reflects the impact of non-deductible cost in excess of assets
acquired partially offset by research and development tax credits.
EXTRAORDINARY ITEM: During the third quarter of 1996, Aetna and MS Acquisition
prepaid the existing subordinated debt. The resulting prepayment penalty has
been shown as an extraordinary item in the accompanying statement of
operations.
TWELVE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO TWELVE MONTHS ENDED JANUARY
1, 1995
NET SALES. Net sales for both Aetna and MS Acquisition for the year ended
December 31, 1995 were $211.9 million, an increase of $7.0 million, or 3.4%,
from $204.9 million in 1994. The increase was principally the result of
continued strong consumer demand in the North American automotive market for
sport utility vehicles, with total sport utility vehicle production increasing
26.6% in 1995. Net tooling and prototype sales were $4.4 million in 1995, down
46.3% from 1994 net tooling and prototype sales of $8.2 million. In 1994, Aetna
and MS Acquisition completed the installation of a mini-van radiator support
assembly which contributed $5.0 million to net tooling and prototype sales. Net
production sales to Chrysler and GM as a percentage of total net production
sales were 60% and 36% in 1995, respectively, as compared to 62% and 35%,
respectively, in 1994.
GROSS PROFIT. Aetna's and MS Acquisition's gross profit was $28.4 million, or
13.4% of net sales, in 1995, compared to $32.4, or 15.8% of net sales, in 1994.
Gross margins were unfavorably impacted by the need to execute a major assembly
line overhaul to meet increased demand for the Chrysler Jeep Grand Cherokee.
This overhaul, which was implemented while remaining in full production, was
required as the result of running an assembly line at a rate 20 to 25 percent
greater than its originally designed maximum capability for over two years due
to high product demand. Additionally, gross profit was adversely affected by
start-up costs on a new weld assembly job and delays in receiving anticipated
factory assist work.
SG&A. SG&A expenses for Aetna and MS Acquisition, which were $13.3 million in
1995, compared to $12.9 million in 1994, remained constant as a percentage of
net sales at 6.3%.
INTEREST EXPENSE. Aetna's and MS Acquisition's interest expense for the year
ended December 31, 1995 was $8.6 million, or 4.0% of net sales, compared to
$8.9 million, or 4.4% of net sales, for the year ended January 1, 1995.
Weighted average interest rates were 12.9% and 12.3% in 1995 and 1994,
respectively. The decrease in interest expense is attributable to lower levels
of debt outstanding.
INCOME TAXES. Aetna's and MS Acquisition's provisions for income taxes for the
year ended December 31, 1995 were $1.9 million, with effective income tax rates
of 29.0%, as compared to $4.0 million, with effective tax rates of 37.8% in the
same period of the prior year. The decrease in the effective rate is due
principally to the effect of the rate change on deferred tax balances and the
reversal of tax reserves no longer required.
LIQUIDITY AND CAPITAL RESOURCES
Aetna's principal capital requirements are to fund working capital needs, to
meet required debt payments and to complete planned maintenance and expansion
expenditures. At December 29, 1996, Aetna had $35 million available under its
Senior Revolving Credit Facility. Aetna and MS Acquisition currently
anticipate that operating cash flow, together with available borrowings
under the Senior Credit Facility, will be sufficient to meet working
capital, capital expenditure, and interest requirements on debt
obligations.
13
<PAGE> 14
Net cash flow from operations for Aetna and MS Acquisition aggregated $1.9
million for the twelve months ended December 29, 1996 as compared to $14.6
million for the same period in the prior year. The decrease was attributable to
an $11.0 million decrease in working capital, excluding cash, a decrease in net
income of $2.1 million and a decrease of deferred interest of $1.3 million
partially offset by a $1.4 million increase in depreciation. The decrease in
operating cash flows of $7.4 million in 1995 compared to 1994 is attributable
to net income decreasing $2.0 million, working capital decreasing $2.5 million,
depreciation and amortization increasing $0.4 million, deferred interest
decreasing $1.7 million and deferred interest decreasing $1.7 million and
deferred income taxes decreasing $0.2 million.
Aetna's and MS Acquisition's net cash flow from investing activities consists
principally of capital expenditures of $7.0 million for the twelve months ended
December 29, 1996 as compared to $10.1 million for the same period in the prior
year. Major capital projects during 1996 included construction of a new
facility for $2.9 million, the completion of the rear suspension weld assembly
line for approximately $0.8 million, die tables installed in Plant 2 of $0.5
million, automation of the Mini-Van production line for $0.2 million and
various other additions and improvements aggregating $2.6 million. Major
capital projects for 1995 included completion of a platform specific control
arm project, continued expenditures relating to a plant modernization program,
and start-up costs related to a new rear suspension project.
Net cash flows used by Aetna and MS Acquisition for financing activities
totaled $8.3 million for the twelve months ended December 29, 1996 as compared
to net cash provided by financing activities of $4.2 million for the same
period in 1995. The net provision of cash represents principally the net cash
outflows for the repayment of long-term debt of $49.2 million and dividends of
$11.1 million, offset by the proceeds of the issuance of Notes aggregating
$85.0 million. Cash used for financing activities in 1995 consisted primarily
of principal payments on long-term debt.
To the extent dividends to Aetna Holdings to fund cash interest payments on the
Junior Subordinated Debentures and cash payments on the unfunded contractual
obligations to former option holders are permitted under the 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. Such dividends would be approximately $1.0 million
annually. Additionally, up to $2.5 million in aggregate principal amount of the
Junior Subordinated Debentures will be required to be redeemed by Holdings from
time to time to the extent dividends to Holdings are permitted to be paid under
the Indenture and the Senior Revolving Credit Facility. Aetna's Indenture
relative to the Notes restricts the ability for Aetna or Export to make
distributions to MS Acquisition or Aetna Holdings. Such distributions are not
permitted if (i) Aetna is in default under the Note Indenture, (ii) Aetna is
not permitted to incur additional indebtedness as set forth in the Note
Indenture, and (iii) the aggregated amount of the distributions (including the
proposed distribution) made subsequent to August 13, 1996 exceed the sum of 50%
of the cumulative consolidated net income (or if cumulative consolidated net
income is a loss, minus 100% of such loss) of Aetna earned subsequent to August
13, 1996 plus 100% of any aggregate net cash proceeds received subsequent to
August 13, 1996 relating to any sale of Aetna's capital stock. In February
1997, Aetna paid $1.5 million of cash and pre-payments of principal on these
debentures and obligations on behalf of Aetna Holdings.
Aetna's liquidity is affected by both the cyclical nature of its business and
levels of net sales with its two major customers. The ability to meet working
capital requirements and capital expenditure requirements and service debt
obligations will depend upon future operating performance, which will be
affected by prevailing economic conditions and financial, business and other
factors, certain of which are beyond control.
14
<PAGE> 15
Inflation
Aetna and MS Acquisition do not believe that inflation has had any material
effect on their business over the past three years.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: Except for the historical information included in the financial
statements and herein, certain matters discussed in this Report on Form 10-K
are forward looking statements which involve risks and uncertainties as to
future events. Actual events or results may differ materially from those
discussed in the forward-looking statements as a result of various factors.
<TABLE>
<CAPTION>
Item 8. Financial Statements Page
- ------- -------------------- ----
<S> <C> <C>
FINANCIAL STATEMENTS OF AETNA INDUSTRIES, INC.
Index to financial statements
Condensed Consolidated Balance Sheets -
December 29, 1996 and December 31, 1995 28
Consolidated Statement of Operations -
Twelve Months ended December 29, 1996, December 31, 1995 and
January 1, 1995 30
Consolidated Statements of Cash Flows - Year Ended December 29, 1996,
December 31, 1995 and January 1, 1995 31
Notes to Consolidated Financial Statements 32
FINANCIAL STATEMENTS OF MS ACQUISITION CORP.
Condensed Consolidated Balance Sheets -
December 29, 1996 and December 31, 1995 42
Consolidated Statements of Operations - Twelve Months Ended
December 29, 1996, December 31, 1995 and January 1, 1995 44
Consolidated Statements of Cash Flows - Year Ended December 29, 1996,
December 31, 1995 and January 1, 1995 45
Notes to Consolidated Financial Statements 46
</TABLE>
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Not applicable.
15
<PAGE> 16
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth certain information and ages as of March 1, 1997
for each of the directors and executive officers of the Company. Each
individual serves in the same capacities with MS Acquisition and Holdings.
There are no arrangements or understandings between any officer and any other
person pursuant to which the officer was or is to be selected.
<TABLE>
<CAPTION>
NAME AND AGE POSITION WITH COMPANY
<S> <C>
Ueli Spring, 46 Director*, President and CEO
Harold Brown, 47 Director*, Chief Financial Officer, Vice President,
Finance and Secretary
Gary Easterly, 48 Executive Vice President and Chief Operating Officer
Daniel Pierce, 54 Vice President, Human Resources
Edward Lawson, 42 Vice President, Quality Assurance
David Thal, 38 Vice President, Product Development
Ralph Bredenbeck, 56 Vice President, Tool and Assembly
Michael Delaney, 42 Director*
David Howe, 32 Director*
John Wurster, 62 Director* **
</TABLE>
* Messrs. Spring, Brown, Delaney, Howe and Wurster also serve as directors
of MS Acquisition and Aetna Holdings.
** Mr. Wurster has passed away. Aetna and MS Acquisition are currently
seeking a replacement.
The Board of Directors of the Company, Aetna Holdings and MS Acquisition each
consists of five directors who serve until the next annual meeting of
stockholders or until a successor is duly elected. Executive officers of the
Company, Aetna Holdings and MS Acquisition serve at the discretion of the Board
of Directors.
The Board of Directors of Export consists of four directors who serve until the
next annual meeting of stockholders or until a successor is duly elected. The
current directors of Export are Ueli Spring, Harold Brown, Graham Dunn, age 49,
and Edward Rogers, age 37. They have been directors of Export since March 9,
1993 and August 15, 1991, respectively. Mr. Spring is the President of Export.
Mr. Brown is Treasurer and Secretary of Export. Each of Mr. Dunn and Mr. Rogers
serves as an Assistant Secretary of Export. Executive Officers of Export serve
at the discretion of its Board of Directors.
Mr. Ueli Spring has served as Chief Executive Officer and President of the
Company since 1994. From 1990 to 1994, Mr. Spring served as Executive Vice
President and Chief Operating Officer of the Company. Mr. Spring has been a
director of the Company since September 1990. From 1986 to 1987, he served as
President of Magna International Inc.'s Cosma International Group and then
served as Chief Operating Officer of Magna International Inc.'s Cosma
International Group from 1987 to 1990. From 1984 to 1986, he served as Director
of Manufacturing with Magna International Inc. In 1972, Mr. Spring joined the
Oetiker operations and later became Vice President from 1980 to 1984. Mr.
Spring received his degree in Tool & Die Engineering from the University
Ticinese di Trevano, Switzerland.
Mr. Harold Brown has served as Vice President of Finance of the Company since
joining the Company in 1992. From 1990 to 1992, he was Controller in charge of
U.S. operations at AVX Kyocera Corp. From 1985 to 1989, Mr. Brown served as
Vice President of Finance at APV Baker Perkins plc after serving as Manager of
Financial Analysis from 1982 to 1985. From 1977 to 1982, Mr. Brown held various
planning, marketing and sales positions with Cooper Industries Inc. Mr. Brown
received an AB in Economics from the University of North Carolina and an MBA
from Duke University. From 1972 to 1975, he served as a Lieutenant, Supply
Corps in the United States Naval Reserve.
16
<PAGE> 17
Mr. Gary Easterly has served as Executive Vice President and Chief Operating
Officer since March 1997. He served as Vice President of Manufacturing of the
Company from 1988 to 1997 and has been employed by the Company since 1987. From
1966 to 1987, Mr. Easterly served as Director of Quality Assurance, Quality
Engineering and Production Superintendent for GM's Buick Motor Division. Mr.
Easterly received a BS degree in Industrial Engineering from GMI Institute and
an MA degree in Administration from Central Michigan University.
Mr. Daniel Pierce has served as Vice President of Human Resources of the
Company since 1987 and has been employed by the Company since 1973. From 1968
to 1973, Mr. Pierce was Employee Relations Manager at the Demco Division of
Indianhead Corp. Mr. Pierce holds an MA degree in Industrial Relations from the
University of Michigan.
Mr. Edward Lawson has served as Vice President of Quality Assurance of the
Company since 1989 and has been employed by the Company since 1986. From 1980
to 1985, Mr. Lawson was Director of Quality Assurance at Regal Stamping Co. He
received a BS degree in Mechanical Engineering from Mid-Warwickshire College in
England.
Mr. David Thal has served as Vice President of Product Development since 1995
and has been employed by the Company since 1980, also serving as Sherwood Plant
Manager, Quality Assurance Manager, Manufacturing Project Engineer, Engineering
Manager and Sales Manager. Mr. Thal received a BGS degree in Psychology and
Computer Science from the University of Michigan.
Mr. Ralph Bredenbeck has served as Vice President of Tool and Assembly
Engineering of the Company since 1995. From 1989 to 1995, Mr. Bredenbeck served
as Chief Die Engineer of the Company. Before joining the Company, Mr.
Bredenbeck served in various positions at Spartanburg Steel Products Inc.
(formerly, Firestone Steel Products Inc.) from 1967 to 1989, including Director
of Engineering and Manager of Production Engineering. Mr. Bredenbeck received a
BS degree in Mechanical Engineering from Ohio University and is a registered
Professional Engineer.
Mr. Michael Delaney has been a Vice President of Citicorp Venture Capital, Ltd.
since 1989. From 1986 through 1989 he was Vice President of Citicorp Mergers
and Acquisitions. Mr. Delaney serves on the board of directors of Delco Remy
International, Inc., JAC Holdings, Sybron Chemicals, Inc., Palomar
Technologies, Inc., Farm Fresh Inc., AmeriSource Health Corporation, GVC
Holdings, Cort Business Services, Inc., Enterprise Media Inc., FF Holdings
Corporation, SC Processing, Inc. and Triumph Holdings, Inc. Mr. Delaney is a
graduate of Penn State University and The Wharton School.
Mr. David Howe has been a Vice President of Citicorp Venture Capital, Ltd.
since 1993 as an investment professional. From 1990 through 1993 he was
employed at Butler Capital Corp. as an investment professional. He serves on
the board of directors of Copes-Vulcan Inc., Cable Systems International Inc.,
Sinter Metals Inc., Milk Specialties Company, America-Italian Pasta Company and
Brake-Pro Inc. He also represents Citicorp at the board of directors of Del
Monte Foods Company. Mr. Howe is a graduate of Harvard College and Harvard
Business School.
Mr. John Wurster has served as Director of Business Planning - Chrysler de
Mexico since 1995. From 1992 to 1995, he served as Staff Executive - Vice
President and Controller's Officer for Chrysler de Mexico. From 1989 to 1992,
he served as Director of Source Planning and Asset Management of the
Controller's Office of Chrysler. He has served in various capacities for
Chrysler since 1979. Mr. Wurster received a degree in Business Administration
from the Detroit Institute of Technology.
Mr. Graham Dunn has been an Administration Manager and Financial Controller of
Trident Trust Company (V.I.) Ltd. since July 1992. Prior to joining Trident
Trust Company, Mr. Dunn was self-employed.
17
<PAGE> 18
Mr. Edward Rogers has been a Manager and Vice President of Trident Trust
Company (V.I.) Ltd. Since August 1991. Prior to joining Trident Trust Company,
Mr. Rogers was employed as an offshore company trust administrator in the Isle
of-Man.
DIRECTOR COMPENSATION
Directors do not receive compensation other than reimbursement of expenses for
attending meetings of the Board of Directors or committee meetings.
Item 11. Executive Compensation
The table below shows information concerning cash and noncash compensation for
Aetna and MS Acquisition's Chief Executive Officer and the four most highly
compensated executive officers (other than the Chief Executive Officer) in
office on December 29, 1996 for each of the last three fiscal years.
AETNA INDUSTRIES, INC.
MS ACQUISITION CORP.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------- ----------------------- ------------
RESTRICTED SECURITIES LONG-TERM
NAME AND OTHER ANNUAL STOCK UNDERLYING INCENTIVE ALL OTHER
PRINCIPAL SALARY BONUS COMPENSATION AWARDS OPTIONS PLAN PAYOUTS
COMPENSATION
POSITION YEAR ($) ($) ($) ($) (#)(1) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ueli Spring, 1996 $ 225,976 $ 367,450 $ - $ - - $ - $ -
President and 1995 222,117 200,000 - - - - -
Chief Executive 1994 150,000 150,000 - - - - -
Officer
Harold Brown, 1996 113,355 202,642 - - - - -
VP Finance 1995 104,755 65,000 - - - - -
1994 101,098 45,000 - - 800 - -
Gary Easterly, 1996 108,411 110,867 - - - - -
VP Manufacturing 1995 100,172 65,000 - - - - -
1994 96,380 45,000 - - - - -
David Smith, 1996 59,452 117,784 - - - - -
VP Engineering (2) 1995 111,992 90,000 - - - - -
1994 108,429 25,000 - - 800 - -
Daniel Pierce, 1996 95,526 45,217 - - - - -
VP Human 1995 87,735 40,000 - - - - -
Resources 1994 85,048 25,000 - - 800 - -
</TABLE>
(1) Shares of Class A Common Stock of MS Acquisition.
(2) Retired June 30, 1996.
18
<PAGE> 19
BONUS PROGRAM
Aetna maintains a Quality Assurance Bonus Program under which Production
Managers and Plant Floor Managers are eligible to receive an annual bonus of up
to $20,000 each. Pursuant to this program, each manager will receive a bonus in
the maximum amount in respect of services rendered in any year in which no
qualified customer complaint is made with respect to his or her unit. A
"Qualified Customer Complaint" is a customer complaint that has been reviewed,
and found to be accurate by Aetna's Vice President of Quality Assurance with
respect to the quality of any product manufactured by such manager's production
unit. The bonus amount that each manager is eligible to receive in any year
will be reduced by $5,000 for each Qualified Customer Complaint made with
respect to his or her unit.
In addition to the Quality Assurance Bonus Program, Aetna annually awards
discretionary bonuses to members of its management and certain of its salaried
employees. Such bonuses, which are typically paid in January of each year in
respect of services rendered by recipients during the preceding years, are
awarded based on a variety of factors, including individual and Aetna / MS
Acquisition performance.
STOCK OPTION PLAN
Executive officers, directors, employees and other key persons are eligible to
participate in the MS Acquisition Corp. Executive Stock Option Plan (the Plan).
Options granted under the Plan may be either incentive stock options as defined
in Section 422 of the Internal Revenue Code of 1986, as amended, or nonqualifed
options. Options to purchase an aggregate of 110,000 shares of Class A Common
Stock, par value $.01 per share, of MS Acquisition Corp. (Class A Common Stock)
may be issued under the Plan. The Plan is administered by a committee (Option
Committee) of not less than three directors appointed by the Board of Directors
of MS Acquisition.
All options granted under the Plan are granted pursuant to individual stock
option agreements executed by MS Acquisition and each option recipient. In
general, options granted under the Plan are exercisable in such installments
(which need not be equal) and at such times as are designated by the Option
Committee, but in no event may the term of the option exceed the tenth
anniversary of the effective date of the Plan, March 3, 1989.
The purchase price per share of Class A Common Stock subject to incentive
options must equal or exceed the fair value market value of the Class A Common
Stock on the date such options are granted. The aggregate fair market value of
the Class A Common Stock with respect to the Incentive Options are exercisable
for the first time by the optionee during any calendar year shall not exceed
$100,000. The purchase price per share of Class A Common stock subject to a
nonqualified option shall be determined by the Option Committee. Options
granted under the Plan may not be transferred other than by will or by the laws
of descent.
OPTION GRANTS IN THE LAST FISCAL YEAR
On August 13, 1996, certain employees were granted options under the Plan to
purchase shares of Common Stock that in the aggregate represent up to 10% of
the total number of shares of Common Stock, on a fully diluted basis. These
options have an exercise price of $0.75 per underlying share and become
exercisable in equal installments over five years of continued employment,
subject to acceleration upon a change in control of Aetna.
EXECUTIVE EMPLOYMENT AGREEMENTS
Aetna and MS Acquisition have jointly entered into employment agreements with
each of Messrs. Brown, Easterly, and Spring (the Employment Agreements) (each
of Messrs. Brown, Easterly and Spring, an Executive). The Employment Agreements
set forth the basic terms of employment for each Executive, including base
salary, bonus and benefits, as well as the benefits to which each Executive
will be entitled if his employment is terminated for various reasons.
The Employment Agreement with Mr. Spring has an initial term of three years and
provides from a base salary of $225,000 and a discretionary annual bonus of up
to 100% of Mr. Spring's annual salary. The discretionary bonus is to be
determined based upon the achievement of annual company and individual
19
<PAGE> 20
performance goals. The Employment Agreement provides that Mr. Spring is
entitled to a one time termination payment equal to the remaining payments of
base salary (and in no event less than twelve months) and additional payment
equal to the greater of (x) the bonus received by Mr. Spring for the prior
fiscal year and (y) 50% of his base salary for the fiscal year in which the
termination occurs, if his employment is terminated by Aetna and MS Acquisition
without cause or if he voluntarily terminates his employment with Aetna and MS
Acquisition for good reason.
The Employment Agreements with Messrs. Brown and Easterly have initial terms of
three years and provide for base salaries of $115,000 and $105,000
respectively. Messrs. Brown and Easterly are also entitled to a discretionary
bonus of up to 60% of their annual base salary. The Employment Agreements
provide severance payments through the end of the term (and in no event for a
period of less than 12 months) if employment is terminated by Aetna and MS
Acquisition without cause or if Messrs. Brown or Easterly terminates his
employment with Aetna and MS Acquisition for good reason.
Each Employment Agreement contains non-competition, non-solicitation and
confidentiality provisions.
OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth certain information concerning stock options
exercised during the year ended December 29, 1996 and the number and value of
unexercised stock options held by each of the named executive officers as of
December 29, 1996.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES (1)
<TABLE>
<Caption)
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
ON VALUE (#) ($)
EXERCISE REALIZED ---------------------------- ----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Ueli Spring 0 0 42,500 0 31,875 0
Harold Brown 0 0 25,000 0 18,750 0
Gary Easterly 0 0 10,000 0 7,500 0
David Thal 0 0 7,500 0 5,625 0
Ed Lawson 0 0 5,000 0 3,750 0
Daniel Pierce 0 0 5,000 0 3,750 0
Ralph Bredenbeck 0 0 2,500 0 1,875 0
Teresa Johnson 0 0 2,500 0 1,875 0
</TABLE>
(1) Options are for shares of Class A Common Stock of MS Acquisition Corp.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation of executive officers has historically been determined by the
Board of Directors. Ueli Spring is the only employee or present or former
officer who participated in deliberations of the Board concerning executive
officer compensation during the last completed fiscal year. In August 1996,
Aetna and MS Acquisition established a compensation committee consisting of
three members: Michael Delaney, Ueli Spring and John Wurster. Mr. Spring is the
President and Chief Executive Officer of the Aetna and MS Acquisition.
There are no interlocks between Aetna and other entities involving Aetna's
executive officers and board members who serve as executive officers or board
members of other entities, except with respect to Export, Aetna Holdings and MS
Acquisition. The officers and directors of Aetna also serve as officers and
directors of Aetna Holdings and MS Acquisition. Mr. Spring and Mr. Brown, who
are officers and directors of Aetna, Aetna Holdings and MS Acquisition,
also serve as officers and directors of Export.
Item 12. Security Ownership of Certain Beneficial Ownership and Management
20
<PAGE> 21
All of the outstanding capital stock of Aetna is currently owned by Aetna
Holdings, and all of the outstanding capital stock of Aetna Holdings is
currently owned by MS Acquisition. The following table sets forth certain
information regarding the equity ownership of MS Acquisition as of March 1,
1997 by (i) each person or entity who owns five percent or more of any class of
voting securities of MS Acquisition, (ii) each director of Aetna and MS
Acquisition, (iii) the Chief Executive Officer of Aetna and MS Acquisition and
the four most highly compensated executive officers (other than the Chief
Executive Officer) of Aetna and MS Acquisition as of December 29, 1996, and
(iv) the directors and offices of Aetna and MS Acquisition as a group. Unless
otherwise specified, all shares are directly held. Shares of Class B Common
Stock are non-voting. Each share of Class A Common Stock is convertible into
one share of Class B Common Stock and each share of Class B Common Stock is
convertible into one share of Class A Common Stock.
21
<PAGE> 22
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
AMOUNT OF PERCENT OF AMOUNT OF PERCENT OF
OWNERSHIP (1) CLASS OWNERSHIP CLASS
<S> <C> <C> <C> <C>
Citicorp Venture Capital, Ltd. (2) $ 187,871 49.0% $ 516,590 100.0%
399 Park Avenue
New York, NY 10043
David Howe (3) 187,871 49.0 516,590 100.0
Citicorp Venture Capital, Ltd.
399 Park Avenue
New York, NY 10043
Michael Delaney (3) 187,871 49.0 516,590 100.0
Citicorp Venture Capital, Ltd.
399 Park Avenue
New York, NY 10043
The Prudential Life Insurance Company of
America, as Asset Manager for The
Gateway Recovery Trust (4) 65,175 17.0
c/o Financial Restructuring Group
Gateway Center Four
100 Mulberry Street
Newark, NJ 07102
The Berkshire Fund (5) 59,636 15.6
One Boston Place
Suite 3425
Boston, MA 02108
State Treasurer of the State of Michigan,
Custodian of the Public School Employees'
Retirement System; State Employees'
Retirement System; Michigan State Police
Retirement System; Judges' Retirement
System; and Probate Judges' Retirement
system 27,077 7.1
c/o Michigan Department of Treasury
450 West Allegan
Lansing, MI 48922
Ueli Spring 5,093 1.3
Aetna Industries, Inc.
24331 Sherwood Avenue
Center Line, MI 48015-0067
Harold A. Brown 1,834 *
Aetna Industries, Inc.
24331 Sherwood Avenue
Center Line, MI 48015-0067
Gary Easterly 984 *
Aetna Industries, Inc.
24331 Sherwood Avenue
Center Line, MI 48015-0067
---------- ---- ---------- -----
All directors and officers as a group
(10 persons) (6) $ 198,459 51.8% $ 516,590 100.0%
========== ==== ========== =====
</TABLE>
* Represents less than 1%.
(1) Does not include shares of Class B Common Stock convertible into Class A
Common Stock.
22
<PAGE> 23
(2) Taking into account the shares of Class A Common Stock and Class B Common
Stock owned by CVC and the officers referred to in the next sentence, the
collective ownership of CVC and such officers represents 78.3% of the New
Common Stock. CVC has transferred beneficial ownership of a portion of its
Class A Common Stock and Class B Common Stock set forth above to a group
comprised of certain individual officers of CVC (including Michael Delaney
and David Howe), which shares are included in the aggregate total shown.
(3) Consists of shares held by CVC, which may be deemed to be beneficially
owned by Messrs. Delaney and Howe and 657 shares of Class A Common stock
and 1,808 shares of Class B Common Stock owned by Mr. Howe. Messrs.
Delaney and Howe disclaim beneficial ownership of such shares (except for
the 657 and 1,127 shares of Class A Common Stock and for the 1,808 and
3,100 shares of Class B Common Stock).
(4) The Prudential Life Insurance Company of America, as Asset Manager for The
Gateway Recovery Trust, has voting and dispositive power with respect to
all 65,175 shares of Class A Common Stock and, accordingly, may be deemed
to be the beneficial owner thereof.
(5) Berkshire Capital Associates Limited Partnership ("BCALP") is the General
Partner of The Berkshire Fund and, consequently, has the power to control
the exercise of votes with respect to the shares of Class A Common Stock
held by The Berkshire Fund. Each of Carl Freenback, Bradley M. Bloom,
James Christopher Clifford, Russell L. Epker and Richard K. Lubin is a
General Partner of BCALP and thereby has the ability to control the
activities of BCALP. Each of them, therefore, has the power to control the
exercise of votes with respect to the shares of Class A Common Stock held
by The Berkshire Fund. Each of them also owns directly 478 shares of Class
A Common Stock and therefore has the power to control the exercise of
votes with respect to 60,114 shares of MS Acquisition, constituting 15.7%
of the aggregate outstanding shares of Class A Common Stock. Each of the
general partners of BCALP disclaims beneficial ownership of the 59,636
shares of Class A Common Stock held by The Berkshire Fund.
(6) Includes shares held by CVC, which may be deemed to be beneficially owned
by Messrs. Delaney and Howe. Messrs. Delaney and Howe disclaim beneficial
ownership of shares held by CVC.
Item 13. Certain Relationships and Related Transactions
Jerome Singer, the former chairman of the Board of Directors, owns and leases
to Aetna seven of the 14 facilities currently used by Aetna in its operations.
For the year ended December 29, 1996, Aetna paid to Mr. Singer approximately
$1.0 million in the aggregate in respect of rental payments under such leases.
Management believes that all such leases, from its perspective, are on terms
equal to or better than current market rates for such properties.
Pursuant to a promissory note, Aetna has outstanding from Ueli Spring,
President of Aetna, a demand loan in the aggregate principal amount of $75,000,
plus accumulated interest. The loan bears interest at the prime rate plus 1.0%.
As of December 29, 1996, the aggregate amount owed to Aetna by Mr. Spring in
respect of the loan was $114,736.
Pursuant to a Management Agreement (the "Berkshire Management Agreement")
between Aetna, MS Acquisition and Berkshire Partners, since March 1989,
Berkshire Partners, a shareholder of MS Acquisition, had provided to Aetna and
MS Acquisition certain advisory and management consulting services relating to
financial and strategic corporate planning. In consideration for such services,
Aetna had paid out-of-pocket expenses incurred in performing such services. The
Berkshire Management Agreement was terminated on August 13, 1996 in connection
with the Transactions. In connection with such termination, Aetna paid
Berkshire Partners accrued management fees and current operating expenses of
approximately $250,000 with a portion of the proceeds of the issuance of the
Old Notes.
23
<PAGE> 24
Messrs. Spring, Brown and Easterly and certain other employees of Aetna
received in the aggregate bonuses of approximately $350,000 in recognition of
the quantity and quality of the services performed by these individuals to
facilitate the consummation of the transactions. These services included:
management of the business, preparation and presentation of data, functioning
as liaison between management and Aetna's professional advisors and structuring
and negotiating specific aspects of the transactions.
Mr. Singer was paid approximately $225,000 accrued compensation in connection
with the transactions.
In connection with the transactions, Aetna entered into a management agreement
with MS Acquisition (the "Management Agreement") pursuant to which MS
Acquisition has agreed to provide to Aetna and any subsidiary certain
management and administrative services. The initial term of the Management
Agreement extends through December 1997. In consideration for services provided
thereunder, Aetna has agreed to reimburse MS Acquisition for the actual cost of
the services rendered. Aetna is also responsible for contributing to the
general operating costs of MS Acquisition. Aetna's obligations to reimburse MS
Acquisition may be deferred, without interest, if payment of such reimbursement
obligations would be restricted by the Indenture or the Senior Revolving Credit
Facility.
24
<PAGE> 25
PART IV
Item 14. Exhibits, Financial statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements and Financial Statement Schedules
See the "Index to Financial Statements" included in this report,
as well as the "Report of Independent Accountants"
2. Exhibits
See Exhibit index included in this report.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months ended
December 29, 1996.
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereto duly authorized on January 08, 1998.
Each signature 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.
MS Acquisition Corp.
(Registrants)
By: /s/ Harold A. Brown
-------------------
Harold A. Brown
Vice President - Finance, Secretary and Director
of Aetna Industries, Inc., and MS Acquisition
Corp.
(Principal Financial and Accounting Officer)
26
<PAGE> 27
REPORT OF INDEPENDENT ACCOUNTANTS
February 7, 1997
To the Board of Directors
and Stockholders of
Aetna Industries, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and of cash flows present fairly, in all
material respects, the financial position of Aetna Industries, Inc. and its
subsidiaries at December 29, 1996 and December 31, 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 29, 1996 in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ Price Waterhouse LLP
27
<PAGE> 28
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<Caption)
DECEMBER 29, DECEMBER 31,
ASSETS 1996 1995
<S> <C> <C>
Current assets
Cash $ 4,011 $ 291
Accounts receivable (less allowance for doubtful accounts of
$510 and $240 respectively) 32,753 28,522
Inventories 8,756 8,659
Tooling 1,592 2,658
Prepaid expenses, including income taxes 651 502
Deferred income taxes 318 518
----------- ----------
Total current assets 48,081 41,150
----------- ----------
Property, plant and equipment
Land 2,104 1,652
Buildings and improvements 12,548 11,082
Machinery and equipment 63,906 54,480
Construction-in-progress 3,944 9,434
----------- ----------
Total property, plant and equipment 82,502 76,648
Less - accumulated depreciation (33,068) (27,775)
----------- ----------
Net property, plant and equipment 49,434 48,873
----------- ----------
Other assets
Deferred costs and other assets 5,769 1,644
Cost in excess of net assets acquired 25,774 26,575
----------- ----------
Total other assets 31,543 28,219
----------- ----------
$ 129,058 $ 118,242
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 29
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 1996 1995
<S> <C> <C>
Current liabilities
Accounts payable $ 24,958 $ 31,566
Accrued expenses 12,104 10,109
Current portion of long-term debt 2,500
----------- ----------
Total current liabilities 37,062 44,175
----------- ----------
Long-term debt, less current portion 85,000 15,799
----------- ----------
Subordinated debt 41,942
----------- ----------
Deferred income taxes 8,136 8,924
----------- ----------
Commitments and contingencies (Note 9)
Stockholder's equity
Common stock - $.01 par value; 1,000 issued and
outstanding, respectively
Contributed capital 9,024 9,024
Accumulated deficit (10,164) (1,622)
----------- ----------
(1,140) 7,402
----------- ----------
$ 129,058 $ 118,242
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 30
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF MS
ACQUISITION CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
<S> <C> <C> <C>
Net sales $ 211,462 $ 211,905 $ 204,850
Cost of sales 180,998 183,542 172,428
Selling, general and administrative expenses 15,644 13,331 12,898
----------- ----------- ----------
Operating income 14,820 15,032 19,524
----------- ----------- ----------
Interest expense, net 9,022 8,579 8,929
----------- ----------- ----------
Income before extraordinary item and
income taxes 5,798 6,453 10,595
Income tax provision 2,105 1,877 4,000
----------- ----------- ----------
Income before extraordinary item 3,693 4,576 6,595
----------- ----------- ----------
Extraordinary item (net of income taxes of $594) 1,153
----------- ----------- ----------
Net income $ 2,540 $ 4,576 $ 6,595
=========== =========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 31
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF MS
ACQUISITION CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,540 $ 4,576 $ 6,595
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 7,965 6,579 6,150
Deferred interest 1,281 2,995
Deferred income taxes (588) (860) 748
Changes in assets and liabilities
Accounts receivable (4,231) 116 (6,159)
Inventories (97) 750 (503)
Tooling 1,066 (1,790) 3,830
Prepaid expenses (149) 54 (322)
Accounts payable (6,608) 2,954 8,312
Accrued expenses 1,995 904 394
------------ ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,893 14,564 22,040
------------ ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (7,023) (10,103) (6,125)
Disposals of property, plant and equipment 493
Other, net 83 (149) (329)
------------ ---------- ----------
NET CASH USED FOR INVESTING ACTIVITIES (6,447) (10,252) (6,454)
------------ ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt 85,000
Dividends paid (11,082)
Debt issuance costs (5,403)
Principal payments on long-term debt (49,192) (5,400) (15,727)
Net change in line of credit (11,049) 1,216 294
------------ ---------- ----------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES 8,274 (4,184) (15,433)
------------ ---------- ----------
Net increase in cash 3,720 128 153
Cash - beginning of year 291 163 10
------------ ---------- ----------
Cash - end of year $ 4,011 $ 291 $ 163
============ ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 19,475 $ 4,480 $ 12,027
============ ========== ==========
Cash paid during the year for income taxes $ 1,959 $ 2,750 $ 4,350
============ ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE> 32
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
Aetna Industries, Inc. (Aetna or the Company) is a wholly-owned indirect
subsidiary of MS Acquisition Corp. (MS Acquisition) and is a wholly-owned
direct subsidiary of Aetna Holdings, Inc. (Aetna Holdings) and has one
wholly-owned subsidiary Aetna Export Sales Corp. (Export). MS Acquisition
is a holding company that was formed for the sole purpose of purchasing
Aetna and does not have any significant operations, other than its
investment in its subsidiaries assets or liabilities, other than
preferred stock, junior subordinated debentures and accruals resulting
from the transactions described below. Aetna Holdings and Export are also
wholly-owned subsidiaries of MS Acquisition. MS Acquisition does not have
any other direct or indirect subsidiaries other than Aetna, Aetna
Holdings or Export.
TRANSACTIONS
On August 13, 1996, MS Acquisition completed a recapitalization. MS
Acquisition amended its charter to provide for the reclassification of
its capital stock into two new classes of common stock (voting and
non-voting) (together, New Common) and a new class of preferred stock
(New Preferred). Existing MS Acquisition stockholders exchanged their
existing MS Acquisition shares, pro rata, for New Preferred and New
Common. Citicorp Venture Capital, Ltd. and related parties purchased
shares of New Common and New Preferred for $10,000 in cash from the
existing MS Acquisition stockholders. MS Acquisition formed Aetna
Holdings and contributed to Aetna Holdings all of the capital stock of
the Company. Aetna Holdings then purchased from existing stockholders
approximately 61% of their existing MS Acquisition stock in exchange for
(i) $11,082 in cash (Holdings consideration) and (ii) $8,731 in principal
amount of 11.0% junior subordinated debentures of Aetna Holdings due in
2007. The former stockholders retained (i) $2.36 million in stated value
of New Preferred and (ii) shares of New Common representing 20.6% of the
New Common on a fully-diluted basis.
Also, on August 13, 1996, Aetna issued $85,000 of 11-7/8% Senior Notes
due 2006 (the Notes) in a private placement. The Notes have been fully
and unconditionally guaranteed by MS Acquisition, Aetna Holdings and
Export, on a joint and several basis. The proceeds of this issuance
were used (i) to repay all of the outstanding indebtedness, accrued
interest and prepayment penalties of Aetna, (ii) to fund the $11,082 cash
component of the Holdings consideration, (iii) to pay approximately $651
to terminate certain outstanding employee options, (iv) to pay fees and
expenses of approximately $5,000 in connection with the transactions, (v)
to pay approximately $570 of bonuses and accrued compensation to certain
directors and officers of Aetna, (vi) to pay $250 in accrued management
fees and (vii) for general corporate purposes.
The prepayment penalty relating to Aetna's subordinated debt, which
aggregated $1,153 (net of $594 of taxes), has been shown as an
extraordinary item in the statement of operations.
2. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company's fiscal year ends on the Sunday closest to December 31.
Fiscal years 1996, 1995 and 1994 consisted of 52 weeks and ended on
December 29, 1996, December 31, 1995 and January 1, 1995, respectively.
32
<PAGE> 33
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
2. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DESCRIPTION OF OPERATIONS AND MAJOR CUSTOMERS
The Company's primary business operations are the manufacture of
automotive stampings and assemblies used as original equipment components
by North American automotive manufacturers in the production of sport
utility vehicles, mini-vans, other light trucks and passenger cars.
The Company's financial condition and results of operations depend
significantly on two major automotive manufacturers, Chrysler Corporation
(Chrysler) and General Motors Corporation (GM). Following is a summary of
net production sales to such key customers, as a percentage of net
production sales:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Chrysler 61% 60% 62%
GM 33 36 35
Other 6 4 3
--- ---- ----
100% 100% 100%
=== ==== ====
</TABLE>
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and a foreign sales corporation (Export) which is a wholly-owned
subsidiary of Aetna. The financial condition and results of operations of
Export are not significant and, accordingly, have not been presented.
All significant intercompany transactions and account balances have been
eliminated in consolidation. In addition, management of the Company and
MS Acquisition have determined that the separate financial statements and
other disclosures relative to Aetna Holdings are not material to
investors and accordingly, have not presented such information.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS
The Company considers cash on hand, deposits in banks and short-term
marketable securities with maturities of 90 days or less as cash and cash
equivalents for the purpose of the statement of cash flows.
FINANCIAL INSTRUMENTS
The Company records all financial instruments, including accounts
receivable and accounts payable, at cost, which approximates market
value.
REVENUE RECOGNITION
Revenue from sales and the corresponding receivables are recorded upon
shipment of product to the customer.
33
<PAGE> 34
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
2. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories of stampings and assemblies are valued at the lower of cost,
determined by the last-in, first-out (LIFO) method, or market.
Inventories of purchased parts and purchased labor are valued at the
lower of cost, as determined by the first-in, first-out (FIFO) method, or
market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less any impairment
loss. The Company provides for depreciation principally using the
straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
<S> <C>
Buildings and improvements 20 - 30
Machinery and equipment 5 - 15
</TABLE>
Upon retirement or disposal, the asset cost and related accumulated
depreciation is removed from the accounts and the net amount, less
proceeds, is charged or credited to income. Expenditures for renewals and
betterments are capitalized. Expenditures for maintenance and repairs are
charged against income as incurred.
The Company adopted Statement of Financial Accounting Standard No. 121
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to Be Disposed Of" (FAS 121) in the first quarter of 1996. The adoption
of this new standard did not have a material impact on the Company's
financial statements for the year ended December 29, 1996.
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired is being amortized over forty years
using the straight-line method. Accumulated amortization aggregated
$6,276 and $5,475 at December 29, 1996 and December 31, 1995,
respectively. The Company periodically evaluates the eventual
recoverability of the cost in excess of net assets acquired based on
estimated future operating results and cash flows.
START-UP AND PREOPERATING EXPENSES
Incremental costs incurred relating to the start-up of a new production
facility were capitalized as deferred costs and were being amortized over
a five-year period commencing January 1992. Accumulated amortization
aggregated $1,694 at December 31, 1995. These costs were fully amortized
during 1996.
INCOME TAXES
Deferred tax assets and liabilities are provided for the expected future
tax consequence of temporary differences between the carrying amounts and
the tax basis of the Company's assets and liabilities.
34
<PAGE> 35
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
3. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
<S> <C> <C>
Inventories valued at LIFO
Raw materials $ 1,758 $ 2,034
Work-in-process 3,458 2,989
Finished goods 2,195 2,273
--------- -------
7,411 7,296
LIFO reserve (335) (240)
--------- -------
7,076 7,056
--------- -------
Inventories valued at FIFO
Purchased parts and purchased labor 1,680 1,603
--------- -------
Total inventories $ 8,756 $ 8,659
========= =======
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
<S> <C> <C>
Accrued workers' compensation expense $ 3,155 $ 3,329
Accrued interest 4,018 1,423
Taxes other than income 2,357 1,556
Other 2,574 3,801
--------- ----------
$ 12,104 $ 10,109
========= ==========
</TABLE>
5. RELATED PARTY TRANSACTIONS
The Company leases certain real property from a stockholder at less than
fair market value rates under lease agreements expiring in 2006.
Approximately $2,425, which represents the present value at the date of
acquisition of the favorable lease terms using a 13.0% interest rate, has
been recorded as property, plant and equipment and is being amortized on
a straight-line basis over the lease terms. Rent expense under these
lease agreements aggregated $1,013, $965 and $919 during 1996, 1995 and
1994, respectively. Future minimum rental payments due under these lease
agreements are as follows:
35
<PAGE> 36
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDING
<S> <C>
1997 $ 1,005
1998 937
1999 984
2000 1,033
2001 1,085
Thereafter 6,293
---------
$ 11,337
=========
</TABLE>
The Company had a management agreement with a related party whereby it
was charged an annual fee of $250 for management services during 1995
and 1994. During 1996, the Company incurred $154 of management fees.
Such fees were eliminated in connection with the recapitalization of the
Company's parent, MS Acquisition, discussed in Note 1.
6. STOCKHOLDER'S EQUITY
The changes in stockholder's equity were as follows:
<TABLE>
<CAPTION>
TOTAL
CONTRIBUTED ACCUMULATED STOCKHOLDER'S
CAPITAL DEFICIT EQUITY
<S> <C> <C> <C>
Balance at January 2, 1994 $ 9,024 $ (12,792) $ (3,768)
---------- --------- ----------
Net income 6,595 6,595
---------- --------- ----------
Balance at January 1, 1995 9,024 (6,197) 2,827
Net income 4,576 4,576
---------- --------- ----------
Balance at December 31, 1995 9,024 (1,622) 7,402
Net income 2,540 2,540
Dividends paid to MS Acquisition (11,082) (11,082)
---------- --------- ----------
Balance at December 29, 1996 $ 9,024 $ (10,164) $ (1,140)
========== ========= ==========
</TABLE>
Aetna Holdings has issued $9,229 of junior subordinated debentures and
unfunded contractual obligations to certain former option holders. To
the extent cash interest and pre-payments of such debentures are
permitted under the Company's 11-7/8% Senior Notes Indenture and the
revolving credit facility, Aetna may pay dividends to Aetna Holdings to
fund such payments. Aetna paid $1,554 of cash and pre-payments of
principal on these debentures and obligations in February 1997. The
Company is prohibited from making distributions to either Aetna Holdings
or MS Acquisition if (i) it is in default under its Note Indenture, (ii)
the total of the distributions would exceed 50% of the cumulative net
income (or if there is a cumulative net loss, minus 100% of the
cumulative net loss) that the Company earned subsequent to the issuance
of the 11-7/8% Senior Notes (August 13, 1996), adjusted for the sale of
any capital stock and under certain circumstances.
36
<PAGE> 37
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
7. EMPLOYEE BENEFIT PLANS
The Company has four defined benefit pension plans covering the majority
of its hourly employees. The Company's funding policy is to fund costs as
required under the Employee Retirement Income Security Act of 1974, as
amended. The plans' assets are invested in a master trust.
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated balance sheets at December 29,
1996 and December 31, 1995:
<TABLE>
<CAPTION>
DECEMBER 29, 1996 DECEMBER 31, 1995
----------------- --------------------------
ASSETS ASSETS ACCUMULATED
EXCEED EXCEED BENEFITS
ACCUMULATED ACCUMULATED EXCEED
BENEFITS BENEFITS ASSETS
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation,
including vested benefits of
$1,400, $278 and $1,063,
respectively $ 1,528 $ 1,145 $ 287
======== ========= ========
Plan assets at fair value $ 1,709 $ 1,157 $ 277
Projected benefit obligation for
service rendered to date 1,528 1,145 287
-------- --------- --------
Plan assets in excess of (less than)
projected benefit obligation 181 12 (10)
Unrecognized loss from prior
experience 419 426 142
-------- --------- --------
Prepaid pension cost included
in deferred costs and other assets $ 600 $ 438 $ 132
======== ========= ========
Weighted average discount rate 7.0% 7.0% 7.0%
======== ========= ========
Estimated long-term rate of return
on assets 9.5% 9.5% 9.5%
======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Pension cost includes:
Service cost $ 158 $ 102 $ 116
Interest cost 102 88 92
Actual return on assets (217) (262) 126
Net amortization 100 164 (233)
-------- -------- --------
$ 143 $ 92 $ 101
======== ======== ========
</TABLE>
37
<PAGE> 38
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company also maintains a 401(k) plan for all eligible nonunion
employees, and a 401(k) plan for certain union employees not covered by
the defined benefit plans above. For fiscal 1996, 1995 and 1994, the
Company incurred $140, $130 and $101, respectively, of expense related to
401(k) plans.
8. INCOME TAXES
The Company is included in the consolidated United States federal income
tax return filed by MS Acquisition. Accordingly, the provision for
federal income taxes and the related payments or refunds of tax are
determined on a consolidated basis. The Company's income tax provisions
compiled on a separate return basis would have been consistent with those
recorded in its financial statements.
The income tax provision comprises the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current income taxes payable $ 2,804 $ 2,782 $ 3,252
Deferred income taxes (699) (905) 748
-------- ---------- ---------
$ 2,105 $ 1,877 $ 4,000
======== ========= =========
</TABLE>
Deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
<S> <C> <C>
DEFERRED TAX ASSETS
Workers' compensation $ 1,046 $ 1,105
Other 896 727
--------- --------
Gross deferred tax assets 1,942 1,832
--------- --------
DEFERRED TAX LIABILITIES
Depreciation 7,999 8,494
Inventory 1,647 1,225
Deferred costs and other 114 519
--------- --------
Gross deferred tax liabilities 9,760 10,238
--------- --------
Net deferred tax liability $ 7,818 $ 8,406
========= ========
</TABLE>
38
<PAGE> 39
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
8. INCOME TAXES (CONTINUED)
A reconciliation of the U.S. federal statutory rate to the Company's
effective rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
U.S. federal statutory rate 35.0% 35.0% 35.0%
Effect of graduated rates (1.0) (1.0)
Non-deductible goodwill 7.2 4.2 2.7
Reversal of tax reserves no longer required (2.7) (2.9)
Effect of 1% increase (decrease) in federal
rate on deferred tax balances (3.9) 2.5
Research and development credit refunds (3.0)
Other (1.9) (2.6) 0.5
------ ---- -----
36.3% 29.0% 37.8%
===== ==== =====
</TABLE>
9. CONTINGENCIES AND LEASE COMMITMENT
The Company leases a production facility under a lease agreement
accounted for as an operating lease. The lease agreement calls for annual
rent of approximately $593 through December 1998 and annual rent of
approximately $495 through October 1999 and provides for three five-year
renewal options. Additionally, the Company leases certain machinery and
equipment under operating leases. Future minimum rental payments on the
machinery and equipment are as follows: 1997 - $308; 1998 - $295; 1999 -
$148; 2000 - $48, 2001 - $32.
10. LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
<S> <C> <C>
11-7/8% Senior Notes due 2006 $ 85,000 $ -
Note payable to bank in quarterly principal installments
of $1,250 and a final payment of $3,500 originally
due October 31, 1996, refinanced on May 2, 1996. 7,250
Note payable to bank under a revolving line of credit facility. 11,049
----------- -----------
85,000 18,299
Less - current portion (2,500)
----------- -----------
$ 85,000 $ 15,799
=========== ============
</TABLE>
39
<PAGE> 40
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
10. LONG-TERM DEBT (CONTINUED)
On August 13, 1996, the Company issued $85,000 of its 11-7/8% Senior
Notes due 2006 (Old Notes) in a private placement offering. On December
13, 1996, the Old Notes were exchanged for new $85,000, 11-7/8% Senior
Notes due 2006 (New Notes). The New Notes have substantially the same
terms as the Old Notes except with respect to certain transfer
restrictions and registration rights relating to the Old Notes. The New
Notes have been fully and unconditionally guaranteed by MS Acquisition,
Aetna Holdings, and Export. These notes also have certain restrictive
covenants including limitations on the following matters: (i) the
incurrence of additional indebtedness, (ii) the issuance of preferred
stock by subsidiaries, (iii) the creation of liens, (iv) sale and
leaseback transactions, (v) restricted payments, (vi) the sales of
assets and subsidiary stock, (vii) mergers and consolidations, (viii)
payment restrictions affecting subsidiaries and (ix) transactions with
affiliates. At December 29, 1996, the fair market value of the Senior
Notes approximated its carrying value.
At December 31, 1995, the Company had $11,049 outstanding under a
revolving line-of-credit facility. In May 1996, the Company executed a
new credit agreement whereby it may borrow, based upon available
collateral as defined in the agreement (principally inventory, tooling,
and accounts receivable), up to $35,000 at either (i) a Floating Rate,
defined as the greater of the Prime Rate or the sum of 1% plus the
Federal Funds Rate, or (ii) a Eurodollar Rate plus a margin agreed to
by the banks. The Company is also charged a monthly fee equal to 0.5%
per annum of the daily average unused amount of the credit agreement.
The new credit agreement contains, among other provisions, covenants
relating to the ratios of (i) debt to earnings before income taxes,
interest and depreciation and amortization (EBITDA) and (ii) interest
expense to EBITDA.
In August 1996, in connection with the recapitalization of its parent
(see Note 1), the Company amended and restated this working credit
facility. The terms and covenants remained substantially unchanged.
Debt issuance costs related to the issuance of the 11-7/8% Senior Notes
aggregated $5,204, and are being amortized over the term of the notes.
Costs associated with the new credit agreement totaled $199 and are
being amortized over the five year term. Accumulated amortization for
these costs aggregated $246 at December 29, 1996.
40
<PAGE> 41
REPORT OF INDEPENDENT ACCOUNTANTS
February 7, 1997
To the Board of Directors
and Stockholders of
MS Acquisition Corp.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and of cash flows present fairly, in all
material respects, the financial position of MS Acquisition Corp. and its
subsidiaries at December 29, 1996 and December 31, 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 29, 1996, in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ Price Waterhouse LLP
41
<PAGE> 42
MS ACQUISITION CORP.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
ASSETS 1996 1995
<S> <C> <C>
Current assets
Cash $ 4,011 $ 291
Accounts receivable (less allowance for
doubtful accounts of $510 and $240, 32,113 28,522
respectively)
Inventories 8,756 8,659
Tooling 1,592 2,658
Prepaid expenses 651 502
Deferred income taxes 318 518
----------- -----------
Total current assets 47,441 41,150
----------- -----------
Property, plant and equipment
Land 2,104 1,652
Buildings and improvements 12,548 11,082
Machinery and equipment 63,906 54,480
Construction-in-progress 3,944 9,434
----------- -----------
Total property, plant and equipment 82,502 76,648
Less - accumulated depreciation (33,068) (27,775)
----------- -----------
Net property, plant and equipment 49,434 48,873
----------- -----------
Other assets
Deferred costs and other assets 5,769 1,644
Cost in excess of net assets acquired 25,774 26,575
----------- -----------
Total other assets 31,543 28,219
----------- -----------
$ 128,418 $ 118,242
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
42
<PAGE> 43
MS ACQUISITION CORP.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 24,958 $ 31,566
Accrued expenses 12,361 10,109
Current portion of long-term debt 2,427 2,500
----------- ----------
Total current liabilities 39,746 44,175
----------- ----------
Long-term debt, less current portion 85,000 15,799
----------- ----------
Subordinated debt 41,942
----------- ----------
Junior subordinated debentures 6,802
----------- ----------
Deferred income taxes 8,136 8,924
----------- ----------
Commitments and contingencies (Note 11)
Redeemable preferred stock
Series A, - $100 stated value and 114,967 shares authorized
issued and outstanding at December 29, 1996 and
$.01 par value and 80,168 shares authorized, issued
and outstanding at December 31, 1995 11,979 1
Series B, - $100 stated value and $.01 par value;
2,000,000 and 250,000 shares
authorized, 68,341 shares issued and
outstanding at December 31, 1995
Additional paid-in capital 2,407
Stockholders' equity
Class A, common stock - $.01 par value; 5,000,000
and 1,040,000 shares authorized; 383,409 and 525,000
shares issued and outstanding, respectively 4 5
Class B, common stock - $.01 par value; 5,000,000 and
1,040,000 shares authorized, 516,590 and 400,000 shares
issued and outstanding 5 4
Additional paid-in capital 15,509 14,991
Accumulated deficit (31,487) (2,730)
Fair market value in excess of historical cost of net
assets acquired from entities partially under common control (7,276) (7,276)
----------- ----------
(23,245) 4,994
----------- ----------
$ 128,418 $ 118,242
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
43
<PAGE> 44
MS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
<S> <C> <C> <C>
Net sales $ 211,462 $ 211,905 $ 204,850
Cost of sales 180,998 183,542 172,428
Selling, general and administrative expenses 15,650 13,331 12,898
----------- ----------- -----------
Operating income 14,814 15,032 19,524
----------- ----------- -----------
Interest expense, net 9,406 8,579 8,929
----------- ----------- -----------
Income before extraordinary item and
income taxes 5,408 6,453 10,595
Income tax provision 1,972 1,877 4,000
----------- ----------- -----------
Income before extraordinary item 3,436 4,576 6,595
Extraordinary item (net of income taxes of $594) 1,153
-----------
Net income before preferred stock dividend 2,283 $ 4,576 $ 6,595
----------- =========== ===========
Preferred stock dividend requirements (482)
Net income available for common stockholders $ 1,801
===========
</TABLE>
See accompanying notes to consolidated financial statements.
44
<PAGE> 45
MS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,283 $ 4,576 $ 6,595
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 7,965 6,579 6,150
Deferred interest 1,281 2,995
Deferred income taxes (588) (860) 748
Changes in assets and liabilities
Accounts receivable (4,231) 116 (6,159)
Inventories (97) 750 (503)
Tooling 1,066 (1,790) 3,830
Prepaid expenses (149) 54 (322)
Accounts payable (6,608) 2,954 8,312
Accrued expenses 2,252 904 394
----------- ---------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,893 14,564 22,040
----------- ---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (7,023) (10,103) (6,125)
Disposals of property, plant and equipment 493
Other, net 83 (149) (329)
----------- ---------- ---------
NET CASH USED FOR INVESTING ACTIVITIES (6,447) (10,252) (6,454)
----------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt 85,000
Dividends paid (21,082)
Debt issue costs (5,403)
Equity contributions 10,000
Repayment of long-term debt (49,192) (5,400) (15,727)
Net increase (decrease) in line of credit (11,049) 1,216 294
----------- ---------- ---------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES 8,274 (4,184) (15,433)
----------- ---------- ----------
Net increase in cash 3,720 128 153
Cash - beginning of year 291 163 10
----------- ---------- ---------
Cash - end of year $ 4,011 $ 291 $ 163
=========== ========== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 19,606 $ 4,480 $ 12,027
=========== ========== =========
Cash paid during the year for income taxes $ 1,959 $ 2,750 $ 4,350
=========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
45
<PAGE> 46
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
MS Acquisition Corp. (MS Acquisition or the Company) is a holding company
that was formed for the sole purpose of purchasing Aetna Industries, Inc.
(Aetna) and does not have any significant operations, other than its
investment in its subsidiaries, assets or liabilities, other
than preferred stock, junior subordinated debentures and accruals
resulting from the transactions described below. The Company has three
wholly-owned subsidiaries, Aetna, Aetna Holdings, Inc. (Aetna Holdings),
Aetna Export Sales Corp. (Export). It does not have any other direct or
indirect subsidiaries. The Company has not presented separate financial
statements or other disclosures relative to Aetna Holdings or Export as
management has determined that such information is not material to
investors.
TRANSACTIONS
On August 13, 1996, the Company completed a recapitalization. MS
Acquisition amended its charter to provide for the reclassification of
its capital stock into two new classes of common stock (voting and
non-voting) (together, New Common) and a new class of preferred stock
(New Preferred). Existing MS Acquisition stockholders exchanged their
existing MS Acquisition shares, pro rata, for New Preferred and New
Common. Citicorp Venture Capital, Ltd. and related parties purchased
shares of New Common and New Preferred for $10,000 in cash from the
existing MS Acquisition stockholders. MS Acquisition formed Aetna
Holdings, and contributed to Aetna Holdings all of the capital stock of
Aetna. Aetna Holdings then purchased from existing stockholders
approximately 61% of their existing MS Acquisition stock in exchange for
(i) $11,082 in cash (Holdings consideration) and (ii) $8,731 in principal
amount of 11.0% junior subordinated debentures of Aetna Holdings due in
2007. The former stockholders retained (i) $2.36 million in stated value
of new Preferred and (ii) shares of New Common representing 20.6% of the
New Common on a fully diluted basis.
Also, on August 13, 1996, Aetna issued $85,000 of 11-7/8% Senior Notes
due 2006 (the Notes) in a private placement. The Notes have been fully
and unconditionally guaranteed by MS Acquisition, Aetna Holdings and
Export, on a joint and several basis. The proceeds of this issuance were
used (i) to repay all of the outstanding indebtedness, accrued interest
and prepayment penalties of Aetna, (ii) to fund the $11,082 cash
component of the Holdings consideration, (iii) to pay approximately $651
to terminate certain outstanding employee options, (iv) to pay fees and
expenses of approximately $5,000 in connection with the
transactions, (v) to pay approximately $570 of bonuses and accrued
compensation to certain directors and officers of Aetna, (vi) to pay $250
in accrued management fees and (vii) for general corporate purposes.
The prepayment penalty relating to Aetna's subordinated debt, which
aggregated $1,153 (net of $594 of taxes), has been shown as an
extraordinary item in the statement of operations.
2. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company's fiscal year ends on the Sunday closest to December 31.
Fiscal years 1996, 1995 and 1994 consisted of 52 weeks and ended on
December 29, 1996, December 31, 1995 and January 1, 1995, respectively.
46
<PAGE> 47
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
2. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DESCRIPTION OF OPERATIONS AND MAJOR CUSTOMERS
The Company's primary business operations are, through its wholly owned
subsidiary Aetna, the manufacture of automotive stampings and assemblies
used as original equipment components by North American automotive
manufacturers in the production of sport utility vehicles, mini-vans,
other light trucks and passenger cars.
The Company's financial condition and results of operations depend
significantly on two major automotive manufacturers, Chrysler Corporation
(Chrysler) and General Motors Corporation (GM). Following is a summary of
net production sales to such key customers, as a percentage of net
production sales:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Chrysler 61% 60% 62%
GM 33 36 35
Other 6 4 3
----- ---- ----
100% 100% 100%
===== ==== ====
</TABLE>
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company, Aetna Holdings, Aetna, Export. The financial condition and
results of operations of Export and Aetna Holdings are not significant.
All significant intercompany transactions and account balances have been
eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported assets and liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS
The Company considers cash on hand, deposits in banks and short-term
marketable securities with maturities of 90 days or less as cash and cash
equivalents for the purpose of the statement of cash flows.
FINANCIAL INSTRUMENTS
The Company records all financial instruments, including accounts
receivable and accounts payable, at cost, which approximates market
value.
REVENUE RECOGNITION
Revenue from sales and the corresponding receivables are recorded upon
shipment of product to the customer.
47
<PAGE> 48
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
2. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories of stampings and assemblies are valued at the lower of cost,
determined by the last-in, first-out (LIFO) method, or market.
Inventories of purchased parts and purchased labor are valued at the
lower of cost, as determined by the first-in, first-out (FIFO) method, or
market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less any impairment
loss. The Company provides for depreciation principally using the
straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
<S> <C>
Buildings and improvements 20 - 30
Machinery and equipment 5 - 15
</TABLE>
Upon retirement or disposal, the asset cost and related accumulated
depreciation is removed from the accounts and the net amount, less
proceeds, is charged or credited to income. Expenditures for renewals and
betterments are capitalized. Expenditures for maintenance and repairs are
charged against income as incurred.
The Company adopted Statement of Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" (FAS 121) in the first quarter of 1996. The
adoption of this new standard did not have a material impact on the
Company's financial statements for the year ended December 29, 1996.
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired is being amortized over forty years
using the straight-line method. Accumulated amortization aggregated
$6,276 and $5,475 at December 29, 1996 and December 31, 1995,
respectively. The Company periodically evaluates the eventual
recoverability of the cost in excess of net assets acquired based on
estimated future operating results and cash flows.
START-UP AND PREOPERATING EXPENSES
Incremental costs incurred relating to the start-up of a new production
facility were capitalized as deferred costs and were being amortized over
a five-year period commencing January 1992. Accumulated amortization
aggregated $1,694 at December 31, 1995. These costs were fully amortized
during 1996.
INCOME TAXES
Deferred tax assets and liabilities are provided for the expected future
tax consequence of temporary differences between the carrying amounts and
the tax basis of the Company's assets and liabilities.
48
<PAGE> 49
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
3. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
<S> <C> <C>
Inventories valued at LIFO
Raw materials $ 1,758 $ 2,034
Work-in-process 3,458 2,989
Finished goods 2,195 2,273
---------- ----------
7,411 7,296
LIFO reserve (335) (240)
---------- ----------
7,076 7,056
---------- ----------
Inventories valued at FIFO
Purchased parts and purchased labor 1,680 1,603
---------- ----------
Total inventories $ 8,756 $ 8,659
========== ==========
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
<S> <C> <C>
Accrued workers' compensation expense $ 3,155 $ 3,329
Accrued interest 4,271 1,423
Taxes other than income 2,357 1,556
Other 2,578 3,801
--------- ---------
$ 12,361 $ 10,109
========= =========
</TABLE>
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
5. RELATED PARTY TRANSACTIONS
Aetna leases certain real property from a stockholder at less than
fair market value rates under lease agreements expiring in 2006.
Approximately $2,425, which represents the present value at the date of
acquisition of the favorable lease terms using a 13.0% interest rate, has
been recorded as property, plant and equipment and is being amortized on
a straight-line basis over the lease terms. Rent expense under these
lease agreements aggregated $1,013, $965 and $919 during 1996, 1995 and
1994, respectively. Future minimum rental payments due under these lease
agreements are as follows:
49
<PAGE> 50
5. RELATED PARTY TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDING
<S> <C>
1997 $ 1,005
1998 937
1999 984
2000 1,033
2001 1,085
Thereafter 6,293
-----------
$ 11,337
===========
</TABLE>
The Company had a management agreement with a related party whereby it
was charged an annual fee of $250 for management services during 1995 and
1994. During 1996, the Company incurred $154 of management fees. Such
fees were eliminated in connection with the recapitalization of the
Company (see Note 1).
6. STOCKHOLDERS' EQUITY
The changes in stockholders' equity were as follows:
<TABLE>
<CAPTION>
FAIR MARKET
RETAINED EXCESS OF
EARNINGS HISTORICAL TOTAL
CLASS A CLASS B CAPITAL (ACCUM- COST STOCK-
COMMON COMMON IN EXCESS ULATED OF NET HOLDERS'
STOCK STOCK OF PAR DEFICIT) ASSETS EQUITY
<S> <C> <C> <C> <C> <C> <C>
Balance at January 2, 1994 $ 5 $ 4 $ 14,991 $ (13,321) $ (7,276) $ (5,597)
-------- -------- --------- ----------- ---------- ---------
Net income 6,595 6,595
Preferred dividends (270) (270)
-------- -------- --------- ----------- ---------- ---------
Balance at January 1, 1995 5 4 14,991 (6,996) (7,276) 728
Net income 4,576 4,576
Preferred dividends (310) (310)
-------- -------- --------- ----------- ---------- ---------
Balance at December 31, 1995 5 4 14,991 (2,730) (7,276) 4,994
Net income 2,283 2,283
Dividends (21,082) (21,082)
Capital contribution 1,000 1,000
Issuance of junior subordi-
nated debentures (9,229) (9,229)
Exercise of stock options
and exchange of old
common stock to new
common (1) 1 (729) (729)
Preferred dividends (482) (482)
-------- -------- ---------- ----------- ---------- ---------
Balance at
December 29, 1996 $ 4 $ 5 $ 15,509 $ (31,487) $ (7,276) $ (23,245)
======== ======== ========= =========== ========== =========
</TABLE>
50
<PAGE> 51
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
6. STOCKHOLDERS' EQUITY (CONTINUED)
Certain stockholders of the Company were also stockholders of the
predecessor company prior to the acquisition by MS Acquisition Corp. Due
to this partial continuation of control, the acquisition was recorded by
the Company using a combination of (1) the historical basis to the extent
of continuing ownership and (2) the purchase method of accounting for the
remaining portion of assets and liabilities. The purchase method requires
that assets and the liabilities be recorded at their estimated fair
market value. The amount by which the fair market value exceeded this
historical cost of the net assets acquired attributable to the
stockholders with continuing interests of $7,276 is recorded as a
reduction of stockholders' equity in the accompanying consolidated
balance sheets.
STOCK OPTION PLAN
Executive officers, directors, employees and other key persons of the
Company are eligible to participate in the MS Acquisition Corp. Executive
Stock Option Plan (the Plan). Options granted under the Plan are
nonqualified stock options. Options to purchase an aggregate of 100,000
shares of Class A Common Stock of MS Acquisition may be issued under the
Plan. The Plan is administered by a committee of not less than three
directors appointed by the Board of Directors of MS Acquisition.
All options granted under the Plan are granted pursuant to individual
stock option agreements executed by MS Acquisition and each option
recipient. In general, options granted under the Plan are exercised in
such installments and at such times as are designated by the Option
Committee, but in no event may the term of an option exceed the tenth
anniversary of the date on which the option was granted. No option may be
granted under the Plan after the tenth anniversary of the effective date
of the Plan, August 13, 1996.
The purchase price per share of Class A Common Stock subject to options
is determined by the Board of Directors on the date such options are
granted. Options granted under the Plan may not be transferred.
Immediately after the consummation of the Transactions discussed in Note
1, certain employees were granted new options under the Plan to purchase
shares that in the aggregate represent up to 10% of the total number of
shares on a fully diluted basis. These options have an exercise price of
$0.75 per underlying share and become exercisable in equal installments
over five years of continued employment, subject to acceleration upon a
change in control of the Company. At December 29, 1996, 100,000 options
have been granted. None of the shares were exercisable at December 29,
1996 and all of the options expire in 2006.
The Company has elected to account for its stock-based compensation under
the guidance provided by APB No. 25, "Accounting for Stock Issued to
Employees" and its related interpretations. The effect on net income for
the difference between compensation cost determined based on APB No. 25
and the fair value method determined in accordance with Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation" is not material to the financial statements.
51
<PAGE> 52
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
7. PREFERRED STOCK
The authorized preferred stock of MS Acquisition consists of 2,293,123
authorized shares of Series A Preferred Stock of which 114,967 are
outstanding, 178,156 are held by Aetna Holdings, and 2,000,000 additional
shares of authorized preferred stock which may be issued in one or more
series.
Each share of Series A Preferred Stock has a stated value of $100 per
share. Dividends accrue on each share at a rate per annum equal to 11% of
the stated value thereof and are payable, when declared by the Board and
to the extent funds are legally available, semi-annually on the 13th of
February and August of each year. Dividends are cumulative from August
13, 1996, the date of issuance. The preferred stockholders have elected
to receive pay-in kind (PIK) dividends whereby stockholders will receive
dividends in the form of additional shares of preferred stock. At
December 29, 1996, the Company has accrued $482 for preferred dividends.
Each Preferred Share is entitled to liquidation preference over all other
classes of MS Acquisition Capital Stock. Series A Preferred Stock are
non-voting and are redeemable by both the Company and the holder under
certain circumstances.
8. JUNIOR SUBORDINATED DEBENTURES
As part of the transactions discussed in Note 1, Aetna Holdings issued
Junior Subordinated Promissory Notes due August 13, 2007 in the aggregate
principal amount of $8,731 and $498 as unfunded contractual obligations
to certain former option holders. The Junior Subordinated Debentures
accrue interest at the rate of 11% per annum and interest is payable
semi-annually on February 13 and August 13 of each year, commencing on
February 13, 1997.
The Company, at its option, may prepay all or a portion of the
outstanding principal amount of the Junior Subordinated Debentures and
unfunded contractual obligations, provided such payments are permitted
under the Company's Senior Notes Indenture and working capital facility.
Additionally, cash interest payments to Junior Subordinated Debentures
holders are permitted under certain circumstances. To the extent such
payments are permitted, they will be funded by dividends from Aetna to
Aetna Holdings. Aetna is prohibited from making distributions to either
Aetna Holdings or MS Acquisition if (i) it is in default under its Note
Indenture, (ii) the total of the distributions would exceed 50% of the
cumulative net income (or if there is a cumulative net loss, minus 100%
of the cumulative net loss) that Aetna earned subsequent to the issuance
of the Notes on August 13, 1996, adjusted for the sale of any capital
stock of Aetna and under certain circumstances.
At December 29, 1996, included in current liabilities is $2,427
representing the expected payments to holders of Junior Subordinated
Debentures and unfunded contractual obligations during 1997.
9. EMPLOYEE BENEFIT PLANS
The Company has four defined benefit pension plans covering the majority
of its hourly employees. The Company's funding policy is to fund costs as
required under the Employee Retirement Income Security Act of 1974, as
amended. The plans' assets are invested in a master trust.
52
<PAGE> 53
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated balance sheets at December 29,
1996 and December 31, 1995:
<TABLE>
<CAPTION>
DECEMBER 29, 1996 DECEMBER 31, 1995
----------------- -----------------------------
ASSETS ASSETS ACCUMULATED
EXCEED EXCEED BENEFITS
ACCUMULATED ACCUMULATED EXCEED
BENEFITS BENEFITS ASSETS
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation,
including vested benefits of
$1,400, $278 and $1,063,
respectively $ 1,528 $ 1,145 $ 287
======== ========= =========
Plan assets at fair value $ 1,709 $ 1,157 $ 277
Projected benefit obligation for
service rendered to date 1,528 1,145 287
-------- --------- --------
Plan assets in excess of (less than)
projected benefit obligation 181 12 (10)
Unrecognized loss from prior
experience 419 426 142
-------- --------- --------
Prepaid pension cost included
in deferred costs and other assets $ 600 $ 438 $ 132
======== ========= ========
Weighted average discount rate 7.0% 7.0% 7.0%
======== ========= ========
Estimated long-term rate of return
on assets 9.5% 9.5% 9.5%
======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Pension cost includes:
Service cost $ 158 $ 102 $ 116
Interest cost 102 88 92
Actual return on assets (217) (262) 126
Net amortization 100 164 (233)
------- ------- ------
$ 143 $ 92 $ 101
======= ======= ======
</TABLE>
The Company also maintains a 401(k) plan for all eligible nonunion
employees, and a 401(k) plan for certain union employees not covered by
the defined benefit plans above. During fiscal years 1996, 1995 and 1994,
the Company incurred $140, $130 and $101, respectively, of expense
related to 401(k) plans.
53
<PAGE> 54
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
10. INCOME TAXES
The income tax provision comprises the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current income taxes payable $ 2,671 $ 2,782 $ 3,252
Deferred income taxes (699) (905) 748
----------- ------------ ------------
$ 1,972 $ 1,877 $ 4,000
=========== ============ ============
</TABLE>
Deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
<S> <C> <C>
DEFERRED TAX ASSETS
Workers' compensation $ 1,046 $ 1,105
Other 896 727
--------- ---------
Gross deferred tax assets 1,942 1,832
--------- ---------
DEFERRED TAX LIABILITIES
Depreciation 7,999 8,494
Inventory 1,647 1,225
Deferred costs and other 114 519
--------- ---------
Gross deferred tax liabilities 9,760 10,238
--------- ---------
Net deferred tax liability $ 7,818 $ 8,406
========= =========
</TABLE>
A reconciliation of the U.S. federal statutory rate to the Company's effective
rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
U.S. federal statutory rate 35.0% 35.0% 35.0%
Effect of graduated rates (1.0) (1.0)
Non-deductible goodwill 7.2 4.2 2.7
Reversal of tax reserves no longer required (2.7) (2.9)
Effect of 1% increase (decrease) in federal rate (3.9) 2.5
Research and development credit refunds (3.0)
Other (1.7) (2.6) 0.5
---- ---- ----
36.5% 29.0% 37.8%
==== ==== ====
</TABLE>
54
<PAGE> 55
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
11. CONTINGENCIES AND LEASE COMMITMENT
The Company leases a production facility under a lease agreement
accounted for as an operating lease. The lease agreement calls for annual
rent of approximately $593 through December 1998 and annual rent of
approximately $495 through October 1999 and provides for three five-year
renewal options. Additionally, the Company leases certain machinery and
equipment under operating leases. Future minimum rental payments on the
machinery and equipment are as follows: 1997 - $308; 1998 - $295; 1999 -
$148; 2000 - $48; 2001 - $32.
12. LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
<S> <C> <C>
11-7/8% Senior Notes due 2006 $ 85,000 $ -
Note payable to bank in quarterly principal installments
of $1,250 and a final payment of $3,500 originally due
October 31, 1996, refinanced on May 2, 1996. 7,250
Note payable to bank under a revolving line of
credit facility. 11,049
---------- ---------
85,000 18,299
Less - current portion (2,500)
---------- ---------
$ 85,000 $ 15,799
========== =========
</TABLE>
On August 13, 1996, Aetna issued $85,000 of its 11-7/8% Senior Notes due
2006 (Old Notes) in a private placement offering. On December 13, 1996,
the Old Notes were exchanged for new $85,000 11-7/8% Senior Notes due
2006 (New Notes). The New Notes have substantially the same terms as the
Old Notes except with respect to certain transfer restrictions and
registration rights relating to the Old Notes. The New Notes have been
fully and unconditionally guaranteed by MS Acquisition, Aetna Holdings
and Export on a joint and several bases. These notes also have certain
restrictive covenants including limitations on the following matters:
(i) the incurrence of additional indebtedness, (ii) the issuance of
preferred stock by subsidiaries, (iii) the creation of liens, (iv) sale
and leaseback transactions, (v) restricted payments, (vi) the sales of
assets and subsidiary stock, (vii) mergers and consolidations (viii)
payment restrictions affecting subsidiaries and (ix) transactions with
affiliates. At December 29, 1996, the fair market value of Senior Notes
approximated its carrying value.
At December 31, 1995, the Company had $11,049 outstanding under a
revolving line-of-credit facility. In May 1996, the Company executed a
new credit agreement whereby it may borrow, based upon available
collateral as defined in the agreement (principally inventory, tooling,
and accounts receivable), up to $35,000 at either (i) a Floating Rate,
defined as the greater of the Prime Rate or the sum of 1% plus the
Federal Funds Rate, or (ii) a Eurodollar Rate plus a margin agreed to by
the banks. The Company is also charged a monthly fee equal to 0.5% per
annum of the daily average unused amount of the credit agreement.
55
<PAGE> 56
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
12. LONG-TERM DEBT (CONTINUED)
The new credit agreement contains, among other provisions, covenants
relating to the ratios of (i) debt to earnings before income taxes,
interest and depreciation and amortization (EBITDA) and (ii) interest
expense to EBITDA.
In August 1996, in connection with the recapitalization of its parent
(see Note 1), the Company amended and restated this working credit
facility. The terms and covenants remained substantially unchanged.
Debt issuance costs related to the issuance of the 11-7/8% Senior Notes
aggregated $5,204, and are being amortized over the term of the notes.
Costs associated with the new credit agreement totaled $199 and are being
amortized over the five year term. Accumulated amortization for these
costs aggregated $246 at December 29, 1996.
56
<PAGE> 57
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
(12.1) Statement Regarding Computation of Ratios - Aetna Industries, Inc.
(12.2) Statement Regarding Computation of Ratios - MS Acquisition Corp
(27.1) Financial Data Schedules - Aetna Industries, Inc.
(27.2) Financial Data Schedules - MS Acquisition Corp.
57
<PAGE> 1
EXHIBIT 12.1
AETNA INDUSTRIES, INC.
INFORMATION ON RATIO OF EARNINGS
TO FIXED CHARGES COMPUTATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <S> <C> <C> <C> <C>
Net income (loss) before the effect
of accounting changes $ 5,798 $ 4,576 $ 6,595 $ 915 $ (2,768)
Income taxes 2,105 1,877 4,000 930 (347)
Pre-tax income 7,903 6,453 10,595 1,845 (3,115)
Fixed charges per below 10,629 9,795 9,800 9,659 10,299
---------- --------- --------- --------- --------
Earnings (losses) from operations 18,532 16,248 20,395 11,504 7,184
---------- --------- --------- --------- --------
Fixed charges:
Interest expense 9,022 8,579 8,929 9,020 9,206
Debt amortization 763 442 198 99 557
Rent expense - portion of operating
rentals representative of the interest factor 844 774 673 540 536
---------- --------- --------- --------- --------
Total fixed charges 10,629 9,795 9,800 9,659 10,299
---------- --------- --------- --------- --------
Ratio of income to fixed charges 1.7 1.7 2.1 1.2 (1)
</TABLE>
(1) The deficiency of earnings from operations versus fixed charges was $3.1
million for the year ended December 27, 1992.
58
<PAGE> 1
EXHIBIT 12.2
MS ACQUISITION CORP.
INFORMATION ON RATIO OF EARNINGS
TO FIXED CHARGES COMPUTATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net income (loss) before the effect
of accounting changes $ 3,436 $ 4,576 $ 6,595 $ 915 $ (2,768)
Income taxes 1,972 1,877 4,000 930 (347)
Pre-tax income 5,408 6,453 10,595 1,845 (3,115)
Fixed charges per below 11,013 9,795 9,800 9,659 10,299
---------- --------- --------- --------- --------
Earnings (losses) from operations 16,421 16,248 20,395 11,504 7,184
---------- --------- --------- --------- --------
Fixed charges:
Interest expense 9,406 8,579 8,929 9,020 9,206
Debt amortization 763 442 198 99 557
Rent expense - portion of operating
rentals representative of the interest factor 844 774 673 540 536
---------- --------- --------- --------- --------
Total fixed charges 11,013 9,795 9,800 9,659 10,299
---------- --------- --------- --------- --------
Ratio of income to fixed charges 1.5 1.7 2.1 1.2 (1)
</TABLE>
(1) The deficiency of earnings from operations versus fixed charges was $3.1
million for the year ended December 27, 1992.
59
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001022657
<NAME> AETNA INDUSTRIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-29-1996
<CASH> 4,011
<SECURITIES> 0
<RECEIVABLES> 33,263
<ALLOWANCES> 510
<INVENTORY> 8,756
<CURRENT-ASSETS> 48,081
<PP&E> 82,502
<DEPRECIATION> 33,068
<TOTAL-ASSETS> 129,058
<CURRENT-LIABILITIES> 37,062
<BONDS> 85,000
0
0
<COMMON> 0
<OTHER-SE> (1,140)
<TOTAL-LIABILITY-AND-EQUITY> 129,058
<SALES> 211,462
<TOTAL-REVENUES> 211,462
<CGS> 180,998
<TOTAL-COSTS> 180,998
<OTHER-EXPENSES> 15,644
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,022
<INCOME-PRETAX> 5,798
<INCOME-TAX> 2,105
<INCOME-CONTINUING> 3,963
<DISCONTINUED> 0
<EXTRAORDINARY> 1,153
<CHANGES> 0
<NET-INCOME> 2,540
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001021907
<NAME> MS ACQUISITION CORP.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-29-1996
<CASH> 4,011
<SECURITIES> 0
<RECEIVABLES> 32,623
<ALLOWANCES> 510
<INVENTORY> 8,756
<CURRENT-ASSETS> 47,441
<PP&E> 82,502
<DEPRECIATION> 33,068
<TOTAL-ASSETS> 128,418
<CURRENT-LIABILITIES> 39,746
<BONDS> 85,000
0
0
<COMMON> 9
<OTHER-SE> (23,236)
<TOTAL-LIABILITY-AND-EQUITY> 128,418
<SALES> 211,462
<TOTAL-REVENUES> 211,462
<CGS> 180,998
<TOTAL-COSTS> 180,998
<OTHER-EXPENSES> 15,640
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,406
<INCOME-PRETAX> 5,408
<INCOME-TAX> 1,972
<INCOME-CONTINUING> 3,436
<DISCONTINUED> 0
<EXTRAORDINARY> 1,153
<CHANGES> 0
<NET-INCOME> 2,283
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
