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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- --- OF 1934 For the fiscal year ended December 31, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 For the transition period from to
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Commission File No. 333-11801-01
Commission File No. 333-11801
MS ACQUISITION CORP.
AETNA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-337-9803/38-200-7550
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1, Rue Thomas Edison, Quartier des Chenes,
78056 St. Quentin en Yvelines, France
24331 Sherwood Avenue, P.O. Box 3067,
Centerline, Michigan 48015-0067
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 011-33-1-39-41-20-00
(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 31, 1999, there were 3,902,498 shares of MS Acquisition Corp. Class
A common stock (voting) outstanding and no shares of MS Acquisition Corp. Class
B common stock (non-voting) outstanding (collectively, the "Common Stock").
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TABLE OF ADDITIONAL REGISTRANTS
I.R.S. EMPLOYEE
EXACT NAME OF REGISTRANT AS JURISDICTION OF IDENTIFICATION
SPECIFIED IN ITS CHARTER INCORPORATION NUMBER
None.
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PART I
Item 1. Business
General
The Company is a leading full-service supplier of highly engineered
metal-formed components, complex modules and mechanical assemblies for
automotive OEMs in Europe and North America. The Company is a holding company
with it's financial operations in Europe and North America. The Company operates
through it's two operating subsidiaries Sofedit, of France and Aetna of the
United States. The Company believes it produces one of the broadest ranges of
automotive stampings and other metal-formed products of any OEM supplier within
these markets. The Company's products are manufactured through a variety of
processes including complex stamping, high-pressure hydroforming and, beginning
in 1999, hot stamping. The Company's products include: (i) structural components
and modules for chassis, suspension, floor pan and engine cradle systems; (ii)
large exterior door and body panel modules; (iii) mechanical assemblies such as
pedal systems and door-check mechanisms; and (iv) other complex components such
as stamped pulleys and crankshaft pulley dampers. The Company's products are
used by most of the major automotive OEMs worldwide, such as DaimlerChrysler,
GM, Jaguar, Mercedes-Benz, Mitsubishi, Peugeot-Citroen, Porsche, Renault,
Toyota, Volkswagen and Volvo. On a pro forma basis, the Company's net sales for
1997 and 1998 were $693.6 million and $763.9 million, respectively.
The Company's international presence is the result of the April 1998
combination of Sofedit and Aetna, two leading stamping and metal-forming
companies in Europe and North America, respectively. Today, the Company produces
over 100 types of products for 60 models on 40 platforms from 23 plants in
Europe and North America. The Company believes that the component supply segment
of the automotive supply industry is highly fragmented but undergoing
significant consolidation. This consolidation is being driven by OEM
requirements for increased global sourcing for global platforms and increased
outsourcing of design and production. As a result of the combination, the
Company believes it is uniquely positioned to capitalize on these trends.
The Company has a significant international presence with approximately 71%
and 29% of its pro forma 1998 net sales generated from sales to customers in
Europe and North America, respectively. The Company believes it is well
positioned on top-selling vehicles in Europe and North America. For example, the
Company currently supplies products used on seven of the ten top-selling
vehicles in Europe, including the Renault Twingo, Megane and Clio, the Opel
Astra and Vectra, and the Volkswagen Golf and Polo. The Company also supplies
products used on such top-selling vehicles in North America as the Chrysler Jeep
Cherokee, Jeep Grand Cherokee and Jeep Wrangler, Chrysler Cirrus/Dodge Stratus,
Buick Riviera/Oldsmobile Aurora, Chevrolet Astro/GMC Safari, Pontiac Bonneville,
Buick Park Avenue, Chevrolet Cavalier and Saturn LS. Approximately 70.1% of the
Company's 1998 pro forma North American net sales were derived from the
higher-growth light truck segment.
The Company has a substantial number of new products for car and light truck
platforms in the early stages of production, including platforms for Chrysler
(two), GM (one) and CAMI (one) in North America and products for new vehicles
for Renault (six), for Peugeot-Citroen (five) and one for each of Volkswagen,
Mercedes-Benz, Mitsubishi, GM, Toyota and Volvo in Europe. In connection with
the introduction of these new products, the Company made significant investments
and incurred significant launch and other costs. The Company believes that it is
now well positioned to realize the benefits of these investments as they reach
full production.
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The Company's business strategy is to: (i) leverage and expand its
international presence to exploit future opportunities; (ii) capitalize on
technical design and engineering capabilities; (iii) exploit new technologies
such as high-pressure hydroforming; (iv) achieve continuous quality improvements
and enhance manufacturing efficiencies; and (v) pursue strategic acquisitions.
Industry Overview
The Company believes that the component supply segment of the automotive
supply industry is highly fragmented and undergoing significant consolidation.
This consolidation is being driven by OEM requirements for increased global
sourcing for global platforms, and increased outsourcing of design and
production. The Company believes that these requirements can best be met by
suppliers such as the Company, which have sufficient size, geographic presence
and financial resources to meet such demands.
Global Sourcing Trends. OEMs are positioning themselves to meet global
demands by designing and producing cars on a reduced number of global platforms
which can be designed in one vehicle center but produced and sold in many
different geographic markets, thereby allowing OEMs to reduce design costs and
take full advantage of low-cost manufacturing locations. For example, GM has
announced it will use three major global platforms in its international
passenger car operations, and European OEMs have announced similar initiatives.
The Company believes that such standardization of OEM platforms will result in
fewer suppliers, with each of the remaining suppliers delivering greater
volumes. The Company believes that only suppliers with facilities strategically
located near OEM facilities will be able to take advantage of this trend.
Increased Systems/Modular Sourcing. In conjunction with the changing trends
regarding global platforms, OEMs increasingly require suppliers to be capable of
providing complete systems or modules rather than separate component parts. A
system is a group of component parts which operate together to provide a
specific engineering-driven function, whereas a module is a group of systems
and/or component parts which are assembled and shipped to the OEM for
installation in a vehicle as a unit. By outsourcing complete systems or modules,
OEMs are able to reduce the costs associated with the design and integration of
different components and improve quality by enabling their suppliers to assemble
and test major portions of the vehicle prior to beginning production. As a
result of the trend of having suppliers produce and assemble larger modules,
proximity to the OEMs' facilities is increasingly important. This trend is more
advanced in North America than in Europe.
Increased Supplier Design and Development. The Company believes that
implementation of global sourcing strategies is accelerating the trend toward
involving potential suppliers earlier in the design and development process of
new global platforms. Consequently, the Company believes that the key success
factors for OEM suppliers 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 on a global scale.
Continued Outsourcing. As in other segments of the automotive components
industry, the Company expects outsourcing to accelerate in the stamping and
metal-forming areas. In both Europe and North America, class A exposed surface
panels ("body-in-white") have traditionally been produced in-house by OEMs,
while unexposed body structure and unexposed underbody/chassis assemblies are
being increasingly outsourced. In general, outsourcing of stampings in Europe
has been constrained by the geographic dispersion of OEM assembly plants. The
Company believes that opportunities for outsourcing will considerably increase
for suppliers having the geographic reach and ability to supply components and
modules from nearby manufacturing facilities.
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Competitive Strengths
The Company believes it possesses the following distinct competitive
strengths: (i) international presence; (ii) strong relationships with a
diversified customer base; (iii) full-service technical, design and engineering
capabilities; (iv) a highly motivated and experienced management team; and (v) a
proven ability to identify and successfully manage acquisitions. The Company
intends to capitalize on these competitive strengths to continue to generate
consistent revenue growth and increased profitability in the future.
International Presence. With 23 plants in Europe and North America, the
Company believes it is one of a limited group of high-quality, full-service
automotive suppliers able to provide significant volumes of stampings and
mechanical assemblies on an international basis. The majority of the Company's
plants are strategically located near OEM production facilities. The Company
also believes that its international approach has resulted in recent awards of
new business from existing customers, including GM's Opel unit in Poland and
Renault in Brazil, as well as awards of business from new customers such as
BMW/Rover, CAMI and Mitsubishi North America.
Strong Relationships with a Diversified Customer Base. The Company's
full-service capabilities have enabled it to become a leading supplier to nearly
all of the world's major automotive OEMs, including DaimlerChrysler, GM, Jaguar,
Mercedes-Benz, Mitsubishi, Peugeot-Citroen, Porsche, Renault, Toyota, Volkswagen
and Volvo. Many of these major OEMs have become customers of the Company in the
last five years, which has contributed to significant sales growth. During this
period, the Company has solidified long-term relationships with DaimlerChrysler,
GM, Peugeot-Citroen and Renault, each of which accounted for more than 6% of the
Company's pro forma 1998 net sales, although no single customer accounted for
more than 27% of the Company's pro forma 1998 net sales.
Full-Service Technical, Design and Engineering Capabilities. The Company
believes it is one of a few automotive suppliers in Europe and North America
capable of meeting OEMs' demands for greater outsourcing of stampings and
mechanical assemblies at the earliest stages of product design as well as during
continuous production stages. Supporting the Company's full-service capabilities
are its computer-aided design systems, prototype plants, hydroforming expertise
and large-bed presses, augmented by the efficiency of an increasingly automated
production lines. These full-service capabilities enable the Company to pursue
its strategy of leveraging design and engineering skills to secure supply
relationships for complex products which are typically higher value-added. The
Company considers hydroforming to be an important technology and believes that
applications for hydroforming are increasing, as illustrated by Volvo's recent
selection of the Company to provide a hydroformed cross-member assembly for the
Volvo S80 model.
Highly Motivated and Experienced Management Team. The Company believes its
management and employees are highly motivated to meet corporate objectives due
to performance incentive plans and the Company's decentralized management style.
The Company believes its decentralized approach to decision making encourages
employee participation in refining and improving production processes and
product quality. The Company's incentive plans for management employees include
discretionary annual bonuses and stock option plans based on their ability to
meet certain defined financial and quality performance criteria. Moreover,
members of the Company's senior management have an average of approximately 17
years of experience in the automotive industry.
Proven Ability to Identify and Successfully Manage Acquisitions. Since 1989,
the Company's management has completed seven acquisitions and two strategic
alliances. The Company's strategy has
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been to identify under-performing companies with potential for operating
improvements. In such acquisitions, the Company has been able to apply its
management expertise to increase efficiency and to improve quality. For example,
the Company's management team was able to improve dramatically productivity and
manufacturing efficiencies at the Lebranchu facility (the Company's largest
facility in Europe, which was acquired in 1994) by approximately 57%, from 1995
to 1997, while net sales from the Lebranchu facility operations increased by
approximately 39% for the same period.
Business Strategy
The Company's business strategy is designed to foster growth, improve
manufacturing efficiency, reduce costs and increase productivity, thereby
improving profitability. Key elements of this business strategy include: (i)
leveraging and expanding its international presence to exploit future
opportunities; (ii) capitalizing on technical design and engineering
capabilities; (iii) exploiting new technologies such as high-pressure
hydroforming; (iv) achieving continuous quality improvements and enhancing
manufacturing efficiencies; and (v) pursuing strategic acquisitions.
Leverage and Expand International Presence. The Company believes that
international capabilities are necessary to ensure its selection by OEMs as a
supplier for future highly attractive global platforms. The Company currently
operates 12 manufacturing facilities in Europe and 11 manufacturing facilities
in North America, allowing it to supply products to its customers on a local
basis in two of the world's largest markets. The Company is also committed to
continued expansion of its international operations in certain other attractive
markets, including Eastern Europe, Asia and Latin America. For example, the
Company has recently purchased a facility in Brazil where the Company expects to
commence production of components for Renault in 1999. In addition, the Company
recently established strategic alliances in Slovenia and Turkey and is actively
pursuing similar opportunities in Argentina and Japan. By leveraging and
expanding its international presence, the Company believes it will be well
positioned to win future awards on attractive global and other platforms outside
Europe and North America.
Capitalize on Technical Design and Engineering Capabilities. The Company
works with OEMs throughout the product development cycle, from concept vehicle
and prototype development through the design and implementation of manufacturing
processes. The Company believes that by working with its customers early in the
design process, it is able to secure new business and provide its customers with
significant cost reduction solutions.
Exploit New Technologies. The Company's expertise in high-pressure
hydroforming, aluminum stamping and thixoforming are important elements of its
growth strategy. The Company believes that these capabilities have been
instrumental in meeting OEMs' focus on lighter-weight vehicles and will be
increasingly important to the Company's key customers as applications for such
technologies on future models continue to expand.
Achieve Continuous Quality Improvements and Enhance Manufacturing
Efficiencies. The Company continues to implement initiatives to improve product
quality and reduce manufacturing costs. The Company's emphasis on continuous
improvement using techniques such as the Kaizen process and the ongoing
elimination of non-value-added steps in its manufacturing process aim to meet
the increasingly stringent demands by OEMs. Specifically, the Company's
objectives are to manufacture and deliver its products on a just-in-time basis
which requires standardization of production processes, product changeovers and
increased automation through the flexible use of robotics and manufacturing
cells. In addition, the Company strives to rapidly adjust its production lines
to identify any problems as they develop and to maximize the consistent quality
of its products.
Pursue Strategic Acquisitions. The Company believes that consolidation in
the automotive supply
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industry will provide continued opportunities to acquire companies that
complement and expand its existing business. The Company seeks to make strategic
acquisitions that: (i) enhance its position as an international supplier; (ii)
provide additional manufacturing and technical capabilities; (iii) increase the
Company's content on existing models for which the Company supplies products;
and (iv) add new customers. Since 1989, Sofedit has made acquisitions that have
increased its engineering capability and manufacturing expertise, added
production capacity and expanded its product lines and its geographic reach and
customer base. In particular, the Combination has extended the Company's
presence in North America while strengthening its structural underbody
capabilities.
Products
The Company's current products consist of a broad range of stamped, formed,
welded and assembled metal components, many of which are critical to the
structural integrity of a vehicle. The Company's principal product categories
are: (i) structural components and modules for chassis, suspension, floor pan
and engine cradle systems; (ii) large exterior door and body panel modules;
(iii) mechanical assemblies such as pedal systems and door check mechanisms; and
(iv) other complex components such as stamped pulleys and crankshaft pulley
dampers. To help protect its competitive position, the Company has patents for
certain products such as stamped pulleys, crankshaft pulley dampers and
door-check mechanisms.
The following table sets forth the Company's principal product categories as
a percentage of pro forma net sales for 1997 and 1998.
PRINCIPAL PRODUCT CATEGORY AS A PERCENTAGE OF PRO FORMA NET SALES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
PRODUCTS DECEMBER 31, 1997 DECEMBER 31, 1998
- ---------------------------------------- ----------------- -----------------
<S> <C> <C>
Structural Components................... 48.8% 50.2%
Large Exterior Door and Body Panel Modules 17.6 13.5
Mechanical Assemblies................... 16.7 19.6
Pulleys and Others...................... 16.9 16.7
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TOTAL................................... 100.0% 100.0%
===== =====
</TABLE>
The following table presents an overview of the principal product categories
that the Company manufactures.
PRODUCT CATEGORIES AND CERTAIN REPRESENTATIVE PRODUCTS
PRODUCT CATEGORY REPRESENTATIVE PR0DUCTS
---------------- -----------------------
Structural Components - Chassis
- Floor pans
- Engine cradles
- Radiator supports
- Front and rear-suspension assemblies
- Rail assemblies
- Control arms
Large Exterior Door and - Body panels
Body Panel Modules - Body pillars
- Doors
- Hoods
- Large bed-size assemblies
- Pedal systems
Mechanical Assemblies - Heat shields
- Door checks
- Arm hinges
- Oil pans
- Brake components
- Fuel filler assemblies
Pulley and Others - Steel stamped pulleys
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- Aluminum stamped pulleys
- Crankshaft pulley dampers
- Torsional dampers
Customers
The Company is selected by its OEM customers to supply products several
years prior to starting production of a component. In accordance with industry
practice, the Company supplies products generally on a sole-source basis for the
life of a vehicle model, which typically ranges from three to five years.
Management believes that the Company's long-standing industry relationships
are based on its reputation for quality, low cost products and on-time service.
In Europe, the Company has developed strong relationships with many of the major
OEMs. In particular, the Company has developed significant relationships with
Peugeot-Citroen and Renault, which are among the leading car manufacturers in
the European passenger and light commercial vehicles market. Sales to Renault
and Peugeot-Citroen accounted for 26.4% and 18.7% respectively, of the Company's
pro forma 1998 production sales. The Company's products are supplied for use on
a wide range of vehicles produced by Peugeot-Citroen and Renault.
In North America, the Company's primary customers are DaimlerChrysler and
GM, which accounted for approximately 19.6% and 6.7% of the Company's pro forma
1998 net sales, respectively. Aetna has been a direct supplier to
DaimlerChrysler and GM since its founding in 1941 and has had long-standing
relationships with buying and engineering personnel at both companies. For both
DaimlerChrysler and GM, the Company has been designated a "strategic supplier"
for stamping and assembly work, making the Company one of a preferred group of
suppliers invited to bid for platform work.
The following table sets forth the percentage of net sales derived from the
sales of products by the Company in 1998 to its four largest customers in 1998,
after giving the pro forma effect to the Combination:
SALES BREAKDOWN BY TOP FOUR CUSTOMERS
(U.S. DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
APPROXIMATE
PRO FORMA PERCENTAGE OF PRO
PRODUCTION SALES FORMA PRODUCTION SALES
CUSTOMER 1998 1998
--------------- ---------------- ----------------------
<S> <C> <C>
Renault............ $173.8 26.4%
DaimlerChrysler.... 129.0 19.6
Peugeot-Citroen.... 123.3 18.7
GM................. 44.4 6.7
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Total.............. $470.5 71.4%
====== =====
</TABLE>
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The following table presents an overview of the major models for which the
Company supplies products:
<TABLE>
<CAPTION>
CUSTOMER PASSENGER CARS LIGHT TRUCK AND UTILITY VEHICLES
-------- -------------- --------------------------------
<S> <C> <C>
Renault Twingo, Clio, Megane, Laguna, Kangoo, Trafic, Master
Safrane, Espace, Scenic
DaimlerChrysler Chrysler Sebring Jeep Wrangler, Jeep Cherokee,
Chrysler Cirrus, Dodge Stratus, and Jeep Grand Cherokee
Plymouth Breeze Dodge Ram Van
Dodge Ram Pickup
Plymouth Voyager
Dodge Caravan
Chrysler Town & Country
Peugeot-Citroen 106, Saxo, 206, 306, Xsara, 406, Berlingo
Xantia, 605, XM, 806, Evasion
GM Oldsmobile Delta 88 Chevy VanExpress, GMC Savana
Buick LeSabre Chevy Astro, GMC Safari
Pontiac Bonneville Chevy S10/S15, GMC Sonoma
Buick Riviera Chevy Pickup, GMC Sierra
Oldsmobile Aurora Chevy Blazer, GMC Jimmy
Cadillac Seville
Buick Park Avenue
Chevrolet Cavalier
Pontiac Sunbird/Sunfire
Toyota Carina, Corolla, Avensis
Volkswagen Audi A6, Seat Octavia, Seat Ibiza
and Volkswagen Golf, Lupo
Mercedes-Benz Smart, C, E, S
Porsche Boxster, 911 Carrera
Mitsubishi Carisma, ST-41
Volvo S80, S40, S70, V70, C70
CAMI J II-Platform
</TABLE>
Sales and Marketing
In North America, the Company's marketing efforts are 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 in North America. In the European market, the Company is focused
principally on the passenger vehicle market. To meet OEMs' increasing preference
for suppliers with global capabilities, the Company plans to expand its
manufacturing operations into new geographic markets through strategic
acquisitions and joint alliances. The Company believes that increased geographic
diversification of its sales will allow the Company to mitigate the effects of
cyclical downturns in a given geographic region and further diversify the
Company's OEM customer base. In addition, the Company believes that expanding
into new regions will provide a competitive advantage in the pursuit of global
platform supply opportunities.
The Company 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 programs 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. 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 three to five years, but on occasion can be
substantially longer or shorter, and then ceases with the discontinuance of the
respective model.
The Company has increasingly been partnering with OEMs during the early
stages of platform
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development. OEMs have focused on shortening design cycles and reducing design
and production costs, and has involved component suppliers earlier in the
process of designing a vehicle. The Company has been increasingly given the
opportunity to participate in the design of subassemblies, such as the floor-pan
and ladder subassembly, radiator supports and cross-member 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 that
could be manufactured by the Company. Partnering also involves sharing the OEMs'
tooling, design and other start-up costs.
Tooling and Prototype Sales
In accordance with industry practice, the Company is responsible for
managing the production of the tooling used to manufacture its products, with
such tooling typically being produced by a third party. The Company generally
finances production of the tooling until the time it is delivered. At this time,
the Company is reimbursed by its customer based on a previously agreed price and
the transaction is recorded as tooling sales. Once the Company commences
production with a set of tooling, it typically is assured sole-source status on
the related products because of the cost and inefficiency to the customer of
creating a duplicate set of tooling or removing and relocating the existing set
of tooling from the Company's facility. However, as is typical in the automotive
industry, the determination to designate the Company as a sole-source supplier
and the continuing sales relationship takes place almost entirely on the basis
of non-binding oral understandings between the Company and its customers, and
there can be no assurance such relationships will continue on the same terms.
The Company's prototype stamping operation greatly enhances its capability
to provide one-stop engineering solutions to its customers. Full-service
suppliers are responsible for managing not only the prototype manufacturing of
parts and assemblies, but also the tool development process that results in
improved competitive pricing and efficient part designs. Having this capability
in-house significantly improves the Company's ability to manage these activities
with the rapid response times required by the customer.
The Company believes its level of tooling and prototype sales in relation to
its overall sales are important indicators of future business. The Company's
tooling sales have represented approximately 6% to 12% of total pro forma sales
since 1995 and the Company's prototype sales have represented approximately 2%
to 5% of total pro forma sales over the same period. The following table sets
forth tooling and prototype sales as a percentage of net sales for the periods
indicated.
<TABLE>
<CAPTION>
TOOLING AND PROTOTYPE PRO FORMA SALES
IN U.S. DOLLARS AND AS A PERCENTAGE OF PRO FORMA NET SALES
----------------------------------------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31,1997 DECEMBER 31, 1998
---------------------------- ----------------------------
PERCENTAGE OF PERCENTAGE OF
NET SALES NET SALES NET SALES NET SALES
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
Tooling....... $ 59.3 8.6% $ 89.9 11.8%
Prototype..... 17.0 2.5 16.0 2.1
------ ---- ------ ----
Total......... $ 76.3 11.1% $105.9 13.9%
====== ==== ====== ====
</TABLE>
Manufacturing
In response to increasingly stringent demands by OEMs, the Company has
adopted a manufacturing system which focuses on optimum streamlining throughout
the entire production system to eliminate waste and non-added value and build
quality into the manufacturing process while reducing costs.
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The Company has a progressive production strategy based on a lean
manufacturing process specifically designed to promote efficient production and
eliminate various unnecessary costs. Lean production is characterized by
flexible work center scheduling as well as vendor scheduling and quality "in
place". These productivity improvements in the manufacturing process have helped
lower indirect labor costs associated with setup time.
All of the Company's manufacturing facilities are ISO 9001 certified and the
majority are QS 9000 certified. In addition, all of its European facilities are
certified by either VDA of Germany or EAQF of France, two key European quality
certification agencies.
New Manufacturing Technologies
In addition to the conventional bending, stamping, welding and metal-forming
technologies used in the Company's manufacturing process, the Company uses new
technologies to improve the manufacturing process and expand product lines
offered to its customers such as hydroforming, hot stamping and aluminum
products.
Hydroforming. Hydroforming is an advanced metal-forming manufacturing
process used by the Company to produce lighter, more complex, higher-quality
components with a low initial capital investment. In hydroforming, a piece of
stock metal tubing is placed in a die and sealed at both ends. High pressure is
then applied to the inside of the tube to force it into the shape of the die.
The main benefits of hydroforming over conventional metal-forming processes are:
lighter weight products; significant cost reductions; reduced initial capital
investment; the capability to form complex shapes; and a finished product with
improved strength. Products for which hydroforming is applicable include frames,
engine cradles and cross-members.
The Company recently started production on high-pressure hydroformed
crossmembers for the new Volvo S80 and the Company believes that hydroforming
has potential for significant further applications in the Company's existing and
future markets.
Hot Stamping. Hot stamping is an innovative new production technology
involving heating stock metal at a temperature between 800-900 degrees Celsius
immediately prior to stamping. The primary benefits of hot stamping are
obtaining the same mechanical characteristics with a considerably reduced metal
thickness and weight, a finished product with improved strength and no built-up
heat stress. This technology is useful in manufacturing structural components
requiring strength with less weight. Products for which hot stamping is
applicable include impact beams, pillars, reinforcement members in door
assemblies and roof reinforcements.
The Company has built a substantial pipeline of products that will be
manufactured utilizing hot-stamping technology. The Company expects to commence
manufacturing these products for certain of its European and North American
customers in 1999.
Competition
The Company operates in a highly competitive, fragmented market segment of
the automotive supply industry in which only a limited number of competitors
generate revenues in excess of $300 million. The number of the Company's
competitors has decreased in recent years as a result of supplier consolidation
and is expected to continue to decrease as a result of further supplier
consolidation driven by changing OEM policies.
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The Company currently competes for large-scale production work with a
limited group of independent suppliers that have the physical assets and
technical skills to produce large bed-size stampings and assemblies. Competitors
in North America with wide bed-size presses (i.e., over 150 inches) and
substantial technical resources include mainly The Budd Company, Oxford
Automotive, Inc., Magna International Inc., Active Tool & Manufacturing Co.,
Inc., Tower Automotive, Inc., AG Simpson and Mayflower, plc. European
competitors include mainly Hoesch-Krupp, Benteler, Mac-Magnetto,
Gonvarri-Biskaia, MGI-Coutier, Aries, Etscha, Allgauer and Lunke & Sohn.
Suppliers and Raw Materials
The primary raw material used to produce the majority of the Company's
products is steel. The Company purchases hot and cold-rolled, galvanized,
organically coated, stainless and aluminum coated steel from a variety of
suppliers. The Company employs lean production and sourcing systems enabling it
to meet customer requirements for faster delivery while minimizing the need to
carry significant inventory levels. The Company has not experienced any
significant shortages of raw materials and normally does not carry inventories
of raw materials or finished products in excess of those reasonably required to
meet production and shipping schedules. On a pro forma basis giving effect to
the Combination, raw material and component costs represented approximately
50.3% of the Company's net production sales in 1998, with steel and aluminum
representing approximately 53.7% of raw material costs in 1998 or 28.4% of pro
forma net sales. The Company believes that it has developed good business
relations with its steel suppliers.
In North America, the Company currently participates in steel-buying
programs with DaimlerChrysler and GM, which have the effect of substantially
mitigating the effects of steel price volatility and providing a steady source
of steel. These arrangements currently cover approximately 38% of the Company's
steel purchases (based on pro forma 1998 volume and sales). The Company believes
that North American OEMs will continue these arrangements. In Europe, no steel
- -buying programs exist with any of its existing OEMs customers.
Employees
The Company had approximately 5,313 employees as at December 31, 1998. In
Europe, the Company had approximately 3,956 employees as at December 31, 1998.
As is common in many European countries, substantially all of the Company's
employees in Europe are covered by countrywide collective bargaining agreements.
In particular, European employees are covered by the French Metallurgic Industry
Collective Bargaining Agreement. The salaried employees are covered by the
National Collective Bargaining Agreement of Metallurgic Salaried Employees and
the hourly wage workers are covered by the Regional Collective Bargaining
Agreement of Metallurgic Workers, Employees and Agents. In Europe, collective
bargaining agreements are often made on a local basis. Additional agreements are
often made with the facility Works Council on an individual basis covering
miscellaneous topics of local concern.
In North America, the Company had approximately 1,357 employees as at
December 31, 1998, most of whom are covered by six collective bargaining
agreements with two locals of the UAW. Of the six collective bargaining
agreements, two will expire within one year and are thus subject to
renegotiations at the option of the Company or the UAW. The Company considers
its employee relations to be satisfactory.
Environmental Matters
The Company believes it conducts its operations in substantial compliance
with applicable
12
<PAGE> 13
environmental and occupational health and safety laws. The Company does not
expect to incur material capital expenditures for environmental compliance
during its current or succeeding fiscal year. However, as is the case with
manufacturers in general, if a release of hazardous substances occurs on or from
the Company's properties or at any associated off-site disposal location, if
contamination from prior activities is discovered at any of the Company's
properties or if non-compliance with environmental regulations or permits is
discovered, the Company may be held liable and the amount of such liability
could be material.
The Company is subject to a wide range of evolving foreign, 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. In the United States, the
Company's facilities are subject to 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"). In France, the Company's facilities are subject to the French laws of
July 10, 1976 and of July 19, 1976 regulating classified installations in France
and of July 15, 1975 concerning waste.
The American CERCLA regulation 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 American states has adopted Superfund statutes similar to and, in
some cases, more stringent than CERCLA. Due to the Company's current and
historic use, generation and disposal of hazardous substances and petroleum
products, the possibility exists that spills and releases of such substances may
have occurred at certain of the Company's facilities with respect to which the
Company could incur liability under CERCLA or similar state laws. The Company
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, the
Company's liability under CERCLA and similar state laws has not had a material
adverse effect on the Company's financial condition or results of operations.
However, the effect of any such liabilities on the Company in the future cannot
be determined at present.
Pursuant to French environmental laws, operators of facilities engaged in
activities that present a significant risk to the environment ("installations
classees") must, depending on the risk presented by on-site activities, either
obtain regulatory authorization or give prior notification as a condition to
their activities. To the extent required by law, all of the facilities in France
in which the Company has an interest are in substantial compliance with this
requirement. In addition, certain French law provisions require the occupier of
a polluted site to bear the remediation costs on a no-fault basis
notwithstanding the fact that the activities giving rise to such pollution were
in compliance with provisions in effect at that time.
In addition to general environmental laws and regulations, all such
facilities must comply with their operating permits and are subject to regular
administrative inspections and review by the French environmental authorities.
The Company believes that it is materially in compliance with these
requirements.
The Company believes that it is in material compliance with applicable
federal, state and local environmental laws and regulations in North America and
France. Compliance with these laws and regulations has not in the past had any
material adverse effect on the Company's financial condition or results of
operations; however, the effect of such compliance in the future cannot be
determined at present.
13
<PAGE> 14
Item 2. Production Facilities
The Company operates major manufacturing facilities in North America and
Europe and has its principal executive offices in St. Quentin en Yvelines,
France (which include certain of the Company's design and engineering functions
and are ISO 9001 certified). The Company continually seeks to reduce its costs
and increase the efficiency of its operations through maximizing utilization of
its facilities. All of the Company's production facilities are ISO 9001
certified and the majority are QS 9000 certified. In addition, all the Company's
European production facilities are certified by EAQF in France and the VDA in
Germany. Management believes that the Company's facilities and equipment are in
good condition and are adequate for the Company's present and anticipated future
operations.
EUROPEAN PRODUCTION FACILITIES
<TABLE>
<CAPTION>
OWNED, CAPITAL-LEASED
LOCATION SQUARE METERS OR RENTED
-------- ------------- ---------------------
<S> <C> <C>
Aubecq-- Auxi-Le-Chateaux, France 27,000 Owned
Bonin-- Vendome, France 17,325 Capital-Leased
Cabrit-- Pithiviers, France 15,218 Capital-Leased
Coventry Presswork-- Coventry, Great Britain 31,379 Owned
CTAA-- Giromagny, France 14,679 Owned
Laprade Emboutissage-- Arudy, France 3,800 Owned
2,200 Rented
59,432 Owned
Lebranchu-- Le Theil sur Huisne, France 720 Capital-Leased
5,200 Capital-Leased
20,923 Capital-Leased
Lebranchu Prototypes-- Beauchamp, France 3,700 Capital-Leased
1,200 Capital-Leased
Serte-- Gouxeaucout, France 4,152 Capital-Leased
Sofedit Iberica-- Valladolid, Spain 4,432 Rented
Sofedit Polska-- Wroclaw, Poland 3,760 Rented
Sotramex-- Amilly, France 10,333 Owned
20,757 Capital-Leased
</TABLE>
14
<PAGE> 15
NORTH AMERICAN PRODUCTION FACILITIES
<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE OWNED OR RENTED
-------- -------------- ---------------
<S> <C> <C>
Aetna Industries, Inc., Plant 1-- Centerline, MI,
United States ...................................... 72,000 Owned
Aetna Industries, Inc., Plant 2-- Centerline, MI,
United States ...................................... 67,000 Owned
Aetna Industries, Inc., Plant 3 -- Centerline, MI,
United States...................................... 32,500 Rented
Aetna Industries, Inc., Plant 4-- Centerline, MI,
United States ...................................... 100,000 Rented
Aetna Industries, Inc., Plant 5-- Centerline, MI,
United States ...................................... 20,000 Rented
27,000 Rented
Aetna Industries, Inc., Plant 6 -- Warren, MI,
United States...................................... 57,000 Rented
Aetna Industries, Inc., Plant 7-- Warren, MI,
United States..................................... 96,158 Owned
Aetna Industries, Inc., Plant 8 -- Sterling Heights,
MI, United States................................... 110,000 Rented
Aetna Industries, Inc., Plant 9 -- Warren, MI,
United States..................................... 35,000 Rented
Aetna Industries, Inc., Plant 10-- Centerline, MI,
United States....................................... 70,350 Owned
Aetna Industries, Inc.-- London, Ontario, Canada.... 54,527 Rented
</TABLE>
Item 3. Legal Proceedings
The Company is from time to time involved in routine litigation incidental
to its operations. The Company has no pending or threatened litigation that it
believes will have a material adverse impact upon it. The Company is subject to
the risk of exposure to product liability claims in the event that the failure
of any of its products causes personal injury or death to users of the Company's
products, and there can be no assurance that the Company will not experience any
material product liability losses in the future. In addition, if any of the
Company's products prove to be defective, the Company may be required to
participate in a government-imposed or OEM-instituted recall involving such
products. The Company maintains insurance against such liability claims believed
to be adequate for such purposes.
Item 4. Submission of Matters to a Vote of Security Holders
The Board of Directors of the Company approved an amendment to the
Company's certificate of incorporation which, among other things, will change
the name of the Company to Trianon Industries Corp. The Board of Directors
submitted the amendments to the stockholders of the Company on December 17, 1998
via a written consent. As of December 31, 1998, the requisite consents
representing a majority of the shares of the Company's outstanding stock had not
been received. Pending receipt of the requisite stockholder consents, the
filing of the certificate of amendment to the Company's certificate of
incorporation will be authorized. The Board of Directors has reserved the right
to abandon the filing of the amendment at any time prior to its filing with the
office of the Secretary of State of the State of Delaware.
15
<PAGE> 16
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
Acquisition.
As of December 31, 1998, 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. ("CVC"), members of management and other private
investors. There have been no dividends declared on the common stock.
Item 6. Selected Financial Data
The following table sets forth selected historical financial data of MS
Acquisition for the five years ended December 31, 1998.
Historical data for the years 1994 through 1997 are comprised of the
historical data of Sofedit, as predecessor. The financial data for the year
ended December 31, 1998 include the operations of Sofedit for the full year, and
the operations of MS Acquisition from April 1, 1998.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1994(2) 1995 1996 1997 1998
------- ---- ---- ---- ------
(U.S. DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
U.S. GAAP(1)
Net sales..................... -- $464.9 $484.7 $487.9 $710.8
Cost of sales................. -- 397.3 424.6 429.4 646.6
------ ------ ------ -----
Gross profit.................. -- 67.6 60.1 58.5 64.2
Selling, general and
administrative expenses..... -- 28.4 29.2 26.1 38.8
Research and development
expenses.................... -- 4.4 7.6 7.4 9.5
Other (income) expense(4)..... -- 2.1 (0.6) 6.1 4.3
------ ------ ------ ------
Operating income.............. -- 32.7 23.9 18.9 11.6
Net interest expense.......... -- 15.3 12.9 9.7 23.6
------ ------ ------ ------
Income (loss) before taxes.... -- 17.4 11.0 9.2 (12.0)
Income (loss) before
discontinued operations and
preferred stock dividend.... -- 16.0 11.4 7.2 (9.5)
Preferred Stock dividend
requirements................ -- -- -- -- (3.4)
------ ------ ------ ------
Net income.................... -- $ 12.8 $ 7.4 $ 4.7 ($16.8)
====== ====== ====== ======
OTHER DATA:
EBITDA(5)..................... -- $ 59.3 $ 48.8 $ 46.5 $ 39.4
Capital expenditures.......... -- 28.6 33.2 15.1 44.0
Depreciation and amortization. -- 26.6 24.9 27.6 35.7
FRENCH GAAP(7)
Net sales..................... $316.1 $488.3 $506.5 $508.9
Operating income.............. 28.6 37.4 20.2 20.0
Income before taxes........... 15.8 19.6 10.0 4.1
Net income.................... 12.7 16.5 9.6 3.6
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1994(2) 1995(2) 1996 1997 1998
-------- -------- ------ ------ ------
(U.S. DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT END
OF PERIOD):
U.S. GAAP(1)
Cash................................ -- -- $ 11.3 $ 11.6 $ 26.1
Working capital (deficit)(6)........ -- -- 19.0 13.3 (80.2)
Total assets........................ -- -- 408.5 361.9 624.2
Total debt.......................... -- -- 140.1 115.2 324.5
Stockholders' equity (deficit)...... -- -- 62.4 65.3 (16.6)
FRENCH GAAP(7)
Total assets........................ $320.2 $405.5 $429.7 $379.2
Stockholders' equity................ 72.7 92.7 94.5 84.2
</TABLE>
16
<PAGE> 17
See accompanying notes to the pro forma statement of operations data.
(1) Historical data for 1997 and prior are comprised of Sofedit, as predecessor.
The data for the twelve months ended December 31, 1998 include Sofedit and
the operations of MS Acquisition from April 1, 1998.
(2) U.S. GAAP Statement of Operations Data has not been prepared for the year
ended December 31, 1994. U.S. GAAP Balance Sheet Data has not been prepared
as of December 31, 1994 and 1995.
(3) Consolidated Statement of Operations Data and Other Data were translated
using the average FF/$1.00 exchange rate for the respective year (FF4.96 per
$1.00 for the year ended December 31, 1995, FF5.12 per $1.00 for the year
ended December 31, 1996, FF5.85 per $1.00 for the year ended December 31,
1997, and FF5.9 per $1.00 for the year ended December 31, 1998).
Consolidated Balance Sheet Data were translated using the period end
FF/$1.00 exchange rate for the respective year (FF 5.59 per $1.00 for
December 31, 1998).
(4) In the year ended December 31, 1998, other expenses included: (i) $2.6
million of restructuring costs related to the rationalization of certain of
the Company's prototype facilities. In the year ended December 31, 1997,
other expense includes: (i) a $2.6 million loss on the sale of a non-core
subsidiary; and (ii) $2.5 million of restructuring costs related to the
rationalization of certain of the Company's prototype facilities. In the
year ended December 31, 1996, other expense includes a $1.5 million gain on
the sale of certain assets. In the year ended December 31, 1995, other
expense includes a $0.2 million gain on the sale of certain assets.
(5) EBITDA is defined as income before the effect of changes in accounting and
before discontinued operations plus interest, income taxes, depreciation
and amortization. EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to incur and service debt.
However, EBITDA should not be considered as a substitute for net income or
cash flow data prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity. The
company's presentation of EBITDA may not be comparable to similarly titled
measures reported by other companys.
(6) Working capital is defined as current assets (including cash) minus current
liabilities. At December 31, 1996, December 31, 1997, and at December 31,
1998, the Company sold, under its accounts receivable program, receivables
amounting to $70.1 million, $53.8 million and $77.4 million, respectively.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Financial Condition"
(7) The main accounting differences between U.S. and French GAAP relate to the
capitalization of research and development costs and of start-up costs, and
to accounting for pension and retirement indemnities. The primary
differences in presentation include (i) classifying sales of scrap as sales
under French GAAP and as a reduction of cost of sales under U.S. GAAP and
(ii) the exclusion of goodwill amortization, employee profit sharing expense
and non-recurring items, such as restructuring, from operating income under
French GAAP.
PRO FORMA STATEMENT OF OPERATIONS DATA FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
MS
ACQUISITION SOFEDIT COMBINATION PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
----------- ---------- ----------- ---------
(U.S. DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales............... $ 221.9 $ 542.0 $ -- $ 763.9
Cost of sales........... 206.6 485.0 0.2 (a) 691.8
------- ------- ----- -------
Gross profit............ 15.3 57.0 (0.2) 72.1
Selling, general and
administrative
expenses.............. 17.3 24.9 -- 42.2
Research and development
expenses.............. -- 9.5 -- 9.5
Other (income) expense.. 2.0 3.3 0.2 (a) 5.5
------- ------- ----- -------
Operating income (loss). (4.0) 19.3 (0.4) 14.9
Net interest expense.... 17.3 9.4 0.8 (b) 27.5
------- ------- ----- -------
Income (loss) before
taxes................. (21.3) 9.9 (1.2) (12.6)
Income tax provision
(credit).............. (4.9) 2.8 (0.4)(c) (2.5)
-------- ------- ----- -------
Income (loss) before
discontinued
operations and
preferred stock
dividend.............. $ (16.4) $ 7.1 $(0.8) $ (10.1)
------- ------- ----- -------
Preferred Stock dividend
requirements.......... (4.6) -- -- (4.6)
------- ------- ----- -------
Net income (loss)
available for common
shareholders.......... (21.0) 7.1 (0.8) (14.7)
======= ======= ===== =======
</TABLE>
PRO FORMA STATEMENT OF OPERATIONS DATA FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MS
ACQUISITION SOFEDIT COMBINATION PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
----------- ---------- ----------- ---------
(U.S. DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Net sales............... $ 205.7 $ 487.9 $ -- $ 693.6
Cost of sales........... 181.3 429.4 0.7 (a) 611.4
------- ------- ------ -------
Gross profit............ 24.4 58.5 (0.7) 82.2
Selling, general and
administrative
expenses.............. 16.8 26.1 -- 42.9
Research and development
expenses.............. -- 7.4 -- 7.4
Other (income) expense.. 0.8 6.1 0.7 (a) 7.6
------- ------- ------ -------
Operating income (loss). 6.8 18.9 (1.4) 24.3
Net interest expense.... 11.2 9.7 3.3 (b) 24.2
------- ------- ------ -------
Income (loss) before
taxes................. (4.4) 9.2 (4.7) 0.1
Income tax provision
(credit).............. (1.4) 2.0 (1.4)(c) (0.8)
------- ------- ------ -------
Income (loss) before
discontinued
operations and
preferred stock
dividend.............. $ (3.0) $ 7.2 $ (3.3) $ 0.9
------- ------- ------ -------
Preferred Stock dividend
requirements.......... (4.6) -- -- (4.6)
------- ------- ------ -------
Net income (loss)
available for common
shareholders.......... $ (7.6) $ 7.2 $ (3.3) $ (3.7)
======= ======= ====== ======
</TABLE>
17
<PAGE> 18
NOTES TO THE SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL DATA
(U.S. DOLLARS IN MILLIONS)
(a) These pro forma adjustments reflect the impact of the allocation of
purchase price to the assets and liabilities of MS Acquisition on the pro
forma condensed statement of operations. The excess purchase price was
allocated to the assets and liabilities of MS Acquisition as follows:
<TABLE>
<S> <C>
Inventory and tooling......................................................... $ 0.8
Property, plant and equipment................................................. 7.3
Incremental goodwill.......................................................... 35.6
Accrued liabilities........................................................... (1.3)
</TABLE>
<TABLE>
<CAPTION>
COST OF OTHER(INCOME)
SALES EXPENSE TOTAL
------- -------------- -----
<S> <C> <C> <C>
Additional depreciation on property, plant and equipment
step-ups................................................... $0.70 $ -- $ 0.7
Elimination of amortization of previously recorded goodwill.. -- (0.8) (0.8)
Goodwill amortization on Combination over 40 years........... -- 1.5 1.5
----- ----- -----
Year ended December 31, 1998................................. $0.70 $ 0.7 $ 1.4
===== ===== =====
</TABLE>
- ------------
(b) The pro forma Combination adjustment for interest expense reflects the
issuance and assumption of the following debt:
<TABLE>
<CAPTION>
INTEREST
EXPENSE FOR
THE YEAR
ENDED
DECEMBER 31,
DESCRIPTION AMOUNT DISCOUNT NET 1998
----------- ------ -------- --- ------------
<S> <C> <C> <C> <C>
Promissory notes......... $40.9 $2.5 $38.4 $2.5
Assumed debt of former
stockholders........... 12.0 0.0 12.0 0.8
----- ---- ----- ----
$52.9 $2.5 $50.4 $3.3
===== ==== ===== ====
</TABLE>
The promissory notes by their terms are non-interest bearing until the
earlier of (a) one year from the date of the Combination, or (b) the
consummation of an initial public offering. As required under generally
accepted accounting principles, the Company has discounted the promissory
notes to reflect the appropriate interest rate. For purposes of these pro
forma statements, the Company has assumed an interest rate of LIBOR + 1.0%
(6.5% at the date of the Combination of April 1, 1998). This interest rate
is consistent with the terms of the promissory notes should interest be
payable in the future. The assumed debt represents bank term loans secured
by a pledge of shares of Common Stock of Sofedit by its former direct and
indirect stockholders. The assumed debt bears an interest at an estimated
rate of PIBOR + 1.3% (4.5% total rate).
(c) Adjustments represent the estimated income tax effect of the pro forma
adjustments, excluding goodwill, which will not be deductible for tax
purposes, using an effective income tax rate of 35%.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
Overview
The Company is a leading full-service supplier of highly engineered
metal-formed components, complex modules and mechanical assemblies for
automotive OEMs in Europe and North America. The Company's principal operating
subsidiaries are Sofedit in Europe and Aetna in North America.
The Company's results of operations depend primarily on the volume of
automobile sales in Europe
18
<PAGE> 19
and North America. The Company has a significant international presence with
approximately 71% and 29% of its pro forma 1998 net sales generated from sales
to customers in Europe and North America, respectively.
The Combination. For accounting purposes, the Combination of Sofedit and MS
Acquisition was effective on April 1, 1998. The Combination has been accounted
for as a reverse acquisition because the former owners of Sofedit owned
approximately 75% of the fully diluted outstanding Common Stock of the Company
immediately following the Combination. Accordingly, Sofedit is considered to be
the acquirer of, and predecessor to, the Company.
Impact of Product Launches on the Financial Results of the Company. The
Company ordinarily begins working on products awarded for new or redesigned
models two to five years prior to the launch of such models. During such period,
the Company incurs: (i) costs related to the design and engineering of such
products; (ii) carrying costs related to the production of the tools and dies
used to manufacture such products; and (iii) launch costs associated with the
initial production of such product. In general, design and engineering costs are
expensed in the period incurred unless the customer reimburses them. Costs
incurred in the production of the tools and dies are generally capitalized and
invoiced to and paid by the customer as tooling sales prior to production.
Launch costs, which are generally incurred prior to and immediately after
initial production, are expensed as incurred. As a customer requirement and as
part of the Company's operating procedure, many tests and trials are performed
to minimize launch costs that can result from product complexity and the
inherent inefficiencies of lower initial volumes during the build-up to full
production levels.
The Company incurred significant launch costs during 1996, 1997 and 1998 as
a result of several hundred new product launches. In 1997, the Company had 205
new product launches for 18 models (all in Europe) and launched 125 new products
for 10 models in 1998 (85 products for seven models in Europe and 40 products
for three models in North America). The Company experienced a number of
inefficiencies with two of its major product launches in 1997 and 1998 related
to changes in specifications provided by an OEM with respect to one of the
launches and improper tooling being supplied by a customer with respect to a
second launch. These events resulted in charges of approximately $8.5 million in
1997 and $2.0 million in 1998. The Company expects its recent product launches
to form the foundation for growth in net sales for the next several years. In
addition, as products launched in 1997 and 1998 reach full production levels and
the causes of the charges experienced in 1997 that have continued into 1998 are
addressed, the Company expects to realize improved operating performance. The
Company expects to continue launching new products in 1999, although below the
exceptional levels experienced in 1997 and 1998.
Raw Materials. In North America, the Company participates in steel purchase
programs with its major customers, which minimizes the effect of variations in
steel prices on the Company. Such programs are not typically available with the
Company's major European customers and accordingly the Company has been subject
to material variations in steel prices in Europe. The Company expects, however,
that some of its major European customers will offer such programs in the
future.
Recent GM Strike. The Company's results of operations have occasionally been
negatively affected by labor disruptions at OEMs. The Company's results of
operations were impacted by the strike at various of GM's North American
operations in June and July of 1998, which reduced 1998 net sales by
approximately $5.3 million. However, reductions in 1998 net sales did not have a
material effect on operating income.
Discontinued Operations. The Company decided to discontinue two operations
during 1998, both of which have been classified as discontinued operations for
accounting purposes in the Consolidated Financial Statements. These businesses
consisted of a cooking pan business (the Company's only non-
19
<PAGE> 20
automotive related business) which has been closed since December 1998 as well
as a non-core plastic automotive components business which will be terminated in
the first half of 1999. In 1998, these businesses contributed net sales and net
operating losses of $17.4 million and $5.9 million, respectively.
Exchange Rates. Approximately 70% of the Company's operating expenditures
and net sales in 1998 were denominated in currencies other than the U.S. dollar.
As a result of the appreciation of the U.S. dollar against these foreign
currencies, the Company experienced a negative impact on the reported sales and
profitability of the Company for certain of the periods presented herein. The
Company does not engage in foreign exchange hedging transactions because the
nature of the Company's business results in the Company generally matching
revenues and costs of the same currency. Except as otherwise indicated,
reference below to currency effects relate to the translation of Sofedit data
from French francs to U.S. dollars for presentation purposes.
RESULTS OF OPERATIONS - MS ACQUISITION
The following table sets forth, for the periods indicated, MS Acquisition's
proforma 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 MS Acquisition.
AS A PERCENTAGE OF NET SALES
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31,
----------------------------
1998 1997 1996
--------- --------- -------
<S> <C> <C> <C>
RESULTS OF OPERATIONS
Net sales................................... 100.0 % 100.0% 100.0%
Cost of sales............................... 90.6 88.2 87.1
------ ----- -----
Gross profit................................ 9.4 11.8 12.9
Selling, general & administrative expenses 5.5 6.2 6.3
Research and development expenses........... 1.2 1.0 1.1
Other (income) expense...................... 0.7 1.1 (0.2)
------ ----- -----
Operating income............................ 2.0 3.5 5.4
Net interest expense........................ (3.6) (2.7) (3.7)
------ ----- -----
Income (loss) before taxes.................. (1.6) 0.8 1.7
Income (loss) before discontinued operations
and preferred stock dividend.............. (1.3) 0.6 1.7
Preferred stock dividend requirements (0.6) (0.7) 0.6
Net income.................................. (2.4)% (0.9)% 0.3%
</TABLE>
TWELVE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO TWELVE MONTHS ENDED
DECEMBER 31, 1997 -- MS ACQUISITION
Net Sales. Pro forma net sales were $763.9 million in 1998, an increase of
$70.3 or 10.1% compared to net sales of $693.6 million in 1997. Production sales
in Europe increased by 20% (excluding FX effect) while tooling and prototype
sales declined by 25.5% (excluding FX effect). In North America, production
sales declined by 15% and tooling sales increased by $46.4 million or 1,016%.
The increase in European production sales was due to 1997 launches reaching full
production in 1998 and to 1998 launches, mainly the Renault Clio II, the
Mercedes Class S, the Peugeot 206 and the Toyota Avensis. The decline of North
American production sales is the result of a three month interruption in the
Grand Cherokee sales due to the launch of the new version in July, 1998.
Historical net sales were $710.8 million in 1998, an increase of $222.9 million,
or 45.7%, compared to net sales of $487.9 million in 1997 which reflects the
consolidation of MS Acquisition Corp's. operations since April 1, 1998.
Cost of Sales and Gross Profit. Pro forma cost of sales was $691.8 million
or 90.6% of sales in 1998 compared to $611.5 million or 88.2% of sales in 1997.
Adjusted for currency effects, cost of sales increased by 14.8%. Cost of sales
increased as a result of increased net sales volume and a significant
20
<PAGE> 21
level of launch costs. Cost of sales as a percentage of net sales increased due
principally to: (i) a significant number of launched products manufactured at
volumes below full production levels; and (ii) a change of sales mix leading to
increased purchases of components for which the Company's added-value is lower,
which was partially offset by a decrease in steel purchase prices in Europe.
Historical cost of sales was $646.6 million in 1998 (90.9% of 1998 net
sales), an increase of $217.2 million, or 50.6%, compared to cost of sales of
$429.4 million in 1997 (88.2% of 1997 net sales). As a result of the factors
discussed above, pro forma gross profit was $72.2 million in 1998 (9.5% of 1998
net sales), a decrease of $10.0 million, or 12.2%, compared to gross profit of
$82.1 million in 1997 (11.9% of 1997 net sales). Adjusted for currency effects,
gross profit decreased by 11.1%.
Selling, General and Administrative Expenses. Pro forma selling, general and
administrative expenses were $42.3 million in 1998, a decrease of $0.6 million,
or 1.4% compared to selling, general and administrative expenses of $42.9
million in 1997 (5.5% of sales). Adjusted for currency effects, selling, general
and administrative expenses increased by 6.7%. Historical selling, general and
administrative expenses were $38.8 million in 1998 (5.6% of 1998 net sales), an
increase of $12.7 million, or 48.7%, compared to selling, general and
administrative expenses of $26.1 million in 1997 (6.2% of 1997 net sales) which
reflects the consolidation of MS Acquisition Corp's. operations since April 1,
1998.
Research and Development Expenses. Research and development expenses were
$9.5 million for 1998 (1.2% of 1998 net sales), an increase of $2.1 million, or
28.4%, compared to research and development expenses of $7.4 million in 1997
(1.0% of 1997 net sales). Adjusted for currency effects, research and
development expenses increased by 31.6%. The increase in research and
development expenses was due primarily to research on hot stamping and welding
technologies.
Other (Income) Expense. In 1998, proforma other expense was $5.5 million and
consisted primarily of (i) goodwill amortization of $1.8 million; (ii) employee
profit sharing expense of $1.6 million; and (iii) restructuring cost of $0.9
million. In 1997, other expense was $7.6 million and consisted primarily of: (i)
goodwill amortization of $1.8 million; (ii) employee profit sharing expense of
$1.4 million; (iii) restructuring expenses of $2.5 million and; (iv) a loss on
asset disposal of $2.6 million.
Operating Income. As a result of the factors discussed above, proforma
operating income was $14.9 million in 1998 (2.0% of 1998 net sales), a decrease
of $9.4 million, or 38.3%, compared to operating income of $24.3 million in 1997
(3.5% of 1997 net sales). Adjusted for currency effects, operating income
decreased by 34.9%.
Net Interest Expense. Proforma net interest expense was $27.5 million, an
increase of $3.4 million, compared to net interest expense of $24.2 million in
1997. Higher debt load to finance tooling projects in the U.S. was the main
cause for the increase. The weighted average interest rate and the average debt
of Sofedit were 5.5% and $95 million, respectively, for 1998, compared to 5.5%
and $120.0 million, respectively, for 1997.
Income Before Taxes. As a result of the factors discussed above, proforma
income before taxes was a loss of $12.6 million in 1998 (-1.6% of 1998 net
sales), a decrease of $12.7 million, compared to income before taxes of $0.1
million in 1997.
Proforma income taxes in 1998 resulted in a credit of $2.5 million, compared
with an income tax credit of $0.8 million in 1997. The credit was a result of
losses sustained at the operating level and higher research and development tax
credits.
Income Before Discontinued Operations. As a result of the factors discussed
above, proforma income before
21
<PAGE> 22
discontinued operations was a loss of $10.1 million for 1998 (-1.3 of 1998 net
sales), a decrease of $11.0 million, compared to income before discontinued
operations of $0.9 million in 1997 (1.5% of 1997 net sales).
Net Income. As a result of the factors discussed above, proforma net income
was a loss of $13.8 million in 1998 (-1.8% of 1998 net sales), a decrease of
$12.3 million, compared to net loss of $1.5 million in 1997 (0.2% of 1997 net
sales).
TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO TWELVE MONTHS ENDED
DECEMBER 31, 1996 -- MS ACQUISITION
Net Sales. Net sales were $487.9 million for 1997, an increase of $3.2
million, or 0.7%, compared to $484.7 million of net sales in 1996. Adjusted for
currency effects, net sales increased by 14.9%. The increase in net sales was
due principally to: (i) 205 new product launches in 1997 as compared with 155
new launches in 1996; (ii) products launched in 1996 that reached full
production during 1997; (iii) an increase in tooling revenues of $24.3 million
in advance of scheduled future product launches; and (iv) an increase in the
volume of automobile production in Western Europe of 4.9% between 1996 and 1997.
Cost of Sales and Gross Profit. Cost of sales was $429.4 million in 1997
(88.0% of 1997 net sales), an increase of $4.8 million, or 1.1%, compared to
1996 cost of sales of $424.6 million (87.6% of 1996 net sales). Adjusted for
currency effects, cost of sales increased by 15.4%. Cost of sales increased as a
result of increased net sales volume and a significant level of launch costs.
Cost of sales as a percentage of sales increased due principally to: (i) a
significant number of recently launched products being manufactured at volumes
below full production levels; (ii) a change of sales mix leading to increased
purchases of components for which the Company's added-value is lower; (iii) a
significant increase in tooling sales which typically have a higher cost of
sales component than the Company's production sales; and (iv) certain charges
related to a significant number of new product launches. In particular, the
Company incurred approximately $7.0 million of charges related to changes in
specifications provided by an OEM with respect to one major product launch and
the supply of improper tooling by a customer with respect to a second product
launch. In addition, the bankruptcy of one of the Company's equipment suppliers
significantly disrupted the Company's operations and resulted in a nonrecurring
charge of approximately $1.5 million.
As a result of the factors discussed above, gross profit was $58.5 million
in 1997 (12.0% of 1997 net sales), a decrease of $1.6 million, or 2.7%, compared
to 1996 gross profit of $60.1 million (12.4% of 1996 net sales). Adjusted for
currency effects, gross profit increased by 11.1%.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $26.1 million in 1997 (5.4% of 1997 net sales), a
decrease of $3.1 million, or 10.6%, compared to selling, general and
administrative expenses of $29.2 million in 1996 (6.0% of 1996 net sales).
Adjusted for currency effects, selling, general and administrative expenses
increased by 1.9%. The decrease in selling, general and administrative expenses
as a percentage of sales was due primarily to: (i) increased net sales volumes
over a relatively fixed level of selling, general and administrative expenses;
and (ii) savings from the closure of certain of the Company's prototyping
facilities, partially offset by the implementation of a broader administrative
structure at certain subsidiaries in anticipation of future growth.
Research and Development Expenses. Research and development expenses were
$7.4 million in 1997 (1.0% of 1997 net sales), a decrease of $0.2 million, or
2.6%, compared to research and development expenses of $7.6 million in 1996
(1.6% of 1996 net sales). Adjusted for currency effects, research and
development expenses increased by 11.1%. This increase was due principally to
new applications of important technologies such as hydroforming, hot stamping
and weight reduction programs involving
22
<PAGE> 23
new steel and aluminum alloys.
Other (Income) Expense. In 1997, other expense was $6.1 million and
consisted primarily of: (i) $0.4 million of goodwill amortization; (ii) $1.4
million of employee profit sharing expense; and (iii) $4.3 million in
nonrecurring charges. These nonrecurring charges included a $2.5 million
restructuring charge related to the rationalization of the Company's prototype
facilities and a $2.6 million charge related to the loss on disposal of a
non-core subsidiary. In 1996, other income was $0.6 million and consisted
primarily of goodwill amortization of $0.4 million, employee profit sharing
expense of $1.3 million and a nonrecurring gain on the sale of a prototype press
of $1.5 million.
Operating Income. As a result of the factors discussed above, operating
income was $18.9 million in 1997 (3.9% of 1997 net sales), a decrease of $5.0
million, or 20.9%, compared to operating income of $23.9 million in 1996 (4.9%
of 1996 net sales). Adjusted for currency effects, operating income decreased
by 9.8%.
Net Interest Expense. Net interest expense was $9.7 million in 1997, a
decrease of $3.2 million, or 24.8%, compared to net interest expense of $12.9
million in 1996. The decrease was attributable to a reduction in interest rates
and of net indebtedness. The average interest rate and average debt were
approximately 4.5% and $120 million, respectively, in 1997, compared to 5.1%
and $141.1 million in 1996.
Income Before Taxes. As a result of the factors discussed above, income
before taxes was $9.2 million in 1997 (1.9% of 1997 net sales), a decrease of
$1.8 million, or 16.4%, compared to income before taxes of $11.0 million in 1996
(2.3% of 1996 net sales). Adjusted for currency effects, income before taxes
decreased by 4.8%.
Income tax expense was $2.0 million in 1997, compared to an income tax
credit of $0.4 million in 1996. The effective tax rate was 21.7% in 1997. The
higher effective tax rate in 1997 resulted largely from non-deductible losses on
disposal of investments and a reduction in the available research and
development tax credits.
Income Before Discontinued Operations. As a result of the factors discussed
above, net income before discontinued operations was $7.2 million for 1997 (1.5%
of 1997 net sales), a decrease of $4.2 million, or 36.8%, compared to income
before discontinued operations of $11.4 million in 1996 (2.3% of 1996 net
sales). Adjusted for currency effects, income before discontinued operations
decreased by 27.5%.
Net Income. As a result of the factors discussed above, net income was $4.7
million (1.0% of 1997 net sales), a decrease of $2.7 million, or 36.5%, compared
to net income of $7.4 million in 1996 (1.5% of 1996 net sales). Adjusted for
currency effects, net income decreased by 27.0%.
RESULTS OF OPERATIONS - AETNA INDUSTRIES
The following table sets forth, for periods indicated, Aetna Industries'
historical 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 Industries.
<TABLE>
<CAPTION>
AETNA INDUSTRIES, INC.
TWELVE MONTHS ENDED
DECEMBER 31,
------ ------ ------
1998 1997 1996
------ ------ ------
RESULTS OF OPERATIONS
<S> <C> <C> <C>
Net sales......................................... 100.0% 100.0% 100.0%
Cost of sales..................................... 92.6 88.2 85.1
------ ------ ------
Gross profit...................................... 7.4 11.8 14.9
Selling, general, and administration.............. 7.2 7.8 7.5
Research and development expenses................. - - -
Other (income) expense............................ 0.6 0.7 0.8
------ ------ ------
Operating income.................................. (0.4) 3.3 6.6
Net interest expense.............................. 6.0 5.4 4.4
------ ------ ------
Income before taxes............................... (6.4) (2.1) 2.2
Income before discontinued operations............. (4.8) (1.5) 1.1
Net income........................................ (4.8)% (1.5)% 1.1%
</TABLE>
TWELVE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1997 -- AETNA INDUSTRIES.
AETNA Industries Inc's net sales for the twelve months ended December 31, 1998
were $221.9 million, up $16.1 million from the $205.8 million reported for the
twelve months ended December 28, 1997. Production sales decreased $30.2
million, while tooling and prototype sales increased $46.3 million.
Gross profit was $17.1 million, or 7.7% of net sales, for the twelve months
ended December 31, 1998 compared to $24.4 million, or 11.9% of net sales, for
the same period in 1997. The decline in gross profit was due primarily to the
strike at GM and the adverse impact of DaimlerChrysler's model/factory change
over of the Jeep Grand Cherokee. The eight week GM strike that occurred from
June through early August resulted in approximately $5.3 million of lost revenue
with an estimated $0.8 million loss in earnings before interest and taxes
(EBIT).
SG&A expenses for the twelve months ended December 31, 1998 were $18.2 million,
or 8.2% of net sales, compared to $17.6 million, or 8.6% of net sales, for the
same period in 1997. As a percent of net sales, the decrease was due to the
interruption of production sales during the GM strike, along with ongoing
launch costs for Saturn, WJ and CAMI programs, and costs associated with
quoting a worldwide OEM platform launching in model year 2002.
Interest expense for the twelve months ended December 31, 1998 was $13.9
million, or 6.3% of net sales, compared to $10.3 million or 5.4% of net sales
for the same period in the prior year. Working capital requirements necessary
to fund tooling expenditures relating to three major program launches resulted
in higher interest expense year over year. The effect on sales of these new
jobs will be realized in 1999 as two of the new platforms were launched in the
4th quarter 1998 and the third platform is planned to launch in the 2nd
quarter, 1999.
The income tax credit for the twelve months ended December 31, 1998 was $4.0
million, with an effective tax rate of 26.4% compared to a credit of $1.1
million with an effective tax rate of 31.8% for the same period in the prior
year.
Net income (loss). As a result of factors discussed above, net loss was $11.0
million in 1998 (4.8%) of 1998 net sales, a decrease of $8.0 million compared to
net loss of $3.0 million in 1997.
TWELVE MONTHS ENDED DECEMBER 28, 1997 COMPARED TO TWELVE MONTHS ENDED
DECEMBER 29, 1996 -- AETNA INDUSTRIES
Net Sales. Net sales were $205.7 million in 1997, a decrease of $5.8
million, or 2.7%, compared to net sales in 1996 of $211.5 million. The decrease
in net sales was due principally to the planned phase-out of two programs: a
cargo van floor pan and side rail assemblies, and a small truck door beam
program, during the second quarter of 1996, partially offset by increased
Chrysler minivan sales and factory assist work. During 1997, models on which
Aetna Industries had significant content included the Chrysler Jeep Cherokee and
Grand Cherokee and Chrysler minivans.
23
<PAGE> 24
Cost of Sales and Gross Profit. Cost of sales was $181.3 million in 1997
(88.1% of 1997 net sales), an increase of $0.3 million, or 0.2%, compared to
cost of sales of $181.0 million in 1996 (85.6% of 1996 net sales). Cost of sales
as a percentage of net sales increased primarily as a result of inefficiencies
in factory assist work in the second half of 1997.
As a result of the factors discussed above, gross profit was $24.4 million
in 1997 (11.9% of 1997 net sales), a decrease of $6.1 million, or 20.0%,
compared to gross profit of $30.5 million in 1996 (14.4% of 1996 net sales).
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $17.6 million in 1997 (8.6% of 1997 net sales), an
increase of $2.0 million, or 12.8%, compared to selling, general and
administrative expenses of $15.6 million in 1996 (7.4% of 1996 net sales). As a
percentage of sales, the increase in selling, general and administrative
expenses was due principally to the hiring of additional engineering and quality
assurance staff to support new business.
Operating Income. As a result of the factors discussed above, operating
income was $6.8 million for 1997 (3.3% of 1997 net sales), a decrease of $8.0
million, or 54.1%, compared to operating income of $14.8 million in 1996 (7.0%
of 1996 net sales).
Net Interest Expense. Net interest expense was $10.3 million in 1997, an
increase of $1.3 million, or 14.4%, compared to net interest expense of $9.0
million in 1996. The weighted average interest rate and average debt for 1997
were 11.1% and $100.1 million, respectively, compared to 12.2% and $77.2
million, respectively, in 1996.
Income Before Taxes. As a result of the factors discussed above, loss before
taxes was $3.5 million in 1997 ((1.7)% of 1997 net sales), a decrease of $8.9
million, compared to income before taxes of $5.8 million in 1996 (2.7% of 1996
net sales).
The credit for income taxes in 1997 was $1.1 million, as compared to a
provision for taxes of $2.1 million, with an effective tax rate of 36.5% in
1996.
Net Income (Loss). As a result of the factors discussed above, net loss
before extraordinary item was $2.4 million in 1997 (1.2)% of 1997 net sales, a
decrease of $6.1 million compared to net income of $3.7 million in 1996 (1.8% of
1996 net sales). Net income (loss) included $1.3 million and $0.5 million of
preferred dividends in 1997 and 1996, respectively.
24
<PAGE> 25
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash generated from
operations and short-term and long-term debt, including the sale of receivables.
The Company expects to meet current liquidity needs through a combination of
access to capital markets, modification to a domestic line of credit, the
establishment of a global revolving credit facility, and cash inflows from a
significant one time customer tooling initiative. The Company's principal use
for these funds is to finance working capital needs, debt service requirements
and planned maintenance and expansion activities. The Company's liquidity is
affected by both the cyclical nature of its business and its level of net sales.
The Company believes that operating cash flow and its line of bank credit will
be sufficient to cover its short-term and long-term capital expenditures and
debt repayment obligations. Nevertheless, the Company's ability to meet these
liquidity demands will depend upon future operating performance, which will be
affected by prevailing economic conditions and financial, business and other
factors, certain of which are beyond the Company's control.
Financial Condition
At December 31, 1998, the Company had available cash, cash equivalents and
marketable securities totaling $26.1 million, compared to $11.6 million on a pro
forma basis at December 31, 1997. At December 31, 1998, the Company had current
assets of $332.6 million and $412.8 million in current liabilities, giving it
working capital (including cash) of $(80.2) million, compared to pro forma
working capital at December 31, 1997 of $12.4 million.
At December 31, 1998, the Company was committed to working capital
expenditures of approximately $24.2 million through the end of 1999 for welding
and assembly machinery and press automation. The Company expects to cover these
commitments through cash flows from operating activities and leasing contracts.
At December 31, 1998, the Company had $55.7 million available (of which
$54.8 million is outstanding) under its Amended and Restated Credit Agreement
dated as of April 10, 1998 and further amended on May 20, 1998 and August 6,
1998, October 13, 1998, and October 29,1998 among Aetna, the Company, Aetna
Holdings, Aetna Export Sales Co., Aetna Canada and NBD Bank (the "Senior
Revolving Credit Facility"). In addition, the Company had outstanding, at
December 31, 1998, $77.4 million under its accounts receivables sale program.
Certain indebtedness of the Company and its subsidiaries contains
restrictive covenants, including the maintenance of certain financial ratios and
restrictions on dividend payments to the Company from certain Company
subsidiaries. The restriction on Aetna's dividend payments under the Senior
Notes (as defined below) may adversely affect the Company's liquidity. In
addition, due to covenants in the Senior Notes related to Aetna's consolidated
fixed charge coverage ratio and net worth, in order for Aetna to incur
additional debt above the minimum allowed under the Senior Notes, Aetna would be
required to obtain suitable approval from the holders of the Senior Notes. As of
December 31, 1998, the Consolidated Fixed Charge Coverage Ratio of Aetna was
0.64 to 1.00. As a result, since that date, Aetna has been prohibited from
incurring additional indebtedness or paying dividends to its parent, Aetna
Holdings. The Company believes, however, that sufficient cash flow is available
to its non-Aetna operations to meet the needs of these other operations
independently.
Sales of Receivables
As of December 31, 1998, the Company had $77.4 million of receivables sold
to finance short-term working capital needs. On average, the discount rate on
these sales is PIBOR +0.5%.
25
<PAGE> 26
Cash Flows
The Company's pro forma net cash from operating activities was $30.9 million
during 1998, a decrease of $0.7 million, or 2.0%, compared to pro forma net cash
from operating activities of $31.6 million for twelve months of 1997. This
increase was due primarily to more efficient management of the Company's working
capital, including sales of receivables under a receivable sales program,
partially offset by a declining cash flow from operating activities in the
Company's North American operations. Pro forma net cash flow from operating
activities was $15.6 million in 1996.
The Company's pro forma cash used in investing activities was $54.1 million
during the twelve months of 1998, an increase of $22.5 million, or 71.2%,
compared to pro forma cash used in investing activities of $31.6 million during
twelve months of 1997. This increase was due principally to: (i) a significant
investment in capital equipment to further automate the Company's largest
facility in Europe; and (ii) the reconfiguration and retooling of certain of the
Company's North American facility in advance of several major product launches.
This increase was partially offset by the effect of the Company's purchase for
approximately $3.9 million of a minority interest in an aluminum business in
1997. Pro forma cash used in investing activities was $19.5 million in 1996.
The Company's pro forma cash provided by financing activities was $36.5
million during twelve months of 1998, compared to pro forma cash used in
financing activities of $1.6 million in twelve months of 1997. Pro forma cash
flow from financing activities was due principally to borrowings from a
short-term credit source to finance a significant increase in tooling production
in advance of several major product launches. Pro forma cash provided by
financing activities was $2.1 million in 1996.
Outstanding Debt
At December 31, 1998, the Company had total outstanding debt of $324.5
million, including $157.0 million in short-term debt including short term
portion of long-term debt and $167.5 million in long-term debt. See Note 14 to
the consolidated financial statements.
26
<PAGE> 27
EUROPEAN MONETARY UNION
A single currency called the euro was introduced in Europe on January 1,
1999. After January 1, 1999, the Company will be required, upon the request of
any party with which it transacts, to use the euro as a currency of payment in
its European commercial activities in certain financial transactions and in
dealings with administrative bodies. Expenses incurred or to be incurred in
connection with the introduction of the euro as a currency of payment have not
and are not expected to have a material adverse effect on the results of
operations or financial position of the Company.
INFLATION
The Company believes that the relatively moderate inflation over the last
few years has not had a significant impact on the Company's revenues or
profitability and that the Company has been able to offset the effects of
inflation by increasing prices or by realizing improvements in operating
efficiency.
YEAR 2000
The Company has conducted a review of its computer systems to identify those
areas that may not be Year 2000 compliant and is developing a plan to resolve
the issue. The Company believes that by modifying existing software and
obtaining new releases of licensed software, the Year 2000 transition can be
carried out without significant operational expenses or significant investments
in computer systems improvements. On the basis of currently available
information, the Company does not expect that expenses to be incurred in
connection with the continuing identification of systems which are not Year 2000
compliant and with their replacement or upgrade will have a material adverse
impact on the results of operations or financial position of the Company. There
can be, however, no assurances of the absence of any disruptions in the
Company's own systems or those of its customers and suppliers. The Company
considers that sufficient resources have been dedicated to address these issues
in a timely manner.
STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
In December 1995, the Private Securities Litigation Reform Act of 1995 (the
"Act") was enacted. The Act contains amendments to the Securities Act of 1933
and the Securities Exchange Act of 1934 which provide protection from liability
in private lawsuits for "forward-looking" statements made by persons specified
in the Act. Aetna and MS Acquisition desires to take advantage of the "safe
harbor" provisions of the Act.
Aetna and MS Acquisition wish to caution readers that with the exception of
historical matters, the matters discussed in this Annual Report are
forward-looking statements that involve risks and uncertainties, including but
not limited to factors related to the highly competitive nature of the
automotive supplier industry and its sensitivity to changes in general economic
conditions, the results of financing efforts and other factors discussed in
Aetna's and MS Acquisition's filings with the Securities and Exchange
Commission. Such factors could effect Aetna's and MS Acquisition's actual
results and could cause their actual results during 1999 and beyond to differ
materially from those represented in any forward-looking statement made by or on
behalf of Aetna or MS Acquisition.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 addresses the accounting for
derivative instruments. This statement is not expected to have any effect on the
Company's financial position or results of operations.
27
<PAGE> 28
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-5 ("SOP" 98-5), "Reporting on the Costs of Start-up Activities".
This statement prescribes accounting treatment for start-up activities and is
effective for fiscal years beginning after December 15, 1998. This statement is
not expected to have a material effect on the Company's financial position or
results of operations.
Item 7 A. Disclosure of Quantitative and Qualitative Information about
Market Risks
The financial condition and results of operations of the Company's
operating entities are reported in various foreign currencies (principally Euro
and British pounds sterling) and then translated into U.S. dollars at the
applicable exchange rate for inclusion in the Company's financial statements. As
a result, an appreciation of the dollar against these foreign currencies will
have a negative impact on the reported sales and operating profit of the
Company. Conversely, depreciation of the dollar against these foreign currencies
will have a positive impact. In addition, the Company incurs currency
transaction risk whenever it or one of its subsidiaries enters into either a
purchase or sale transaction using a different currency than the relevant
entity's functional currency. However, the nature of the Company's business
results in the Company generally matching revenues and expenses of the same
currency. Therefore, the Company does not currently use financial instruments to
limit its exposure to foreign transaction exposure risk. The Company does not
currently use financial instruments to limit its exposure to interest rate
variations. The portion of the company's outstanding debt obligations tied to
variable interest rates totals $125.9 million as of December 31, 1998.
Item 8. Financial Statements
The consolidated financial statements (together with independent public
accountants' report) of MS Acquisition Corp. are included on pages 42 through 62
of this report on Form 10-K and the consolidated financial statements (together
with independent public accountants' reports) of Aetna Industries, Inc. are
included on pages 63 through 77 of this report on Form 10-K.
28
<PAGE> 29
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
On August 27, 1998 the Board of Directors of Aetna and MS recommended and
approved the dismissal of PricewaterhouseCoopers and the engagement of Arthur
Andersen LLP as the independent accountants for Aetna and MS.
(a) Information required by Item 304(a)(1) of Regulation S-K.
(i) PricewaterhouseCoopers LLP was dismissed as Aetna's and MS's
independent accountants effective as of the close of business on
September 15, 1998.
(ii) The reports of PricewaterhouseCoopers LLP on the financial
statements of Aetna and MS the past two years contain no adverse opinion or
disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principle.
(iii) The Board of Directors approved the decision to change
independent accountants.
(iv) In connection with its audits for the two most recent fiscal
years and through September 15, 1998 there have been no disagreements with
PricewaterhouseCoopers LLP on any matter of accounting principle or
practice, financial statement disclosure, or auditing scope or procedure,
which disagreements if not resolved to the satisfaction of
PricewaterhouseCoopers LLP, would have caused PricewaterhouseCoopers LLP to
make reference thereto in their report on the financial statements for such
years.
(v) During the two most recent fiscal years and through
September 15, 1998 there have been no reportable events (as defined in
Regulation S-K Item 304(a)91)(v).
(b) Information required by Item 304(a)(2) of Regulation S-K.
Aetna and MS engaged Arthur Andersen LLP as its new independent
accountants as of September 15, 1998. During the most recent two fiscal years
and through September 15, 1998, neither Aetna nor MS had consulted with Arthur
Andersen LLP regarding (i) either; the application of accounting principles to a
specified transaction, either completed or proposed; or the type of audit
opinion that might be rendered on Aetna's or MS's financial statements, and
either a written report was provided to Aetna or MS or oral advice was provided
that the new accountant concluded was an important factor considered by Aetna or
MS reaching a decision as to the accounting, auditing or financial reporting
issue, or (ii) any matter that was either the subject of a disagreement or a
reportable event with Aetna's or MS's former auditor (each as defined in
Regulation S-K Item 304(a)(i)).
Aetna and MS have requested that PricewaterhouseCoopers LLP provide
it with a letter addressed to the Securities and Exchange Commission stating
whether or not it agrees with the above statements. A copy of that letter
dated September 17, 1998 is filed as exhibit 16.1 to this Form 10-K.
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<PAGE> 30
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth the name, age and position of each of the
directors and senior officers of the Company. Each director of the Company will
hold office until the next annual meeting of stockholders of the Company or
until his successor has been elected and qualified. Officers of the Company and
its subsidiaries serve at the discretion of their respective Boards of
Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- -------
<S> <C> <C>
Francis Barge................. 59 Director; Chairman, President and Chief Executive Officer
Felix Domenech................ 56 Director; Group Executive Vice-President Finance
Jean-Rene Hergoualc'h......... 55 Director; Group Executive Vice-President Product Development
David Howe.................... 35 Director
Michael Delaney............... 44 Director
Gery Edouard Lanthier......... 50 Director
Jean-Philippe Larramendy...... 54 Director
Jean-Claude Garolla........... 34 Chief Financial Officer; Vice-President
Ueli Spring................... 48 Director; Executive Vice-President North America
Harold Brown.................. 49 Secretary; Vice-President North America
Gary Easterly................. 50 Vice-President North America
David Thal.................... 40 Vice-President North America
Roger James................... 56 Vice-President Europe
Paul Rodrigues................ 53 Vice-President Europe
Michael Gillett............... 48 Vice-President; Chief Operating Officer United Kingdom
</TABLE>
MR. FRANCIS BARGE founded Sofedit in February 1989 and has been Sofedit's
Chairman, President and Chief Executive Officer since its creation. From 1986 to
1989, Mr. Barge was employed by Groupe Arbel where he founded Cofimeta and
served as a Director and its Chief Executive Officer. He was also then President
of Somenor, Ecrim and Aubry. From 1966 to 1986, Mr. Barge served as Director of
Special Industrial Projects, Director of North Africa and the Middle East,
Director of Africa for Renault and President and Chief Executive Officer of
Renault Norway. Mr. Barge also served as a judge in the Commercial Court of
Paris between 1992 and 1997. Mr. Barge currently serves on the Board of
Directors of Euralcom. Mr. Barge is a graduate of l'Ecole des Hautes Etudes
Commerciales de Paris.
MR. FELIX DOMENECH is one of the cofounders of Sofedit and has been a
Director and Vice-President of Finance since 1989. From 1988 to 1989, Mr.
Domenech was employed by Groupe Cofimeta serving as Vice-President to its
subsidiaries Aubry, Ecrim and Somenor, President and Chief Executive Officer of
Davum TP and a Director and Chief Financial Officer of the Groupe Cofimeta. From
1974 to 1987, Mr. Domenech was an executive of Renault. He served as the Chief
Financial Officer of Renault Tunisia, Chief Financial Officer of Renault Mexico
and Vice-President of imports for Renault Europe. Mr. Domenech is a graduate of
l'Ecole Superieure de Commerce et d'Administration des Entreprises in Dijon.
MR. JEAN-RENE HERGOUALC'H is one of the cofounders of Sofedit and has been a
Director and Vice President of Research and Product Development since 1989. From
1988 through February 1989, Mr. Hergoualc'h was employed at Groupe Cofimeta as
Director of Research and Development. From 1969 through 1988, he was an
executive of Renault, where he served as Engineer of Motor Studies, Engineer of
Anti-pollution Systems Studies, New Vehicles Programs Manager and Studies
Department Manager of Renault Mexico, Project Manager of Renault 9 and Renault
11 vehicles. Mr. Hergoualc'h is a graduate of l'Ecole Nationale Superieure de
Mecanique de Nantes, where he obtained a degree in mechanical engineering.
MR. DAVID HOWE has been a director of Aetna and MS Acquisition since 1996
and a Vice President of Citicorp Venture Capital, Ltd. since 1993. Mr. Howe
serves on the board of directors of America-Italian Pasta Company, Formica
Corporation, IPC Information Systems, Inc., Pen-Tab Industries, Inc.
30
<PAGE> 31
and several private companies. Mr. Howe is a graduate of Harvard College and
Harvard Business School.
MR. MICHAEL DELANEY has been a director of Aetna and MS Acquisition since
August 1996. Since 1989, Mr. Delaney has been a Managing Director of CVC. Mr.
Delaney serves on the board of directors of Delco Remy International, Inc., JAC
Holdings, Inc., Palomar Technologies, Inc., AmeriSource Health Corporation, GVC
Holdings, Cort Business Services, MSX International, Great Lakes Dredge and Dock
Corp., Fabristeel Corporation, Allied Digital Technologies Corporation, 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. GERY EDOUARD LANTHIER has been a director of Sofedit and Cogepa and D.F.
Synergies Group since 1994. Since 1994, Mr. Lanthier has served as Chief
Executive Officer of Cogepa France. In 1993, he served as CEO assistant of
Compagnie Financiere de Valois and, from 1989 to 1992, as Vice President Finance
of Sucden. Mr. Lanthier served as Directeur des Affaires Financieres
Internationales (Vice President International Finance) of Renault from 1984 to
1989. Mr. Lanthier is a graduate of EDHEC in Lille and INSEAD Business School in
Fontainebleau, France.
MR. JEAN-PHILIPPE LARRAMENDY founded Tocqueville International in 1986 and
has been its Managing Partner since its foundation. Mr. Larramendy is President
of ElectroPar France and Advisor to the Chairman of EDF-Capital Investissement.
Mr. Larramendy is also the President of the Institut France-Euzkadi. Mr.
Larramendy serves on the Board of Directors of Sofedit and several other private
companies. Mr. Larramendy is a graduate of the Ecole des Hautes Etudes
Commerciales de Paris and the Wharton School.
MR. JEAN-CLAUDE GAROLLA joined the Company in August 1998 as its Chief
Financial Officer. Between 1986 and July 1998, Mr. Garolla was a principal with
Arthur Andersen in Paris, where he specialized in access to the U.S. capital
markets by European companies. Mr. Garolla is a graduate of the Ecole des Hautes
Etudes Commerciales de Paris.
MR. UELI SPRING has served as Chief Executive Officer and President of Aetna
since 1994. From 1990 to 1994, Mr. Spring served as Executive Vice President and
Chief Operating Officer of Aetna. From 1986 to 1987, he served as President of
the Cosma International Group of Magna International Inc. ("Magna") and then
served as Chief Operating Officer of the group from 1987 to 1990. From 1984 to
1986, he served as Director of Manufacturing with Magna. In 1972, Mr. Spring
joined the Oetiker operations and later became a Vice President from 1980 to
1984. Mr. Spring received his degree in tool and die engineering from the
Universita Ticinese di Trevano, Switzerland.
MR. HAROLD BROWN has served as Vice President Finance of Aetna since joining
Aetna in 1992 and has been a director of Aetna since August 1996. 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 Reserves.
MR. GARY EASTERLY has served as Executive Vice President and Chief Operating
Officer of Aetna since March 1997. He served as Vice President of Manufacturing
of Aetna from 1988 to 1997 and has been employed by Aetna 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.
31
<PAGE> 32
Easterly received a BS degree in Industrial Engineering from GMI Institute and
an MA degree in Administration from Central Michigan University.
MR. DAVID THAL has served as Vice President Product Development of Aetna
since 1995. From 1993 to 1995, Mr. Thal served as Project Manager of Aetna's
Production System and has been employed by Aetna since 1980 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. ROGER JAMES has served as Chief Operating Officer of Lebranchu Le Theil
since 1994. From 1989 to 1994, Mr. James served as Chief Operating Officer of
Sotramex, a subsidiary of Sofedit. From 1969 to 1989, Mr. James was employed by
Ecrim, serving as Maintenance Manager, Logistics and Purchase Manager. Mr. James
is expected to graduate from the CPA (Centre de Perfectionnement des Affaires)
in Paris.
MR. PAUL RODRIGUES has served as Chief Operating Officer of Bonin (a
subsidiary of Sofedit) since 1994. From 1990 to 1994, Mr. Rodrigues served as
Technical Director of Bonin. From 1967 to 1990, Mr. Rodriguez was an executive
of Renault, serving as Assembly Manager in the Flins Plant, and as Research and
Development Engineer. Mr. Rodrigues received a degree in engineering from the
Institut Superieur de Mecanique et Construction Mecanique.
MR. MICHAEL GILLETT has served as Managing Director of Coventry Presswork
Ltd. since 1998. In 1997, Mr. Gillett served as Managing Director of Britax
Vega. From 1987 to 1996, Mr. Gillett served as Plant Director and Manufacturing
Director of Coventry Presswork Ltd. From 1985 to 1986, he served as
Manufacturing Manager and Purchase & Supplies Manager of Armstrong Presswork.
From 1973 to 1984, Mr. Gillett served as Production Control Manager, Production
Manager, Assistant Spares Manager and Customer Liaison Officer of Burman & Sons.
Mr. Gillett received a degree in mechanical engineering from Matheus Boulton
Technical College in England.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has a Compensation Committee and created an
Audit Committee in 1998.
Compensation Committee. The Company's Compensation Committee reviews
employment, development, reassignment and compensation matters involving
corporate officers and other executive level employees, including issues
relating to salary, bonus and incentive arrangements and the supervision of the
stock option plans of the Company. In 1998, the Compensation Committee was
composed of Messrs. Ueli Spring, David Howe and Michael Delaney. Members of the
Compensation Committee serve at the discretion of the Board.
Audit Committee. The Company's Audit Committee will make recommendations
concerning the engagement of independent public accountants, review with the
independent public accountants the plans and result of the audit engagement,
approve professional services provided by the independent public accountants,
review the independence of the independent public accountants, consider the
range of audit and non-audit fees, review the independent public accountants'
management letters and the Company's responses, review the adequacy of the
Company's internal accounting controls, and review major accounting or reporting
changes.
Executive Committee. The Company's Executive Committee will have the
authority to manage the
32
<PAGE> 33
Company except for those powers expressly reserved to the Board of Directors and
its other committees.
Item 11. Executive Compensation
DIRECTOR COMPENSATION
Directors who are officers or employees of the Company do not receive
compensation other than reimbursement for out-of-pocket expenses incurred by
them in connection with their travel to and attendance at meetings of the Board
of Directors or committees thereof. Directors of the Company who are not also
officers or employees of the Company receive an annual fee of $25,000 in
addition to reimbursement of out-of-pocket expenses.
COMPENSATION OF OFFICERS
The following table sets forth certain information regarding the cash
compensation paid by the Company, as well as certain other compensation paid or
accrued for such fiscal years, to the CEO and the four most highly compensated
executive officers of the Company in office on December 31, 1998 for each of the
last three fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
NUMBER OF
SHARES OF
COMMON STOCK
UNDERLYING GRANTED
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS
--------------------------- ---- ------ ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Francis Barge 1998 FF 1,667,495 $298,300 FF (1) $ (1) --
Chairman, President and 1997 965,619 165,345 1,106,431 189,457 --
CEO 1996 965,619 189,967 1,851,669 362,362 --
Felix Domenech 1998 FF 1,132,477 $202,590 FF (1) $ (1) --
Group Executive; 1997 828,244 141,823 683,759 117,051 --
Vice-President 1996 828,244 162,083 1,131,941 221,515 --
Finance --
Jean-Rene Hergoualc'h 1998 FF 1,162,217 $199,681 FF (1) $ (1) --
Group Executive; 1997 772,495 132,277 298,868 51,176 --
Vice-President 1996 772,495 151,173 593,960 116,234 --
Product Development
Ueli Spring 1998 FF -- $233,656 FF (1) $ (1) 42,500
Executive Vice-President 1997 -- 225,002 -- 135,000 --
North America 1996 -- 225,976 -- 274,000 --
Jean Claude Garolla 1998 FF 416,667 74,537 FF (1) $ (1) --
Vice President & CFO 1997 -- -- --
1996 -- -- --
Harold Brown 1998 FF -- $144,515 FF (1) $ (1) 25,000
Secretary; Vice-President 1997 -- 133,147 -- 32,000 --
North America 1996 -- 113,355 -- 169,000 --
</TABLE>
(1) As of December 31, 1998, the Company has accrued FF 3,000,000
(approximately $500,000) in Europe and $250,000 in North America for management
Bonuses. The allocation of these amounts to individual members of management has
not been completed.
33
<PAGE> 34
BONUS PROGRAM
The Company annually awards discretionary bonuses to members of its
management and certain of its salaried employees. Such bonuses, which are
typically paid in February of each year in respect of services rendered by
recipients during the preceding year, are awarded based on a variety of factors,
including individual and Company performance.
STOCK OPTION PLAN
Prior to the Combination, executive officers, directors, employees and other
key persons of the Company were eligible to participate in the Company's
Executive Stock Option Plan (the "Stock Option Plan"). Options granted under the
Stock Option Plan were non-qualified stock options. Options to purchase an
aggregate 100,000 of shares of Common Stock, par value $0.01 per share, of MS
Acquisition were issued under the Stock Option Plan, of which 97,500 options to
purchase shares of Common Stock are currently outstanding. All options granted
under the Stock Option Plan have vested and become exercisable pursuant to
individual stock option agreements executed by the Company and each option
recipient at an exercise price of $0.75 per share.
EXECUTIVE EMPLOYMENT AGREEMENTS
Fourteen of the executive officers of Sofedit and its subsidiaries have
employment agreements pursuant to which an indemnity of approximately 30 months'
salary (representing a minimum payment of FF2,000,000 (approximately $300,000)
per executive officer) would be payable by Sofedit in the event of a termination
without cause.
The Company and Aetna have jointly entered into employment agreements with
each of Messrs. Brown, Easterly and Spring. These 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 certain reasons. These employment
agreements have initially been concluded for a period of three years, ending in
August 1999. Mr. Spring has not waived his right to terminate his employment
agreement as a result of the appointment of Mr. Francis Barge as the CEO of the
Company following the Combination. If Mr. Spring elected to so terminate his
employment agreement, Mr. Spring would be entitled to receive a termination
payment in an aggregate
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<PAGE> 35
amount equal to the sum of: (i) his annual salary; and (ii) the greater of
(x) the amount of his bonus for fiscal year 1997, or (y) an amount equal to 50%
of Mr. Spring's base salary for fiscal year 1998. For a period of 12 months, Mr.
Spring would also be entitled to participate in the current benefit plans of the
Company.
The Company intends to enter into employment agreements having a term of
five years and renewable by additional periods of two years, with Messrs. Barge,
Domenech and Hergoualc'h. These employment agreements will provide for an annual
base salary of $350,000 for Mr. Barge and $225,000 for Messrs. Domenech and
Hergoualc'h. Such salaries may be revised by the Board of Directors or its
Compensation Committee and increased at their discretion. In addition, these
employment agreements will provide for annual bonuses. These employment
agreements will also provide for participation of these employees in the
Company's 1998 Equity Incentive Plan after adoption of the latter by the Board
or its Compensation Committee, as well as employee benefits such as pension
plans, long term disability benefit and life insurance.
These employees will perform their duties without geographic limitation and
any cost of employee relocation outside France shall be borne by the Company.
In case of termination of any of these employment agreements by the Company
without cause, or by the employee for good reason, the employee will be entitled
to a lump sum payment equal to the product of three multiplied by the sum of the
annual base salary and the highest annual bonus paid to the employee. In
addition, in such circumstances, the employee will be entitled to payment of the
pro rata portion of his bonus and the Company will provide medical, dental and
life insurance benefits for a period of 12 months following termination, ceasing
immediately upon the employee entering into a new employment agreement with any
other person. Also, upon termination by the Company without cause, or by the
employee for good reason, all stock options granted to the employee shall vest
and become exercisable immediately.
These contemplated employment agreements will be terminable by the Company
in case of employee incapacity, if such incapacity is not cured within 180 days
of its first incurrence. The Company may also terminate the employment of these
employees without further obligation to them in case of any act of dishonesty,
gross incompetence or intentional misconduct.
These employment agreements will contain confidentiality provisions, as well
as non-competition provisions applicable for a period of three years following
the date of termination of the employment agreement.
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<PAGE> 36
OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth certain information concerning stock options
exercised during the year ended December 31, 1998 and the number and value of
unexercised stock options held by each of the executive officers named below as
of December 31, 1998, under the Stock Option Plan. See "-- Stock Option Plan".
AGGREGATED OPTIONS EXERCISED IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES(1)
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL AT FISCAL
ACQUIRED ON YEAR-END YEAR-END (IN $)
EXERCISE VALUE ---------------------- --------------------
NAME (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- --- ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Francis Barge 0 0 0 0 0 0
Felix Domenech 0 0 0 0 0 0
Jean-Rene
Hergoualc'h 0 0 0 0 0 0
Ueli Spring 0 0 42,500 0 (2) --
Harold Brown 0 0 25,000 0 (2) --
</TABLE>
- ------------
(1) Options are for shares of Common Stock of the Company.
(2) Value of unexercised in-the-money options has not been computed as there is
no readily determinable market value for the Company's common stock.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation of the executive officers of Aetna and the Company has
historically been determined by their Boards of Directors. Messrs. Ueli Spring,
Michael Delaney and David Howe participated in deliberations of the Boards of
Directors of Aetna and the Company concerning executive officer compensation
during the fiscal year 1998. Compensation of Messrs. Francis Barge, Felix
Domenech and Jean-Rene Hergoualc'h in their capacity of executive officers of
Sofedit has historically been determined by Sofedit's Board of Directors.
Messrs. Francis Barge, Felix Domenech and Jean-Rene Hergoualc'h participated in
deliberations of Sofedit's Board of Directors concerning executive officer
compensation in 1998.
Item 12. Principal Stockholders
The following table sets forth certain information regarding the equity
ownership of the Company as of March 31, 1999 by: (i) each person or entity who
owns 5% or more of any class of voting securities of the Company; (ii) the
directors and executive officers of the Company as of March 31, 1999 and (iii)
the directors and executive officers of the Company as a group. Except as
otherwise indicated below, each of the persons named in the table has sole
voting and investment power with respect to all shares of Common Stock and
investment power with respect to Non-Voting Common Stock beneficially owned by
such person as set forth opposite such person's name, and the address of each
person named in the table is the Company's address. No shares of Non-Voting
Common Stock were outstanding as of March 31, 1999. Each share of Common Stock
is convertible into one share of Non-Voting Common Stock at the option of its
holder, if such holder determines that it (or any of its affiliates other than
the Company) might be subject to a legal requirement making it illegal or unduly
burdensome for it to continue to own or control shares of Common Stock.
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK
SHARES SHARES
OWNED(1) PERCENT(2) OWNED PERCENT(2)
-------- --------- ------ ----------
<S> <C> <C> <C> <C>
CEFI SA
28 rue Marie Therese
L 2132 Luxembourg....................... 977,215 25.0% 86,713(B) 21.0%
Citicorp Venture Capital, Ltd.(3)
399 Park Avenue
New York, NY 10043...................... 704,460 18.1% 111,494(A) 27.0%
David Howe(4)
</TABLE>
36
<PAGE> 37
<TABLE>
<S> <C> <C> <C> <C>
Citicorp Venture Capital, Ltd.
399 Park Avenue
New York, NY 10043...................... 704,460 18.1% 111,494(A) 27.0%
Michael Delaney(4)
Citicorp Venture Capital, Ltd.
399 Park Avenue
New York, NY 10043...................... 704,460 18.1% 111,494(A) 27.0%
YACESE S.A.
1 rue Thomas Edison
78280 Guyancourt........................ 427,760 11.0% 46,768(B) 11.3%
H.H.A. WAY S.A.
1 rue Thomas Edison
78280 Guyancourt........................ 282,525 7.2% 25,422(B) 6.2%
Francis Barge(5).......................... 977,215 25.0% 86,713(B) 21.0%
Felix Domenech(6)......................... 427,760 11.0% 46,768(B) 11.3%
Jean-Rene Hergoualc'h(7).................. 282,525 7.2% 25,422(B) 6.2%
Jerome Barge(5)
CEFI S.A.
28, rue Marie
Therese
L 2132 Luxembourg..... 977,215 25.0% 86,713(B) 21.0%
Ueli Spring(8).......... 47,593 1.2% 806(A) *
Harold A. Brown(9)...... 26,834 * 290(A) *
Jean-Philippe
Larramendy(10)........ 116,133 3.0% 10,449(B) 2.5%
Gery-Edouard Lanthier(11) 136,439 3.5% 12,277(B) 3.0%
Gary Easterly(12)....... 10,984 * 156(A) *
All directors and executive
officers as a group (10
persons)(13).......... 2,729,943 68.6% 294,375 71.4%
</TABLE>
- ---------
* Less than one percent.
(1) Includes 97,500 shares of Common Stock subject to options exercisable within
60 days of March 31, 1999.
(2) Based on 3,902,498 shares of Common Stock and 412,424 shares of Preferred
Stock outstanding as of March 31, 1999. Shares of Common Stock subject to
options exercisable within 60 days of March 31, 1999 are considered held by
the holder of such options, for purposes of determining the percentage of
the class, but not for the purpose of computing the percentage held by
others.
(3) Taking into account shares of Common Stock owned by Citicorp Venture
Capital, Ltd. ("CVC"), CCT Partners III, L.P. and certain employees of CVC
including the directors referred to in the next sentence. CVC has
transferred beneficial ownership of a portion of its Common Stock set forth
above to a group comprised of certain individual officers of CVC, including
Michael Delaney
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<PAGE> 38
and David Howe, which shares are included in the aggregate total shown.
(4) Consists of shares held by CVC, CCT Partners III, L.P. and certain
employees of CVC, which may be deemed to be beneficially owned by Messrs.
Delaney and Howe, 704,460 shares of Common Stock and 111,494 shares of
Preferred Stock owned by Mr. Delaney and 704,460 shares of Common Stock
and 111,494 shares of Preferred Stock owned by Mr. Howe. Messrs. Delaney
and Howe disclaim beneficial ownership of such shares (except for the 2,466
and 4,227 shares of Common Stock and 390 and 669 shares of Preferred Stock
respectively owned by them.)
(5) Includes 977,215 shares of Common Stock and 86,713 shares of Preferred
Stock held by CEFI, which may be deemed to be beneficially owned by Mr.
Francis Barge and Mr. Jerome Barge. Mr. Francis Barge and Mr. Jerome Barge
disclaim beneficial ownership of the shares held by CEFI.
(6) Includes 427,760 shares of Common Stock and 46,768 shares of Preferred
Stock held by YACESE S.A, which may be deemed to be beneficially owned by
Mr. Felix Domenech. Mr. Felix Domenech disclaims beneficial ownership of
the shares held by YACESE S.A.
(7) Includes 282,525 shares of Common Stock and 25,422 shares of Preferred
Stock held by H.H.A. WAY S.A., which may be deemed to be beneficially owned
by Mr. Hergoualc'h. Mr. Hergoualc'h disclaims beneficial ownership of the
shares held by H.H.A. WAY S.A.
(8) Includes 5,093 shares of Common Stock held by Mr. Spring and options to
purchase 42,500 shares of Common Stock issued to Mr. Spring.
(9) Includes 1,834 shares of Common Stock held by Mr. Brown and options to
purchase 25,000 shares of Common Stock issued to Mr. Brown.
(10) Includes 55,494 shares of Common Stock and 4,995 shares of Preferred Stock
held by Tocqueville Europe L.P. and 60,639 shares of Common Stock and 5,454
shares of Preferred Stock held by Bidassoa Investissements S.A., which may
be deemed to be beneficially owned by Mr. Larramendy. Mr. Larramendy
disclaims beneficial ownership of the shares held by Tocqueville Europe
L.P. and Bidassoa Investissements S.A.
(11) Includes 136,439 shares of Common Stock and 12,277 shares of Preferred
Stock held by COGEPA S.A., which may be deemed to be beneficially owned by
Mr. Lanthier. Mr. Lanthier disclaims beneficial ownership of the shares
held by COGEPA S.A.
(12) Includes 984 shares of Common Stock held by Mr. Easterly and options to
purchase 10,000 shares of Common Stock issued to Mr. Easterly.
(13) Includes 77,500 options to purchase shares of Common Stock. Includes
704,460 shares of Common Stock and 111,494 shares of Preferred Stock held
by CVC and CCT Partners III, L.P. and certain other employees, that may be
deemed to be beneficially owned by Messrs. Howe and Delaney, who disclaim
beneficial ownership of a portion of such shares as set forth above.
Includes 55,494 shares of Common Stock and 4,995 shares of Preferred Stock
held by Tocqueville Europe L.P. and 60,639 shares of Common Stock and 5,454
shares of Preferred Stock held by Bidassoa Investissements S.A., that may
be deemed to be beneficially owned by Mr. Larramendy, who disclaims
beneficial ownership of such shares. Includes 136,439 shares of Common
Stock and 12,277 shares of Preferred Stock held by COGEPA S.A., which may
be deemed to be beneficially owned by Mr. Lanthier. Mr. Lanthier disclaims
beneficial ownership of the shares held by COGEPA S.A. Messrs. Barge,
Domenech and Hergoualc'h disclaim beneficial ownership of shares held by
CEFI, YACESE S.A. and H.H.A.WAY S.A.
38
<PAGE> 39
Item 13. Certain Relationships and Related Transactions
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 31, 1998, the aggregate amount owed to Aetna by Mr. Spring in respect
of the loan was $136,607.
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. The financial statements listed in the "Index to Financial
Statements."
2. The exhibits listed in the "Index to Exhibits."
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.
(b) Reports on Form 8-K
MS Acquisition Corp. and Aetna Industries, Inc, did not file any Reports on
Form 8-K during the quarter ended December 31, 1998.
39
<PAGE> 40
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 April 15, 1999.
MS ACQUISITION CORP.
By: /s/ Francis Barge
-------------------------------
Francis Barge
Director, Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrants in the capacities indicated on April 15, 1999.
Signature
/s/ Jean-Claude Garolla Vice President - Chief Financial
- ------------------------------------------ Officer (Principal Financial
Jean-Claude Garolla and Accounting Officer)
/s/ Francis Barge Director, Chairman, President and
- ------------------------------------------ Chief Executive Officer
Francis Barge
/s/ Felix Domenech Director, Group Executive
- ------------------------------------------ Vice-President
Felix Domenech
/s/ Jean-Rene Hergoualc'h Director, Group Executive
- ------------------------------------------ Vice-President
Jean-Rene Hergoualc'h
Finance
/s/ David Howe Director
- ------------------------------------------
David Howe
/s/ Michael Delaney Director
- ------------------------------------------
Michael Delaney
/s/ Jean-Philippe Larramendy Director
- ------------------------------------------
Jean-Philippe Larramendy
/s/ Gery-Edouard Lanthier Director
- ------------------------------------------
Gery-Edouard Lanthier
40
<PAGE> 41
INDEX TO FINANCIAL STATEMENTS
Page
FINANCIAL STATEMENTS OF MS ACQUISITION CORP.
Report of Independent Public Accountants.......................... 42
Consolidated Balance Sheets - As of December 31, 1998 and
December 31, 1997................................................. 43
Consolidated Statements of Operations and Comprehensive Income
(Loss) - For the Years Ended December 31, 1998, December 31, 1997
and December 31, 1996............................................ 44
Consolidated Statements of Cash Flows - For the Years Ended
December 31, 1998, December 31, 1997 and December 31, 1996........ 45
Consolidated Statements of Changes in Shareholders' Equity-
For the Years Ended December 31, 1998, December 31, 1997
and December 31, 1996............................................. 46
Notes to the Consolidated Financial Statements.................... 47
FINANCIAL STATEMENTS OF AETNA INDUSTRIES, INC.
Reports of Independent Public Accountants......................... 63
Consolidated Balance Sheets - As of December 31, 1998 and
December 28, 1997................................................. 65
Consolidated Statements of Operations and Comprehensive Income
(Loss) - For the Years Ended December 31, 1998, December 28, 1997
and December 29, 1996............................................. 67
Consolidated Statements of Cash Flows - For the Years Ended
December 31, 1998, December 28, 1997 and December 29, 1996........ 68
Notes to the Consolidated Financial Statements.................... 69
41
<PAGE> 42
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the Board of Directors of MS ACQUISITION CORP.:
We have audited the accompanying consolidated balance sheets of MS
ACQUISITION CORP. and subsidiaries ("the Company") as of December 31, 1998 and
1997, and the related consolidated statements of operations, comprehensive
income (loss), cash flows and changes in shareholders' equity for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of MS
ACQUISITION CORP. and subsidiaries as of December 31, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan
February 25, 1999.
42
<PAGE> 43
MS ACQUISITION CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------
PREDECESSOR
1997
NOTE 1998 (Note 1)
---- ---- -----------
(IN THOUSANDS OF U.S. DOLLARS
EXCEPT SHARE DATA)
<S> <C> <C> <C>
ASSETS
Cash and marketable securities.................................... (7) $ 26,092 $ 11,626
Trade receivables, net............................................ (8) 148,790 115,823
Other accounts receivables, net................................... (9) 32,585 27,916
Inventories and contracts in process, net......................... (10) 74,563 64,013
Tooling........................................................... 40,724 --
Deferred taxes.................................................... (5) 9,801 8,910
-------- --------
Total current assets.............................................. 332,555 228,288
-------- --------
Property, plant and equipment, net................................ (11) 203,271 122,028
-------- --------
Intangible assets, net............................................ 1,062 878
Goodwill, net..................................................... (12) 65,367 6,166
Share in net assets of equity investments......................... 255 291
Other non-current assets, net..................................... (13) 21,652 4,261
-------- --------
Total other assets................................................ 88,336 11,596
-------- --------
Total assets...................................................... $624,162 $361,912
======== ========
LIABILITIES, PREFERRED STOCK AND
SHAREHOLDERS' EQUITY (DEFICIT)
Short-term portion of financial debt and short-term
debt............................................................ (14) $157,004 $ 43,778
Trade payables.................................................... 173,517 109,876
Customers' deposits and advances.................................. 6,237 8,448
Other payables and accrued expenses............................... (15) 76,013 52,849
-------- --------
Total current liabilities......................................... 412,771 214,951
-------- --------
Long-term portion of financial debt............................... (14) 167,477 71,416
Deferred taxes.................................................... (5) 14,177 4,882
Accrued pension and retirement benefits........................... (16) 3,974 3,476
Other long-term liabilities....................................... 1,219 1,898
-------- --------
Total long-term liabilities....................................... 186,847 81,672
-------- --------
Commitments and contingencies..................................... (20)
Preferred Stock (Series A, par value $.01; stated value $100;
authorized 363,128; issued 344,443; outstanding 135,096.
Series B, par value $.01; stated value $100; issued and
outstanding 270,000)............................................ (17) 41,157 --
-------- --------
Common stock ($.01 nominal value; authorized
12,000,000; issued 5,294,489; outstanding
3,902,498)...................................................... 39 39
Additional paid-in capital........................................ 40,708 41,654
Retained earnings (deficit)....................................... (54,910) 28,073
Accumulated other comprehensive income (loss)..................... (2,450) (4,477)
-------- --------
Total shareholders' equity-(deficit).............................. (18) (16,613) 65,289
-------- --------
Total liabilities, preferred stock and shareholders'
equity (deficit)................................................ $624,162 $361,912
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
43
<PAGE> 44
MS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
Predecessor
--------------------------------------
NOTE 1998(A) 1997 1996
---- ------- ---- ----
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C> <C>
Net sales............................ (19) $ 710,846 $ 487,898 $ 484,712
Cost of sales........................ (646,563) (429,414) (424,617)
Selling, general & admin.
expenses........................... (38,755) (26,110) (29,234)
Research & development
expenses........................... (9,497) (7,413) (7,602)
Other expense, net................... (4) (4,345) (6,097) 618
--------- --------- ---------
Operating income..................... 11,686 18,864 23,877
Interest income...................... 491 263 458
Interest expense..................... (24,119) (9,946) (13,329)
--------- --------- ---------
Pre-tax income (loss)................ (11,942) 9,181 11,006
Income tax (provision) credit........ (5) 2,267 (1,981) 326
--------- --------- ---------
Income (loss) before share in
net income of equity
investees, minority interests
and discontinued operations........ (9,675) 7,200 11,332
Share in net income of
equity investees................... 133 14 56
Minority interests................... -- -- (27)
--------- --------- ---------
Net income (loss) before
discontinued operations............ (9,542) 7,214 11,361
Discontinued
operations, net of tax............. (6) (3,819) (2,485) (3,968)
--------- --------- ---------
Net income (loss) before
preferred dividends................ (13,361) 4,729 7,393
Preferred stock dividend
requirements....................... (3,438) -- --
--------- --------- ---------
Net income (loss) available for
common shareholders................ $ (16,799) $ 4,729 $ 7,393
========= ========= =========
Other comprehensive income
(loss)............................. 2,027 (7,311) (2,936)
--------- --------- ---------
Comprehensive income (loss).......... $ (14,772) $ (2,582) $ 4,457
========= ========= =========
</TABLE>
- ----------
(A) The statement of operations data of the Company for the year
ended December 31, 1998 represent the results of SOFEDIT, as predecessor,
and, from April 1, 1998, the effective date of the Combination for
accounting purposes, the consolidated results of MS Acquisition.
See accompanying notes to the consolidated financial statements.
44
<PAGE> 45
MS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
Predecessor
---------------------
1998(A)(B) 1997 1996
---------- ------ -------
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ............................... $(13,361) $ 4,729 $ 7,393
Shares in net income in
equity investees .............................. (133) (14) (56)
Depreciation and amortization.................... 31,843 27,509 24,857
Other non-cash charges .......................... (102) (2,101) (901)
Gain (loss) on disposal of assets................ (586) 298 (1,365)
Changes in operating working capital (B)........ 15,066 6,331 (16,205)
-------- -------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES........................... 32,727 36,752 13,723
-------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to intangible assets................... (463) (1,959) (224)
Additions to property, plant and
equipment...................................... (44,022) (15,056) (33,241)
Proceeds from disposal of intangible
and tangible assets............................ 4,748 809 13,910
Additions to other assets........................ (11,004) (4,146) (144)
Disposal of other assets......................... 26 (631) 155
-------- -------- --------
NET CASH USED IN
INVESTING ACTIVITIES........................... (50,715) (20,983) (19,544)
-------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of share capital........................ -- 127 70
Dividends paid................................... (2,377) (2,288) (2,515)
Increase in financial long-term debt............. 28,990 19,950 29,279
Debt issuance costs (1,279) -- --
Reimbursement of financial long-term debt........ (29,528) (31,188) (37,080)
Variation in financial short-term debt........... 35,415 80 4,109
-------- -------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES........................... 31,221 (13,319) (6,137)
-------- -------- --------
Net effect of exchange rate changes on cash...... 1,233 (2,160) (1,368)
-------- -------- --------
NET INCREASE (DECREASE) IN CASH
AND MARKETABLE SECURITIES...................... 14,466 290 (13,326)
</TABLE>
(A) The statement of cash flows of the Company for the year ended December 31,
1998 represent the results of SOFEDIT, as predecessor, and, from April 1,
1998, the effective date of the Combination for accounting purposes, the
consolidated results of MS Acquisition.
(B) See Notes 1, 14 and 17 for a discussion of significant non-cash items
related to the Combination and the discounting of promissory notes and
preferred stock.
See accompanying notes to the consolidated financial statements.
45
<PAGE> 46
MS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
Predecessor
------------------------
1998(A) 1997 1996
-------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS OF U.S. DOLLARS)
CASH AND MARKETABLE SECURITIES AT
BEGINNING OF YEAR..................... 11,626 11,336 24,662
-------- -------- --------
CASH AND MARKETABLE SECURITIES AT END
OF YEAR............................... $ 26,092 $ 11,626 $ 11,336
======== ======== ========
Cash paid during the year for
interest.............................. $ 26,711 $ 10,232 $ 14,195
======== ======== ========
Cash paid (received) during the year
for income taxes...................... $ 961 $(13,513) $ 9,241
======== ======== ========
<CAPTION>
(B) of which: 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Trade receivables.................. $ 17,056 $ 13,066 $(39,022)
Inventories........................ 1,574 (5,143) (18,033)
Tooling............................ (21,379) -- --
Trade payables..................... 20,792 (14) 37,100
Accrued liabilities................ (2,977) (1,578) 3,750
-------- -------- --------
Total $ 15,066 $ 6,331 $(16,205)
======== ======== ========
</TABLE>
MS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
CAPITAL PAID-IN RETAINED COMPREHENSIVE SHAREHOLDERS'
STOCK CAPITAL EARNINGS (DEFICIT) INCOME (LOSS) EQUITY (DEFICIT)
(IN THOUSANDS OF U.S. DOLLARS)
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995... $ 39 $ 33,843 $ 20,797 $ 5,705 $ 60,384
Capital increase............... -- 70 -- -- 70
Translation adjustment......... -- -- -- (2,936) (2,936)
Net income..................... -- -- 7,393 -- 7,393
Minimum liability adjustment... -- -- -- 65 65
Dividends paid................. -- -- (2,515) -- (2,515)
Other.......................... -- -- (30) -- (30)
----- -------- -------- ------- --------
BALANCE AT DECEMBER 31, 1996... 39 33,913 25,645 2,834 62,431
Capital increase............... -- 7,741 -- -- 7,741
Translation adjustment......... -- -- -- (7,311) (7,311)
Net income..................... -- -- 4,729 -- 4,729
Dividends paid................. -- -- (2,288) -- (2,288)
Other.......................... -- -- (13) -- (13)
----- -------- -------- ------- --------
BALANCE AT DECEMBER 31, 1997... 39 41,654 28,073 (4,477) 65,289
Translation adjustment......... -- -- -- 2,027 2,027
Net income(loss)............... -- -- (13,361) -- (13,361)
Dividends paid to Sofedit
shareholders................. -- -- (2,379) -- (2,379)
Stock offering costs........... -- (950) -- -- (950)
Dividends paid in connection
with the combination......... -- -- (63,805) -- (63,805)
Preferred stock dividends...... -- -- (3,438) -- (3,438)
Other.......................... -- 4 -- -- 4
----- -------- -------- ------- --------
BALANCE AT DECEMBER 31, 1998... $ 39 $ 40,708 $(54,910) $(2,450) $(16,613)
===== ======== ======== ======= ========
</TABLE>
See accompanying notes to the consolidated financial statements.
46
<PAGE> 47
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1 -- DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
MS Acquisition Corp. ("the Company") is the name of the group formed by
the combination of the activities of SOFEDIT S.A. and MS Acquisition Corp.
MS Acquisition Corp. ("MS Acquisition"), through Aetna Industries Inc.
("Aetna"), its wholly-owned subsidiary, is a leading direct supplier of high
quality modules, welded subassemblies and chassis parts used as original
equipment components in the North American automobile industry.
SOFEDIT S.A., ("SOFEDIT") a direct and indirect wholly-owned subsidiary of
the Company, is a leading direct supplier of welded subassemblies, body in white
parts, clutch, brake and accelerator pedal modules, fuel tanks and crossmembers
and chassis parts used as original equipment components by manufacturers in the
European automobile industry.
SOFEDIT was formed in 1989. Since its formation and until April 1998, a
majority of SOFEDIT's outstanding capital stock was directly or indirectly owned
by its founders. On April 14, 1998, a combination was completed between SOFEDIT
and MS Acquisition (the "Combination"). In the Combination, SOFEDIT's former
stockholders transferred the outstanding capital stock of SOFEDIT to MS
Acquisition in exchange for: (i) promissory notes of MS Acquisition in the
principal amount of approximately $41 million; (ii) dividends in the amount of
approximately $1 million; (iii) 270,000 shares of Series B Preferred Stock ($27
million stated value) of MS Acquisition; (iv) three million shares of Common
Stock of MS Acquisition representing 75% of the fully diluted outstanding Common
Stock; and (v) the assumption of approximately $12 million of debt of former
SOFEDIT stockholders.
For accounting purposes, the combination of SOFEDIT and MS Acquisition was
effective on April 1, 1998. The Combination has been accounted for as a reverse
acquisition as the former owners of SOFEDIT owned approximately 75% of the fully
diluted outstanding Common Stock of the Company immediately after the
combination. Accordingly, SOFEDIT is considered to be the acquirer of MS
Acquisition and predecessor to the Company for accounting purposes. As a
consequence, the historical financial statements prior to April 1, 1998 are
those of SOFEDIT.
The Combination was accounted for using the purchase method. Therefore, the
purchase price was allocated to the identifiable tangible and intangible assets
of the acquire (MS Acquisition). The excess of the purchase price over the fair
market value of MS Acquisition amounted to $60,404 and has been recorded as
goodwill and is being depreciated straight line over 40 years (See Note 11).
The Company's initial allocation of purchase price is based on preliminary
estimates of fair value and maybe revised within one year of the Combination.
Historical consolidated financial statements of SOFEDIT have been prepared
in accordance with US GAAP and are included as the predecessor's financial
statements in the accompanying financial statements. The year ended December 31,
1998 for the Company reflects the operations of MS Acquisition from April 1,
1998 and of SOFEDIT for the whole year.
The historical equity section of SOFEDIT financial statements has been
restated retroactively for each period presented to reflect the exchange ratio
used in the Combination and, accordingly, SOFEDIT's historical share capital has
been replaced by MS Acquisition's share capital. Per share data has been
restated using MS Acquisition's number of shares after the Combination.
47
<PAGE> 48
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES
The consolidated financial statements of the Company are prepared in
accordance with generally accepted accounting principles in the United States of
America.
(a) Consolidation methods
Investments over which the Company has direct or indirect control of more
than 50% of the outstanding voting shares, or over which it exercises effective
control, are fully consolidated, except for some companies, not significant in
aggregate, that were not consolidated for practical reasons.
Investments in which the Company has an equity interest of 20% to 50%
over which the Company exercises significant influence but not control are
accounted for under the equity method.
Sales and results of operations of consolidated subsidiaries acquired or
disposed of during the year are recognized in the consolidated statements of
operations from the date of acquisition, or up until the date of disposal,
respectively.
All significant intercompany transactions are eliminated.
A list of the Company's consolidated subsidiaries and investments and the
applicable method of accounting is provided in Note 3.
(b) Use of estimates
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of the revenues and expenses during the
reporting period. Management reviews its estimates on an ongoing basis using
currently available information. Changes in facts and circumstances may result
in revised estimates and actual results could differ from those estimates.
(c) Revenue recognition
Revenues from the sale of finished goods are recognized at delivery date.
Certain development costs are contractually financed by the customers through an
identified increase in the selling price of the corresponding finished products.
Those costs are capitalized in work in process and recognized in income based on
deliveries.
(d) Translation of financial statements denominated in foreign currencies
The functional currency of the Company's subsidiaries is the applicable
local currency. Assets and liabilities of foreign subsidiaries are translated
into U.S. dollars at the year-end rate of exchange, and their statements of
operations and statements of cash flows are converted at the average rate of
exchange of the period. The resulting translation adjustment is included in
shareholders' equity as the "Accumulated Other Comprehensive Income".
48
<PAGE> 49
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Historical data of SOFEDIT, which had been prepared in French francs, has
been translated into U.S. dollars using the same rules.
(e) Foreign currency transactions
Gains and losses relating to foreign currency transactions not denominated
in the functional currency are recorded in the consolidated statements of
operations. Foreign currency transactions are translated into local currency at
the rate of exchange applicable to the transaction. At year-end, foreign
currency assets and liabilities to be settled are translated into local currency
at the rate of exchange prevailing at that date.
(f) Financial instruments
The Company does not use any off-balance sheet financial instruments for any
purpose.
(g) Goodwill
Goodwill represents the excess of purchase price over the fair value of the
assets and liabilities acquired in a business combination. Initial estimates of
fair values are finalized within a one-year allocation period. Subsequent to
this period, reversals of unneeded reserves resulting from the purchase price
allocation and the use of acquired, unrecognized tax loss carry-forwards are
applied to goodwill. Goodwill is amortized on the straight-line basis over its
estimated useful life, over a maximum 40-year period. Amortization periods of up
to 40 years reflect the nature of the Company's business and the long-term
relationships with its customers.
Whenever events or changes in the market indicate a potential impairment of
intangible assets and property, plant and equipment, a detailed review is
carried out based on the projected undiscounted cash flows of the related
businesses. Whenever such review indicates that there is impairment, the
carrying amount of such assets is reduced to their projected recoverable value.
(h) Property, plant and equipment
Property, plant and equipment is recorded at historical cost for the
Company, less any provision for impairment. Depreciation is computed using the
straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
ESTIMATED USEFUL
LIFE IN YEARS
----------------
<S> <C>
Buildings and improvements........ 10-30
Machinery and equipment........... 5-15
Tools, furniture and fixtures and
other........................... 3-10
</TABLE>
(i) Other investments
Investments are recorded at the lower of historical cost or net realizable
value, assessed on an individual investment basis. For long-term investments,
the net realizable value is calculated using the following parameters: equity
value, profitability and expected cash flows from the investment.
49
<PAGE> 50
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(j) Inventories
Raw materials and supplies, industrial work in progress, and finished
products are stated at the lower of cost, using the weighted average cost method
(which approximates FIFO) or market value for non - U.S. locations. U.S.
locations value stamping and assembly inventories at LIFO which is not
materially different from FIFO at December 31, 1998. Inventory costs include
direct costs and applicable manufacturing overheads.
(k) Cash and marketable securities
Marketable securities included in cash and marketable securities are
classified as available for sale and recorded at fair market value.
Cash and marketable securities consist of cash and liquid investments with
an initial maturity of less than three months.
(l) Deferred taxation
Deferred taxes are calculated for each taxable entity for temporary
differences arising between tax and financial reporting. Deferred tax
liabilities are recognized for taxes payable in each future year. Deferred tax
assets are recorded up to their expected recoverable amount. Deferred tax
amounts are adjusted for changes in the applicable tax rate upon enactment.
Deferred tax liabilities include non-recoverable withholding taxes payable
on the portion of the current year earnings of consolidated subsidiaries or
equity method investees expected to be remitted to the parent company. No
provision is made for income taxes on accumulated earnings of consolidated
subsidiaries or equity method investees for which no distribution is planned.
(m) Research and development and pre-production costs
Research and development and pre-production costs are expensed as incurred.
(n) Employee benefits
The estimated cost of providing benefits to employees is accrued during the
years in which the employees render services.
For defined contribution plans and multi-employer pension plans, expenses
are recorded as incurred. For defined benefit indemnities, retirement plans, and
post-retirement benefit plans, liabilities are accrued over the estimated term
of service of the employee using actuarial methods. Differences caused by
actuarial gains or losses arising from changes in actuarial assumptions are
amortized over the residual working life of the employees.
(o) Restructuring
Restructuring costs are accrued when management determines the need to close
facilities, or to reduce or relocate the workforce and when the decision is
communicated to the employees. Such costs may include estimated facility closing
costs, asset impairments, and employees' severance and termination benefits.
(p) Tooling costs
Costs incurred for certain tooling projects for which the company will
receive customer recovery are capitalized and classified as tooling. Provisions
for losses are provided at the time the company anticipates tooling costs will
exceed anticipated customer recovery.
50
<PAGE> 51
] MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 3 -- CONSOLIDATED SUBSIDIARIES AND INVESTMENTS
<TABLE>
<CAPTION>
COMPANY COUNTRY OWNERSHIP %
------- ------- -----------
<S> <C> <C>
SOFEDIT S.A............................. France 100%
AUBECQ S.A.S............................ France 100%
BONIN S.A.S............................. France 100%
SERTE S.A.R.L........................... France 100%
CABRIT S.A.............................. France 100%
LEBRANCHU PROTOTYPES S.A................ France 100%
C.L.A. S.A.S............................ France 100%
C.T.A.A. S.A.(1)........................ France 100%
LAPRADE S.A.S........................... France 100%
LEBRANCHU LE THEIL S.A.S................ France 100%
SAUFEDIT ASSURANCES SARL(1)............. France 50%
BROUILLET S.A.(1)....................... France 100%
SOTRAMEX S.A.S.......................... France 100%
SOFEDIT IBERICA S.A..................... Spain 100%
COVENTRY PRESSWORK LTD.................. United Kingdom 100%
LEBRANCHU UK LTD........................ United Kingdom 100%
TOWERSTREAM LTD......................... United Kingdom 100%
AETNA HOLDINGS, INC..................... United States 100%
AETNA INDUSTRIES, INC................... United States 100%
AETNA EXPORT SALES CO................... US Virgin 100%
Islands
AETNA MANUFACTURING CANADA LTD.......... Canada 100%
SOFEDIT POLSKA.S.P. ZO.O................ Poland 100%
EUROPEST.S.A.R.L........................ France 100%
</TABLE>
- ----------
(1) Accounted for under the equity method
NOTE 4 -- OTHER EXPENSE, NET
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Net gain (loss) on disposal of
assets............................ $ -- $(2,600) $ 1,489
Restructuring costs................. (890) (2,493) --
Amortization of goodwill............ (1,539) (436) (362)
Employee profit sharing............. (1,580) (1,361) (1,278)
Other, net.......................... (336) 793 769
------- ------- -------
Other expenses, net................. $(4,345) $(6,097) $ 618
======= ======= =======
</TABLE>
51
<PAGE> 52
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 5 -- FEDERAL INCOME TAX
The components of pre-tax income (loss) and federal income tax income (expense)
are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1998 1997 1996
-------- ------- ------
<S> <C> <C> <C>
Pre-tax income (loss):
U.S. $(21,847) $ - $ -
Non-U.S. 9,905 9,181 11,006
-------- ------- -------
Total pre-tax income (loss) $(11,942) $ 9,181 11,006
======== ======= =======
Income tax income (expense):
Current: U.S. $ 1,717 $ - $ -
Non-U.S. (2,447) 742 1,260
-------- ------- -------
(730) 742 1,260
-------- ------- -------
Deferred: U.S. 3,364 - -
Non-US (367) (2,723) (934)
-------- ------- -------
2,997 (2,723) (934)
-------- ------- -------
Total income tax income (expense) $ 2,267 $(1,981) $ 326
======== ======= =======
</TABLE>
The differences between the income tax income (expense) and the statutory
income tax rate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Taxes computed at the statutory rate of 35.00% for 1998, 41.67%
for 1997 and 36.67% for 1996..................................... $ 4,179 $(3,825) $(4,035)
Differences resulting from:
Differences between U.S. and foreign tax rates.................. (657) -- --
Amortization of goodwill, not deductible for tax................ (590) (181) (133)
Other permanent differences..................................... (1,212) (716) (17)
Variation in valuation allowance................................ (346) (79) 319
Deemed dividend................................................. (1,133) -- --
Other taxes and tax credits..................................... 2,026 2,820 4,192
-------- ------- -------
Income tax income (expense)...................................... $ 2,267 $(1,981) $ 326
======== ======= =======
</TABLE>
The Company consolidates most of its French operations for tax purposes. All
of the U.S. entities are consolidated for U.S. income tax purposes. At December
31, 1998, there were tax net operating loss carry-forwards principally related
to taxing jurisdictions in the United Kingdom and United States, which totaled
approximately $2,105.
Tax credits relate mainly to income tax reductions based on research and
development expenses.
52
<PAGE> 53
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 5 -- INCOME TAX (CONTINUED)
The principal deferred tax assets and liabilities included in the
consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1998 1997
---- ----
<S> <C> <C>
Employee benefits............................ $ 4,255 $ 1,663
Provisions and other expenses................ 1,484 1,030
Tax loss carry-forwards...................... 2,105 1,407
R&D and start-up costs capitalized for tax
purposes.................................. 1,999 3,023
Other........................................ 4,826 2,702
-------- -------
Deferred tax assets, gross................... 14,669 9,825
Valuation allowance.......................... (358) (915)
-------- -------
Deferred tax assets, net..................... 14,311 8,910
-------- -------
Deferred tax on deferred expenses............ (1,456) (350)
Deferred income related to leasing
transactions.............................. (3,184) (3,994)
Depreciation and basis difference............ (9,544) --
Inventory.................................... (1,086) --
Other........................................ (1,851) (538)
-------- -------
Deferred tax liabilities..................... (17,121) (4,882)
-------- -------
Net deferred tax asset (liability)........... $ (2,810) $ 4,028
======== =======
</TABLE>
NOTE 6 -- DISCONTINUED OPERATIONS
The Company discontinued two operations during 1998, both of which have been
classified as discontinued operations for all the periods included in the
consolidated financial statements. These businesses consisted of cooking pan
production (the Company's only non-automotive component business) as well as a
non-core plastic automotive components business. For the years ended December
31, 1998, 1997 and 1996, these businesses contributed net sales of $17.4
million, $13.6 million and $15.6 million, respectively, and pre-tax operating
losses of $5.9 million, $2.7 million and $4.2 million, respectively. The Company
has closed its cooking pan business in December 1998 and expects to complete the
disposal of the plastic automotive components business during the first half of
1999. The company has accrued approximately $2 million for the disposal of the
plastic automotive components business.
The income tax charge (credit) for these operations was $(2.1) million,
$0.3 million and $(0.8) million for the years ended December 31, 1998, 1997 and
1996 respectively, and are included net with discontinued operations.
NOTE 7 -- CASH AND MARKETABLE SECURITIES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---- ----
<S> <C> <C>
Cash..................... $15,353 $10,599
Marketable securities ... 10,739 1,027
------- -------
Total.................... $26,092 $11,626
======= =======
</TABLE>
Cash and marketable securities include cash at banks and cash on hand. The
fair value of the marketable securities is not materially different from their
book value.
53
<PAGE> 54
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 8 -- TRADE RECEIVABLES, NET
Rollforward of allowance for doubtful accounts:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Balance, beginning of year $1,293 $1,186
Provision charged to expense 828 263
Deductions -- --
Currency translation adjustments 124 (156)
------ ------
Balance, end of year $2,245 $1,293
====== ======
</TABLE>
Sale of receivables with recourse:
The Company has sold trade receivables to financial institutions to finance
part of its working capital needs. Accordingly, these receivables have been
excluded from the consolidated balance sheets. The Company had $77,426 and
$53,789 sold receivables outstanding at December 31, 1998 and December 31, 1997,
respectively. Financial institutions have a full recourse right in case of
creditor's default. The average level of financing obtained through sale of
trade receivables was $73,663 and $51,175 for the years ended December 31, 1998
and December 31, 1997, respectively.
NOTE 9 -- OTHER ACCOUNTS RECEIVABLE, NET
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1998 1997
---- ----
<S> <C> <C>
Income tax and other government
receivables......................... $15,223 $17,750
Advances paid to suppliers............. 2,779 2,163
Prepaid expenses....................... 1,758 2,653
Other.................................. 12,825 5,350
------- -------
Other accounts receivable.............. $32,585 $27,916
======= =======
</TABLE>
In 1990, the founding shareholders of SOFEDIT decided to grant 1,500 stock
options to 23 employees of the Company. These stock options had a vesting period
of five years. The exercise price was FRF 675, which was the fair market value
of the options at grant date. The employees' shares resulting from the stock
options, as well as all other SOFEDIT shares were exchanged for MS Acquisition
common stock and other elements in April 1998 as described in Note 1. SOFEDIT
has a commitment to repurchase this common stock from the employees at first
request at the higher of net book value or a price used in the most recent
transaction between SOFEDIT's independent stockholders. During 1998, the
employees decided to sell their stock to SOFEDIT at an estimate of fair market
value totaling $1.5 million. SOFEDIT made a $1.5 million advance payment to
these employees in April 1998. The payment will be finalized during 1999 if the
Company completes an initial sale of common stock. The $1.5 million advance is
recorded on the "Other" line of the Other accounts receivable.
NOTE 10 -- INVENTORIES AND CONTRACTS IN PROCESS, NET
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
---- ----
<S> <C> <C>
Raw materials and supplies................. $27,131 $19,189
Work in progress........................... 31,976 30,214
Finished products.......................... 18,839 16,819
------- -------
Inventories, gross....................... 77,946 66,222
Less valuation allowance................... (3,383) (2,209)
------- -------
Inventories and contracts in process, net.. $74,563 $64,013
======= =======
</TABLE>
Note 11 -- PROPERTY, PLANT AND EQUIPMENT, NET
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1997
---- ----
<S> <C> <C>
Land $ 7,540 $ 4,764
Buildings and improvements................ 93,106 70,258
Machinery and equipment................... 260,962 189,709
Construction-in-progress.................. 26,157 14,554
-------- --------
Total property,plant and equipment... 387,765 279,285
Less - accumulated depreciation..... (184,494) (157,257)
-------- --------
Net property, plant and equipment.... $203,271 $122,028
======== ========
</TABLE>
54
<PAGE> 55
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 12 -- GOODWILL, NET
<TABLE>
<CAPTION>
NET VALUE ADDITIONS NET VALUE
DECEMBER 31, AND OTHER TRANSLATION DECEMBER 31,
1997 CHANGES AMORTIZATION ADJUSTMENTS 1998
------------ --------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Bonin.......... $ 233 $ -- $ (11) $ 16 $ 238
C.L.A.......... 1,873 -- (298) 118 1,693
Cabrit......... 1,752 -- (84) 122 1,790
Aubecq......... 1,468 -- (58) 102 1,512
Brouillet...... 76 -- (78) 2 --
Lebranchu...... 562 -- (22) 39 579
Laprade........ 17 -- (1) 1 17
CTAA........... 87 -- (3) 4 88
Coventry....... 98 -- (12) 10 96
MS Acquisition.(Note 1) -- 60,404 (1,050) -- 59,354
------ ------- ------- ---- -------
Goodwill, net.. $6,166 $60,404 $(1,617) $414 $65,367
====== ======= ======= ==== =======
</TABLE>
NOTE 13 -- OTHER NON-CURRENT ASSETS, NET
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1998 1997
------- ------
<S> <C> <C>
Unconsolidated companies:
Investments at cost, net of valuation provisions........ $14,159 $3,859
Loans................................................... 207 165
Other................................................... 7,286 237
------- ------
Other non-current assets, net.......................... $21,652 $4,261
======= ======
</TABLE>
In 1997, the Company purchased 15% of Euralcom for $3,859. Euralcom is a
Dutch company that specializes in aluminum parts and components for the
automotive industry.
In November, 1998, the Company purchased 20% of Emarc for $8,527. Emarc is an
Italian company which specializes in metal formed components for the automotive
industry. The Company formed Sofedit Paricipacoes Ltda with share capital of
$1,528. Sofedit Participacoes is a Brazilian assembly facility which will start
operating in the first half of 1999.
55
<PAGE> 56
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 14 -- FINANCIAL DEBT
Financial debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1998 1997
------- ------
<S> <C> <C>
Senior Notes due 2006..................... $ 85,000 $ --
Promissory notes.......................... 40,343 --
Senior Revolving Credit Facility.......... 54,845 --
Various term notes payable in
French Francs and British pounds....... 81,776 68,347
Term note payable......................... 5,000 --
Junior subordinated debentures............ 8,646 --
Capitalized leases........................ 33,935 35,136
-------- --------
Total..................................... $309,545 $103,483
======== ========
Of which Long-term portion................ 167,477 71,416
Short-term portion.............. 142,068 32,067
</TABLE>
On August 13, 1996, Aetna, a wholly owned subsidiary of MS Acquisition,
issued $85,000 of 11 7/8% Senior Notes due 2006 in a private placement offering.
Subsequent to this date, such Notes were registered with the Securities and
Exchange Commission. The Senior Notes have been fully and unconditionally
guaranteed by MS Acquisition, Aetna Holdings, and Aetna Export Sales Co. These
Senior 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 sale of
assets and subsidiary stock, (vii) mergers and consolidations, (viii) payment
restrictions affecting subsidiaries and (ix) transactions with affiliates.
In May 1996, Aetna executed a new 5 year credit agreement ("the Senior
Revolving Credit Facility") whereby it may borrow, based upon available
collateral as defined in the agreement (principally inventory, tooling, and
accounts receivable), up to $56,500 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. Aetna is also
charged a monthly fee equal to 0.5% per annum of the daily average unused amount
of the credit agreement. The interest rate at December 31, 1998 was 9.0%.
The Amended and Restated Senior Revolving Credit Facility of October 29,
1998 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. At December 31, 1998, Aetna had
borrowed $54,845 under the Senior Revolving Credit Facility.
Debt issue 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.
In August 1996, Aetna Holdings issued Junior Subordinated Debenture Notes
due August 13, 2007. Such Junior Notes accrue interest at the rate of 11% per
annum and interest is payable semi-annually in February and August of each year.
The Company, at its option, may prepay all or a portion of the outstanding
principal amount of the Junior Notes, provided that such payments are permitted
under the Company's Senior Notes Indenture and Revolving Credit Facility.
In connection with the Combination discussed in Note 1, the Company issued
$40,968 of promissory notes. The promissory notes are non-interest bearing for
an initial period of 12 months from the date of Combination and have been
discounted by the Company at 6.1% or $2,501. The remaining unamortized discount
amounted to $625 as of December 31, 1998.
In April, 1998, Aetna entered into a line of credit with available
borrowings of $5,000, subject to minimum levels of accounts receivable and
inventory. As of December 31, 1998 borrowings amounted to $5,000, which are due
March 1, 1999. Subsequent to year end, Aetna refinanced the line of credit to a
term loan, with 8 quarterly installments of $625, commencing June 30, 2001,
plus interest at 9%.
Interest rates on substantially all European short-term debt are based on
LIBOR and PIBOR for relevant European currencies. Long-term debt includes
various borrowings primarily denominated in French francs and British pounds.
Interest rates on long-term debt ranges from 4.6% to 10.75% depending on the
currency.
Substantially all of the Company's U.S. assets including accounts
receivable, inventory, and fixed assets secure the long-term debt
instruments in the U.S. As of December 31, 1998, the Company's borrowings in
Europe are secured by a pledge of fixed assets totaling $57,955 and a pledge of
the shares of certain subsidiaries in Europe totaling $32,140. The shares of
subsidiaries pledges consist of 15,265 shares of Sofedit, 757,026 shares of
Lebranchu Le Theil S.A. and 69,693 shares of Lebranchu Prototype S.A.
56
<PAGE> 57
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
No interest charge paid has been capitalized in any of the periods
presented.
The fair value of the Company's financial debt approximates it carrying
value as of December 31, 1998 and 1997.
As of December 31, 1998, the repayment schedule of long-term debt and
capital leases are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------
BORROWINGS DEBTS RELATED TO LEASES
---------- -----------------------
<S> <C> <C>
1999.................... $135,757 $ 6,311
2000.................... 21,815 6,162
2001.................... 11,240 4,417
2002.................... 9,202 3,023
2003.................... 3,379 10,610
thereafter.............. 94,217 3,412
-------- -------
Total................... $275,610 $33,935
======== =======
</TABLE>
NOTE 15 -- OTHER PAYABLES AND ACCRUED EXPENSES
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1997
---- ----
<S> <C> <C>
Payroll, sales and other taxes..................... $30,227 $29,113
Employee profit sharing............................ 4,196 3,912
Restructuring accrual.............................. 2,741 2,430
Accrued expenses................................... 21,563 10,489
Other.............................................. 17,286 6,905
------- -------
Total other payables and accrued expenses.......... $76,013 $52,849
======= =======
</TABLE>
As part of the Company's commercial strategy, it has taken a number of
restructuring measures to adapt the scale of its industrial operations to
changes in the market place.
During the year ended December 31, 1997 the Company expensed $2,493 for
restructuring activities, including payments of approximately $386 associated
with 12 employees and provisions for employee severance of $2,107 for 62
individuals. During 1997, only the $386 was paid, the remaining items were
accrued as of December 31, 1997. During 1998, the Company recorded an additional
$57 as an increase to the provision for employee severance and $2,534 for
contingencies related to the discontinued operations (see Note 6). During 1998,
58 out of 62 individuals left the Company and approximately $2,096 was paid. The
remaining four individuals, who are employee representatives, are expected to
terminate employment within the next four months. The remaining accrual as of
December 31, 1998 consists of $413 for employee termination and $2,328 related
to discontinued operations. The remaining variations in the restructuring
accrual are due to changes in foreign currency exchange rates.
NOTE 16 -- RETIREMENT, TERMINATION AND OTHER-RETIREMENT BENEFITS
The Company provides various types of retirement and termination benefits to
its employees. The type of benefits offered to an individual employee group is
related to local legal requirements as well as the historical operating
practices of the specific business unit.
Termination benefits are generally lump-sum payments based upon an
individual's years of credited service and annualized salary at retirement or
termination of employment. Pension benefits are generally determined using a
formula which uses the employee's years of credited service and average final
earnings. Certain defined benefit pension liabilities are funded through
separate pension funds.
57
<PAGE> 58
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Pension plan assets related to funded plans are invested mainly in equities and
debt securities. Other supplemental defined benefit pension plans sponsored by
the Company for certain employees are funded from the Company's assets as they
become due.
<TABLE>
<CAPTION>
December 31,
1998 1997
------ ------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 3,754 $ 4,743
Service cost 457 267
Interest cost 341 207
Actuarial (gain) loss 407 (723)
Acquisition 1,933 --
Benefits paid (133) (156)
Change in foreign currency 304 (584)
------- -------
Benefit obligation at end of year 7,063 3,754
======= =======
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 554 634
Actual return on plan assets 26 31
Acquisition 2,164 --
Employer contribution 204 --
Benefits paid (87) (31)
Change in foreign currency 40 (80)
------- -------
Fair value of plan assets at end of year 2,901 554
======= =======
Funded status (4,162) (3,200)
Unrecognized net transition amount 306 334
Unrecognized net actuarial (gain) loss 180 (610)
------- -------
Accrued benefit cost $(3,676) $(3,476)
======= =======
ASSUMPTIONS AT END OF YEAR
Discount rate 5% - 6.5% 7%
Expected return on plan assets 5% - 9.5% 7%
Rate of compensation increase 1.5% 4%
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $ 457 $ 267
Interest cost 341 207
Expected return on plan assets (179) (34)
Recognized net actuarial gain (68) (72)
Amortization of prior service cost 58 58
------- -------
Net periodic benefit cost $ 609 $ 426
======= =======
</TABLE>
58
<PAGE> 59
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
MULTI-EMPLOYER PLANS
Certain employees of the Company participate on a co-mingled basis with
other (non-group) companies in defined benefit pension plans. Such co-mingled
plans are known as multi-employer pension plans. Pension expense for
multi-employer pension plans is recorded based upon the agreed funding
requirements, and was $3,567, $3,267 and $3,468 for the years ended
December 31 1998, 1997 and 1996, respectively.
DEFINED CONTRIBUTION PLANS
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 the year ended December 31, 1998, the Company
incurred $152 of expense related to the 401(k) plans.
NOTE 17 -- PREFERRED STOCK
The authorized preferred stock, which has been issued by MS Acquisition, is
composed of:
-- 293,123 authorized shares of Series A Preferred Stock of which 142,424
are outstanding, 198,292 are held by a wholly-owned subsidiary, Aetna
Holdings. 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 of Directors and to the extent funds are legally available,
semi-annually in February and August.
-- 270,000 shares of Series B Preferred Stock, issued in connection with
the Combination, all of which are outstanding at December 31, 1998. Each
share has a stated value of $100 per share. No dividends accrue during
the first 12 months following the issuance. The Series B Preferred Stock
was discounted in recording the Combination at a rate per annum equal
to 11% or $2,970. The Series B Preferred Stock are recorded net of the
remaining discount of $743 as of December 31, 1998.
Each Preferred share is entitled to liquidation preference over all other
classes of capital stock. Series A Preferred Stock is non-voting and is
redeemable by both the Company and the holder under certain circumstances.
59
<PAGE> 60
\
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 18 -- SHAREHOLDERS' EQUITY
At December 31, 1996, SOFEDIT had 7,402 convertible bonds outstanding, each
allowing the subscription of one share. All were exercised during the second
half of 1997.
Under French law, the net profits, if any, related to the French legal
entities are allocated at a rate of 5% each year to a legal reserve (restricted
retained earnings) until the legal reserve is equal to 10% of the nominal share
capital of each entity. The legal reserve can be distributed only upon
liquidation of the entity. At December 31, 1998, the aggregate legal reserve of
such French legal entities was $167.
As described in Note 1, for accounting purposes, the combination of SOFEDIT
and MS Acquisition was effective on April 1, 1998. As a result of this
combination, the Company's capital stock and shareholders' equity accounts were
substantially affected. The Combination was accounted for as a reverse
acquisition, and accordingly, SOFEDIT is considered to be the acquirer of MS
Acquisition.
As required under reverse acquisition accounting, except for the 3,899,998
outstanding shares of Common Stock of MS Acquisition, the capital structure of
the acquirer is carried over and becomes the historical basis of accounting.
Additionally, the historical equity section of SOFEDIT financial statements
has been restated retroactively for each of the periods presented to reflect the
exchange ratio used in the Combination and, accordingly, SOFEDIT's historical
share capital has been replaced by MS Acquisition's share capital.
NOTE 19 -- SEGMENT INFORMATION
The Company operates in one line of business, the design and manufacture
of highly engineered metal-formed components, complex modules and mechanical
assemblies for automotive OEM's in Europe and North America.
The Company manages the business under two segments, Europe and North
America. The accounting policy of the reportable segments are the same as those
described in the summary of significant accounting policy. The Company
evaluates performance based on earnings before interest, income taxes, net
income of equity investees, minority interests and discontinued operations
(EBIT).
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997 December 31, 1996
----------------- ----------------- -----------------
OPERATING Europe North Total Europe North Total Europe North Total
SEGMENTS America America America
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $542,037 $168,809 $710,846 $487,898 - $487,898 $484,712 - $484,712
EBIT 19,255 (7,569) 11,686 18,864 - 18,864 23,877 - 23,877
Depreciation and
amortization 23,405 8,438 31,843 27,509 - 27,509 24,857 - 24,857
Total assets 408,915 215,249 624,164 361,912 - 361,912 408,523 - 408,523
</TABLE>
The following tables present financial information at and for the years
ended December 31 by geographic area:
<TABLE>
<CAPTION>
GEOGRAPHIC SEGMENTS 1998 1997 1996
- --------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
France $464,372 $430,596 $433,619
United States 161,541 -- --
United Kingdom 70,798 57,060 51,093
Other 14,135 242 --
-------- -------- --------
Total revenues $710,846 $487,898 $484,712
======== ======== ========
Long-Lived Assets
France $116,825 $116,845 $134,192
United States 132,916 -- --
United Kingdom 11,583 10,965 9,305
Other 7,314 384 --
-------- -------- --------
Total long-lived assets $268,638 $128,194 $143,497
======== ======== ========
</TABLE>
60
<PAGE> 61
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 20-- COMMITMENTS AND CONTINGENCIES
(a) Commitments
In November 1998, the Company entered into a firm commitment to purchase 10%
of Emarc capital for a fixed price of $4,135 in November 1999.
(b) Contingencies
Litigation: The Company is the defendant in several legal proceedings
incidental to the normal conduct of its business. The Company believes that the
outcome of these proceedings will not have a material effect on its consolidated
financial position or results of operations.
Environmental: The Company's operations are subject to numerous
environmental regulations in each of the jurisdictions in which it operates,
including local, national and international laws and regulations for the
protection of the environment relating to the handling, transport, disposal and
emission of hazardous materials. Compliance with environmental regulations has
not had a material effect on the Company's consolidated financial position or
results of operations.
(c) Credit risk
The Company has sales mainly with large international car and equipment
manufacturers. Management believes the risk of counter-party failure from these
customers, which would have a material impact on the company's operations and
financial position, is remote due to the high credit rating of the
counter-parties.
61
<PAGE> 62
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(d) Operating leases
The Company leases certain production facilities and machinery and equipment
under non-cancellable operating leases. Future minimum rental payments due under
operating leases are: 1999 - $1,445, 2000 - $856, 2001 - $662, 2002 - $653, 2003
- - $435, thereafter - $29. Rent expense under these lease agreements aggregated
$2,869 during 1998.
NOTE 21 -- RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133") "Accounting for Derivative
Instruments and Hedging Activities". SFAS 133 established accounting and
reporting standards for hedging activities. This statement will become
effective for quarters beginning after June 15, 1999. This statement is not
expected to have any effect on the Company's financial position or results of
operations.
In April 1998, the Accounting Standards Executive Committee issued Statement
of Position 98-5 ("SOP" 98-5),"Reporting on the Costs of Start-up Activities".
This statement prescribes accounting treatment for start-up activities and is
effective for fiscal years beginning after December 15, 1998. This statement is
not expected to have a material effect on the Company's financial position or
results of operations.
NOTE 22 -- PRO FORMA FINANCIAL INFORMATION (unaudited)
The pro forma summarized consolidated statements of operations for the year
ended December 31, 1997 gives pro forma effect to the Combination described in
Note 1, as if it had occurred on January 1, 1997. The pro forma consolidated
statements of operations for the year ended December 31, 1998 gives pro forma
effect to the Combination described in Note 1, as if it had occurred on January
1, 1998. The pro forma presentation does not purport to present the actual
results that would have been achieved had the Combination taken place at the
beginning of each period presented.
Earnings per share have been calculated as described in Note 1.
SUMMARIZED PRO FORMA STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
--------------------------
1998 1997
---- ----
(UNAUDITED)
<S> <C> <C>
Net sales............................. $ 763,931 $693,639
Cost of sales......................... (691,750) (611,478)
Selling, general and administrative
expenses........................... (42,283) (42,925)
Research and development expenses..... (9,497) (7,413)
Other income (expenses)............... (5,493) (7,611)
--------- --------
Operating income...................... 14,908 24,212
Net interest expense.................. (27,511) (24,113)
--------- --------
Pre-tax income (loss)................. (12,603) 99
Net income (loss) before discontinued
operations and preferred stock
dividend........................... (10,103) 905
Preferred stock dividend requirement.. (4,585) (4,585)
Net loss.............................. (18,374) (6,151)
</TABLE>
NOTE 23 - COMBINING FINANCIAL INFORMATION OF MS ACQUISITION
CONSOLIDATED STATEMENT OF OPERATIONS FOR TWELVE MONTHS
ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Aetna MS
Aetna Holdings Acquisition Sofedit Eliminations Total
----- -------- ----------- ------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 168,809 $ - $ - $ 542,037 $ - $ 710,846
Cost of sales 159,770 1,811 484,982 646,563
Selling, general and
administrative expenses 13,150 597 25,008 38,755
Research and development
expenses - 9,497 9,497
Other non-recurring
expenses 601 449 3,295 4,345
------------ ------------ ------------ ----------- ------------- ----------
Operating income (loss) (4,712) - (2,857) 19,255 - 11,686
Net interest expense 10,835 933 2,510 9,350 23,628
------------ ------------ ------------ ----------- ------------- ----------
Income (loss) before income
taxes (15,547) (933) (5,367) 9,905 - (11,942)
Income tax provision (credit) (4,134) (317) (630) 2,814 (2,267)
------------ ------------ ------------ ----------- ------------- ----------
Income (loss) before share in
net income of equity
investees and discontinued
operations $ (11,413) $ (616) $ (4,737) $ 7,091 $ - $ (9,675)
============ =========== ============ =========== ============= ==========
Share in net income
of equity investees 133 133
------------ ----------- ------------ ----------- ------------- ----------
Net income (loss) before
discontinued operations (11,413) (616) (4,737) 7,224 - (9,542)
Discontinued operations, net
of tax (3,819) (3,819)
------------ ----------- ------------ ----------- ------------- ----------
Net income (loss) before
preferred dividends (11,413) (616) (4,737) 3,405 - (13,361)
Preferred stock dividend
requirements (3,438) - - - - (3,438)
------------ ----------- ------------ ----------- ------------- ----------
Net income (loss) available
for common shareholders $ (14,851) $ (616) $ (4,737) $ 3,405 $ - $ (16,799)
============ =========== ============ =========== ============= ==========
</TABLE>
NOTE 23 - COMBINING FINANCIAL INFORMATION OF MS ACQUISITION (continued)
BALANCE SHEET AS OF DECEMBER 31, 1998
<TABLE>
<CAPTION>
Aetna MS
Aetna Holdings Acquisition Sofedit Eliminations Total
----- -------- ----------- ------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Total current assets $ 91,132 $ 319 $ 790 $ 260,650 $ (20,336) $ 332,555
Property, plant, and
equipment, net 71,922 6,734 124,615 203,271
Other long-term assets 29,889 7,845 134,519 23,650 (107,567) 88,336
-------- ----- ------- ------- -------- -------
Total Assets 192,943 8,164 142,043 408,915 (127,903) 624,162
======== ===== ======= ======= ======== =======
Total current liabilities 116,490 (15) 45,735 258,469 (7,908) 412,771
Long-term debt 88,125 8,646 11,964 70,774 (12,032) 167,477
Deferred income taxes and
other long-term liabilities 5,498 3,478 10,394 19,370
Redeemable preferred stock
Series A 14,900 14,900
Series B 26,257 26,257
Class A, common stock -
$.01 par value,
12,000,000 shares
authorized, 3,902,498
shares issued and
outstanding 39 39
Additional paid-in capital 9,024 32,657 (973) 40,708
Retained earnings -
(accumulated deficit) (25,950) (467) 7,013 67,107 (102,613) (54,910)
Cumulative translation
adjustment (244) - 2,171 (4,377) (2,450)
-------- ---- ------- ------- -------- -------
Total shareholders
equity (deficit) (17,170) (467) 39,709 69,278 (107,963) (16,613)
-------- ---- ------- ------- -------- -------
Total Liabilities
and Shareholders Equity
(Deficit) $ 192,943 $ 8,164 $ 142,043 $ 408,915 $ (127,903) $ 624,162
======== ===== ======= ======= ======== =======
</TABLE>
COMBINING FINANCIAL INFORMATION OF MS ACQUISITION (CONTINUED)
CONSOLIDATED STATEMENT OF CASH FLOWS FOR TWELVE MONTHS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Aetna MS
Aetna Holdings Acquisition Sofedit Eliminations Total
----- -------- ----------- ------- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating
activities $ (13,748) $ - $ - $ 46,475 $ - $ 32,727
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash used for investing
activities (24,471) (26,244) (50,715)
CASH FLOWS FROM FINANCING ACTIVITIES
Net cash provided by financing 39,761 (8,540) 31,221
Net effect of exchange rates (357) 1,590 1,233
------------ -------- ----------- ---------- ----------- ------------
Net increase in cash 1,185 - - 13,281 - 14,466
Cash - beginning of year - 11,626 11,626
------------ -------- ----------- ---------- ----------- ------------
Cash - end of period $ 1,185 $ - $ - $ 24,907 $ - $ 26,092
============ ======== =========== ========== =========== ============
</TABLE>
62
<PAGE> 63
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Aetna Industries, Inc.
We have audited the accompanying consolidated balance sheet of Aetna Industries,
Inc. and its subsidiaries as of December 31, 1998 and the related consolidated
statements of operations, comprehensive income (loss) and cash flows for the
year then ended. 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 out audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aetna Industries, Inc. and its
subsidiaries as of December 31, 1998 and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Detroit, Michigan,
February 25, 1999.
63
<PAGE> 64
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Aetna Industries, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations and comprehensive income (loss) and of
cash flows present fairly, in all material respects, the financial position of
Aetna Industries, Inc. and its subsidiaries at December 28, 1997 and the results
of their operations, comprehensive income (loss) and cash flows for each of the
two years in the period ended December 28, 1997 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.
We have not audited the consolidated financial statements of Aetna Industries,
Inc. and its subsidiaries for any period subsequent to December 28, 1997.
/s/ PricewaterhouseCoopers LLP
Bloomfield Hills, Michigan
February 6, 1998
64
<PAGE> 65
AETNA INDUSTRIES, INC.
(A WHOLLY -OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 28,
ASSETS NOTE 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current assets
Cash $ 1,185 $ 23
Accounts receivable (less allowance for
doubtful accounts of $411 and $359, respectively) (2, 11) 38,793 40,665
Inventories (2, 3) 7,040 7,276
Tooling 40,724 11,410
Prepaid expenses, including income taxes (2, 8) 2,798 446
Deferred income taxes (8) 592 1,215
-------- --------
Total current assets 91,132 61,035
-------- --------
Property, plant and equipment (2)
Land 2,405 2,405
Buildings and improvements 25,329 13,556
Machinery and equipment 84,810 66,765
Construction-in-progress 8,092 10,211
-------- --------
Total property, plant and equipment 120,636 92,937
Less - accumulated depreciation (48,714) (41,365)
-------- --------
Net property, plant and equipment 71,922 51,572
-------- --------
Other assets
Deferred costs and other assets (10) 5,717 5,489
Goodwill, net (2) 24,172 24,973
-------- --------
Total other assets 29,889 30,462
-------- --------
Total Assets $192,943 $143,069
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
65
<PAGE> 66
AETNA INDUSTRIES, INC.
(A WHOLLY -OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 28,
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) NOTE 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current liabilities
Accounts payable $ 48,874 $ 33,485
Accrued expenses (4) 10,896 9,508
Current portion of long term debt and short term debt (10) 56,720 13,530
-------- --------
Total current liabilities 116,490 56,523
-------- --------
Long-term debt, less current portion (10) 88,125 85,000
-------- --------
Deferred income taxes (2, 8) 5,498 7,432
-------- --------
Commitments and contingencies (5, 9)
Stockholders' equity (deficit)
Common stock - $.01 par value; 1,000 shares issued and (6)
outstanding -- --
Contributed capital 9,024 9,024
Accumulated deficit (25,950) (14,910)
Accumulated other comprehensive income (loss) (244) --
-------- --------
Total stockholders' equity (deficit) (17,170) (5,886)
-------- --------
Total Liabilities and Stockholders' Equity (Deficit) $192,943 $143,069
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
66
<PAGE> 67
AETNA INDUSTRIES, INC.
(A WHOLLY -OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------
DECEMBER 31, DECEMBER 28, DECEMBER 29,
NOTE 1998 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 221,894 $205,741 $211,462
Cost of sales 204,782 181,336 180,998
Selling, general and administrative expenses 18,202 17,602 15,644
--------- -------- --------
Operating income(loss) (1,090) 6,803 14,820
Interest expense, net 13,918 10,263 9,022
--------- -------- --------
Income (loss) before income tax provision
(credit) and extraordinary item
(15,008) (3,460) 5,798
Income tax provision (credit) (8) (3,968) (1,099) 2,105
--------- -------- --------
Income (loss) before extraordinary item (11,040) (2,361) 3,693
Extraordinary item (net of income taxes of $594) (1) -- -- (1,153)
--------- -------- --------
Net income (loss) $ (11,040) $ (2,361) $ 2,540
========= ======== ========
Other comprehensive income (loss):
Foreign currency translation adjustments (244) -- --
--------- -------- --------
Comprehensive income (loss) $ (11,284) $ (2,361) $ 2,540
========= ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
67
<PAGE> 68
AETNA INDUSTRIES, INC.
(A WHOLLY -OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
DECEMBER 31, DECEMBER 28, DECEMBER 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(11,040) $ (2,361) $ 2,540
Adjustments to reconcile net income (loss) to net cash
provided by (used for) operating activities -
Depreciation and amortization 9,384 9,917 7,965
Loss on disposal of property, plant and equipment 183 -- --
Deferred income taxes (1,311) (705) (588)
Changes in assets and liabilities:
Accounts receivable 1,929 (7,912) (4,231)
Inventories 245 1,480 (97)
Tooling (29,301) (9,818) 1,066
Prepaid expenses (2,345) (739) (149)
Accounts payable 15,302 8,527 (6,608)
Accrued expenses 1,386 (2,596) 1,995
-------- -------- --------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES (15,568) (4,207) 1,893
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (27,949) (10,725) (7,023)
Disposals of property, plant and equipment -- 79 493
Other, net -- 43 83
-------- -------- --------
NET CASH USED FOR INVESTING ACTIVITIES (27,949) (10,603) (6,447)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt 5,000 -- 85,000
Dividends paid -- (2,385) (11,082)
Debt issuance costs (1,279) (323) (5,403)
Principal payments on long-term debt -- -- (49,192)
Net change in line of credit 41,315 13,530 (11,049)
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 45,036 10,822 8,274
-------- -------- --------
Net effect of exchange rate changes on cash (357) -- --
-------- -------- --------
Net increase (decrease) in cash 1,162 (3,988) 3,720
Cash - beginning of year 23 4,011 291
-------- -------- --------
Cash - end of year $ 1,185 $ 23 $ 4,011
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 13,881 $ 12,037 $ 19,475
======== ======== ========
Cash paid during the year for income taxes $ 125 $ 1,209 $ 1,959
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
68
<PAGE> 69
AETNA INDUSTRIES, INC.
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 two wholly-owned subsidiaries Aetna Export Sales Corp. ("Export")
and Aetna Manufacturing Canada Ltd. ("Aetna Manufacturing"). MS
Acquisition is a holding company and does not have any significant
operations, other than its investments in its subsidiaries assets or
liabilities, other than preferred stock, junior subordinated debentures
and accruals resulting from the transactions described below and the
Combination.
On April 14, 1998, a combination was completed between SOFEDIT and MS
Acquisition (the "Combination"). In the Combination, SOFEDIT's former
stockholders transferred the outstanding capital stock of SOFEDIT to MS
Acquisition in exchange for: (i) promissory notes of MS Acquisition in the
principal amount of approximately $41 million; (ii) dividends in the
amount of approximately $1 million; (iii) 270,000 shares of Series B
Preferred Stock ($27 million stated value) of MS Acquisition; (iv three
million shares of Common Stock representing 75% of the fully diluted
outstanding Common Stock; and (v) the assumption of approximately $12
million of debt of former SOFEDIT stockholders.
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 two new classes of preferred stock (together
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.
In addition, on August 13, 1996, Aetna issued $85,000 of 11-7/8% Senior
Notes due 2006 (the Notes) in a private placement. Subsequent to this
date, such Notes were registered with the Securities and exchange
Commission. 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.
69
<PAGE> 70
AETNA INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
2. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company's fiscal year ended on the Sunday closest to December 31 in
1997 and 1996. Fiscal years 1997 and 1996 consisted of 52 weeks and ended
December 28, 1997 and December 29, 1996, respectively. In 1998, the
Company changed its fiscal year-end to December 31.
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, DaimlerChrysler
(DaimlerChrysler) 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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
DaimlerChrysler 55% 66% 61%
GM 17% 25% 33%
Other 28% 9% 6%
--- --- ---
100% 100% 100%
=== === ===
</TABLE>
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
a subsidiary in Canada (Manufacturing) and a foreign sales corporation
(Export), each of which is a wholly-owned subsidiary of Aetna. All
significant intercompany transactions and account balances have been
eliminated in consolidation. In addition, management of the Company has
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 the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Management reviews its estimates on
an ongoing basis using currently available information. Changes in facts
and circumstances may result in revised estimates and actual results could
differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers cash on hand, deposits in banks and short-term
marketable securities with original maturities of 90 days or less as cash
and cash equivalents for the purpose of the statement of cash flows.
70
<PAGE> 71
AETNA INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
2. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 accounts receivable are recorded
upon shipment of product to the customer.
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.
TOOLING COSTS
Costs incurred for certain tooling projects for which the company will
receive customer recovery are capitalized and classified as tooling.
Provisions for losses are provided at the time the company anticipates
tooling costs will exceed anticipated customer recovery.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost, less any impairment loss.
The Company provides for depreciation principally using the straight-line
method over the following estimated useful lives:
YEARS
Buildings and improvements 20 - 30
Machinery and equipment 5 - 15
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.
GOODWILL
Goodwill is being amortized over forty years using the straight-line
method. Accumulated amortization aggregated $7,878 and $7,077 at December
31, 1998 and December 28, 1997, respectively. Whenever events or changes
in the market indicate a potential impairment of intangible assets and
property, plant and equipment, a detailed review is carried out based on
the projected undiscounted cash flows of the related businesses. Whenever
such review indicates that there is impairment, the carrying amount of
such assets is reduced to their projected recoverable value.
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.
71
<PAGE> 72
AETNA INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
3. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 28,
1998 1997
---- ----
<S> <C> <C>
Inventories valued at LIFO
Raw materials $ 881 $ 483
Work-in-process 2,333 3,134
Finished goods 1,670 1,500
------ ------
4,884 5,117
LIFO reserve (200) (200)
------ ------
4,684 4,917
------ ------
Inventories valued at FIFO
Purchased parts and purchased labor 2,356 2,359
------ ------
Total inventories $7,040 $7,276
====== ======
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 28,
1998 1997
---- ----
<S> <C> <C>
Accrued workers' compensation expense $ 3,829 $3,770
Accrued interest 2,662 2,578
Taxes other than income 694 1,809
Other 3,711 1,351
------- ------
Total accrued expenses $10,896 $9,508
======= ======
</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 $1,114, $1,061 and $1,013 during 1998, 1997 and
1996, respectively. Future minimum rental payments due under these lease
agreements are as follows:
72
<PAGE> 73
AETNA INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDING
<S> <C>
1999 $1,170
2000 1,163
2001 1,085
2002 1,139
2003 1,196
Thereafter 3,959
------
$9,712
======
</TABLE>
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. STOCKHOLDERS' EQUITY (DEFICIT)
The changes in stockholders' equity (deficit) were as follows:
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
OTHER STOCKHOLDERS'
CONTRIBUTED ACCUMULATED COMPREHENSIVE EQUITY
CAPITAL DEFICIT INCOME (LOSS) (DEFICIT)
<S> <C> <C> <C> <C>
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)
Net loss -- (2,361) -- (2,361)
Dividends paid to Aetna Holdings -- (2,385) -- (2,385)
------ -------- ----- --------
Balance at December 28, 1997 9,024 (14,910) -- (5,886)
Net loss -- (11,040) -- (11,040)
Cumulative translation adjustments -- -- (244) (244)
------ -------- ----- --------
Balance at December 31, 1998 $9,024 ($25,950) $(244) ($17,170)
====== ========= ===== ========
</TABLE>
In 1996, Aetna Holdings 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 made
principal payments on these debentures and obligations of $1,440 in 1997 and
interest payments totaling $945. 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.
73
<PAGE> 74
AETNA INDUSTRIES, INC.
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' change in benefit obligation,
change in plan assets, funded status and amounts recognized in the
Company's consolidated balance sheets at December 31, 1998 and December
28, 1997:
<TABLE>
<CAPTION>
December 31
----------------
1998 1997
------ ------
<S> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $1,572 $1,528
Service cost 229 198
Interest cost 149 100
Actuarial (gain) loss 500 (189)
Benefits paid (69) (65)
------ ------
Benefit obligation at end of year 2,381 1,572
====== ======
CHANGE IN PLAN ASSETS
Fair value of plan assets at
beginning of year 2,047 1,709
Actual return on plan assets 130 246
Employer contribution 201 157
Benefits paid (69) (65)
------ ------
Fair value of plan assets at end of year 2,309 2,047
====== ======
Funded status (72) 475
Unrecognized net actuarial loss 370 81
Unrecognized prior service cost -- 61
------ ------
Prepaid benefit cost $ 298 $ 617
====== ======
ASSUMPTIONS AT END OF YEAR
Discount rate 6.50% 7.25%
Expected return on plan assets 9.5% 9.5%
Rate of compensation increase N/A N/A
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $ 229 $ 198
Interest cost 149 100
Expected return on plan assets (202) (313)
Recognized net actuarial loss (gain) 343 --
Amortization of prior service cost -- 156
------ ------
Net periodic benefit cost $ 519 $ 141
====== ======
</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. For fiscal 1998, 1997 and 1996, the Company
incurred $152, $153 and $140, respectively, of expense related to the
401(k) plans.
74
<PAGE> 75
AETNA INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
8. INCOME TAXES
The Company is included in the consolidated United States Federal income
tax return filed by MS Acquisition Corp. Accordingly, the provision for
Federal income taxes and the related payments or refunds of tax is
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 (credit) is comprised of the following:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Current income taxes $(1,988) $ 588 $ 2,804
Deferred income taxes (1,980) (1,687) (699)
------- ------- -------
$(3,968) ($1,099) $ 2,105
======= ======= =======
</TABLE>
Deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 28,
1998 1997
---- ----
<S> <C> <C>
DEFERRED TAX ASSETS
Workers' compensation $ 1,275 $ 1,255
Other 2,506 1,499
-------- -------
Gross deferred tax assets 3,781 2,754
-------- -------
DEFERRED TAX LIABILITIES
Depreciation (7,255) (7,590)
Inventory (1,003) (1,243)
Deferred costs and other (429) (521)
-------- -------
Gross deferred tax liabilities (8,687) (9,354)
-------- -------
Net deferred tax liability $ (4,906) $(6,600)
======== =======
</TABLE>
75
<PAGE> 76
AETNA INDUSTRIES, INC.
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>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory rate (35.0%) (35.0%) 35.0%
Effect of graduated rate 1.0 1.0 (1.0)
Permanent items and other reserves 8.5 7.9 7.2
Research and development credit refunds -- (1.0) (3.0)
FSC commission -- (1.4) --
Other (0.9) (3.3) (1.9)
----- ------ ----
(26.4%) (31.8%) 36.3%
===== ====== ====
</TABLE>
9. CONTINGENCIES AND LEASE COMMITMENT
The Company leases certain production facilities and machinery and
equipment under non-cancellable operating leases. Future minimum rental
payments due under operating leases are: 1999 - $1,445, 2000 - $856, 2001
- $662, 2002 - $653, 2003 - $435, thereafter - $29. Rent expense under
these lease agreements aggregated $ 2,869, $ 2,580 and $ 2,412
during 1998, 1997 and 1996, respectively.
10. LONG-TERM DEBT
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 31, 1998,
the fair market value of the Senior Notes approximated its carrying value.
In May 1996, the Company executed a credit agreement whereby it may
borrow, based upon available collateral as defined in the agreement
(principally inventory, tooling, and accounts receivable), up to $56,500
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 interest rate at December 31, 1998 was 9.0%.
76
<PAGE> 77
AETNA INDUSTRIES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
The Amended and Restated Senior Revolving Credit Facility on October 29,
1998 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. At
December 31, 1998, Aetna had borrowed $54,845 under the Senior Revolving
Credit Facility.
Debt issuance costs that 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 $1,904 at December 31, 1998.
In April, 1998, Aetna entered into a line of credit with available
borrowings of $5,000, subject to minimum levels of accounts receivable and
inventory. As of December 31, 1998 borrowings amounted to $5,000, which
are due March 1, 1999. Subsequent to year end, Aetna refinanced the line
of credit to a term loan, with quarterly installments of $625, ending June
30, 2001, plus interest at 9.0%, resulting in $1,875 classified as current
portion of long term debt.
11. ALLOWANCE FOR DOUBTFUL ACCOUNTS
A rollforward of the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 359 $ 510 $ 240
Provisions changed to expense 52 52 444
Deductions -- (203) (174)
Translation adjustments -- -- --
----- ----- -----
Balance end of year $ 411 $ 359 $ 510
===== ===== =====
</TABLE>
77
<PAGE> 78
<TABLE>
<CAPTION>
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Exhibit Page
- ------ ------- ------------
<C> <C> <C>
3.1 Certificate of Incorporation of Aetna Industries, Inc. ("Aetna") (1)
3.2 Amended and Restated Certificate of Incorporation of MS Acquisition (1)
Corp. ("MS Acquisition")
3.3 Certificate of Incorporation of Aetna Holdings, Inc. ("Aetna Holdings") (1)
3.4 Certificate of Incorporation of Aetna Export Sales Corp. ("Export") (1)
3.5 By-laws of Aetna (1)
3.6 By-laws of MS Acquisition (1)
3.7 By-laws of Aetna Holdings (1)
3.8 By-laws of Export (1)
4.1 Indenture dated as of August 1, 1996 by and among Aetna, Aetna Holdings, (1)
MS Acquisition, Export and Norwest Bank Minnesota, National Association,
as Trustee
4.2 First Supplemental Indenture dated as of August 3, 1998, among Aetna (2)
Industries, inc., MS Ascquisition Corp., Aetna Holdings, Inc., Aetna
Export Sales Corp., Aetna Manufacturing Canada Ltd.. and Norwest Bank
Minnesota National Association.
10.1 Recapitalization and Stock Purchase Agreement dated as of August 13, (1)
1996 among Citicorp Venture Capital, Ltd., MS Acquisition and the
stockholders listed therein
10.2 Stock Purchase Agreement dated as of August 13, 1996 among MS (1)
Acquisition, Aetna Holdings and the stockholders and optionees listed
therein
10.3 Amended and Restated Credit Agreement dated as of April 10, 1998, by and (3)
among Aetna Industries, Inc., the Guarantors party thereto, the lenders
party thereto, NBD Bank, as agent
10.4 First Amendment to Credit Agreement dated as of May 20, 1998, by and (3)
among Aetna Industries, Inc., the Guarantors party thereto, the lenders
party thereto, and NBD Bank, as agent
10.5 Second Amendment to Credit Agreement dated as of August 6, 1998, by and (2)
among Aetna Industries, Inc., the Guarantors party thereto, the lenders
party thereto, and NBD Bank, as agent
10.6 Third Amendment to Credit Agreement dated as of October 13, 1998, by and *
among Aetna Industries, Inc., the Guarantors party thereto, the lenders
party thereto, and NBD Bank, as agent
10.7 Fourth Amendment to Credit Agreement dated as of October 29, 1998, by and *
among Aetna Industries, Inc., the Guarantors party thereto, the lenders
party thereto, and NBD Bank, as agent
10.8 Security Agreement dated as of May 2, 1996 by Aetna in favor of NBD (1)
Bank, as Lender and Agent
10.9 Security Agreement dated as of May 2, 1996 by Export in favor of NBD (1)
Bank, as Lender and Agent
10.10 Security Agreement dated as of April 10 1998, by Aetna Canada in favor *
of NBD Bank, as Lender and Agent
10.11 Pledge Agreement and Irrevocable Proxy dated as of May 2, 1996 by Aetna (1)
in favor of NBD Bank, as Lender and Agent
</TABLE>
<PAGE> 79
EXHIBIT INDEX (CONTINUED)
<TABLE>
<S> <C> <C>
10.12 Registration Rights Agreement dated as of August 13, 1996 by and among (1)
Aetna, MS Acquisition, Aetna Holdings, Export and the Initial Purchasers
named therein
10.13 Stockholders Agreement dated as of August 13, 1996 among MS Acquisition (1)
and its stockholders named therein
10.14 Registration Rights Agreement dated as of August 13, 1996 among MS (1)
Acquisition and its stockholders named therein
10.15 Management Agreement dated as of August 13, 1996 by and between MS (1)
Acquisition and Aetna **
10.16 Form of 11% Junior Subordinated Promissory Notes Due 2007 of Aetna (1)
Holdings dated August 13, 1996
10.17 Agreement to Indemnify dated as of August 13, 1996 between Aetna and (1)
each of R. Epker, R. Small, J. Bakken, D. Thal and J. Singer
10.18 Amended and Restated Executive Stock Option Plan of MS Acquisition ** (1)
10.19 Form of Stock Option Agreement ** (1)
10.20 Form of Employment Agreement dated as of August 13, 1996 among Aetna, MS (1)
Acquisition and Ueli Spring **
10.30 Employment Agreement dated as of August 13, 1996 among Aetna, MS (1)
Acquisition and Harold Brown **
10.40 Employment Agreement dated as of August 13, 1996 among Aetna, MS (1)
Acquisition and Gary Easterly **
10.50 Form of Purchase Order with General Motors Corporation
10.60 Form of Purchase Order with Chrysler Corporation (1)
16.1 Letter Regarding Change in Certifying Accountant from PricewaterhouseCoopers LLP *
21 Subsidiaries of Aetna and MS Acquisition (1)
25 Statement of Eligibility and Qualification, Form T-1, of Norwest Bank (1)
Minnesota, National Association
27.1 Financial Data Schedule - MS Acquisition *
27.2 Financial Data Schedule - Aetna Industries *
</TABLE>
* Filed herewith.
** Management contract or compensatory plan or arrangement
(1) Incorporated by reference to the respective exhibit to Aetna's
Registration Statement No. 333-11801
(2) Incorporated by reference to the company's quarterly report on form 10-Q
filed with the commission on November 12, 1998
(3) Incorporated by reference to the company's quarterly report on form 10-Q
filed with the commission on August 12, 1998
<PAGE> 1
EXHIBIT 10.6
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT, dated as of October
13, 1998 (this "Amendment"), is among AETNA INDUSTRIES, INC., a Delaware
corporation (the "Company"), the guarantors set forth on the signature pages
hereof (collectively, the "Guarantors"), the Lenders set forth on the signature
pages hereof (collectively, the "Lenders") and NBD BANK, a Michigan banking
corporation, as agent for the Lenders (in such capacity, the "Agent").
RECITALS
A. The Company, the Guarantors, the Agent and the Lenders are
parties to an Amended and Restated Credit Agreement dated as of April 10, 1998
(as now and hereafter amended, the "Credit Agreement").
B. The Company and the Guarantors desire to amend the Credit
Agreement, and the Agent and the Lenders are willing to do so in accordance with
the terms hereof.
TERMS
In consideration of the premises and of the mutual agreements herein
contained, the parties agree as follows:
ARTICLE I. AMENDMENTS. Upon fulfillment of the conditions set forth in
Article III hereof, the Credit Agreement shall be amended as follows:
1.1 The definition of "Borrowing Base " in Section 1.1 is restated as
follows:
"Borrowing Base" shall mean, as of any date, the lesser of (a)
the sum, without duplication, of (i) an amount equal to 85% of the value of
Eligible Accounts Receivable plus (ii) an amount equal to 60% of the value of
Eligible Inventory not to exceed $9,500,000, plus (iii) an amount equal to 50%
of Eligible Tooling Inventory not to exceed (A) $15,000,000 from the Effective
Date hereof to and including June 30, 1999 or (B) $5,000,000 from and including
July 1, 1999 and thereafter, plus (iv) 80% of the value of Eligible Fixed Assets
owned by the Company and Manufacturing as of the Effective Date, which amount is
equal to $20,028,860 as of the Third Amendment Effective Date, plus (v) if the
SOFEDIT Letter of Credit has been issued in the amount of $10,000,000 and can be
drawn upon and the proceeds applied to the Advances upon satisfaction of the
conditions to a draw thereunder, for the period from and including the Third
Amendment Effective Date to but excluding February 15, 1999 only, $10,000,000
less the amount drawn under the SOFEDIT Letter of Credit, or (b) the amount
calculated under clause (b) of the definition of "Permitted Indebtedness" set
forth in the Senior Note Indenture; provided, however, that the Borrowing Base
shall be determined on the basis of the most current Borrowing Base Certificate
required to be delivered by the Company hereunder.
1.2 The following definitions are hereby added to Section 1.1 in
appropriate alphabetical order:
"SOFEDIT Letter of Credit" shall mean the irrevocable standby
letter of credit issued for the benefit of the Agent and the Lenders in the form
of Schedule 1.1(c) hereto.
"Third Amendment" shall mean the Third Amendment to this
Agreement dated as of October 13, 1998.
<PAGE> 2
"Third Amendment Effective Date" shall mean the date the Third
Amendment is effective.
1.3 Section 2.11 is modified by adding the following to the end
thereof as a new paragraph:
The Company and the Guarantors represent, acknowledge and agree
that the SOFEDIT Letter of Credit has been issued in the face amount of
$10,000,000 for the benefit of the Agent and the Lenders, and the Agent may draw
under the SOFEDIT Letter of Credit at any time under the terms stated therein
and apply such amounts to the Advances hereunder in such order as determined by
the Agent; provided, however, notwithstanding anything to the contrary, that (i)
subject to the following clause (ii) of this paragraph, the Agent and the
Lenders agree that upon the occurrence of an Event of Default they will not draw
under the SOFEDIT Letter of Credit until the earlier of 10 days after the
occurrence of such Event of Default or February 15, 1999 and (ii) if the
aggregate Facility A Advances and Facility C Advances exceed the amount
calculated under clause (b) of the definition of "Permitted Indebtedness" set
forth in the Senior Note Indenture at any time an Event of Default shall be
deemed to have occurred and the Lenders and the Agent may immediately draw on
the SOFEDIT Letter of Credit.
1.4 The Facility A Commitment amounts for each Lender are amended to
be the amounts set forth next to the signature of each Lender on this Amendment.
1.5 Schedule 1.1(c) attached hereto is hereby added to the Credit
Agreement as Schedule 1.1(c).
ARTICLE II. REPRESENTATIONS. The Company and each Guarantor
represent and warrant to the Agent and the Lenders that:
2.1 The execution, delivery and performance of this Amendment and the
New Facility A Notes (as defined below) are within its powers, has been duly
authorized and is not in contravention of any statute, law or regulation known
to it or of any terms of its Articles of Incorporation or By-laws, or of any
material agreement or undertaking to which it is a party or by which it is
bound.
2.2 This Amendment and the New Facility A Notes are the legal, valid
and binding obligation of the Company and each Guarantor enforceable against
each in accordance with the terms hereof.
2.3 After giving effect to the amendments contained herein, the
representations and warranties contained in Article IV of the Credit Agreement
are true on and as of the date hereof with the same force and effect as if made
on and as of the date hereof.
2.4 After giving effect to the amendments contained herein, no Event
of Default or Default exists or has occurred and is continuing on the date
hereof. Without limiting the foregoing, no event of default or event or
condition which may become an event of default under the Senior Note Documents
has occurred or will be caused by this Amendment or any of the transactions
contemplated hereby.
<PAGE> 3
2.5 MS has filed a registration statement with the Securities and
Exchange Commission on Form S-1 on August 13, 1998.
ARTICLE III. CONDITIONS OF EFFECTIVENESS. This Amendment shall not
become effective until each of the following conditions is satisfied:
3.1 The Company shall have delivered to the Agent the original
SOFEDIT Letter of Credit.
3.2 The Company shall have delivered to the Agent the final S-1
registration statement filed by MS with the Securities and Exchange Commission.
3.3 The Company, the Guarantors and the Required Lenders shall have
signed this Amendment.
3.4 The Company shall have signed and delivered to the Agent New
Facility A Notes (the "New Facility A Notes") payable to each Lender in the
maximum amount of their New Facility A Commitment.
3.5 The Company and the Guarantors shall have delivered such
resolutions, officer's certificates and legal opinions as the Agent may
reasonably request.
3.6 The Company shall have delivered to the Agent such other
documents and satisfied such other conditions, if any, as reasonably requested
by the Agent.
ARTICLE IV. MISCELLANEOUS.
4.1 References in the Credit Agreement or in any other Loan Document
to (a) the Credit Agreement shall be deemed to be references to the Credit
Agreement as amended hereby and as further amended from time to time and (b) the
Facility Note A Notes shall be deemed to be references to the New Facility A
Notes, as amended or modified from time to time and together with any promissory
note or notes issued in exchange or replacement therefore.
4.2 The Company agrees to pay and to save the Agent harmless for the
payment of all reasonable documented costs and expenses arising in connection
with this Amendment, including the reasonable documented fees of counsel to the
Agent in connection with preparing this Amendment and the related documents.
4.3 The Company and each Guarantor acknowledge and agree that, to the
best of their knowledge, the Agent and the Lenders have fully performed all of
their obligations under all documents executed in connection with the Credit
Agreement. The Company and each Guarantor represent and warrant that they are
not aware of any claims or causes of action against the Agent or any Lender.
4.4 Except as expressly amended hereby, the Company and each
Guarantor agree that the Credit Agreement, the Notes, the Security Documents and
all other documents and agreements executed by the Company in connection with
the Credit Agreement in favor of the Agent or any Lender are ratified and
confirmed, as amended hereby, and shall remain in full force and effect in
accordance with their terms and that they are not aware of any set off,
counterclaim or defense with respect to any of the foregoing.
<PAGE> 4
Terms used but not defined herein shall have the respective meanings ascribed
thereto in the Credit Agreement. This Amendment may be signed upon any number of
counterparts with the same effect as if the signatures thereto and hereto were
upon the same instrument, and telecopied signatures shall be effective as
originals.
4.5 The Company and the Guarantors agree to deliver to the Agent
board resolutions approving this amendment and all transactions contemplated
hereby on or before October 31, 1998, and any failure to deliver such board
resolutions shall be an Event of Default under the Credit Agreement.
<PAGE> 5
IN WITNESS WHEREOF, the parties signing this Amendment have
caused this Amendment to be executed and delivered as of the day and year first
above written.
AETNA INDUSTRIES, INC.
By: /s/ Harold A. Brown
------------------------------------------------
Its: Secretary, Vice President, Chief Financial
Officer and Director
Guarantor
AETNA HOLDINGS, INC.
By: /s/ Harold A. Brown
------------------------------------------------
Its: Secretary, Vice President, Chief Financial
Officer and Director
Guarantor
AETNA EXPORT SALES CORP.
By: /s/ Harold A. Brown
------------------------------------------------
Its:Treasurer, Secretary and Director
------------------------------------------------
Guarantor
MS ACQUISITION CORP.
By: /s/ Harold A. Brown
------------------------------------------------
Its: Secretary, Vice President North America
------------------------------------------------
Guarantor
AETNA MANUFACTURING CANADA LTD.
By: /s/ Harold A. Brown
------------------------------------------------
Its: Treasurer, Secretary and Director
------------------------------------------------
<PAGE> 6
NBD BANK, as a Lender and as Agent
By: /s/ Thomas A. Gamm
-----------------------------------
Its: Vice President
----------------------------------
Facility A Commitment Amount during
the period from and including the Third Amendment Effective
Date to and including June 30, 1999: $22,831,858.41
Facility A Commitment Amount during
the period from and including July 1, 1999
to but excluding Termination Date A: $19,026,548.67
<PAGE> 7
PNC BUSINESS CREDIT, INC.
By: /s/ Troy H. Bell
--------------------------------
Its: Assistant Vice President
-------------------------------
Facility A Commitment Amount during
the period from and including the Third Amendment Effective
Date to and including June 30, 1999: $15,929,203.55
Facility A Commitment Amount during
the period from and including July 1, 1999
to but excluding Termination Date A: $13,274,336.29
<PAGE> 8
NATIONAL BANK OF CANADA
By: /s/ Angie White / /s/ Diane K. Bedad
---------------------------------------------
Its: Vice President / Vice President
--------------------------------------------
Facility A Commitment Amount during
the period from and including the Third Amendment Effective
Date to and including June 30, 1999: $10,619,469.02
Facility A Commitment Amount during
the period from and including July 1, 1999
to but excluding Termination Date A: $8,849,557.52
<PAGE> 9
MICHIGAN NATIONAL BANK
By: /s/ Ernie F. Johnson
-----------------------------
Its: Relationship Manager
----------------------------
Facility A Commitment Amount during
the period from and including the Third Amendment Effective
Date to and including June 30, 1999: $10,619,469.02
Facility A Commitment Amount during
the period from and including July 1, 1999
to but excluding Termination Date A: $8,849,557.52
<PAGE> 1
EXHIBIT 10.7
FOURTH AMENDMENT TO CREDIT AGREEMENT
THIS FOURTH AMENDMENT TO CREDIT AGREEMENT, dated as of October 29,
1998 (this "Amendment"), is among AETNA INDUSTRIES, INC., a Delaware corporation
(the "Company"), the guarantors set forth on the signature pages hereof
(collectively, the "Guarantors"), the Lenders set forth on the signature pages
hereof (collectively, the "Lenders") and NBD BANK, a Michigan banking
corporation, as agent for the Lenders (in such capacity, the "Agent").
RECITALS
A. The Company, the Guarantors, the Agent and the Lenders are parties
to an Amended and Restated Credit Agreement dated as of April 10, 1998 (as now
and hereafter amended, the "Credit Agreement").
B. The Company and the Guarantors desire to amend the Credit
Agreement, and the Agent and the Lenders are willing to do so in accordance with
the terms hereof.
TERMS
In consideration of the premises and of the mutual agreements herein
contained, the parties agree as follows:
ARTICLE I. AMENDMENTS. Upon fulfillment of the conditions set forth in
Article III hereof, the Credit Agreement shall be amended as follows:
1.1 Section 5.2(e) is restated as follows:
<PAGE> 2
(e) Net Worth. Permit or suffer the consolidated Net Worth of
the Company and its Subsidiaries to be less than the sum of: (a)(i)
negative $19,500,000 from and including September 28, 1998 through and
including December 27, 1998; and (ii) negative $18,500,000 thereafter, plus
(b) 50% of Net Income, adjusted as of the last day of the fiscal quarter of
the Company ending December 31, 1998 as calculated for the fiscal quarter
then ending and as of each fiscal year of the Company thereafter as
calculated for the fiscal year ending; provided, that if such Net Income is
negative in any fiscal quarter or any fiscal year, as the case may be, the
amount added for such period shall be zero and shall not reduce the amount
added for any other period.
ARTICLE II. REPRESENTATIONS. The Company and each Guarantor represent
and warrant to the Agent and the Lenders that:
2.1 The execution, delivery and performance of this Amendment is
within its powers, has been duly authorized and is not in contravention of any
statute, law or regulation known to it or of any terms of its Articles of
Incorporation or By-laws, or of any material agreement or undertaking to which
it is a party or by which it is bound.
2.2 This Amendment is the legal, valid and binding obligation of the
Company and each Guarantor enforceable against each in accordance with the terms
hereof. 2.3 After giving effect to the amendments contained herein, the
representations and warranties contained in Article IV of the Credit Agreement
are true on and as of the date hereof with the same force and effect as if made
on and as of the date hereof.
2.4 After giving effect to the amendments contained herein, no Event
of Default or Default exists or has occurred and is continuing on the date
hereof. Without limiting the foregoing, no event of default or event or
condition which may become an event of default under the Senior Note Documents
has occurred or will be caused by this Amendment or any of the transactions
contemplated hereby.
ARTICLE III. CONDITIONS OF EFFECTIVENESS. This Amendment shall not
become effective until each of the following conditions is satisfied:
<PAGE> 3
3.1 The Company, the Guarantors and the Required Lenders shall have
signed this Amendment.
3.2 The Company and the Guarantors shall have delivered such
resolutions, officer's certificates and legal opinions as the Agent may
reasonably request.
3.3 The Company shall have delivered to the Agent such other
documents and satisfied such other conditions, if any, as reasonably requested
by the Agent.
ARTICLE IV. MISCELLANEOUS.
4.1 References in the Credit Agreement or in any other Loan Document
to the Credit Agreement shall be deemed to be references to the Credit Agreement
as amended hereby and as further amended from time to time.
4.2 The Company agrees to pay and to save the Agent harmless for the
payment of all reasonable documented costs and expenses arising in connection
with this Amendment, including the reasonable documented fees of counsel to the
Agent in connection with preparing this Amendment and the related documents.
4.3 The Company and each Guarantor acknowledge and agree that, to the
best of their knowledge, the Agent and the Lenders have fully performed all of
their obligations under all documents executed in connection with the Credit
Agreement. The Company and each Guarantor represent and warrant that they are
not aware of any claims or causes of action against the Agent or any Lender.
4.4 Except as expressly amended hereby, the Company and each
Guarantor agree that the Credit Agreement, the Notes, the Security Documents and
all other documents and agreements executed by the Company in connection with
the Credit Agreement in favor of the Agent or any Lender are ratified and
confirmed, as amended hereby, and shall remain in full force and effect in
accordance with their terms and that they are not aware of any set off,
counterclaim or defense with respect to any of the foregoing. Terms used but not
defined herein shall have the respective meanings ascribed thereto in the Credit
Agreement. This Amendment may be signed upon any number of counterparts with the
same effect as if the signatures thereto and hereto were upon the same
instrument, and telecopied signatures shall be effective as originals.
4.5 The Company and the Guarantors agree to deliver to the Agent
board resolutions approving this amendment and all transactions contemplated
hereby on or before November 30, 1998, and any failure to deliver such board
resolutions shall be an Event of Default under the Credit Agreement.
IN WITNESS WHEREOF, the parties signing this Amendment have
caused this Amendment to be executed and delivered as of the day and year first
above written.
AETNA INDUSTRIES, INC.
By: /s/ Harold A. Brown
------------------------------
Harold A. Brown
<PAGE> 4
Its: Secretary, Vice President/Finance and
Chief Financial Officer
Guarantor
AETNA HOLDINGS, INC.
By: /s/ Harold A. Brown
------------------------------
Harold A. Brown
Its: Secretary, Vice President/Finance and
Chief Financial Officer
Guarantor
AETNA EXPORT SALES CORP.
By: /s/ Harold A. Brown
------------------------------
Harold A. Brown
Its: Treasurer and Secretary
Guarantor
MS ACQUISITION CORP.
By: /s/ Harold A. Brown
------------------------------
Harold A. Brown
Its: Secretary and Vice President North America
Guarantor
AETNA MANUFACTURING CANADA LTD.
By: /s/ Harold A. Brown
------------------------------
Harold A. Brown
Its: Treasurer and Secretary
<PAGE> 5
NBD BANK, as a Lender and as Agent
By: /s/ Thomas A. Gamm
------------------------------
Thomas A. Gamm
Its: Vice President
PNC BUSINESS CREDIT, INC.
By: /s/ Troy H. Bell
------------------------------
Its: Assistant Vice President
NATIONAL BANK OF CANADA
By: /s/ Angie White
------------------------------
Its: Vice President
And
By: /s/ Diane K. Bedad
------------------------------
Its: Vice President
MICHIGAN NATIONAL BANK
By: /s/ Reid M. Molnar
------------------------------
Its: Group Manager
<PAGE> 1
EXHIBIT 10.10
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, dated as of April 10, 1998 (this "Security
Agreement"), is made by Aetna Manufacturing Canada Ltd., a Michigan corporation
(the "Company"), in favor of NBD Bank, a Michigan banking corporation, as agent
(in such capacity, the "Agent") for the benefit of itself and the lenders (the
"Lenders") now or hereafter parties to the Credit Agreement described below.
RECITALS
A. Aetna Industries, Inc. (the "Borrower") has entered into an Amended
and Restated Credit Agreement of even date herewith (as amended or modified from
time to time, including any agreement entered into in substitution therefor, the
"Credit Agreement"), with the guarantors party thereto, the Lenders and the
Agent pursuant to which the Lenders may make Advances (as therein defined) to
the Company.
B. Under the terms of the Credit Agreement, the Company has agreed to
grant to the Agent, for the benefit of itself and the Lenders, a first-priority
security interest, subject only to security interests expressly permitted by the
Credit Agreement, in and to the Collateral hereinafter described.
AGREEMENT
To secure (a) the prompt and complete payment of all indebtedness and
other obligations of the Borrower or the Company or any Subsidiary now or
hereafter owing to the Lenders or the Agent under or on account of the Credit
Agreement, any Security Document, any letters of credit, notes or other
instruments issued to the Agent or Lenders pursuant thereto, or any other Loan
Document, (b) the performance of the covenants under the Credit Agreement and
the Security Documents and any monies expended by the Agent in connection
therewith, (c) the prompt and complete payment of all obligations and
performance of all covenants of the Borrower or the Company under any Hedging
Contract with any Lender and (d) the prompt and complete payment of any and all
other indebtedness, obligations and liabilities of any kind of the Borrower or
the Company or any Subsidiary to the Agent and the Lenders, or any of them, in
all cases, of any kind or nature, howsoever created or evidenced and whether now
or hereafter existing, direct or indirect (including without limitation any
participation interest acquired by any Lender in any such indebtedness,
obligations or liabilities of the Borrower or the Company or any Subsidiary to
any other person), absolute or contingent, joint and/or several, secured or
unsecured, arising by operation of law or otherwise, and whether incurred by the
Borrower or the Company or any Subsidiary as principal, surety, endorser,
guarantor, accommodation party or otherwise, including without limitation all
principal and all interest (including any interest accruing subsequent to any
petition filed by or against the Borrower or the Company or any Subsidiary under
the U.S. Bankruptcy Code), indemnity and reimbursement obligations, charges,
expenses, fees, attorneys' fees and disbursements and any other amounts owing
thereunder (all of the aforesaid indebtedness, obligations and liabilities of
the Borrower or the Company and its Subsidiaries being herein called the
"Secured Obligations", and all of the documents, agreements and instruments
among the Borrower, the Company, the Subsidiaries, the Agent, the Lenders, or
any of them, evidencing or securing the repayment of, or otherwise pertaining
to, the Secured Obligations including without limitation
<PAGE> 2
the Credit Agreement, the Notes and the Security Documents, being herein
collectively called the "Operative Documents"), for value received and pursuant
to the Credit Agreement, the Company hereby grants, assigns and transfers to the
Agent for the benefit of the Lenders a first-priority security interest, subject
only to Permitted Liens, in and to the following described property whether now
owned or existing or hereafter acquired or arising and wherever located (all of
which is herein collectively called the "Collateral"):
1. All of the Company's present and future accounts, documents,
instruments, general intangibles and chattel paper, including, but without
limitation, all accounts receivable, contract rights, all deposit accounts and
all monies and claims for money due or to become due to the Company, security
held or granted to the Company, and all assets described in clause (d) below;
(b) All of the Company's furniture, fixtures, machinery and equipment,
whether now owned or hereafter acquired, and wherever located, and whether used
by the Company or any other person, or leased by the Company to any person and
whether the interest of Company is as owner, lessee or otherwise;
(c) All of the Company's present and future inventory of every type,
wherever located, including but not limited to raw materials, work in process,
finished goods and all inventory that is available for leasing or leased to
others by the Company;
(d) All other present and future assets of the Company (whether
tangible or intangible), including but not limited to all trademarks,
tradenames, service marks, patents, industrial designs, masks, trade names,
trade secrets, copyrights, franchises, customer lists, service marks, computer
programs, software, tax refund claims, licenses and permits, and the good will
associated therewith and all federal, state, foreign and other applications and
registrations therefor, all reissues, divisions, continuations, renewals,
extensions and continuations-in-part thereof now or hereafter in effect, all
income, license royalties, damages and payments now and hereafter due or payable
under and with respect thereto, including, without limitation, any damages,
proceeds or payments for past or future infringements thereof and all income,
royalties, damages and payments under all licenses thereof, the right to sue for
past, present and future infringements thereof, all right, title and interest of
the Company as licensor under any of the foregoing whether now owned and
existing or hereafter arising, and all other rights and other interests
corresponding thereto throughout the world (all of the assets described in this
clause (d) collectively referred to as the "Intellectual Property");
(e) All books, records, files, correspondence, computer programs,
tapes, disks, cards, accounting information and other data of the Company
related in any way to the Collateral described in clauses (a), (b), (c) and (d)
above, including but not limited to any of the foregoing necessary to
administer, sell or dispose of any of the Collateral;
(f) All substitutions and replacements for, and all additions and
accessions to, any and all of the foregoing; and
(g) All products and all proceeds of any and all of the foregoing, and,
to the extent not otherwise included, all payments under insurance (whether or
not the Agent is the loss payee thereof), and any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise with respect to
any of the foregoing.
<PAGE> 3
1. Representations, Warranties, Covenants and Agreements. The Company
further represents, warrants, covenants, and agrees with the Agent for the
benefit of the Lenders as follows:
(a) Ownership of Collateral; Security Interest Priority. At the time
any Collateral becomes subject to a security interest of the Agent hereunder,
unless the Agent shall otherwise consent, the Company shall be deemed to have
represented and warranted that (i) the Company is the lawful owner of such
Collateral and has the right and authority to subject the same to the security
interest of the Agent; (ii) other than Permitted Liens and lessors' interest
with respect to any security interest in any property leased by the Company as
lessee, none of the Collateral is subject to any Lien other than that in favor
of the Agent and other Permitted Liens and, to the best of its knowledge, there
is no effective financing statement or other filing covering any of the
Collateral on file in any public office, other than in favor of the Agent. This
Security Agreement creates in favor of the Agent a valid first-priority security
interest, subject only to Permitted Liens, in the Collateral enforceable against
the Company and all third parties and securing the payment of the Secured
Obligations. All financing statements necessary to perfect such security
interest in the Collateral have been delivered by the Company to the Agent for
filing.
(b) Location of Offices, Records and Facilities. The Company's chief
executive office and chief place of business and the office where the Company
keeps its records concerning its accounts, contract rights, chattel papers,
instruments, general intangibles and other obligations arising out of or in
connection with the sale or lease of goods or the rendering of services or
otherwise ("Receivables"), and all originals of all leases and other chattel
paper which evidence Receivables, are located in the State of Michigan, County
of Macomb at 24331 Sherwood, P.O. Box 3067, Center Line. The Company will
provide the Agent with prior written notice of any proposed change in the
location of its chief executive office. The Company's only other offices and
facilities are at the locations set forth in Schedule 1(b) hereto. The Company
will provide the Agent with prior written notice of any change in the locations
of its other offices and the facilities at which any assets of the Company are
located. The tax identification number of the Company is . The
name of the Company is Aetna Manufacturing Canada Ltd., and the Company operates
under no other names. The Company shall not change its name without the prior
written consent of the Agent.
(c) Location of Inventory, Fixtures, Machinery and Equipment. (i)
All Collateral consisting of inventory is, and will be, located at the locations
listed on Schedule 1(c)(i) hereto, and at no other locations without the prior
written consent of the Agent. (ii) All Collateral consisting of fixtures,
machinery or equipment, is, and will be, located at the locations listed on
Schedule 1(c)(ii) hereto, and at no other locations without the prior written
consent of the Agent.
(d) Liens, Etc. The Company will keep the Collateral free at all
times from any and all liens, security interests or encumbrances other than
Permitted Liens and those consented to in writing by the Required Lenders. The
Company will not, without the prior written consent of the Agent, sell, lease,
license, transfer, assign or otherwise dispose, or permit or suffer to be sold,
leased, licensed, transferred, assigned or otherwise disposed, any of the
Collateral, except for, prior to an event of default only (notwithstanding any
other agreement), the following: inventory sold in the ordinary course of
business and other assets permitted to be sold, leased, licensed, transferred,
assigned or otherwise disposed under Section 5.2(i) of the Credit Agreement. The
Agent or its attorneys may at any and all reasonable times, and absent
<PAGE> 4
an event of default with reasonable prior notice to the Company, inspect the
Collateral and for such purpose may enter upon any and all premises where the
Collateral is or might be kept or located.
(e) Insurance. The Company shall keep the tangible Collateral
insured at all times against loss by theft, fire and other casualties. Said
insurance shall be issued by a company rated A or better by Best and shall be in
amounts sufficient to protect the Agent against any and all loss or damage to
the Collateral. The policy or policies which evidence said insurance shall be
delivered to the Agent upon request, shall contain a lender loss payable clause
in favor of the Agent, shall name the Agent for the benefit of the Lenders as an
additional insured, as its interest may appear, shall not permit amendment,
cancellation or termination without giving the Agent at least 30 days prior
written notice thereof, and shall otherwise be in form and substance
satisfactory to the Agent. Reimbursement under any liability insurance
maintained by the Company pursuant to this paragraph 1(e) may be paid directly
to the person who shall have incurred liability covered by such insurance,
provided that if there is no Default or Event of Default (whether before or
after any event which caused any reimbursement under any liability insurance)
the Company may use the proceeds of such insurance solely to repair or replace
the property damaged if the insurance proceeds are less than $250,000 and if
there is any Event of Default or Default, and if such reimbursement is greater
than $250,000 or there is any Default or Event of Default such amounts shall be
paid to the Agent for application to the Secured Obligations.
(f) Taxes, Etc. The Company will pay promptly, and within the time
that they can be paid without interest or penalty, any taxes, assessments and
similar imposts and charges, not being contested in good faith, which are now or
hereafter may become a Lien upon any of the Collateral. If the Company fails to
pay any such taxes, assessments or other imposts or charges in accordance with
this Section, the Agent shall have the option to do so and the Company agrees to
repay forthwith all amounts so expended by the Agent with interest at the
Overdue Rate.
(g) Further Assurances. The Company will do all acts and things and
will execute all financing statements and writings reasonably requested by the
Agent to establish, maintain and continue a perfected and valid security
interest of the Agent in the Collateral, and will promptly on demand pay all
reasonable costs and expenses of filing and recording all instruments, including
the costs of any reasonable searches requested by the Agent, to establish and
determine the validity and the priority of the Agent's security interests. A
carbon, photographic or other reproduction of this Security Agreement or any
financing statement covering the Collateral shall be sufficient as a financing
statement.
(h) List of Patents, Copyrights, Mask Works and Trademarks. Attached
hereto as Schedule 1(h)(i) is a list of all registered patents and patent
applications owned by the Company. Attached hereto as Schedule 1(h)(ii) is a
list of all registered copyrights and all registered mask works and applications
therefor owned by the Company. Attached hereto as Schedule 1(h)(iii) is a list
of all registered trademarks and service marks owned by the Company. If the
Company at any time owns any additional registered patents, copyrights, mask
works, trademarks or any applications therefor not listed on such schedules, the
Company shall give the Agent prompt written notice thereof and hereby authorizes
the Agent to modify this Agreement by amending Schedules 1(h)(i), 1(h)(ii) and
1(h)(iii) to include all future registered patents, copyrights, mask works,
trademarks and applications therefor and agrees to execute all
<PAGE> 5
further instruments and agreements, if any, if requested by the Agent to
evidence the Agent's interest therein.
(i) Maintenance of Tangible Collateral. The Company will cause the
tangible Collateral material to the conduct of its business to be maintained and
preserved in the same condition, repair and working order as when new, ordinary
wear and tear excepted, and in accordance with any manufacturer's manual, and
shall forthwith, or, in the case of any loss or damage to any of the tangible
Collateral as quickly as practicable after the occurrence thereof, make or cause
to be made all repairs, replacements, and other improvements which in its
judgment is in the best interest of the Company. The Company shall promptly
furnish to the Agent a statement respecting any material loss or damage to any
of the tangible Collateral.
(j) Special Rights Regarding Receivables. The Agent or any of its
agents may, at any time and from time to time in its sole discretion and
irrespective of the existence of any event of default under this Security
Agreement, verify, directly with each person (collectively, the "Obligors")
which owes any Receivables to the Company, the Receivables in any manner,
provided that the Agent will not contact Chrysler or General Motors for such
purpose more than twice a year for each of them if no event of default exists.
The Agent or any of its agents may, at any time from time to time after and
during the continuance of an event of default under this Security Agreement,
notify the Obligors of the security interest of the Agent in the Collateral
and/or direct such account debtors that all payments in connection with such
obligations and the Collateral be made directly to the Agent in the Agent's
name. If the Agent or any of its agents shall collect such obligations directly
from the Obligors after any event of default, the Agent or any of its agents
shall have the right to resolve any disputes relating to returned goods directly
with the Obligors in such manner and on such terms as the Agent or any of its
agents shall deem appropriate. After any event of default, the Company directs
and authorizes any and all of its present and future account debtors to comply
with requests for information from the Agent, the Agent's designees and agents
and/or auditors, relating to any and all business transactions between the
Company and the Obligors. After any event of default, the Company further
directs and authorizes all of its Obligors upon receiving a notice or request
sent by the Agent or the Agent's agents or designees to pay directly to the
Agent any and all sums of money or proceeds now or hereafter owing by the
Obligors to the Company, and any such payment shall act as a discharge of any
debt of such Obligor to the Company in the same manner as if such payment had
been made directly to the Company. The Company agrees to take any and all action
as the Agent may reasonably request to assist the Agent in exercising the rights
described in this Section.
(k) Maintenance of Intellectual Property and Other Intangible
Collateral. The Company shall preserve and maintain all rights of the Company
and the Agent in all material Intellectual Property and all other material
intangible Collateral, including without limitation the payment of all
maintenance fees, filing fees and the taking of all appropriate action at the
Company's expense to halt the infringement of any of the Intellectual Property
or other Collateral, provided that, with respect to halting the infringement of
any Intellectual Property or other Collateral, the Company does not need to take
all such appropriate action if the Company has, or after event of default the
Required Lenders have, reasonably determined that it is not in its best interest
to demand or enforce cessation of such infringement or other conduct because it
is either not material or because the adverse consequences to the Company would
outweigh the benefits gained by such demand or enforcement.
<PAGE> 6
2. Events of Default. The occurrence of any Event of Default under the
Credit Agreement shall be deemed an event of default under this Security
Agreement.
3. Remedies. Upon the occurrence of any event of default specified in
Paragraph 2 hereof, the Agent shall have and may exercise any one or more of the
rights and remedies provided to it under this Security Agreement or any of the
other Operative Documents or provided by law, including but not limited to all
of the rights and remedies of a secured party under the Uniform Commercial Code,
and the Company hereby agrees to assemble the Collateral and make it available
to the Agent at a place to be designated by the Agent which is reasonably
convenient to both parties, authorizes the Agent to take possession of the
Collateral with or without demand and with or without process of law and to sell
and dispose of the same at public or private sale and to apply the proceeds of
such sale to the costs and expenses thereof (including reasonable attorneys'
fees and disbursements, incurred by the Agent) and then to the payment and
satisfaction of the Secured Obligations. Any requirement of reasonable notice
shall be met if the Agent sends such notice to the Company, by registered or
certified mail, at least 10 days prior to the date of sale, disposition or other
event giving rise to a required notice. The Agent or any Lender may be the
purchaser at any such sale. The Company expressly authorizes such sale or sales
of the Collateral in advance of and to the exclusion of any sale or sales of or
other realization upon any other collateral securing the Secured Obligations.
The Agent shall have no obligation to preserve rights against prior parties. The
Company hereby waives as to the Agent and each Lender any right of subrogation
or marshalling of such Collateral and any other collateral for the Secured
Obligations. To this end, the Company hereby expressly agrees that any such
collateral or other security of the Company or any other party which the Agent
may hold, or which may come to any of the Lenders or any of their possession,
may be dealt with in all respects and particulars as though this Security
Agreement were not in existence. The parties hereto further agree that public
sale of the Collateral by auction conducted in any county in which any
Collateral is located or in which the Agent or the Company does business after
advertisement of the time and place thereof shall, among other manners of public
and private sale, be deemed to be a commercially reasonable disposition of the
Collateral. The Company shall be liable for any deficiency remaining after
disposition of the Collateral.
4. Special Remedies Concerning Certain Collateral.
(a) Upon the occurrence of any event of default, the Company shall,
if requested to do so in writing, and to the extent so requested (i) promptly
collect and enforce payment of all amounts due the Company on account of, in
payment of, or in connection with, any of the Collateral, (ii) hold all payments
in the form received by the Company as trustee for the Agent, without
commingling with any funds belonging to the Company, and (iii) forthwith deliver
all such payments to the Agent with endorsement to the Agent's order of any
checks or similar instruments.
(b) Upon the occurrence of any event of default, the Company shall,
if requested to do so, and to the extent so requested, notify all Obligors and
other persons with obligations to the Company on account of or in connection
with any of the Collateral of the security interest of the Agent in the
Collateral and direct such account debtors and other persons that all payments
in connection with such obligations and the Collateral be made directly to the
Agent. The Agent itself may, upon the occurrence of an event of
<PAGE> 7
default, so notify and direct any such account debtor or other person that such
payments are to be made directly to the Agent.
(c) Upon the occurrence of any event of default, for purposes of
assisting the Agent in exercising its rights and remedies provided to it under
this Security Agreement, the Company (i) hereby irrevocably constitutes and
appoints the Agent its true and lawful attorney, for and in the Company's name,
place and stead, to collect, demand, receive, sue for, compromise, and give good
and sufficient releases for, any monies due or to become due on account of, in
payment of, or in connection with the Collateral, (ii) hereby irrevocably
authorizes the Agent to endorse the name of the Company, upon any checks,
drafts, or similar items which are received in payment of, or in connection
with, any of the Collateral, and to do all things necessary in order to reduce
the same to money, (iii) with respect to any Collateral, hereby irrevocably
assents to all extensions or postponements of the time of payment thereof or any
other indulgence in connection therewith, to each substitution, exchange or
release of collateral, to the addition or release of any party primarily or
secondarily liable, to the acceptance of partial payments thereon and the
settlement, compromise or adjustment (including adjustment of insurance
payments) thereof, all in such manner and at such time or times as the Agent
shall deem advisable and (iv) hereby irrevocably authorizes the Agent to notify
the post office authorities to change the address for delivery of the Company's
mail to an address designated by the Agent, and the Agent may receive, open and
dispose of all mail addressed to the Company. Notwithstanding any other
provisions of this Security Agreement, it is expressly understood and agreed
that the Agent shall have no duty, and shall not be obligated in any manner, to
make any demand or to make any inquiry as to the nature or sufficiency of any
payments received by it or to present or file any claim or take any other action
to collect or enforce the payment of any amounts due or to become due on account
of or in connection with any of the Collateral.
5. Remedies Cumulative. No right or remedy conferred upon or reserved
to the Agent under any Operative Document is intended to be exclusive of any
other right or remedy, and every right and remedy shall be cumulative in
addition to every other right or remedy given hereunder or now or hereafter
existing under any applicable law. Every right and remedy of the Agent under any
Operative Document or under applicable law may be exercised from time to time
and as often as may be deemed expedient by the Agent. To the extent that it
lawfully may, the Company agrees that it will not at any time insist upon,
plead, or in any manner whatever claim or take any benefit or advantage of any
applicable present or future stay, extension or moratorium law, which may affect
observance or performance of any provisions of any Operative Document except as
provided under the Bankruptcy Code; nor will it claim, take or insist upon any
benefit or advantage of any present or future law providing for the valuation or
appraisal of any security for its obligations under any Operative Document prior
to any sale or sales thereof which may be made under or by virtue of any
instrument governing the same; nor will the Company, after any such sale or
sales, claim or exercise any right, under any applicable law to redeem any
portion of such security so sold.
6. Conduct No Waiver. No waiver of default shall be effective unless in
writing executed by the Agent and waiver of any default or forbearance on the
part of the Agent in enforcing any of its rights under this Security Agreement
shall not operate as a waiver of any other default or of the same default on a
future occasion or of such right.
<PAGE> 8
7. Governing Law; Consent to Jurisdiction; Definitions. This Security
Agreement is a contract made under, and shall be governed by and construed in
accordance with, the law of the State of Michigan applicable to contracts made
and to be performed entirely within such State and without giving effect to
choice of law principles of such State. The Company agrees that any legal action
or proceeding with respect to this Security Agreement or the transactions
contemplated hereby may be brought in any court of the State of Michigan, or in
any court of the United States of America sitting in Michigan, and the Company
hereby submits to and accepts generally and unconditionally the jurisdiction of
those courts with respect to its person and property, and irrevocably appoints
the Vice President and Treasurer of the Company, at the Company's address set
forth in the Credit Agreement, as its agent for service of process and
irrevocably consents to the service of process in connection with any such
action or proceeding by personal delivery to such agent or to the Company or by
the mailing thereof by registered or certified mail, postage prepaid to the
Company at its address set forth in the Credit Agreement. Nothing in this
paragraph shall affect the right of the Agent to serve process in any other
manner permitted by law or limit the right of the Agent to bring any such action
or proceeding against the Company or its property in the courts of any other
jurisdiction. The Company hereby irrevocably waives any objection to the laying
of venue of any such suit or proceeding in the above described courts. Terms
used but not defined herein shall have the respective meanings ascribed thereto
in the Credit Agreement. Unless otherwise defined herein or in the Credit
Agreement, terms used in Article 9 of the Uniform Commercial Code in the State
of Michigan are used herein as therein defined on the date hereof. The headings
of the various subdivisions hereof are for convenience of reference only and
shall in no way modify any of the terms or provisions hereof.
8. Notices. All notices, demands, requests, consents and other
communications hereunder shall be delivered in the manner described in the
Credit Agreement.
9. Rights Not Construed as Duties. The Agent neither assumes nor shall
it have any duty of performance or other responsibility under any contracts in
which the Agent has or obtains a security interest hereunder. If the Company
fails to perform any agreement contained herein, the Agent may but is in no way
obligated to itself perform, or cause performance of, such agreement, and the
reasonable expenses of the Agent incurred in connection therewith shall be
payable by the Company under paragraph 12. The powers conferred on the Agent
hereunder are solely to protect its interests in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the safe custody
of any Collateral in its possession and accounting for monies actually received
by it hereunder, the Agent shall have no duty as to any Collateral or as to the
taking of any necessary steps to preserve rights against prior parties or any
other rights pertaining to any Collateral.
10. Amendments. None of the terms and provisions of this Security
Agreement may be modified or amended in any way except by an instrument in
writing executed by each of the parties hereto.
11. Severability. If any one or more provisions of this Security
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected, impaired or prejudiced thereby.
12. Expenses. (a) The Company agrees to indemnify the Agent from and
against any and all claims, losses and liabilities growing out of or resulting
from this Security Agreement (including, without
<PAGE> 9
limitation, enforcement of this Security Agreement), except claims, losses or
liabilities resulting from the Agent's gross negligence or willful misconduct.
(b) The Company will, upon demand, pay to the Agent an amount of any
and all reasonable expenses, including the reasonable fees and disbursements of
its counsel and of any experts and agents, which the Agent may incur in
connection with (i) the administration of this Security Agreement, (ii) the
custody, preservation, use or operation of, or the sale of, collection from or
other realization upon, any of the Collateral, (iii) the exercise or enforcement
of any of the rights of the Agent hereunder or under the Operative Documents, or
(iv) the failure of the Company to perform or observe any of the provisions
hereof.
13. Successors and Assigns; Termination. This Security Agreement shall
create a continuing security interest in the Collateral and shall be binding
upon the Company, its successors and assigns, and inure, together with the
rights and remedies of the Agent hereunder, to the benefit of the Agent and its
successors, transferees and assigns. Upon the payment in full in immediately
available funds of all of the Secured Obligations and the termination of all
commitments to lend under the Operative Documents, the security interest granted
hereunder shall terminate and all rights to the Collateral shall revert to the
Company.
14. Waiver of Jury Trial. The Agent and the Lenders, in accepting this
Security Agreement, and the Company, after consulting or having had the
opportunity to consult with counsel, knowingly, voluntarily and intentionally
waive any right any of them may have to a trial by jury in any litigation based
upon or arising out of this Security Agreement or any related instrument or
agreement or any of the transactions contemplated by this Security Agreement or
any course of conduct, dealing, statements (whether oral or written) or actions
of any of them. Neither the Agent, the Lenders nor the Company shall seek to
consolidate, by counterclaim or otherwise, any such action in which a jury trial
has been waived with any other action in which a jury trial cannot be or has not
been waived. These provisions shall not be deemed to have been modified in any
respect or relinquished by either the Agent, the Lenders or the Company except
by a written instrument executed by all of them.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 10
IN WITNESS WHEREOF, the Company has caused this Security Agreement to
be duly executed as of the day and year first set forth above.
AETNA MANUFACTURING CANADA LTD.
By: /s/ Harold A. Brown
---------------------------------
Its: Vice President, Finance
Accepted and Agreed:
NBD BANK, as Agent and
on behalf of the Lenders
By: /s/ Theodore J. Willitt
Its: Vice President
<PAGE> 1
EXHIBIT 16.1
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington D.C. 20549
September 17, 1998
Commissioners:
We have read the statements made by Aetna Industries, Inc. (Commission File No.
333-11801) and MS Acquisition Corp. (Commission File No. 333-11801-01) (copy
attached), which we understand will be filed with the Commission, pursuant to
Item 4 of Form 8-K, as part of Aetna's and MS's Form 8-K Current Report dated
September 15, 1998. We agree with the statements concerning our firm in such
Form 8-K.
Very truly yours,
/s/ PricewaterhouseCoopers LLP
33
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS AND THE CONSOLIDATED BALANCE SHEETS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001021907
<NAME> MS ACQUISITION
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> DEC-31-1998
<CASH> 15,353
<SECURITIES> 10,739
<RECEIVABLES> 148,790
<ALLOWANCES> 411
<INVENTORY> 74,563
<CURRENT-ASSETS> 332,555
<PP&E> 387,765
<DEPRECIATION> 184,494
<TOTAL-ASSETS> 624,162
<CURRENT-LIABILITIES> 412,771
<BONDS> 88,125
0
41,157
<COMMON> 39
<OTHER-SE> (16,552)
<TOTAL-LIABILITY-AND-EQUITY> 624,162
<SALES> 710,846
<TOTAL-REVENUES> 710,846
<CGS> 646,563
<TOTAL-COSTS> 646,563
<OTHER-EXPENSES> 52,597
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,199
<INCOME-PRETAX> (11,942)
<INCOME-TAX> (2,267)
<INCOME-CONTINUING> (9,675)
<DISCONTINUED> (3,819)
<EXTRAORDINARY> 0
<CHANGES> 133
<NET-INCOME> (13,361)
<EPS-PRIMARY> (4.30)
<EPS-DILUTED> (4.30)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS AND THE CONSOLIDATED BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001022657
<NAME> AETNA INDUSTRIES
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,185
<SECURITIES> 0
<RECEIVABLES> 38,793
<ALLOWANCES> 411
<INVENTORY> 7,040
<CURRENT-ASSETS> 91,132
<PP&E> 120,636
<DEPRECIATION> 48,714
<TOTAL-ASSETS> 192,943
<CURRENT-LIABILITIES> 116,490
<BONDS> 167,477
0
0
<COMMON> 0
<OTHER-SE> (17,170)
<TOTAL-LIABILITY-AND-EQUITY> 192,943
<SALES> 221,894
<TOTAL-REVENUES> 221,894
<CGS> 204,782
<TOTAL-COSTS> 204,782
<OTHER-EXPENSES> 18,202
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,918
<INCOME-PRETAX> (15,008)
<INCOME-TAX> (3,968)
<INCOME-CONTINUING> (11,040)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,040)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
