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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 29, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the transition period from to
------------------------- ----------------------
Commission File No. 333-11801
AETNA INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Delaware 38-200-7550
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
24331 Sherwood Avenue, P.O. Box 3067, Centerline, Michigan 48015-0067
- --------------------------------------------------------------------------------
(Address of principal executive officer) (Zip Code)
Registrant's telephone number, including area code (810) 759-2200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. X
-----
The registrant is a privately-held corporation. As such, there is no
practicable method to determine the aggregate market value of the voting stock
held by non-affiliates of the registrant.
Number of shares outstanding of the registrant's Common Stock at March 21,
1997:
1,000 shares of Common Stock, $0.01 par value per share
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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
M.S. Acquisition Corp. Delaware 13-3379803
Aetna Holdings, Inc. Delaware 38-3306448
Aetna Export Sales Corp. United States 66-0441945
Virgin Islands
The principal executive offices and telephone number of each co-registrant is
as specified on the cover page.
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PART I
Item 1. Business
GENERAL
The Company is a leading Tier I or direct supplier of high-quality modules,
welded subassemblies and stampings used as original equipment components by
OEMs in the North American automobile industry. The Company's core products,
which in 1996 represented over 80% of its net sales, are complex, high
value-added modules and welded subassemblies. With wide-bed press capabilities
in excess of 150 inches, the Company is one of a small group of independent
suppliers capable of producing large bed-size stampings and assemblies. The
Company produces over 200 products that are used in the production of 51
different models (23 different platforms). 88% of the Company's 1996 net sales
were derived from sales of products manufactured for the light truck sector
(consisting of sport utility vehicles, mini-vans, utility vans and light
pick-up trucks), which has recently experienced stronger growth than the
passenger car sector. The Company has been a direct supplier to Chrysler and
GM since 1941, with net production sales to these customers in 1996 accounting
for 61% and 33%, respectively, of the Company's net production sales. Since
1991, the Company has implemented new manufacturing and marketing practices
that management believes have improved the Company's manufacturing productivity
and quality and have enhanced and expanded the Company's customer
relationships.
The OEM Supplier Industry
Management believes that the Company is benefitting from certain industry-wide
structural developments that are altering the competitive environment for parts
suppliers to OEMs, including cost-driven purchasing by OEMs of integrated
modules and subassemblies. Because of increasing global competition, OEMs have
been upgrading their supplier policies, reducing the number of strategic
suppliers that may bid for awards and outsourcing an increasing percentage of
their production requirements. Chrysler and GM have indicated that by July 31,
1997 and December 31, 1997, respectively, only Tier I suppliers with QS 9000
certification will be allowed to bid on new manufacturing business. The
Company is already QS 9000 certified at all of its manufacturing facilities.
Strategic suppliers to Chrysler and GM are invited to bid on the manufacture
and assembly of specific products to be incorporated in both new and existing
automotive platforms. If the model or platform already exists, the current
supplier may be favored by the OEM because of the supplier's familiarity with
the existing product as well as its existing investment in the manufacturing
process and tooling. As a result, it is considered unusual for incumbent
suppliers to be removed from existing contracts, particularly if they have
consistently been able to deliver the existing products on time, within agreed
quality levels and at competitive prices.
On new platforms, there has been an increasing trend toward involving potential
suppliers much earlier in the design and development process in order to
encourage the suppliers to share some of the design and development
responsibility. Management believes that early involvement in the design and
engineering of new components affords the Company a competitive advantage in
securing new business and provides its customers with significant cost
reduction opportunities. Once selected, an OEM supplier generally manufactures
and/or purchases the necessary tooling and supplies the product on a
sole-source basis for the life of a vehicle model or platform, which typically
ranges from five to seven years. In most cases, it will be at least two years
before a Tier I OEM supplier sees its products incorporated into new models or
platforms. Consequently, the key success factors for suppliers to OEMs have
changed from pure cost minimization to total program management that
encompasses state-of-the-art design, manufacture and delivery of high-quality
products at competitive prices.
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Business Strategy
The Company has developed and is implementing a business strategy to enhance
the effectiveness of its core operating strengths, to respond to industry-wide
structural developments in the OEM parts supplier industry and to increase
sales and profitability. Key elements of this strategy are as follows:
- - FOCUS ON HIGH-GROWTH VEHICLE CATEGORIES. While the Company's products are
generally used on a diverse group of automotive platforms (23) and models
(51), the Company's sales and marketing efforts have been directed towards
sectors of the automotive market that have experienced strong consumer
demand and growth in sales. In 1996, 88% or $186.1 million of the
Company's net sales were derived from sales of products manufactured for
sport utility vehicles, mini-vans, utility vans and light pick-up trucks,
versus 60% or $73.7 million in 1991. 55 % of the Company's net sales in
1996 were derived from the sale of products manufactured for sport utility
vehicles as compared to 27% in 1991.
- - PRODUCTION OF MORE COMPLEX, HIGH VALUE-ADDED ASSEMBLIES. The Company's
business strategy includes seeking awards for more complex, high
value-added modules and welded subassemblies which typically generate
higher dollar content per vehicle for the Company than individual
stampings. In 1996, modules and welded subassemblies accounted for
approximately 81% of the Company's total net sales, versus 56% in 1991.
Structural changes within the automotive manufacturing industry have
substantially increased the reliance of OEMs on purchasing integrated
modules and subassemblies from independent suppliers such as the Company.
Management believes that this continuing shift will create new
opportunities for the Company to utilize its capability to produce large
bed-size stampings and assemblies, along with its broad range of services,
including process and design engineering capabilities and low-cost quality
manufacturing. For example, after seven years of collaboration with
Chrysler, the Company was awarded the rear floor pan module for the new
generation Chrysler Jeep Grand Cherokee due out in model year 1999, an
example of a complex module with sophisticated engineering requirements.
- - LOW-COST STRUCTURE. An integral part of the Company's business strategy
has been to achieve a low-cost structure by maximizing asset utilization,
reducing manufacturing costs and rationalizing the Company's component
parts and services supplier base. Over the past four years, the Company's
manufacturing initiatives have significantly improved its productivity and
asset utilization and have enabled the Company to achieve, in 1996,
adjusted net production sales per employee and per square foot of
manufacturing space of $159,590 and $312.6 respectively, compared to
$129,850 and $282.7, respectively, in 1995. By maximizing productivity,
the Company has been able to rapidly adjust its operations to changes in
market demand and manufacturing volumes. In addition, the Company's
average labor rate for hourly employees of approximately $15 per hour,
inclusive of benefits, is substantially below the comparable average labor
rate of approximately $40 per hour of its OEM customers. This low labor
cost structure enables the Company to provide its customers with a
cost-effective source of modules and welded subassemblies and has enabled
the Company to participate in the OEMs' outsourcing of an increasing
percentage of their component needs. The Company has also benefitted from
steel purchasing arrangements with Chrysler and GM that allow the Company
to pass through price changes to these customers. As a result of these
arrangements, the effect of changes in the cost of steel, which
represented 36% of the Company's net sales in 1996, has been substantially
mitigated. Moreover, the Company purchases certain component parts and
services for its modules and subassemblies, which in 1996 represented
approximately 16% of net sales. The Company believes that it will be able
to achieve further cost reductions by implementing its strategy of
reducing its component parts and services supplier base to those suppliers
who are able to provide continuous quality improvement on a cost effective
basis. Much as the Company's customers have achieved cost reductions by
concentrating their purchases with larger, more cost-effective stamping
suppliers, the Company plans to implement a program concentrating
purchases of small components (such as fasteners, small stampings, and
weld supplies) and outside services (such as painting, plating and heat
treating) with a select number of suppliers. In addition to pricing,
these suppliers will be judged on
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overall quality, stocking policies and delivery capabilities, ability to
communicate data electronically, and a program at the supplier which
addresses continuous cost reductions in the supplier's operations.
- - AETNA PRODUCTION SYSTEM. The Company has implemented the "Aetna
Production System", a production process which is based upon the "Total
Elimination of Waste" manufacturing philosophy. The Company's
manufacturing processes have been realigned to streamline work flow,
achieve flexibility, promote quality and lower manufacturing costs. The
Company has developed a cellular manufacturing strategy by producing and
assembling in a single location all of the stampings that comprise a
module or subassembly. As a result of the Company's commitment to quality
and its investment in quality assurance education and control systems,
none of the Company's products has been subject to a recall. All of the
Company's manufacturing facilities have achieved QS 9000 certification,
the standard recently adopted by AIAG. Chrysler and GM have indicated
that by July 1, 1997 and December 31, 1997, respectively, they will allow
only Tier I suppliers with QS 9000 certification to bid on new
manufacturing business.
Products
The Company manufactures, assembles and assists in the design of its core
products which consist of a broad range of complex, high value-added modules
and welded subassemblies, including floor pans and ladders, radiator supports,
frame extensions, bumpers and crossmembers. In recent years, the Company has
focused on producing modules and welded subassemblies as OEMs have increasingly
relied on outside suppliers of these components in order to contain rising
labor and production costs. Over 80% of the Company's 1996 net sales, compared
to 74% in 1995, were generated by complex, high value-added modules and welded
subassemblies. The Company produces over 200 products on 23 different
platforms (51 different models) in its nine plants at five manufacturing
locations. 88% of the Company's 1996 net sales were derived from products
manufactured for sport utility vehicles; mini-vans, utility vans and light
pick-up trucks, compared to 86% in 1995.
The Company's multiple press lines and flexible manufacturing capacity enable
it to produce a broad array of products, including smaller stampings, such as
oil pans, wheel retainers and headlight brackets, and intermediate-sized
stampings, such as crossmembers, rails, heat shields, wheelhouses and door
hinge pillars. The Company's wide-bed presses (i.e., over 150 inches) make it
one of approximately six independent suppliers capable of producing large
bed-size stampings and assemblies. The Company also has extensive roll-forming
production capabilities, which are utilized in conjunction with the
manufacturing of complete modules and subassemblies. Roll-forming processes
have been used for many years to produce various sizes and shapes of window
channels.
Customers
Management believes that the Company's long-standing industry relationships are
based on its reputation for low cost, quality products and on-time service.
The Company's primary customers are Chrysler and GM, which accounted for
approximately 61% and 33% of 1996 net production sales, respectively. The
Company has been a direct supplier to GM and Chrysler since 1941, and the
Company has longstanding relationships with buying and engineering personnel at
both companies. For both Chrysler and GM, the Company has been designated a
"strategic supplier" for stamping and assembly work, as part of a limited group
of preferred suppliers invited to bid for platform work. The Company has been
producing the rear floor pan module for the Jeep Grand Cherokee underbody since
the model's introduction in 1992, and produces modules and subassemblies for
Chrysler's standard Jeep Cherokee and other vehicles. More recently, the
Company was also awarded the rear floor pan module for the new generation Jeep
Grand Cherokee due out in model year 1999. The Company is also one of GM's
strategic stamping suppliers, and produces modules, subassemblies and details
for GM's passenger car, mini-van and light truck divisions.
The Company also produces roll-form jobs for window channels for the principal
automotive window manufacturers, including PPG Industries, Inc.,
Libbey-Owens-Ford and Guardian Industries Corp.
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Sales and Marketing
The Company's marketing efforts are currently concentrated on the light truck
sector (consisting of sport utility vehicles, mini-vans, utility vans and light
pick-up trucks), one of the fastest growing sectors in vehicle sales. The
Company's combined net sales of products used on sport utility vehicles,
mini-vans, utility vans and light pick-up trucks increased from $181.4 million
in 1995 to $186.1 million in 1996. Management believes that this strong sales
performance has been based on its established reputation for low cost, on-time
and high-quality production.
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 jobs are generally
awarded one to three years prior to the initial production period. Once a
producer has been designated to supply parts to a new program, it will generally
continue to be a sole source supplier for these parts for the life of the
program. In the case of Chrysler and GM, anticipated production volumes are
generally confirmed three months in advance, and releases are given to the
Company on a weekly basis. Typically, these arrangements remain in place for
the production life of a car or truck platform and continue through a
platform's redesign period. Production generally runs five to seven years, but
on occasion can be substantially longer or shorter, and then ceases with the
discontinuance of the respective model.
The Company has increasingly been partnering with OEMs during the early stages
of platform development. OEMs have focused on shortening design cycles and
reducing design and production costs, and have involved component suppliers
earlier in the process of designing a vehicle. 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 crossmember assemblies, which are designed at an early stage in the
development of new vehicles or model revisions. This has resulted in
opportunities to add additional value by furnishing engineering and process
design services and managing the subassembly process for the manufacturer. It
also creates opportunities for early identification of a broad range of
components and related subassemblies which could be manufactured by the
Company. Partnering also involves sharing with the OEMs tooling, design and
other start-up costs.
The Company also seeks work producing components of existing vehicle models
previously made by an OEM in-house. Production by outside suppliers allows
OEMs to free-up critical capacity which can be redeployed in other areas, in
particular during the final years of model production when additional in-house
capacity is required for the try-out of an OEM's new vehicle models. The
Company's sales of value-added modules and subassemblies have increased in part
as a result of its availability for and successful completion of this type of
"factory assist" work. For example, the Company's factory assist work on the
standard Chrysler Jeep Cherokee led to its selection for subsequent platform
work in connection with the Chrysler Jeep Grand Cherokee and the redesigned
Chrysler Jeep Grand Cherokee platforms. The Company does not issue express
warranties to the purchasers of its products. However, the Company may be
subject to warranty obligations as part of standard purchasing terms and
conditions used by its OEM customers. For example, Chrysler's Facilities and
Materials Purchasing General Terms and Conditions provide that suppliers to
Chrysler are to indemnify and hold Chrysler harmless against all claims and
liabilities resulting from negligence of the supplier, its employees or its
subcontractors. None of the Company's products has ever been subject to a
recall.
Manufacturing
The Company has supported its "Total Elimination of Waste" philosophy by
instituting the "Aetna Production System", a closed loop production planning
methodology based on QS 9000 quality standards, and by realigning its
manufacturing processes in order to monitor more effectively and
control labor and overhead costs and to ensure the maximum utilization of
production resources. In addition, the Company, has introduced a cellular
manufacturing strategy which has consisted of consolidating all detailed
stampings that comprise a module or subassembly into a single production
location. For example, the Company relocated its roll-forming equipment from
separate locations, allowing the Company to increase
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its production capacity while reducing production space. The Company believes
these changes in its production system have improved scheduling flexibility,
lowered inventory carrying costs, increased the utilization of manufacturing
floor space, improved scheduling efficiencies and productivity and reduced fixed
costs and product costs. As a result of the implementation of these changes,
the Company achieved, in 1996, adjusted net production sales per employee and
per square foot of manufacturing space of $159,590 and $312.6 respectively,
compared to $129,850 and $282.7, respectively, in 1995. Three key programs have
been instituted as part of the Aetna Production System:
- - JUST-IN-TIME MANUFACTURING. The Company has implemented a progressive
production strategy based on a just-in-time ("Just-in-Time" or "JIT")
manufacturing process specifically designed to promote efficient
production and eliminate various unnecessary costs. Just-in-Time
manufacturing is characterized by flexible work center scheduling as well
as vendor scheduling, quality "in place" as opposed to inspection of
vendor deliveries and reduced work queues and inventory levels. These
productivity improvements in the manufacturing process have helped lower
indirect labor costs associated with setup time.
- - CERTIFIED QUALITY STANDARDS. As a result of the Company's commitment to
quality and its investment in quality assurance education and control
systems, none of the Company's products has been subject to a recall. All
of the Company's manufacturing facilities have achieved the QS 9000
certification, the standard recently adopted by the AIAG. Chrysler and GM
have indicated that by July 1, 1997 and December 31, 1997, respectively,
they will allow only Tier I suppliers with QS 9000 certification to bid on
new manufacturing business.
- - MANUFACTURING RESOURCE PLANNING II. As OEMs continue to rely on outside
suppliers for modules and subassemblies, production planning and inventory
management have become increasingly important factors in the Company's
competitiveness. In order to control costs, respond to shifting OEM
production demands and develop a more efficient inventory management and
production planning process, the Company has instituted a closed-loop
manufacturing resource planning program which uses OEM releases to
generate forecasts and assign the material and labor required for
production on a weekly basis.
Suppliers and Raw Materials
Since 1994, the Company has participated in Chrysler's "Extended Enterprise"
program, a collaborative program undertaken by Chrysler with its Tier I
suppliers designed to promote, between such Tier I suppliers and their
respective Tier II suppliers, production and sales practices which are
comparable to those required by Chrysler of its Tier I suppliers. As a result,
the Company has recently begun to rationalize its component parts and services
supplier base. The Company believes that it will be able to achieve further
cost reduction by implementing its strategy of reducing its supplier base to
those suppliers who are able to provide continuous quality improvement on a
cost-effective basis.
The Company's principal raw material is steel, which represented 36% of the
Company's net sales in 1996. The Company's purchasing department typically
buys approximately 15,000 tons per month of flat-rolled steel. Steel coil
purchases include quantities of hot-rolled, cold-rolled, high strength
galvanized, aluminized and stainless, depending upon production requirements.
The Company currently participates in steel buying programs with both Chrysler
and GM under which the Company has substantially mitigated the effects of steel
price volatility and is provided a steady source of steel. The Company believes
that on a going forward basis, both Chrysler and GM will continue these
arrangements so that the Company will not recognize a steel price increase
unless it receives a matching sales price increase from the OEM.
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Competition
The Company currently competes for large-scale production work with a limited
group of approximately five independent suppliers that have the physical assets
and technical skills to produce large bed-size stampings and assemblies.
Competitors with wide bed-size presses (i.e., over 150 inches) and substantial
technical resources include The Budd Company, Lobdell-Emery Corporation, Magna
International Inc., Active Tool & Manufacturing Co., Inc. and Checker Motors
Corporation. Moreover, the Company believes that the high fixed asset and
set-up costs associated with production of large-sized metal stamping and
subassemblies are likely to limit the number of OEM parts suppliers entering
the large-scale stampings market.
Employees
As of December 29, 1996, the Company's workforce included 1,325 employees of
which 257 were salaried workers and 1,068 were hourly paid employees. The
Company believes that relations with its employees are good. The Company's
hourly employees are covered by six collective bargaining agreements with two
locals of the UAW. Of the six collective bargaining agreements, only one will
expire within one year and is thus subject to renegotiation at the option of
the Company or the UAW. The collective bargaining agreement covering the 145
hourly employees of the Company's Plant #7 expired on August 18, 1996 and Plant
#7 was closed effective September 16, 1996. The Company and Local 155
negotiated an agreement on matters relating to the effects of the facility's
closure on the employees represented by the UAW local. As a result of this
agreement, there is no Company liability for current or future employee
severance benefits. Charges associated with closing Plant #7 were minimal and
did not have a material adverse effect on the Company. The collective
bargaining agreement covering 53 hourly employees of the Company's Plant #5
expired on February 9, 1997 and was successfully renegotiated to extend one
year to expire on February 12, 1998.
In the last round of negotiations in 1995, the Company reached early contract
settlement with four of its UAW contingents. The contracts' four to five year
terms provide a significant benefit to the Company in its efforts to plan its
future operations.
Environmental Matters
The Company is subject to a wide range of evolving federal, state and local
environmental laws and regulations relating to the protection of the
environment, worker health and safety and the emission, discharge, storage,
treatment and disposal of hazardous materials. The laws include the Clean Air
Act, the Resource Conservation and Recovery Act, the Federal Water Pollution
Control Act and the Comprehensive Environmental Response, Compensation and
Liability Act ("Superfund" or "CERCLA").
The Company believes that it is in material compliance with applicable federal,
state and local environmental laws and regulations. Compliance with these laws
and regulations has not in the past had any material adverse effect on the
Company's financial condition or results of operations; however, the effect of
such compliance on the Company in the future cannot be determined.
CERCLA imposes strict, joint and several liability upon owners or operators of
facilities at, from or to which a release of hazardous substances has occurred,
upon parties who generated hazardous substances that were released at such
facilities and upon parties who arranged for the transportation or disposal of
hazardous substances to such facilities. A majority of states have adopted
"Superfund" statutes similar to and, in some cases, more stringent than CERCLA.
Due to 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
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any such liabilities on the Company in the future cannot be determined.
Item 2. Properties
The Company is headquartered in Centerline, Michigan, a suburb of Detroit. The
Company currently owns or leases a total of approximately seventeen properties
used for various purposes, including three parcels of land. The Company's
facilities houses its blanking, stamping, roll-forming and seemly operations, as
well as its warehousing and shipping functions and administrative offices for
various functional departments. All but one of the Company's manufacturing
facilities are located within one mile of its headquarters, while the remaining
manufacturing facility and the product development center are located within
eight miles of its headquarters. The Company continually seeks to reduce its
costs and increase the efficiency of its operations through maximizing
utilization of its facilities. 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.
Item 3. Legal Proceedings
The Company is from time to time involved in routine litigation incident to its
operations. The Company believes that the litigation currently pending or
threatened against it will not have a material adverse effect on its
consolidated financial condition or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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 the Company.
As of December 29, 1996, Aetna Holdings, Inc. (Aetna Holdings) was the only
holder of the common stock of the Company. Aetna Holdings in turn is a
wholly-owned subsidiary of MS Acquisition Corp. (MS Acquisition), a privately
owned company, the capital stock of which is held by Citicorp Venture Capital,
Ltd., members of management and other private investors. There have been no
cash dividends declared on the common stock of the Company.
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Item 6. Selected Financial Data
The following table sets forth selected historical financial data of the
Company for the five years ended December 29, 1996.
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales $211,462 $211,905 $204,850 $162,908 $128,905
Cost of sales 180,998 183,542 172,428 139,499 112,830
Gross profit 30,464 28,363 32,422 23,409 16,075
Selling, general and
administrative expenses 15,544 13,331 12,898 12,544 9,984
Operating profit 14,820 15,032 19,524 10,864 6,091
Interest expense, net 9,022 8,579 8,929 9,020 9,206
Income (loss) before effect of
accounting changes (a) 3,693 4,576 6,595 915 (2,768)
Net income (loss) 2,540 4,576 6,595 (3,856) (2,768)
OTHER FINANCIAL DATA
Depreciation and
amortization 7,965 6,579 6,150 6,009 5,902
Capital expenditures 7,023 10,103 6,125 3,474 1,736
Cash flows from operating
activities 1,893 14,564 22,040 13,156 5,406
Cash flows from investing
activities (6,447) (10,252) (6,454) (4,337) (1,676)
Cash flows from financing
activities 8,274 (4,184) (15,433) (9,401) (3,601)
Ratio of earnings to fixed
charges (b) 1.7 1.7 2.1 1.2 -
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets $129,058 $118,242 $113,331 $109,587 $105,414
Long-term debt 85,000 57,741 57,744 69,238 75,390
Stockholder's equity (deficit) (1,140) 7,402 2,827 (3,768) 88
</TABLE>
(a) Effective December 28, 1992, the Company adopted SFAS No. 109,
"Accounting for Income Taxes", which resulted in a one-time, non-cash,
after tax charge of $4,771.
(b) For purposes of the ratio of earnings to fixed charges, (i) earnings
include earnings before income taxes, the effect of changes in accounting
and fixed charges and (ii) fixed charges include interest on all
indebtedness, amortization of deferred financing costs and the portion of
rental expense (one-third) that the Company believes to be representative
of interest. The Company's earnings were insufficient to cover fixed
charges by $3.1 million for the year ended December 27, 1992.
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Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company is a leading Tier I supplier of high-quality modules, welded
subassemblies and stampings used as original equipment components by OEMs in
the production of sport utility vehicles, mini-vans, utility vans, light
pick-up trucks and passenger cars. The Company's core products include
complex, high value-added modules and welded subassemblies, such as rear floor
pan modules that form a section of a vehicle underbody, and individual
stampings, such as oil pans, wheel retainers, headlight brackets, crossmembers,
rails, heat shields and door hinge pillars. The Company's manufacturing
processes include roll forming, blanking and stamping and, since 1991, the
Company has implemented new manufacturing processes including a cellular
manufacturing strategy that has increased production capacity and labor
efficiency. The Company regularly pursues and receives long-term OEM factory
assist jobs, producing components of existing vehicle models previously made by
an OEM in-house. OEM factory assist jobs can be the result of (i) short term
production requirements prior to or during model change-overs which allow the
OEMs to retool their plants, (ii) cost reduction initiatives resulting in
increased outsourcing by OEMs or (iii) capacity constraints after the
introduction of a new platform. The Company also participates with its OEM
customers in process engineering activities.
On August 13, 1996, Aetna issued $85 million of 11-7/8% Senior Notes
due 2006 (the Notes). The proceeds of this issuance were used to (a) repay all
of the outstanding indebtedness, accrued interest and prepayment penalties of
the Company (b) to fund the amount of $11.1 million payable to former
stockholders of MS Acquisition Corp. in connection with a recapitalization of
MS Acquisition, (c) to pay approximately $651,000 to terminate certain
outstanding employee options, (d) to pay fees and expenses of approximately $5
million in connection with the Transactions, (e) to pay approximately $570,000
of bonuses and accrued compensation to certain directors and officers of Aetna,
(f) to pay $250,000 in accrued management fees and (g) for general corporate
purposes.
Results of Operations
The following table sets forth, for the periods indicated, the Company's
statement of operations expressed as a percentage of net sales. This table and
subsequent discussions should be read in conjunction with the consolidated
financial statements and related notes thereto of the Company.
1996 1995 1994
Net sales 100.0% 100.0% 100.0%
Cost of sales 85.6 86.6 84.2
Gross profit 14.4 13.4 15.8
Selling, general & administrative expenses 7.4 6.3 6.3
Operating profit 7.0 7.1 9.5
Interest expense 4.3 4.0 4.4
Income before income taxes and
extraordinary item 2.7 3.0 5.2
Income tax provision 1.0 0.9 2.0
Extraordinary item 0.5
Net income (loss) 1.2 2.2 3.2
YEAR ENDED DECEMBER 29, 1996 COMPARED TO YEAR ENDED
DECEMBER 31, 1995
NET SALES: Net sales for the year ended December 29, 1996 were $211.5
million, down slightly from net sales of $211.9 million for the same period in
1995. Production sales decreased $8.0 million while tooling sales increased
$7.6 million. The decrease in production sales was principally due to the
planned successful completion of a factory assist job which ran for 16 months
from early 1994 to mid-1995. Partially offsetting this decrease was an increase
of 10.8% in net sales to Chrysler (excluding factory assist work). Net sales to
General Motors decreased 12% in 1996 compared to 1995 as a result of the planned
phase out of the cargo van program offset by higher sales on two new passenger
car platforms.
11
<PAGE> 12
The decrease in total Company sales was also offset by two factory assist jobs
awarded in the fourth quarter of 1996.
GROSS PROFIT: Gross profit was $30.5 million, or 14.4% of net sales, for the
year ended December 29, 1996, compared to $28.4 million or 13.4% of
net sales, for the year ended December 31, 1995. Cost reduction
programs implemented in the fourth quarter of 1995 resulted in a 1.1% reduction
of manufacturing labor and overhead costs as a percentage of sales in 1996.
SELLING GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: For the year ended
December 29, 1996, SG&A expenses were $15.6 million, or 7.4% of sales, up
17.3% from $13.3 million, or 6.3% of sales, for the same period last year.
SG&A expenses were negatively impacted by $0.6 million of non-recurring costs
associated with the issuance of $85.0 million in Senior Notes and other related
costs, $.4 million of bad debt expense and additional engineering expenses of
$1.2 million to support new platform awards.
INTEREST EXPENSE: Interest expense for the year ended December 29,
1996 was $9.0 million, or 4.3% of net sales, compared to $8.6 million, or 4.0%
of net sales, for the year ended December 31, 1995. The increase in
interest expense is attributable to increased levels of debt outstanding in
1996 as compared to the prior year.
INCOME TAXES: The provision for income taxes for the year ended
December 29, 1996 was $2.1 million with an effective rate of 36.3%, as compared
to $1.9 million with an effective tax rate of 29.1% in the same period of the
prior year. The prior year effective tax rate was lower than the statutory
rate primarily as a result of the effect of the graduated rates on the deferred
tax balances and the reversal of reserves no longer required, offset by the
impact of non-deductible cost in excess of assets acquired. The current year
effective tax rate reflects the impact of non-deductible cost in excess of
assets acquired partially offset by research and development tax credits.
EXTRAORDINARY ITEM: During the third quarter, the Company prepaid its existing
subordinated debt. The resulting prepayment penalty has been shown as an
extraordinary item in the accompanying statement of operations.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED
JANUARY 1, 1995
NET SALES. Net sales for the year ended December 31, 1995 were $211.9 million,
an increase of $7.0 million, or 3.4%, from $204.9 million in 1994. The
increase was principally the result of continued strong consumer demand in the
North American automotive market for sport utility vehicles, with total sport
utility vehicle production increasing 26.6% in 1995. Net tooling and prototype
sales were $4.4 million in 1995, down 46.3% from 1994 net tooling and prototype
sales of $8.2 million. In 1994, the Company completed the installation of a
mini-van radiator support assembly which contributed $5.0 million to net
tooling and prototype sales. Net production sales to Chrysler and GM as a
percentage of total net production sales were 60% and 36% in 1995,
respectively, as compared to 62% and 35%, respectively, in 1994.
GROSS PROFIT. Gross profit was $28.4 million, or 13.4% of net sales, in 1995,
compared to $32.4, or 15.8% of net sales, in 1994. Gross margins were
unfavorably impacted by the need to execute a major assembly line overhaul to
meet increased demand for the Chrysler Jeep Grand Cherokee. This overhaul,
which was implemented while the Company remained in full production, was
required as the result of running an assembly line at a rate 20 to 25 percent
greater than its originally designed maximum capability for over two years due
to high product demand. Additionally, gross profit was adversely affected by
start-up costs on a new weld assembly job and delays in receiving anticipated
factory assist work.
SG&A. SG&A expenses, which were $13.3 million in 1995, compared to $12.9
million in 1994, remained constant as a percentage of net sales at 6.3%.
12
<PAGE> 13
INTEREST EXPENSE. Interest expense for the year ended December 31, 1995 was
$8.6 million, or 4.0% of net sales, compared to $8.9 million, or 4.4% of net
sales, for the year ended December 31, 1994. Weighted average interest rates
were 12.9% and 12.3% in 1995 and 1994, respectively. The decrease in interest
expense is attributable to lower levels of debt outstanding.
INCOME TAXES. The provision for income taxes for the year ended December 31,
1995 was $1.9 million, with an effective income tax rate of 29.0%, as compared
to $4.0 million, with an effective tax rate of 37.8% in the same period of the
prior year. The decrease in the effective rate is due principally to the
effect of the rate change on deferred tax balances and the reversal of tax
reserves no longer required.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are to fund working capital needs,
to meet required debt payments and to complete planned maintenance and
expansion expenditures. At December 29, 1996, the Company had $35 million
available under its Senior Revolving Credit Facility. The Company currently
anticipates that its operating cash flow, together with available borrowings
under the Senior Credit Facility, will be sufficient to meet its working
capital, capital expenditure, and interest requirements on its debt
obligations.
Net cash flow from operations aggregated $1.9 million for the year ended
December 29, 1996 as compared to $14.6 million for the same period in the
prior year. The decrease was attributable to an $11.0 million decrease in
working capital, excluding cash, a decrease in net income of $2.1 million and a
decrease of deferred interest of $1.3 million partially offset by a $1.4
million increase in depreciation. The decrease in operating cash flows of $7.4
million in 1995 compared to 1994 is attributable to net income decreasing $2.0
million, working capital decreasing $2.5 million, depreciation and amortization
increasing $0.4 million, deferred interest decreasing $1.7 million and deferred
interest decreasing $1.7 million and deferred income taxes decreasing $0.2
million.
Net cash flow from investing activities consists principally of capital
expenditures of $7.0 million for the year ended December 29, 1996 as
compared to $10.1 million for the same period in the prior year. Major capital
projects during 1996 included construction of a new facility for $2.9 million,
the completion of the rear suspension weld assembly line for approximately $0.8
million, die tables installed in Plant 2 of $0.5 million, automation of the
Mini-Van production line for $0.2 million and various other additions and
improvements aggregating $2.6 million. Major capital projects for 1995
included completion of a platform specific control arm project, continued
expenditures relating to a plant modernization program, and start-up costs
related to a new rear suspension project.
Net cash flows used for financing activities totaled $8.3 million for the
year ended December 29, 1996 as compared to net cash provided by
financing activities of $4.2 million for the same period in 1995. The net
provision of cash represents principally the net cash outflows for the
repayment of long-term debt of $49.2 million and dividends of $11.1 million,
offset by the proceeds of the issuance of Senior Notes aggregating $85.0
million. Cash used for financing activities in 1995 consisted primarily of
principal payments on long-term debt.
To the extent dividends to Aetna Holdings to fund cash interest payments on the
Junior Subordinated Debentures and cash payments on the unfunded contractual
obligations to former option holders are permitted under the Indenture and the
Senior Revolving Credit Facility, interest on the Junior Subordinated Debentures
and the contractual obligations will be funded by cash dividends by the Company
to Aetna Holdings. Such dividends would be approximately $1.0 million annually.
Additionally, up to $2.5 million in aggregate principal amount of the Junior
Subordinated Debentures will be required to be redeemed by Holdings from time to
time to the extent dividends to Holdings are permitted to be paid under the
Indenture and the Senior Revolving Credit Facility. In February 1997, Aetna
paid $1.5 million of cash and pre-payments of principal on these debentures and
obligations on behalf of Aetna Holdings.
The Company's liquidity is affected by both the cyclical nature of its business
and levels of net sales with
13
<PAGE> 14
its two major customers. The Company's ability to meet its working capital
requirements and capital expenditure requirements and service its debt
obligations will depend upon its future operating performance, which will be
affected by prevailing economic conditions and financial, business and other
factors, certain of which are beyond its control.
Inflation
The Company does not believe that inflation has had any material effect on the
Company's business over the past three years.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: Except for the historical information included in the financial
statements and herein, certain matters discussed in this Report on Form 10-K
are forward looking statements which involve risks and uncertainties as to
future events. Actual events or results may differ materially from those
discussed in the forward-looking statements as a result of various factors.
<TABLE>
<CAPTION>
Item 8. Financial Statements Page
- ------- --------------------
<S> <C> <C>
Index to financial statements
Condensed Consolidated Balance Sheets -
December 29, 1996, December 31, 1995 and January 1, 1995 25
Consolidated Statement of Operations -
Year Ended December 31, 1995 and January 1, 1995 27
Consolidated Statements of Cash Flows - Year Ended December 29, 1996,
December 31, 1995 and January 1, 1995 28
Notes to Consolidated Financial Statements 29
FINANCIAL STATEMENTS OF MS ACQUISITION CORP.
Condensed Consolidated Balance Sheets -
December 29, 1996 and December 31, 1995 39
Consolidated Statements of Operations - Year Ended
December 29, 1996, December 31, 1995 and January 1, 1995 41
Consolidated Statements of Cash Flows - Year Ended December 29, 1996, 42
December 31, 1995 and January 1, 1995
Notes to Consolidated Financial Statements 43
</TABLE>
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
Not applicable.
14
<PAGE> 15
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth certain information and ages as of March 1, 1997
for each of the directors and executive officers of the Company. Each
individual serves in the same capacities with MS Acquisition and Holdings.
There are no arrangements or understandings between any officer and any other
person pursuant to which the officer was or is to be selected.
NAME AND AGE POSITION WITH COMPANY
Ueli Spring, 46 Director*, President and CEO
Harold Brown, 47 Director*, Chief Financial Officer, Vice President,
Finance and Secretary
Gary Easterly, 48 Executive Vice President and Chief Operating Officer
Daniel Pierce, 54 Vice President, Human Resources
Edward Lawson, 42 Vice President, Quality Assurance
David Thal, 38 Vice President, Product Development
Ralph Bredenbeck, 56 Vice President, Tool and Assembly
Michael Delaney, 42 Director*
David Howe, 32 Director*
John Wurster, 62 Director*
* Messrs. Spring, Brown, Delaney, Howe and Wurster also serve as directors
of MS Acquisition and Aetna Holdings.
The Board of Directors of the Company, Aetna Holdings and MS Acquisition each
consists of five directors who serve until the next annual meeting of
stockholders or until a successor is duly elected. Executive officers of the
Company, Aetna Holdings and MS Acquisition serve at the discretion of the Board
of Directors.
The Board of Directors of Export consists of four directors who serve until the
next annual meeting of stockholders or until a successor is duly elected. The
current directors of Export are Ueli Spring, Harold Brown, Graham Dunn, age 49,
and Edward Rogers, age 37. They have been directors of Export since March 9,
1993 and August 15, 1991, respectively. Mr. Spring is the President of Export.
Mr. Brown is Treasurer and Secretary of Export. Each of Mr. Dunn and Mr.
Rogers serves as an Assistant Secretary of Export. Executive Officers of
Export serve at the discretion of its Board of Directors.
Mr. Ueli Spring has served as Chief Executive Officer and President of the
Company since 1994. From 1990 to 1994, Mr. Spring served as Executive Vice
President and Chief Operating Officer of the Company. Mr. Spring has been a
director of the Company since September 1990. From 1986 to 1987, he served as
President of Magna International Inc.'s Cosma International Group and then
served as Chief Operating Officer of Magna International Inc.'s' Cosma
International Group from 1987 to 1990. From 1984 to 1986, he served as
Director of Manufacturing with Magna International Inc. In 1972, Mr. Spring
joined the Oetiker operations and later became Vice President from 1980 to
1984. Mr. Spring received his degree in Tool & Die Engineering from the
University Ticinese di Trevano, Switzerland.
Mr. Harold Brown has served as Vice President of Finance of the Company since
joining the Company in 1992. From 1990 to 1992, he was Controller in charge of
U.S. operations at AVX Kyocera Corp. From 1985 to 1989, Mr. Brown served as
Vice President of Finance at APV Baker Perkins plc after serving as Manager of
Financial Analysis from 1982 to 1985. From 1977 to 1982, Mr. Brown held
various planning, marketing and sales positions with Cooper Industries Inc.
Mr. Brown received an AB in Economics from the University of North Carolina and
an MBA from Duke University. From 1972 to 1975, he served as a Lieutenant,
Supply Corps in the United States Naval Reserve.
15
<PAGE> 16
Mr. Gary Easterly has served as Executive Vice President and Chief Operating
Officer since March 1997. He served as Vice President of Manufacturing of the
Company from 1988 to 1997 and has been employed by the Company since 1987.
From 1966 to 1987, Mr. Easterly served as Director of Quality Assurance,
Quality Engineering and Production Superintendent for GM's Buick Motor
Division. Mr. Easterly received a BS degree in Industrial Engineering from GMI
Institute and an MA degree in Administration from Central Michigan University.
Mr. Daniel Pierce has served as Vice President of Human Resources of the
Company since 1987 and has been employed by the Company since 1973. From 1968
to 1973, Mr. Pierce was Employee Relations Manager at the Demco Division of
Indianhead Corp. Mr. Pierce holds an MA degree in Industrial Relations from
the University of Michigan.
Mr. Edward Lawson has served as Vice President of Quality Assurance of the
Company since 1989 and has been employed by the Company since 1986. From 1980
to 1985, Mr. Lawson was Director of Quality Assurance at Regal Stamping Co. He
received a BS degree in Mechanical Engineering from Mid-Warwickshire College in
England.
Mr. David Thal has served as Vice President of Product Development since 1995
and has been employed by the Company since 1980, also serving as Sherwood Plant
Manager, Quality Assurance Manager, Manufacturing Project Engineer, Engineering
Manager and Sales Manager. Mr. Thal received a BGS degree in Psychology and
Computer Science from the University of Michigan.
Mr. Ralph Bredenbeck has served as Vice President of Tool and Assembly
Engineering of the Company since 1995. From 1989 to 1995, Mr. Bredenbeck
served as Chief Die Engineer of the Company. Before joining the Company, Mr.
Bredenbeck served in various positions at Spartanburg Steel Products Inc.
(formerly, Firestone Steel Products Inc.) from 1967 to 1989, including Director
of Engineering and Manager of Production Engineering. Mr. Bredenbeck received
a BS degree in Mechanical Engineering from Ohio University and is a registered
Professional Engineer.
Mr. Michael Delaney has been a Vice President of Citicorp Venture Capital, Ltd.
since 1989. From 1986 through 1989 he was Vice President of Citicorp Mergers
and Acquisitions. Mr. Delaney serves on the board of directors of Delco Remy
International, Inc., JAC Holdings, Sybron Chemicals, Inc., Palomar
Technologies, Inc., Farm Fresh Inc., AmeriSource Health Corporation, GVC
Holdings, Cort Business Services, Inc., Enterprise Media Inc., FF Holdings
Corporation, SC Processing, Inc. and Triumph Holdings, Inc. Mr. Delaney is a
graduate of Penn State University and The Wharton School.
Mr. David Howe has been a Vice President of Citicorp Venture Capital, Ltd.
since 1993 as an investment professional. From 1990 through 1993 he was
employed at Butler Capital Corp. as an investment professional. He serves on
the board of directors of Copes-Vulcan Inc., Cable Systems International Inc.,
Sinter Metals Inc., Milk Specialties Company, America-Italian Pasta Company and
Brake-Pro Inc. He also represents Citicorp at the board of directors of Del
Monte Foods Company. Mr. Howe is a graduate of Harvard College and Harvard
Business School.
Mr. John Wurster has served as Director of Business Planning - Chrysler de
Mexico since 1995. From 1992 to 1995, he served as Staff Executive - Vice
President and Controller's Officer for Chrysler de Mexico. From 1989 to 1992,
he served as Director of Source Planning and Asset Management of the
Controller's Office of Chrysler. He has served in various capacities for
Chrysler since 1979. Mr. Wurster received a degree in Business Administration
from the Detroit Institute of Technology.
Mr. Graham Dunn has been an Administration Manager and Financial Controller of
Trident Trust Company (V.I.) Ltd. since July 1992. Prior to joining Trident
Trust Company, Mr. Dunn was self-employed.
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<PAGE> 17
Mr. Edward Rogers has been a Manager and Vice President of Trident Trust
Company (V.I.) Ltd. since August 1991. Prior to joining Trident Trust Company,
Mr. Rogers was employed as an offshore company trust administrator in the Isle
of-Man.
DIRECTOR COMPENSATION
Directors do not receive compensation other than reimbursement of expenses for
attending meetings of the Board of Directors or committee meetings.
Item 11. Executive Compensation
The table below shows information concerning cash and noncash compensation for
the Company's Chief Executive Officer and the four most highly compensated
executive officers (other than the Chief Executive Officer) of the Company in
office on December 29, 1996 for each of the last three fiscal years.
AETNA INDUSTRIES, INC.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------- ------------ --------------
NAME AND RESTRICTED SECURITIES LONG-TERM
PRINCIPAL OTHER ANNUAL STOCK UNDERLYING INCENTIVE
COMPENSATION SALARY BONUS COMPENSATION AWARDS OPTIONS PLAN PAYOUTS ALL OTHER
POSITION YEAR ($) ($) ($) ($) (#)(1) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ueli Spring, 1996 $225,976 $367,450 $ - $ - - $ - $ -
President and 1995 222,117 200,000 - - - - -
Chief Executive 1994 150,000 150,000 - - - - -
Officer
Harold Brown, 1996 113,355 202,642 - - - - -
VP Finance 1995 104,755 65,000 - - - - -
1994 101,098 45,000 - - 800 - -
Gary Easterly, 1996 108,411 110,867 - - - - -
VP Manufacturing 1995 100,172 65,000 - - - - -
1994 96,380 45,000 - - - - -
David Smith, 1996 59,452 117,784 - - - - -
VP Engineering (2) 1995 111,992 90,000 - - - - -
1994 108,429 25,000 - - 800 - -
Daniel Pierce, 1996 95,526 45,217 - - - - -
VP Human 1995 87,735 40,000 - - - - -
Resources 1994 85,048 25,000 - - 800 - -
</TABLE>
(1) Shares of Class A Common Stock of MS Acquisition.
(2) Retired June 30, 1996.
BONUS PROGRAM
The Company maintains a Quality Assurance Bonus Program under which Production
Managers and Plant Floor Managers are eligible to receive an annual bonus of
up to $20,000 each. Pursuant to this program, each manager will receive a
bonus in the maximum amount in respect of services rendered in any year in
which no qualified customer complaint is made with respect to his or her unit.
A "Qualified Customer Complaint" is a customer complaint that has been
reviewed, and found to be accurate, by the Company's Vice President of Quality
Assurance with respect to the quality of any product manufactured by such
manager's production unit. The bonus amount that each manager is eligible to
receive in any year will be reduced by $5,000 for each Qualified Customer
Complaint made with respect to his or her unit.
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<PAGE> 18
In addition to the Quality Assurance 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 January of each
year in respect of services rendered by recipients during the preceding years,
are awarded based on a variety of factors, including individual and Company
performance.
STOCK OPTION PLAN
Executive officers, directors, employees and other key persons of the Company
are eligible to participate in the MS Acquisition Corp. Executive Stock Option
Plan (the Plan). Options granted under the Plan may be either incentive stock
options as defined in Section 422 of the Internal Revenue Code of 1986, as
amended, or nonqualifed options. Options to purchase an aggregate of 110,000
shares of Class A Common Stock, par value $.01 per share, of MS Acquisition
Corp. (Class A Common Stock) may be issued under the Plan. The Plan is
administered by a committee (Option Committee) of not less than three
directors appointed by the Board of Directors of MS Acquisition.
All options granted under the Plan are granted pursuant to individual stock
option agreements executed by MS Acquisition and each option recipient. In
general, options granted under the Plan are exercisable in such installments
(which need not be equal) and at such times as are designated by the Option
Committee, but in no event may the term of the option exceed the tenth
anniversary of the effective date of the Plan, March 3, 1989.
The purchase price per share of Class A Common Stock subject to incentive
options must equal or exceed the fair value market value of the Class A Common
Stock on the date such options are granted. The aggregate fair market value of
the Class A Common Stock with respect to the Incentive Options are exercisable
for the first time by the optionee during any calendar year shall not exceed
$100,000. The purchase price per share of Class A Common stock subject to a
nonqualified option shall be determined by the Option Committee. Options
granted under the Plan may not be transferred other than by will or by the laws
of descent.
OPTION GRANTS IN THE LAST FISCAL YEAR
On August 13, 1996, certain employees were granted options under the Plan to
purchase shares of Common Stock that in the aggregate represent up to 10% of
the total number of shares of Common Stock, on a fully diluted basis. These
options have an exercise price of $0.75 per underlying share and become
exercisable in equal installments over five years of continued employment,
subject to acceleration upon a change in control of the Company.
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company and MS Acquisition have jointly entered into employment agreements
with each of Messrs. Brown, Easterly, and Spring (the Employment Agreements)
(each of Messrs. Brown, Easterly and Spring, an Executive). The Employment
Agreements set forth the basic terms of employment for each Executive,
including base salary, bonus and benefits, as well as the benefits to which
each Executive will be entitled if his employment is terminated for various
reasons.
The Employment Agreement with Mr. Spring has an initial term of three years and
provides from a base salary of $225,000 and a discretionary annual bonus of up
to 100% of Mr. Spring's annual salary. The discretionary bonus is to be
determined based upon the achievement of annual company and individual
performance goals. The Employment Agreement provides that Mr. Spring is
entitled to a one time termination payment equal to the remaining payments of
base salary (and in no event less than twelve months) and additional payment
equal to the greater of (x) the bonus received by Mr. Spring for the prior
fiscal year and (y) 50% of his base salary for the fiscal year in which the
termination occurs, if his employment is terminated by the Company without
cause or if he voluntarily terminates his employment with the Company for good
reason.
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<PAGE> 19
The Employment Agreements with Messrs. Brown and Easterly have initial terms of
three years and provide for base salaries of $115,000 and $105,000 respectively.
Messrs. Brown and Easterly are also entitled to a discretionary bonus of up to
60% of their annual base salary. The Employment Agreements provide severance
payments through the end of the term (and in no event for a period of less than
12 months) if employment is terminated by the Company without cause or if
Messrs. Brown or Easterly terminates their employment with the Company for good
reason.
Each Employment Agreement contains non-competition, non-solicitation and
confidentiality provisions.
OPTION EXERCISES AND YEAR-END OPTION VALUES
The following table sets forth certain information concerning stock options
exercised during the year ended December 29, 1996 and the number and value of
unexercised stock options held by each of the named executive officers as of
December 29, 1996.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES (1)
<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
ON VALUE OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
EXERCISE REALIZED (#) ($)
(#) ($) --------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Ueli Spring 0 0 42,500 0 31,875 0
Harold Brown 0 0 25,000 0 18,750 0
Gary Easterly 0 0 10,000 0 7,500 0
David Thal 0 0 7,500 0 5,625 0
Ed Lawson 0 0 5,000 0 3,750 0
Daniel Pierce 0 0 5,000 0 3,750 0
Ralph Bredenbeck 0 0 2,500 0 1,875 0
Teresa Johnson 0 0 2,500 0 1,875 0
</TABLE>
(1) Options are for shares of Class A Common Stock of MS Acquisition Corp.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation of the Company's executive officers has historically been
determined by the Company's Board of Directors. Ueli Spring is the only
employee or present or former officer of the Company who participated in
deliberations of the Company's Board concerning executive officer compensation
during the Company's last completed fiscal year. In August 1996, the Company
established a compensation committee consisting of three members: Michael
Delaney, Ueli Spring and John Wurster. Mr. Spring is the President and Chief
Executive Officer of the Company.
There are no interlocks between the Company and other entities involving the
Company's executive officers and board members who serve as executive officers
or board members of other entities, except with respect to Export, Holdings and
MS Acquisition. The officers and directors of the Company also serve as
officers and directors of Aetna Holdings and MS Acquisition. Mr. Spring and
Mr. Brown, who are officers and directors of the Company, Aetna Holdings and MS
Acquisition, also serve as officers and directors of Export.
Item 12. Security Ownership of Certain Beneficial Ownership and Management
All of the outstanding capital stock of the Company is currently owned by Aetna
Holdings, and all of the outstanding capital stock of Aetna Holdings is
currently owned by MS Acquisition. The following table sets forth certain
information regarding the equity ownership of MS Acquisition as of March 1, 1997
by (i) each person or entity who owns five percent or more of any class of
voting securities of MS Acquisition, (ii) each director of the Company, (iii)
the Chief Executive Officer of the Company and the four most highly compensated
executive officers (other than the Chief Executive Officer) of the Company as
of
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<PAGE> 20
December 29, 1996, and (iv) the directors and offices of the Company as a
group. Unless otherwise specified, all shares are directly held. Shares of
Class B Common Stock are non-voting. Each share of Class A Common Stock is
convertible into one share of Class B Common Stock and each share of Class B
Common Stock is convertible into one share of Class A Common Stock.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
AMOUNT OF PERCENT OF AMOUNT OF PERCENT OF
OWNERSHIP (1) CLASS OWNERSHIP CLASS
<S> <C> <C> <C> <C>
Citicorp Venture Capital, Ltd. (2) $187,871 49.0% $516,590 100.0%
399 Park Avenue
New York, NY 10043
David Howe (3) 187,871 49.0 516,590 100.0
Citicorp Venture Capital, Ltd.
399 Park Avenue
New York, NY 10043
Michael Delaney (3) 187,871 49.0 516,590 100.0
Citicorp Venture Capital, Ltd.
399 Park Avenue
New York, NY 10043
The Prudential Life Insurance Company of
America, as Asset Manager for The
Gateway Recovery Trust (4) 65,175 17.0
c/o Financial Restructuring Group
Gateway Center Four
100 Mulberry Street
Newark, NJ 07102
The Berkshire Fund (5) 59,636 15.6
One Boston Place
Suite 3425
Boston, MA 02108
State Treasurer of the State of Michigan,
Custodian of the Public School Employees'
Retirement System; State Employees'
Retirement System; Michigan State Police
Retirement System; Judges' Retirement
System; and Probate Judges' Retirement
system 27,077 7.1
c/o Michigan Department of Treasury
450 West Allegan
Lansing, MI 48922
Ueli Spring 5,093 1.3
Aetna Industries, Inc.
24331 Sherwood Avenue
Center Line, MI 48015-0067
Harold A. Brown 1,834 *
Aetna Industries, Inc.
24331 Sherwood Avenue
Center Line, MI 48015-0067
Gary Easterly 984 *
Aetna Industries, Inc.
24331 Sherwood Avenue
Center Line, MI 48015-0067
------------- ---------- ---------- ----------
All directors and officers as a group
(10 persons) (6) 198,459 51.8 516,590 100.0
============= ========== ========== ==========
</TABLE>
* Represents less than 1%.
(1) Does not include shares of Class B Common Stock convertible into Class A
Common Stock.
20
<PAGE> 21
(2) Taking into account the shares of Class A Common Stock and Class B Common
Stock owned by CVC and the officers referred to in the next sentence, the
collective ownership of CVC and such officers represents 78.3% of the New
Common Stock. CVC has transferred beneficial ownership of a portion of
its Class A Common Stock and Class B Common Stock set forth above to a
group comprised of certain individual officers of CVC (including Michael
Delaney and David Howe), which shares are included in the aggregate total
shown.
(3) Consists of shares held by CVC, which may be deemed to be beneficially
owned by Messrs. Delaney and Howe and 657 shares of Class A Common stock
and 1,808 shares of Class B Common Stock owned by Mr. Howe. Messrs.
Delaney and Howe disclaim beneficial ownership of such shares (except for
the 657 and 1,127 shares of Class A Common Stock and for the 1,808 and
3,100 shares of Class B Common Stock).
(4) The Prudential Life Insurance Company of America, as Asset Manager for
The Gateway Recovery Trust, has voting and dispositive power with respect
to all 65,175 shares of Class A Common Stock and, accordingly, may be
deemed to be the beneficial owner thereof.
(5) Berkshire Capital Associates Limited Partnership ("BCALP") is the General
Partner of The Berkshire Fund and, consequently, has the power to control
the exercise of votes with respect to the shares of Class A Common Stock
held by The Berkshire Fund. Each of Carl Freenback, Bradley M. Bloom,
James Christopher Clifford, Russell L. Epker and Richard K. Lubin is a
General Partner of BCALP and thereby has the ability to control the
activities of BCALP. Each of them, therefore, has the power to control
the exercise of votes with respect to the shares of Class A Common Stock
held by The Berkshire Fund. Each of them also owns directly 478 shares of
Class A Common Stock and therefore has the power to control the exercise
of votes with respect to 60,114 shares of MS Acquisition, constituting
15.7% of the aggregate outstanding shares of Class A Common Stock. Each
of the general partners of BCALP disclaims beneficial ownership of the
59,636 shares of Class A Common Stock held by The Berkshire Fund.
(6) Includes shares held by CVC, which may be deemed to be beneficially owned
by Messrs. Delaney and Howe. Messrs. Delaney and Howe disclaim beneficial
ownership of shares held by CVC.
Item 13. Certain Relationships and Related Transactions
Jerome Singer, the former chairman of the Company's Board of Directors, owns
and leases to the Company seven of the 14 facilities currently used by the
Company in its operations. For the year ended December 29, 1996, the Company
paid to Mr. Singer approximately $1.0 million in the aggregate in respect of
rental payments under such leases. Management believes that all such leases,
from the Company's perspective, are on terms equal to or better than current
market rates for such properties.
Pursuant to a promissory note, the Company has outstanding from Ueli Spring,
President of the Company, a demand loan in the aggregate principal amount of
$75,000, plus accumulated interest. The loan bears interest at the prime rate
plus 1.0%. As of December 29, 1996, the aggregate amount owed to the Company
by Mr. Spring in respect of the loan was $114,736.
Pursuant to a Management Agreement (the "Berkshire Management Agreement")
between the Company, MS Acquisition and Berkshire Partners, since March 1989,
Berkshire Partners, a shareholder of MS Acquisition, had provided to the Company
and MS Acquisition certain advisory and management consulting services relating
to financial and strategic corporate planning. In consideration for such
services, the Company had paid out-of-pocket expenses incurred in performing
such services. The Berkshire Management Agreement was terminated on August 13,
1996 in connection with the Transactions. In connection with such termination,
the Company paid Berkshire Partners accrued management fees and current
operating expenses of approximately $250,000 with a portion of the proceeds of
the issuance of the Old Notes.
21
<PAGE> 22
Messrs. Spring, Brown and Easterly and certain other employees of the Company
received in the aggregate bonuses of approximately $350,000 in recognition of
the quantity and quality of the services performed by these individuals to
facilitate the consummation of the Transactions. These services included:
management of the business, preparation and presentation of data, functioning
as liaison between management and the Company's professional advisors and
structuring and negotiating specific aspects of the Transactions.
Mr. Singer was paid approximately $225,000 accrued compensation in connection
with the Transactions.
In connection with the Transactions, the Company entered into a management
agreement with MS Acquisition (the "Management Agreement") pursuant to which MS
Acquisition has agreed to provide to the Company and any subsidiary certain
management and administrative services. The initial term of the Management
Agreement extends through December 1997. In consideration for services
provided thereunder, the Company has agreed to reimburse MS Acquisition for the
actual cost of the services rendered. The Company is also responsible for
contributing to the general operating costs of MS Acquisition. The Company's
obligations to reimburse MS Acquisition may be deferred, without interest, if
payment of such reimbursement obligations would be restricted by the Indenture
or the Senior Revolving Credit Facility.
PART IV
Item 14. Exhibits, Financial statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements and Financial Statement Schedules
See the "Index to Financial Statements" included in this report, as
well as the "Report of Independent Accountants"
2. Exhibits
See Exhibit index included in this report.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three months ended
December 29, 1996.
22
<PAGE> 23
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange
ct of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereto duly authorized on March 28, 1997.
Each signature hereby acknowledges and adopts the typed form of his name in the
electronic filing of this document with the Securities and Exchange Commission.
Aetna Industries, Inc.
MS Acquisition Corp.
Aetna Holdings, Inc.
Aetna Export Sales, Inc.
(Registrants)
By: /s/ Harold A. Brown
--------------------------------------------
Harold A. Brown
Vice President-Finance, Secretary of Aetna Industries,
Inc., MS Acquisition Corp. and Aetna Holdings, Inc.
and Director, Treasurer and Secretary of Aetna Export
Sales, Inc. (Principal Financial and Accounting
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
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
<S> <C> <C>
/s/ Ueli Spring Director, President and CEO Aetna Industries, March 28, 1997
- ----------------------- Inc. MS Accuiston Corp., Aetna-Holdings, Inc.
Ueli Spring and Director and President of Aetna Export
(Principal Executive Officer)
/s/ Harold A. Brown Director, Vice President-Finance, Secretary of March 28, 1997
- ----------------------- Aetna Industries, Inc., MS Acquisition Corp.
Harold A. Brown and Aetna Holdings, Inc. and Director, Treasurer
and Secretary of Aetna Export Sales, Inc.
(Principal Financial and Accounting Officer)
/s/ Michael Delaney Director of Aetna Industries, Inc., March 28, 1997
- ----------------------- MS Acquisition Corp. and Aetna Holdings, Inc.
Michael Delaney
/s/ David Howe Director of Aetna Industries, Inc., March 28, 1997
- ----------------------- MS Acquisition Corp. and Aetna Holdings, Inc.
David Howe
/s/ John Wurster Director of Aetna Industries, Inc., March 28, 1997
- ----------------------- MS Acquisition Corp. and Aetna Holdings, Inc.
John Wurster
/s/ Edward J. Rogers Director of Aetna Export Sales, Inc. March 28, 1997
- -----------------------
Edward J. Rogers
/s/ Graham J. Dunn Director of Aetna Export Sales, Inc. March 28, 1997
- -----------------------
Graham J. Dunn
</TABLE>
23
<PAGE> 24
REPORT OF INDEPENDENT ACCOUNTANTS
February 7, 1997
To the Board of Directors
and Stockholders of
Aetna Industries, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and of cash flows present fairly, in all
material respects, the financial position of Aetna Industries, Inc. and its
subsidiaries at December 29, 1996 and December 31, 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 29, 1996 in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
24
<PAGE> 25
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
ASSETS 1996 1995
<S> <C> <C>
Current assets
Cash $ 4,011 $ 291
Accounts receivable (less allowance for doubtful accounts of
$510 and $240 respectively) 32,753 28,522
Inventories 8,756 8,659
Tooling 1,592 2,658
Prepaid expenses, including income taxes 651 502
Deferred income taxes 318 518
-------- --------
Total current assets 48,081 41,150
-------- --------
Property, plant and equipment
Land 2,104 1,652
Buildings and improvements 12,548 11,082
Machinery and equipment 63,906 54,480
Construction-in-progress 3,944 9,434
-------- --------
Total property, plant and equipment 82,502 76,648
Less - accumulated depreciation (33,068) (27,775)
-------- --------
Net property, plant and equipment 49,434 48,873
-------- --------
Other assets
Deferred costs and other assets 5,769 1,644
Cost in excess of net assets acquired 25,774 26,575
-------- --------
Total other assets 31,543 28,219
-------- --------
$129,058 $118,242
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 26
AETNA INDUSTRIES, INC.
(A WHOLLYOWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
LIABILITIES AND STOCKHOLDER'S EQUITY 1996 1995
<S> <C> <C>
Current liabilities
Accounts payable $ 24,958 $ 31,566
Accrued expenses 12,104 10,109
Current portion of longterm debt 2,500
--------- ---------
Total current liabilities 37,062 44,175
--------- ---------
Long-term debt, less current portion 85,000 15,799
--------- ---------
Subordinated debt 41,942
--------- ---------
Deferred income taxes 8,136 8,924
--------- ---------
Commitments and contingencies (Note 9)
Stockholder's equity
Common stock - $.01 par value; 1,000 issued and
outstanding, respectively
Contributed capital 9,024 9,024
Accumulated deficit (10,164) (1,622)
--------- ---------
(1,140) 7,402
--------- ---------
$ 129,058 $ 118,242
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 27
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
<S> <C> <C> <C>
Net sales $211,462 $211,905 $204,850
Cost of sales 180,998 183,542 172,428
Selling, general and administrative expenses 15,644 13,331 12,898
-------- -------- --------
Operating income 14,820 15,032 19,524
-------- -------- --------
Interest expense, net 9,022 8,579 8,929
-------- -------- --------
Income before extraordinary item and
income taxes 5,798 6,453 10,595
Income tax provision 2,105 1,877 4,000
-------- -------- --------
Income before extraordinary item 3,693 4,576 6,595
-------- -------- --------
Extraordinary item (net of income taxes of $594) 1,153
-------- -------- --------
Net income $ 2,540 $ 4,576 $ 6,595
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 28
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,540 $ 4,576 $ 6,595
Adjustments to reconcile net income to net cash
provided by operating activities -
Depreciation and amortization 7,965 6,579 6,150
Deferred interest 1,281 2,995
Deferred income taxes (588) (860) 748
Changes in assets and liabilities
Accounts receivable (4,231) 116 (6,159)
Inventories (97) 750 (503)
Tooling 1,066 (1,790) 3,830
Prepaid expenses (149) 54 (322)
Accounts payable (6,608) 2,954 8,312
Accrued expenses 1,995 904 394
-------- --------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,893 14,564 22,040
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (7,023) (10,103) (6,125)
Disposals of property, plant and equipment 493
Other, net 83 (149) (329)
-------- --------- --------
NET CASH USED FOR INVESTING ACTIVITIES (6,447) (10,252) (6,454)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt 85,000
Dividends paid (11,082)
Debt issuance costs (5,403)
Principal payments on longterm debt (49,192) (5,400) (15,727)
Net change in line of credit (11,049) 1,216 294
-------- --------- --------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES 8,274 (4,184) (15,433)
-------- --------- --------
Net increase in cash 3,720 128 153
Cash - beginning of year 291 163 10
-------- --------- --------
Cash - end of year $ 4,011 $ 291 $ 163
======== ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 19,475 $ 4,480 $ 12,027
======== ========= ========
Cash paid during the year for income taxes $ 1,959 $ 2,750 $ 4,350
======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 29
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
Aetna Industries, Inc. (Aetna or the Company) is a wholly-owned subsidiary
of MS Acquisition Corp. (MS Acquisition) and Aetna Holdings, Inc. (Aetna
Holdings). MS Acquisition was formed for the sole purpose of purchasing
Aetna and does not have any significant assets or liabilities, other than
preferred stock, junior subordinated debentures and accruals resulting from
the transactions described below.
TRANSACTIONS
On August 13, 1996, MS Acquisition completed a recapitalization. MS
Acquisition amended its charter to provide for the reclassification of its
capital stock into two new classes of common stock (voting and non-voting)
(together, New Common) and a new class of preferred stock (New Preferred).
Existing MS Acquisition stockholders exchanged their existing MS Acquisition
shares, pro rata, for New Preferred and New Common. Citicorp Venture
Capital, Ltd. and related parties purchased shares of New Common and New
Preferred for $10,000 in cash from the existing MS Acquisition stockholders.
MS Acquisition formed Aetna Holdings and contributed to Aetna Holdings all
of the capital stock of the Company. Aetna Holdings then purchased from
existing stockholders approximately 61% of their existing MS Acquisition
stock in exchange for (i) $11,082 in cash (Holdings consideration) and (ii)
$8,731 in principal amount of 11.0% junior subordinated debentures of Aetna
Holdings due in 2007. The former stockholders retained (i) $2.36 million in
stated value of New Preferred and (ii) shares of New Common representing
20.6% of the New Common on a fully-diluted basis.
Also, on August 13, 1996, Aetna issued $85,000 of 11-7/8% Senior Notes due
2006 (the Notes) in a private placement. The proceeds of this issuance were
used (i) to repay all of the outstanding indebtedness, accrued interest and
prepayment penalties of Aetna, (ii) to fund the $11,082 cash component of
the Holdings consideration, (iii) to pay approximately $651 to terminate
certain outstanding employee options, (iv) to pay fees and expenses of
approximately $5,000 in connection with the Transactions, (v) to pay
approximately $570 of bonuses and accrued compensation to certain directors
and officers of Aetna, (vi) to pay $250 in accrued management fees and (vii)
for general corporate purposes.
The prepayment penalty relating to Aetna's subordinated debt, which
aggregated $1,153 (net of $594 of taxes), has been shown as an extraordinary
item in the statement of operations.
2. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company's fiscal year ends on the Sunday closest to December 31. Fiscal
years 1996, 1995 and 1994 consisted of 52 weeks and ended on December 29,
1996, December 31, 1995 and January 1, 1995, respectively.
29
<PAGE> 30
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
2. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DESCRIPTION OF OPERATIONS AND MAJOR CUSTOMERS
The Company's primary business operations are the manufacture of automotive
stampings and assemblies used as original equipment components by North
American automotive manufacturers in the production of sport utility
vehicles, mini-vans, other light trucks and passenger cars.
The Company's financial condition and results of operations depend
significantly on two major automotive manufacturers, Chrysler Corporation
(Chrysler) and General Motors Corporation (GM). Following is a summary of
net production sales to such key customers, as a percentage of net
production sales:
1996 1995 1994
Chrysler 61% 60% 62%
GM 33 36 35
Other 6 4 3
---- ---- ----
100% 100% 100%
==== ==== ====
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and a foreign sales corporation which is a wholly-owned subsidiary of Aetna.
The financial condition and results of operations of the Company's foreign
sales corporation are not significant. All significant intercompany
transactions and account balances have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
The Company considers cash on hand, deposits in banks and short-term
marketable securities with maturities of 90 days or less as cash and cash
equivalents for the purpose of the statement of cash flows.
FINANCIAL INSTRUMENTS
The Company records all financial instruments, including accounts receivable
and accounts payable, at cost, which approximates market value.
REVENUE RECOGNITION
Revenue from sales and the corresponding receivables are recorded upon
shipment of product to the customer.
30
<PAGE> 31
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
2. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories of stampings and assemblies are valued at the lower of cost,
determined by the last-in, first-out (LIFO) method, or market. Inventories
of purchased parts and purchased labor are valued at the lower of cost, as
determined by the first-in, first-out (FIFO) method, or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less any impairment loss.
The Company provides for depreciation principally using the straight-line
method over the following estimated useful lives:
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.
The Company adopted Statement of Financial Accounting Standard No. 121
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to
Be Disposed Of" (FAS 121) in the first quarter of 1996. The adoption of
this new standard did not have a material impact on the Company's financial
statements for the year ended December 29, 1996.
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired is being amortized over forty years
using the straight-line method. Accumulated amortization aggregated $6,276
and $5,475 at December 29, 1996 and December 31, 1995, respectively. The
Company periodically evaluates the eventual recoverability of the cost in
excess of net assets acquired based on estimated future operating results
and cash flows.
START-UP AND PREOPERATING EXPENSES
Incremental costs incurred relating to the start-up of a new production
facility were capitalized as deferred costs and were being amortized over a
five-year period commencing January 1992. Accumulated amortization
aggregated $1,694 at December 31, 1995. These costs were fully amortized
during 1996.
INCOME TAXES
Deferred tax assets and liabilities are provided for the expected future tax
consequence of temporary differences between the carrying amounts and the
tax basis of the Company's assets and liabilities.
31
<PAGE> 32
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
3. INVENTORIES
Inventories are comprised of the following:
DECEMBER 29, DECEMBER 31,
1996 1995
Inventories valued at LIFO
Raw materials $1,758 $2,034
Work-in-process 3,458 2,989
Finished goods 2,195 2,273
------ ------
7,411 7,296
LIFO reserve (335) (240)
------ ------
7,076 7,056
------ ------
Inventories valued at FIFO
Purchased parts and purchased labor 1,680 1,603
------ ------
Total inventories $8,756 $8,659
====== ======
4. ACCRUED EXPENSES
Accrued expenses are comprised of the following:
DECEMBER 29, DECEMBER 31,
1996 1995
Accrued workers' compensation expense $ 3,155 $ 3,329
Accrued interest 4,018 1,423
Taxes other than income 2,357 1,556
Other 2,574 3,801
------- -------
$12,104 $10,109
======= =======
5. RELATED PARTY TRANSACTIONS
The Company leases certain real property from a stockholder at less than
fair market value rates under lease agreements expiring in 2006.
Approximately $2,425, which represents the present value at the date of
acquisition of the favorable lease terms using a 13.0% interest rate, has
been recorded as property, plant and equipment and is being amortized on a
straight-line basis over the lease terms. Rent expense under these lease
agreements aggregated $1,013, $965 and $919 during 1996, 1995 and 1994,
respectively. Future minimum rental payments due under these lease
agreements are as follows:
32
<PAGE> 33
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
YEAR ENDING
1997 $ 1,005
1998 937
1999 984
2000 1,033
2001 1,085
Thereafter 6,293
-------
$11,337
=======
The Company had a management agreement with a related party whereby it was
charged an annual fee of $250 for management services during 1995 and 1994.
During 1996, the Company incurred $154 of management fees. Such fees were
eliminated in connection with the recapitalization of the Company's parent,
MS Acquisition, discussed in Note 1.
6. STOCKHOLDER'S EQUITY
The changes in stockholder's equity were as follows:
<TABLE>
<CAPTION>
TOTAL
CONTRIBUTED ACCUMULATED STOCKHOLDER'S
CAPITAL DEFICIT EQUITY
<S> <C> <C> <C>
Balance at January 2, 1994 $9,024 $ (12,792) $ (3,768)
------ --------- --------
Net income 6,595 6,595
------ --------- --------
Balance at January 1, 1995 9,024 (6,197) 2,827
Net income 4,576 4,576
------ --------- --------
Balance at December 31, 1995 9,024 (1,622) 7,402
Net income 2,540 2,540
Dividends paid to MS Acquisition (11,082) (11,082)
------ --------- --------
Balance at December 29, 1996 $9,024 $ (10,164) $ (1,140)
====== ========= ========
</TABLE>
Aetna Holdings has issued $9,229 of junior subordinated debentures and
unfunded contractual obligations to certain former option holders. To the
extent cash interest and pre-payments of such debentures are permitted under
the Company's 11-7/8% Senior Notes Indenture and the revolving credit
facility, Aetna may pay dividends to Aetna Holdings to fund such payments.
Aetna paid $1,554 of cash and pre-payments of principal on these debentures
and obligations in February 1997 on behalf of Aetna Holdings.
33
<PAGE> 34
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
7. EMPLOYEE BENEFIT PLANS
The Company has four defined benefit pension plans covering the majority of
its hourly employees. The Company's funding policy is to fund costs as
required under the Employee Retirement Income Security Act of 1974, as
amended. The plans' assets are invested in a master trust.
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated balance sheets at December 29, 1996
and December 31, 1995:
<TABLE>
<CAPTION>
DECEMBER 29, 1996 DECEMBER 31, 1995
----------------- ------------------------
ASSETS ASSETS ACCUMULATED
EXCEED EXCEED BENEFITS
ACCUMULATED ACCUMULATED EXCEED
BENEFITS BENEFITS ASSETS
<S> <C> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligation,
including vested benefits of
$1,400, $278 and $1,063,
respectively $1,528 $1,145 $ 287
====== ====== ======
Plan assets at fair value $1,709 $1,157 $ 277
Projected benefit obligation for
service rendered to date 1,528 1,145 287
------ ------ ------
Plan assets in excess of (less than)
projected benefit obligation 181 12 (10)
Unrecognized loss from prior
experience 419 426 142
------ ------ ------
Prepaid pension cost included
in deferred costs and other assets $ 600 $ 438 $ 132
====== ====== ======
Weighted average discount rate 7.0% 7.0% 7.0%
====== ====== ======
Estimated long-term rate of return
on assets 9.5% 9.5% 9.5%
====== ====== ======
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Pension cost includes:
Service cost $ 158 $ 102 $ 116
Interest cost 102 88 92
Actual return on assets (217) (262) 126
Net amortization 100 164 (233)
------ ------ ------
$ 143 $ 92 $ 101
====== ====== ======
</TABLE>
34
<PAGE> 35
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
7. EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company also maintains a 401(k) plan for all eligible nonunion
employees, and a 401(k) plan for certain union employees not covered by the
defined benefit plans above. For fiscal 1996, 1995 and 1994, the Company
incurred $140, $130 and $101, respectively, of expense related to 401(k)
plans.
8. INCOME TAXES
The Company is included in the consolidated United States federal income tax
return filed by MS Acquisition. Accordingly, the provision for federal
income taxes and the related payments or refunds of tax are determined on a
consolidated basis. The Company's income tax provisions compiled on a
separate return basis would have been consistent with those recorded in its
financial statements.
The income tax provision comprises the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current income taxes payable $2,804 $2,782 $3,252
Deferred income taxes (699) (905) 748
------ ------ ------
$2,105 $1,877 $4,000
====== ====== ======
</TABLE>
Deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
<S> <C> <C>
DEFERRED TAX ASSETS
Workers' compensation $ 1,046 $ 1,105
Other 896 727
------- -------
Gross deferred tax assets 1,942 1,832
------- -------
DEFERRED TAX LIABILITIES
Depreciation 7,999 8,494
Inventory 1,647 1,225
Deferred costs and other 114 519
------- -------
Gross deferred tax liabilities 9,760 10,238
------- -------
Net deferred tax liability $ 7,818 $ 8,406
======= =======
</TABLE>
35
<PAGE> 36
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
8. INCOME TAXES (CONTINUED)
A reconciliation of the U.S. federal statutory rate to the Company's
effective rate is as follows:
1996 1995 1994
U.S. federal statutory rate 35.0% 35.0% 35.0%
Effect of graduated rates (1.0) (1.0)
Non-deductible goodwill 7.2 4.2 2.7
Reversal of tax reserves no longer required (2.7) (2.9)
Effect of 1% increase (decrease) in federal
rate on deferred tax balances (3.9) 2.5
Research and development credit refunds (3.0)
Other (1.9) (2.6) 0.5
---- ---- ----
36.3% 29.0% 37.8%
==== ==== ====
9. CONTINGENCIES AND LEASE COMMITMENT
The Company leases a production facility under a lease agreement accounted
for as an operating lease. The lease agreement calls for annual rent of
approximately $593 through December 1998 and annual rent of approximately
$495 through October 1999 and provides for three five-year renewal options.
Additionally, the Company leases certain machinery and equipment under
operating leases. Future minimum rental payments on the machinery and
equipment are as follows: 1997 - $308; 1998 - $295; 1999 - $148; 2000 -
$48, 2001 - $32.
10. LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
<S> <C> <C>
11-7/8% Senior Notes due 2006 $85,000 $ -
Note payable to bank in quarterly principal installments
of $1,250 and a final payment of $3,500 originally
due October 31, 1996, refinanced on May 2, 1996. 7,250
Note payable to bank under a revolving line of credit facility. 11,049
------- -------
85,000 18,299
Less - current portion (2,500)
------- -------
$85,000 $15,799
======= =======
</TABLE>
36
<PAGE> 37
AETNA INDUSTRIES, INC.
(A WHOLLY-OWNED SUBSIDIARY OF
MS ACQUISITION CORP.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
10. LONG-TERM DEBT (CONTINUED)
On August 13, 1996, the Company issued $85,000 of its 11-7/8% Senior Notes
due 2006 (Old Notes) in a private placement offering. On December 13,
1996, the Old Notes were exchanged for new $85,000, 11-7/8% Senior Notes
due 2006 (New Notes). The New Notes have substantially the same terms as
the Old Notes except with respect to certain transfer restrictions and
registration rights relating to the Old Notes. These notes have certain
restrictive covenants including limitations on the following matters: (i)
the incurrence of additional indebtedness, (ii) the issuance of preferred
stock by subsidiaries, (iii) the creation of liens, (iv) sale and
leaseback transactions, (v) restricted payments, (vi) the sales of assets
and subsidiary stock, (vii) mergers and consolidations, (viii) payment
restrictions affecting subsidiaries and (ix) transactions with affiliates.
At December 29, 1996, the fair market value of the Senior Notes
approximated its carrying value.
At December 31, 1995, the Company had $11,049 outstanding under a
revolving line-of-credit facility. In May 1996, the Company executed a new
credit agreement whereby it may borrow, based upon available collateral as
defined in the agreement (principally inventory, tooling, and accounts
receivable), up to $35,000 at either (i) a Floating Rate, defined as the
greater of the Prime Rate or the sum of 1% plus the Federal Funds Rate, or
(ii) a Eurodollar Rate plus a margin agreed to by the banks. The Company
is also charged a monthly fee equal to 0.5% per annum of the daily average
unused amount of the credit agreement.
The new credit agreement contains, among other provisions, covenants
relating to the ratios of (i) debt to earnings before income taxes,
interest and depreciation and amortization (EBITDA) and (ii) interest
expense to EBITDA.
In August 1996, in connection with the recapitalization of its parent (see
Note 1), the Company amended and restated this working credit facility.
The terms and covenants remained substantially unchanged.
Debt issuance costs related to the issuance of the 11-7/8% Senior Notes
aggregated $5,204, and are being amortized over the term of the Notes.
Costs associated with the new credit agreement totaled $199 and are being
amortized over the five year term. Accumulated amortization for these
costs aggregated $246 at December 29, 1996.
37
<PAGE> 38
REPORT OF INDEPENDENT ACCOUNTANTS
February 7, 1997
To the Board of Directors
and Stockholders of
MS Acquisition Corp.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and of cash flows present fairly, in all
material respects, the financial position of MS Acquisition Corp. and its
subsidiaries at December 29, 1996 and December 31, 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 29, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
38
<PAGE> 39
MS ACQUISITION CORP.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
DECEMBER 29, DECEMBER 31,
ASSETS 1996 1995
Current assets
Cash $ 4,011 $ 291
Accounts receivable (less allowance for
doubtful accounts of $510 and $240, respectively) 32,113 28,522
Inventories 8,756 8,659
Tooling 1,592 2,658
Prepaid expenses 651 502
Deferred income taxes 318 518
-------- --------
Total current assets 47,441 41,150
-------- --------
Property, plant and equipment
Land 2,104 1,652
Buildings and improvements 12,548 11,082
Machinery and equipment 63,906 54,480
Construction-in-progress 3,944 9,434
-------- --------
Total property, plant and equipment 82,502 76,648
Less - accumulated depreciation (33,068) (27,775)
-------- --------
Net property, plant and equipment 49,434 48,873
-------- --------
Other assets
Deferred costs and other assets 5,769 1,644
Cost in excess of net assets acquired 25,774 26,575
-------- --------
Total other assets 31,543 28,219
-------- --------
$128,418 $118,242
======== ========
See accompanying notes to consolidated financial statements.
39
<PAGE> 40
MS ACQUISITION CORP.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $24,958 $31,566
Accrued expenses 12,361 10,109
Current portion of long-term debt 2,427 2,500
-------- --------
Total current liabilities 39,746 44,175
-------- --------
Long-term debt, less current portion 85,000 15,799
-------- --------
Subordinated debt 41,942
-------- --------
Junior subordinated debentures 6,802
-------- --------
Deferred income taxes 8,136 8,924
-------- --------
Commitments and contingencies (Note 11)
Redeemable preferred stock
Series A, - $100 stated value and 114,967 shares authorized
issued and outstanding at December 29, 1996 and
$.01 par value and 80,168 shares authorized, issued
and outstanding at December 31, 1995 11,979 1
Series B, - $100 stated value and $.01 par value;
2,000,000 and 250,000 shares
authorized, 68,341 shares issued and
outstanding at December 31, 1995
Additional paid-in capital 2,407
Stockholders' equity
Class A, common stock - $.01 par value; 5,000,000 and
1,040,000 shares authorized; 383,409 and 525,000
shares issued and outstanding, respectively 4 5
Class B, common stock - $.01 par value; 5,000,000 and
1,040,000 shares authorized, 516,590 and 400,000 shares
issued and outstanding 5 4
Additional paid-in capital 15,509 14,991
Accumulated deficit (31,487) (2,730)
Fair market value in excess of historical cost of net
assets acquired from entities partially under common control (7,276) (7,276)
-------- --------
(23,245) 4,994
-------- --------
$128,418 $118,242
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
40
<PAGE> 41
MS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
<S> <C> <C> <C>
Net sales $211,462 $211,905 $204,850
Cost of sales 180,998 183,542 172,428
Selling, general and administrative expenses 15,650 13,331 12,898
-------- -------- --------
Operating income 14,814 15,032 19,524
-------- -------- --------
Interest expense, net 9,406 8,579 8,929
-------- -------- --------
Income before extraordinary item and
income taxes 5,408 6,453 10,595
Income tax provision 1,972 1,877 4,000
-------- -------- --------
Income before extraordinary item 3,436 4,576 6,595
Extraordinary item (net of income taxes of $594) 1,153
-------- -------- --------
Net income before preferred stock dividend 2,283 $ 4,576 $ 6,595
-------- ======== ========
Preferred stock dividend requirements (482)
--------
Net income available for common stockholders $ 1,801
========
</TABLE>
See accompanying notes to consolidated financial statements.
41
<PAGE> 42
MS ACQUISITION CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 29, DECEMBER 31, JANUARY 1,
1996 1995 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,283 $ 4,576 $ 6,595
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 7,965 6,579 6,150
Deferred interest 1,281 2,995
Deferred income taxes (588) (860) 748
Changes in assets and liabilities
Accounts receivable (4,231) 116 (6,159)
Inventories (97) 750 (503)
Tooling 1,066 (1,790) 3,830
Prepaid expenses (149) 54 (322)
Accounts payable (6,608) 2,954 8,312
Accrued expenses 2,252 904 394
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,893 14,564 22,040
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (7,023) (10,103) (6,125)
Disposals of property, plant and equipment 493
Other, net 83 (149) (329)
-------- -------- --------
NET CASH USED FOR INVESTING ACTIVITIES (6,447) (10,252) (6,454)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt 85,000
Dividends paid (21,082)
Debt issue costs (5,403)
Equity contributions 10,000
Repayment of long-term debt (49,192) (5,400) (15,727)
Net increase (decrease) in line of credit (11,049) 1,216 294
-------- -------- --------
NET CASH PROVIDED BY (USED FOR)
FINANCING ACTIVITIES 8,274 (4,184) (15,433)
-------- -------- --------
Net increase in cash 3,720 128 153
Cash - beginning of year 291 163 10
-------- -------- --------
Cash - end of year $ 4,011 $ 291 $ 163
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for interest $ 19,606 $ 4,480 $ 12,027
======== ======== ========
Cash paid during the year for income taxes $ 1,959 $ 2,750 $ 4,350
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
42
<PAGE> 43
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. ORGANIZATION AND BASIS OF PRESENTATION
MS Acquisition Corp. (MS Acquisition or the Company) was formed for the sole
purpose of purchasing Aetna Industries, Inc. (Aetna) and does not have any
significant assets or liabilities, other than preferred stock, junior
subordinated debentures and accruals resulting from the transactions
described below.
TRANSACTIONS
On August 13, 1996, the Company completed a recapitalization. MS
Acquisition amended its charter to provide for the reclassification of its
capital stock into two new classes of common stock (voting and non-voting)
(together, New Common) and a new class of preferred stock (New Preferred).
Existing MS Acquisition stockholders exchanged their existing MS Acquisition
shares, pro rata, for New Preferred and New Common. Citicorp Venture
Capital, Ltd. and related parties purchased shares of New Common and New
Preferred for $10,000 in cash from the existing MS Acquisition stockholders.
MS Acquisition formed Aetna Holdings, Inc. (Aetna Holdings) and contributed
to Aetna Holdings all of the capital stock of Aetna. Aetna Holdings then
purchased from existing stockholders approximately 61% of their existing MS
Acquisition stock in exchange for (i) $11,082 in cash (Holdings
consideration) and (ii) $8,731 in principal amount of 11.0% junior
subordinated debentures of Aetna Holdings due in 2007. The former
stockholders retained (i) $2.36 million in stated value of new Preferred and
(ii) shares of New Common representing 20.6% of the New Common on a fully
diluted basis.
Also, on August 13, 1996, Aetna issued $85,000 of 11-7/8% Senior Notes due
2006 (the Notes) in a private placement. The proceeds of this issuance were
used (i) to repay all of the outstanding indebtedness, accrued interest and
prepayment penalties of Aetna, (ii) to fund the $11,082 cash component of
the Holdings consideration, (iii) to pay approximately $651 to terminate
certain outstanding employee options, (iv) to pay fees and expenses of
approximately $5,000 in connection with the Transactions, (v) to pay
approximately $570 of bonuses and accrued compensation to certain directors
and officers of Aetna, (vi) to pay $250 in accrued management fees and (vii)
for general corporate purposes.
The prepayment penalty relating to Aetna's subordinated debt, which
aggregated $1,153 (net of $594 of taxes), has been shown as an extraordinary
item in the statement of operations.
2. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company's fiscal year ends on the Sunday closest to December 31. Fiscal
years 1996, 1995 and 1994 consisted of 52 weeks and ended on December 29,
1996, December 31, 1995 and January 1, 1995, respectively.
DESCRIPTION OF OPERATIONS AND MAJOR CUSTOMERS
The Company's primary business operations are, through its wholly owned
subsidiary Aetna, the manufacture of automotive stampings and assemblies
used as original equipment components by North American automotive
manufacturers in the production of sport utility vehicles, mini-vans, other
light trucks and passenger cars.
43
<PAGE> 44
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
2. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company's financial condition and results of operations depend
significantly on two major automotive manufacturers, Chrysler Corporation
(Chrysler) and General Motors Corporation (GM). Following is a summary of
net production sales to such key customers, as a percentage of net
production sales:
1996 1995 1994
Chrysler 61% 60% 62%
GM 33 36 35
Other 6 4 3
---- ---- ----
100% 100% 100%
==== ==== ====
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company,
Aetna Holdings, Aetna, and a foreign sales corporation which is a
wholly-owned subsidiary of Aetna. The financial condition and results of
operations of the Company's foreign sales corporation and Aetna Holdings are
not significant. (See Note 13). All significant intercompany transactions
and account balances have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS
The Company considers cash on hand, deposits in banks and short-term
marketable securities with maturities of 90 days or less as cash and cash
equivalents for the purpose of the statement of cash flows.
FINANCIAL INSTRUMENTS
The Company records all financial instruments, including accounts receivable
and accounts payable, at cost, which approximates market value.
REVENUE RECOGNITION
Revenue from sales and the corresponding receivables are recorded upon
shipment of product to the customer.
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.
44
<PAGE> 45
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
2. SUMMARY OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less any impairment loss.
The Company provides for depreciation principally using the straight-line
method over the following estimated useful lives:
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.
The Company adopted Statement of Financial Accounting Standard No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" (FAS 121) in the first quarter of 1996. The
adoption of this new standard did not have a material impact on the
Company's financial statements for the year ended December 29, 1996.
COST IN EXCESS OF NET ASSETS ACQUIRED
Cost in excess of net assets acquired is being amortized over forty years
using the straight-line method. Accumulated amortization aggregated $6,276
and $5,475 at December 29, 1996 and December 31, 1995, respectively. The
Company periodically evaluates the eventual recoverability of the cost in
excess of net assets acquired based on estimated future operating results
and cash flows.
START-UP AND PREOPERATING EXPENSES
Incremental costs incurred relating to the start-up of a new production
facility were capitalized as deferred costs and were being amortized over a
five-year period commencing January 1992. Accumulated amortization
aggregated $1,694 at December 31, 1995. These costs were fully amortized
during 1996.
INCOME TAXES
Deferred tax assets and liabilities are provided for the expected future tax
consequence of temporary differences between the carrying amounts and the
tax basis of the Company's assets and liabilities.
45
<PAGE> 46
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
3. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
<S> <C> <C>
Inventories valued at LIFO
Raw materials $1,758 $2,034
Work-in-process 3,458 2,989
Finished goods 2,195 2,273
------ ------
7,411 7,296
LIFO reserve (335) (240)
------ ------
7,076 7,056
------ ------
Inventories valued at FIFO
Purchased parts and purchased labor 1,680 1,603
------ ------
Total inventories $8,756 $8,659
====== ======
</TABLE>
4. ACCRUED EXPENSES
Accrued expenses are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
<S> <C> <C>
Accrued workers' compensation expense $ 3,155 $ 3,329
Accrued interest 4,271 1,423
Taxes other than income 2,357 1,556
Other 2,578 3,801
------- -------
$12,361 $10,109
======= =======
</TABLE>
5. RELATED PARTY TRANSACTIONS
The Company leases certain real property from a stockholder at less than
fair market value rates under lease agreements expiring in 2006.
Approximately $2,425, which represents the present value at the date of
acquisition of the favorable lease terms using a 13.0% interest rate, has
been recorded as property, plant and equipment and is being amortized on a
straight-line basis over the lease terms. Rent expense under these lease
agreements aggregated $1,013, $965 and $919 during 1996, 1995 and 1994,
respectively. Future minimum rental payments due under these lease
agreements are as follows:
46
<PAGE> 47
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
YEAR ENDING
1997 $ 1,005
1998 937
1999 984
2000 1,033
2001 1,085
Thereafter 6,293
-------
$11,337
=======
The Company had a management agreement with a related party whereby it was
charged an annual fee of $250 for management services during 1995 and 1994.
During 1996, the Company incurred $154 of management fees. Such fees were
eliminated in connection with the recapitalization of the Company (see Note
1).
6. STOCKHOLDERS' EQUITY
The changes in stockholders' equity were as follows:
<TABLE>
<CAPTION>
FAIR MARKET
VALUE IN
RETAINED EXCESS OF
EARNINGS HISTORICAL TOTAL
CLASS A CLASS B CAPITAL (ACCUM- COST STOCK-
COMMON COMMON IN EXCESS ULATED OF NET HOLDERS'
STOCK STOCK OF PAR DEFICIT) ASSETS EQUITY
<S> <C> <C> <C> <C> <C> <C>
Balance at January 2, 1994 $ 5 $ 4 $14,991 $(13,321) $(7,276) $ (5,597)
--- --- ------- -------- ------- --------
Net income 6,595 6,595
Preferred dividends (270) (270)
--- --- ------- -------- ------- --------
Balance at January 1, 1995 5 4 14,991 (6,996) (7,276) 728
Net income 4,576 4,576
Preferred dividends (310) (310)
--- --- ------- -------- ------- --------
Balance at December 31, 1995 5 4 14,991 (2,730) (7,276) 4,994
Net income 2,283 2,283
Dividends (21,082) (21,082)
Capital contribution 1,000 1,000
Issuance of junior subordi-
nated debentures (9,229) (9,229)
Exercise of stock options
and exchange of old
common stock to new
common (1) 1 (729) (729)
Preferred dividends (482) (482)
--- --- ------- -------- ------- --------
Balance at December 29, 1996 $ 4 $ 5 $15,509 $(31,487) $(7,276) $(23,245)
=== === ======= ======== ======= ========
</TABLE>
47
<PAGE> 48
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
6. STOCKHOLDERS' EQUITY (CONTINUED)
Certain stockholders of the Company were also stockholders of the
predecessor company prior to the acquisition by MS Acquisition Corp. Due to
this partial continuation of control, the acquisition was recorded by the
Company using a combination of (1) the historical basis to the extent of
continuing ownership and (2) the purchase method of accounting for the
remaining portion of assets and liabilities. The purchase method requires
that assets and the liabilities be recorded at their estimated fair market
value. The amount by which the fair market value exceeded this historical
cost of the net assets acquired attributable to the stockholders with
continuing interests of $7,276 is recorded as a reduction of stockholders'
equity in the accompanying consolidated balance sheets.
STOCK OPTION PLAN
Executive officers, directors, employees and other key persons of the
Company are eligible to participate in the MS Acquisition Corp. Executive
Stock Option Plan (the Plan). Options granted under the Plan are
nonqualified stock options. Options to purchase an aggregate of 100,000
shares of Class A Common Stock of MS Acquisition may be issued under the
Plan. The Plan is administered by a committee of not less than three
directors appointed by the Board of Directors of MS Acquisition.
All options granted under the Plan are granted pursuant to individual stock
option agreements executed by MS Acquisition and each option recipient. In
general, options granted under the Plan are exercised in such installments
and at such times as are designated by the Option Committee, but in no event
may the term of an option exceed the tenth anniversary of the date on which
the option was granted. No option may be granted under the Plan after the
tenth anniversary of the effective date of the Plan, August 13, 1996.
The purchase price per share of Class A Common Stock subject to options is
determined by the Board of Directors on the date such options are granted.
Options granted under the Plan may not be transferred.
Immediately after the consummation of the Transactions discussed in Note 1,
certain employees were granted new options under the Plan to purchase shares
that in the aggregate represent up to 10% of the total number of shares on a
fully diluted basis. These options have an exercise price of $0.75 per
underlying share and become exercisable in equal installments over five
years of continued employment, subject to acceleration upon a change in
control of the Company. At December 29, 1996, 100,000 options have been
granted. None of the shares were exercisable at December 29, 1996 and all
of the options expire in 2006.
The Company has elected to account for its stock-based compensation under
the guidance provided by APB No. 25, "Accounting for Stock Issued to
Employees" and its related interpretations. The effect on net income for
the difference between compensation cost determined based on APB No. 25 and
the fair value method determined in accordance with Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation" is
not material to the financial statements.
48
<PAGE> 49
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
7. PREFERRED STOCK
The authorized preferred stock of MS Acquisition consists of 2,293,123
authorized shares of Series A Preferred Stock of which 114,967 are
outstanding, 178,156 are held by Aetna Holdings, and 2,000,000 additional
shares of authorized preferred stock which may be issued in one or more
series.
Each share of Series A Preferred Stock has a stated value of $100 per share.
Dividends accrue on each share at a rate per annum equal to 11% of the
stated value thereof and are payable, when declared by the Board and to the
extent funds are legally available, semi-annually on the 13th of February
and August of each year. Dividends are cumulative from August 13, 1996, the
date of issuance. The preferred stockholders have elected to receive pay-in
kind (PIK) dividends whereby stockholders will receive dividends in the form
of additional shares of preferred stock. At December 29, 1996, the Company
has accrued $482 for preferred dividends.
Each Preferred Share is entitled to liquidation preference over all other
classes of MS Acquisition Capital Stock. Series A Preferred Stock are
non-voting and are redeemable by both the Company and the holder under
certain circumstances.
8. JUNIOR SUBORDINATED DEBENTURES
As part of the transactions discussed in Note 1, Aetna Holdings issued
Junior Subordinated Promissory Notes due August 13, 2007 in the aggregate
principal amount of $8,731 and $498 as unfunded contractual obligations to
certain former option holders. The Junior Subordinated Debentures accrue
interest at the rate of 11% per annum and interest is payable semi-annually
on February 13 and August 13 of each year, commencing on February 13, 1997.
The Company, at its option, may prepay all or a portion of the outstanding
principal amount of the Junior Subordinated Debentures and unfunded
contractual obligations, provided such payments are permitted under the
Company's Senior Notes Indenture and working capital facility. Additionally,
cash interest payments to Junior Subordinated Debentures holders are
permitted under certain circumstances. To the extent such payments are
permitted, they will be funded by dividends from Aetna to Aetna Holdings.
At December 29, 1996, included in current liabilities is $2,427 representing
the expected payments to holders of Junior Subordinated Debentures and
unfunded contractual obligations during 1997.
9. EMPLOYEE BENEFIT PLANS
The Company has four defined benefit pension plans covering the majority of
its hourly employees. The Company's funding policy is to fund costs as
required under the Employee Retirement Income Security Act of 1974, as
amended. The plans' assets are invested in a master trust.
49
<PAGE> 50
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated balance sheets at December 29, 1996
and December 31, 1995:
<TABLE>
<CAPTION>
DECEMBER 29, 1996 DECEMBER 31, 1995
-------------------- ------------------------
ASSETS ASSETS ACCUMULATED
EXCEED EXCEED BENEFITS
ACCUMULATED ACCUMULATED EXCEED
BENEFITS BENEFITS ASSETS
<S> <C> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligation,
including vested benefits of
$1,400, $278 and $1,063,
respectively $ 1,528 $ 1,145 $ 287
======= ======= ======
Plan assets at fair value $ 1,709 $ 1,157 $ 277
Projected benefit obligation for
service rendered to date 1,528 1,145 287
------- ------- ------
Plan assets in excess of (less than)
projected benefit obligation 181 12 (10)
Unrecognized loss from prior
experience 419 426 142
------- ------- ------
Prepaid pension cost included
in deferred costs and other assets $ 600 $ 438 $ 132
======= ======= ======
Weighted average discount rate 7.0% 7.0% 7.0%
======= ======= ======
Estimated long-term rate of return
on assets 9.5% 9.5% 9.5%
======= ======= ======
1996 1995 1994
Pension cost includes:
Service cost $ 158 $ 102 $ 116
Interest cost 102 88 92
Actual return on assets (217) (262) 126
Net amortization 100 164 (233)
------- ------- ------
$ 143 $ 92 $ 101
======= ======= ======
</TABLE>
The Company also maintains a 401(k) plan for all eligible nonunion
employees, and a 401(k) plan for certain union employees not covered by the
defined benefit plans above. During fiscal years 1996, 1995 and 1994, the
Company incurred $140, $130 and $101, respectively, of expense related to
401(k) plans.
50
<PAGE> 51
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
10. INCOME TAXES
The income tax provision comprises the following:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current income taxes payable $2,671 $2,782 $3,252
Deferred income taxes (699) (905) 748
------ ------ ------
$1,972 $1,877 $4,000
====== ====== ======
</TABLE>
Deferred tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
<S> <C> <C>
DEFERRED TAX ASSETS
Workers' compensation $1,046 $1,105
Other 896 727
------ ------
Gross deferred tax assets 1,942 1,832
------ ------
DEFERRED TAX LIABILITIES
Depreciation 7,999 8,494
Inventory 1,647 1,225
Deferred costs and other 114 519
------ ------
Gross deferred tax liabilities 9,760 10,238
------ ------
Net deferred tax liability $7,818 $8,406
====== ======
</TABLE>
A reconciliation of the U.S. federal statutory rate to the Company's
effective rate is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
U.S. federal statutory rate 35.0% 35.0% 35.0%
Effect of graduated rates (1.0) (1.0)
Non-deductible goodwill 7.2 4.2 2.7
Reversal of tax reserves no longer required (2.7) (2.9)
Effect of 1% increase (decrease) in federal rate (3.9) 2.5
Research and development credit refunds (3.0)
Other (1.7) (2.6) 0.5
---- ---- ----
36.5% 29.0% 37.8%
==== ==== ====
</TABLE>
51
<PAGE> 52
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
11. CONTINGENCIES AND LEASE COMMITMENT
The Company leases a production facility under a lease agreement accounted
for as an operating lease. The lease agreement calls for annual rent of
approximately $593 through December 1998 and annual rent of approximately
$495 through October 1999 and provides for three five-year renewal options.
Additionally, the Company leases certain machinery and equipment under
operating leases. Future minimum rental payments on the machinery and
equipment are as follows: 1997 - $308; 1998 - $295; 1999 - $148; 2000 -
$48; 2001 - $32.
12. LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 29, DECEMBER 31,
1996 1995
<S> <C> <C>
11-7/8% Senior Notes due 2006 $85,000 $ -
Note payable to bank in quarterly principal installments
of $1,250 and a final payment of $3,500 originally due
October 31, 1996, refinanced on May 2, 1996. 7,250
Note payable to bank under a revolving line of
credit facility. 11,049
------- -------
85,000 18,299
Less - current portion (2,500)
------- -------
$85,000 $15,799
======= =======
</TABLE>
On August 13, 1996, 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. These notes have certain restrictive
covenants including limitations on the following matters: (i) the
incurrence of additional indebtedness, (ii) the issuance of preferred stock
by subsidiaries, (iii) the creation of liens, (iv) sale and leaseback
transactions, (v) restricted payments, (vi) the sales of assets and
subsidiary stock, (vii) mergers and consolidations (viii) payment
restrictions affecting subsidiaries and (ix) transactions with affiliates.
At December 29, 1996, the fair market value of Senior Notes approximated its
carrying value.
At December 31, 1995, the Company had $11,049 outstanding under a revolving
line-of-credit facility. In May 1996, the Company executed a new credit
agreement whereby it may borrow, based upon available collateral as defined
in the agreement (principally inventory, tooling, and accounts receivable),
up to $35,000 at either (i) a Floating Rate, defined as the greater of the
Prime Rate or the sum of 1% plus the Federal Funds Rate, or (ii) a
Eurodollar Rate plus a margin agreed to by the banks. The Company is also
charged a monthly fee equal to 0.5% per annum of the daily average unused
amount of the credit agreement.
52
<PAGE> 53
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
12. LONG-TERM DEBT (CONTINUED)
The new credit agreement contains, among other provisions, covenants
relating to the ratios of (i) debt to earnings before income taxes, interest
and depreciation and amortization (EBITDA) and (ii) interest expense to
EBITDA.
In August 1996, in connection with the recapitalization of its parent (see
Note 1), the Company amended and restated this working credit facility. The
terms and covenants remained substantially unchanged.
Debt issuance costs related to the issuance of the 11-7/8% Senior Notes
aggregated $5,204, and are being amortized over the term of the Notes. Costs
associated with the new credit agreement totaled $199 and are being
amortized over the five year term. Accumulated amortization for these costs
aggregated $246 at December 29, 1996.
53
<PAGE> 54
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
13. CONSOLIDATING FINANCIAL INFORMATION
<TABLE>
<CAPTION>
CONSOLIDATING BALANCE SHEET AT
DECEMBER 29, 1996
----------------------
MS
AETNA HOLDINGS ACQUISITION ELIMINATIONS TOTAL
<S> <C> <C> <C> <C> <C>
Total current assets $ 48,081 $ - $ - $ (640) $ 47,441
-------- ------- ------- -------- --------
Net property, plant and
equipment 49,434 49,434
-------- ------- ------- -------- --------
Total other assets 31,543 31,543
-------- ------- ------- -------- --------
$129,058 $ - $ - $ (640) $128,418
======== ======= ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 24,958 $ - $ 640 $ (640) $ 24,958
Accrued expenses 12,104 253 4 12,361
Current portion of
long-term debt 2,427 2,427
-------- ------- ------- -------- --------
Total current liabilities 37,062 2,680 644 (640) 39,746
-------- ------- ------- -------- --------
Long-term debt, less current
portion 85,000 85,000
Junior subordinated deben-
tures 6,802 6,802
Deferred income taxes 8,136 8,136
Preferred stock 12,719 12,719
Stockholders' equity
Common stock 1,000 1,278 (1,000) 1,278
Additional paid-in capital 13,769 13,769
Contributed capital 9,024 (1,000) (8,024)
Accumulated deficit (10,164) (9,482) (12,110) (31,756)
Fair market value in excess
of historical cost of net
assets acquired from
entities partially under
common control (7,276) (7,276)
-------- ------- ------- -------- --------
(1,140) (9,482) (4,339) (9,024) (23,985)
-------- ------- ------- -------- --------
$129,058 $ - $ 9,024 $ (9,664) $128,418
======== ======= ======= ======== ========
</TABLE>
54
<PAGE> 55
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
13. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
CONSOLIDATING BALANCE SHEET AT
DECEMBER 31, 1995
-----------------------------------------------
MS
AETNA ACQUISITION ELIMINATIONS TOTAL
<S> <C> <C> <C> <C>
Total current assets $ 41,150 $ - $ - $ 41,150
-------- ------- -------- --------
Net property, plant and equipment 48,873 48,873
-------- ------- -------- --------
Total other assets 28,219 28,219
-------- ------- -------- --------
$118,242 $ - $ - $118,242
======== ======= ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Accounts payable $ 31,566 $ - $ - $ 31,566
Accrued expenses 10,109 10,109
Current portion of long-term debt 2,500 2,500
-------- ------- -------- --------
Total current liabilities 44,175 44,175
-------- ------- -------- --------
Long-term debt, less current portion 15,799 15,799
Subordinated debt 41,942 41,942
Deferred income taxes 8,924 8,924
Preferred stock 1 1
Additional paid-in capital - preferred stock 2,407 2,407
Class A common stock - MS Acquisition 5 5
Class B common stock - MS Acquisition 4 4
Additional paid-in capital 14,991 14,991
Contributed capital 9,024 (9,024)
Accumulated deficit (1,622) (1,108) (2,730)
Fair market value in excess of historical
cost of net assets acquired from entities
partially under common control (7,276) (7,276)
-------- ------- -------- --------
7,402 6,616 (9,024) 4,994
-------- ------- -------- --------
$118,242 $ 9,024 $ (9,024) $118,242
======== ======= ======== ========
</TABLE>
55
<PAGE> 56
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
13. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 29, 1996
---------------------------------------------------------
MS
AETNA HOLDINGS ACQUISITION ELIMINATIONS TOTAL
<S> <C> <C> <C> <C> <C>
Net sales $211,462 $ - $ 154 $(154) $211,462
Cost of sales 180,998 180,998
Selling, general and
administrative expenses 15,644 6 15,650
-------- ------ ----- ----- --------
Operating income 14,820 148 (154) 14,814
-------- ------ ----- ----- --------
Interest expense, net 9,022 384 9,406
-------- ------ ----- ----- --------
Income before income
taxes 5,798 (384) 148 (154) 5,408
-------- ------ ----- ----- --------
Income tax provision 2,105 (131) 50 (52) 1,972
-------- ------ ----- ----- --------
Income before extra-
ordinary item 3,693 3,436
Extraordinary item (net
of income taxes of $594) 1,153 1,153
-------- ------ ----- ----- --------
Net income (loss) $ 2,540 $ (253) $ 98 $(102) $ 2,283
======== ====== ===== ===== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------
MS
AETNA ACQUISITION ELIMINATIONS TOTAL
<S> <C> <C> <C> <C>
Net sales $211,905 $250 $(250) $211,905
Cost of sales 183,542 183,542
Selling, general and administrative
expenses 13,331 13,331
-------- ---- ----- --------
Operating income 15,032 250 (250) 15,032
-------- ---- ----- --------
Interest expense, net 8,579 8,579
-------- ---- ----- --------
Income before income taxes 6,453 250 (250) 6,453
-------- ---- ----- --------
Income tax provision 1,877 73 (73) 1,877
-------- ---- ----- --------
Net income (loss) $ 4,576 $177 $(177) $ 4,576
======== ==== ===== ========
</TABLE>
56
<PAGE> 57
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
13. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1, 1995
------------------------------------------------
MS
AETNA ACQUISITION ELIMINATIONS TOTAL
<S> <C> <C> <C> <C>
Net sales $204,850 $250 $(250) $204,850
Cost of sales 172,428 172,428
Selling, general and administrative
expenses 12,898 12,898
-------- ---- ------ --------
Operating income 19,524 250 (250) 19,524
-------- ---- ------ --------
Interest expense, net 8,929 8,929
-------- ---- ------ --------
Income before income taxes 10,595 250 (250) 10,595
-------- ---- ------ --------
Income tax provision 4,000 94 (94) 4,000
-------- ---- ------ --------
Net income (loss) $ 6,595 $156 $(156) $ 6,595
======== ==== ====== ========
</TABLE>
57
<PAGE> 58
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
13. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 29, 1996
-----------------------------------------------------
MS
AETNA HOLDINGS ACQUISITION ELIMINATIONS TOTAL
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 2,540 $(253) $ 98 $ (102) $ 2,283
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities -
Depreciation and amortization 7,965 7,965
Deferred income taxes (588) (588)
Changes in assets and liabilities
Accounts receivable (4,231) (4,231)
Inventories (97) (97)
Tooling 1,066 1,066
Prepaid expenses (149) (149)
Accounts payable (6,608) (6,608)
-------- ----- ------- ------ --------
Accrued expenses 1,995 253 4 2,252
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES 1,893 102 (102) 2,533
-------- ----- ------- ------ --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and
equipment (7,023) (7,023)
Disposals of property, plant and
equipment 493 493
Other, net 83 83
-------- ----- ------- ------ --------
NET CASH USED FOR INVESTING
ACTIVITIES (6,447) (6,447)
-------- ----- ------- ------ --------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from issuance of debt 85,000 85,000
Dividends paid (11,082) (10,000) (21,082)
Debt issue costs (5,403) (5,403)
Equity contributions 10,000 10,000
Repayment of long-term debt (49,192) (49,192)
Net increase (decrease) in line of credit (11,049) (11,049)
-------- ----- ------- ------ --------
NET CASH PROVIDED BY
(USED FOR) FINANCING
ACTIVITIES 8,274 8,274
-------- ----- ------- ------ --------
Net increase (decrease) in cash 3,720 102 (102) 3,720
Cash - beginning of year 291 291
-------- ----- ------- ------ --------
Cash - end of year $ 4,011 $ - $ 102 $ (102) $ 4,011
======== ===== ======== ====== ========
</TABLE>
58
<PAGE> 59
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
13. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
-----------------------------------------
MS
AETNA ACQUISITION ELIMINATIONS TOTAL
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 4,576 $ 177 $(177) $ 4,576
Adjustments to reconcile net income (loss)
to net cash provided by operating activities -
Depreciation and amortization 6,579 6,579
Deferred interest 1,281 1,281
Deferred income taxes (860) (860)
Changes in assets and liabilities
Accounts receivable 116 116
Inventories 750 750
Tooling (1,790) (1,790)
Prepaid expenses 54 54
Accounts payable 2,954 2,954
Accrued expenses 904 904
-------- ---- ----- --------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES 14,564 177 (177) 14,564
-------- ---- ----- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and
equipment (10,103) (10,103)
Other, net (149) (149)
-------- ---- ----- --------
NET CASH USED FOR INVESTING ACTIVITIES (10,252) (10,252)
-------- ---- ----- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (5,400) (5,400)
Net change in line of credit 1,216 1,216
-------- ---- ----- --------
NET CASH USED FOR FINANCING
ACTIVITIES (4,184) (4,184)
-------- ---- ----- --------
Net increase (decrease) in cash 128 177 (177) 128
Cash - beginning of year 163 163
-------- ---- ----- --------
Cash - end of year $ 291 $ 177 $(177) $ 291
======== ===== ===== ========
</TABLE>
59
<PAGE> 60
MS ACQUISITION CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
13. CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 1, 1995
----------------------------------------
MS
AETNA ACQUISITION ELIMINATIONS TOTAL
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 6,595 $156 $(156) $ 6,595
Adjustments to reconcile net income (loss)
to net cash provided by operating activities -
Depreciation and amortization 6,150 6,150
Deferred interest 2,995 2,995
Deferred income taxes 748 748
Changes in assets and liabilities
Accounts receivable (6,159) (6,159)
Inventories (503) (503)
Tooling 3,830 3,830
Prepaid expenses (322) (322)
Accounts payable 8,312 8,312
Accrued expenses 394 394
-------- ---- ----- --------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES 22,040 156 (156) 22,040
-------- ---- ----- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and
equipment (6,125) (6,125)
Other, net (329) (329)
-------- ---- ----- --------
NET CASH USED FOR INVESTING
ACTIVITIES (6,454) (6,454)
-------- ---- ----- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on long-term debt (15,727) (15,727)
Net change in line of credit 294 294
-------- ---- ----- --------
NET CASH USED FOR FINANCING
ACTIVITIES (15,433) (15,433)
-------- ---- ----- --------
Net increase (decrease) in cash 153 153
Cash - beginning of year 10 10
-------- ---- ----- --------
Cash - end of year $ 163 $156 $(156) $ 163
======== ==== ===== ========
</TABLE>
60
<PAGE> 61
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
(12) Statement Regarding Computation of Ratios
(27) Financial Data Schedules
61
<PAGE> 1
EXHIBIT 12
AETNA INDUSTRIES, INC.
INFORMATION ON RATIO OF EARNINGS
TO FIXED CHARGES COMPUTATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Net income (loss) before the effect
of accounting changes $ 5,798 $ 4,576 $ 6,595 $ 915 $ (2,768)
Income taxes 2,105 1,877 4,000 930 (347)
Pre-tax income 7,903 6,453 10,595 1,845 (3,115)
Fixed charges per below 10,629 9,795 9,800 9,659 10,299
------ ------ ------ ------ --------
Earnings (losses) from operations 18,532 16,248 20,395 11,504 7,184
------ ------ ------ ------ --------
Fixed charges:
Interest expense 9,022 8,579 8,929 9,020 9,206
Debt amortization 763 442 198 99 557
Rent expense - portion of operating
rentals representative of the
interest factor 844 774 673 540 536
------ ------ ------ ------ --------
Total fixed charges 10,629 9,795 9,800 9,659 10,299
------ ------ ------ ------ --------
Ratio of income to fixed charges 1.7 1.7 2.1 1.2 (1)
</TABLE>
(1) The deficiency of earnings from operations versus fixed charges was $3.1
million for the year ended December 27, 1992.
62
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS AND CONSOLIDATED BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-29-1996
<CASH> 4011
<SECURITIES> 0
<RECEIVABLES> 33263
<ALLOWANCES> 510
<INVENTORY> 8756
<CURRENT-ASSETS> 48081
<PP&E> 82502
<DEPRECIATION> 33068
<TOTAL-ASSETS> 129058
<CURRENT-LIABILITIES> 37062
<BONDS> 85000
0
0
<COMMON> 0
<OTHER-SE> (1140)
<TOTAL-LIABILITY-AND-EQUITY> (1140)
<SALES> 211462
<TOTAL-REVENUES> 211462
<CGS> 180998
<TOTAL-COSTS> 180998
<OTHER-EXPENSES> 15644
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9022
<INCOME-PRETAX> 5798
<INCOME-TAX> 2105
<INCOME-CONTINUING> 3693
<DISCONTINUED> 0
<EXTRAORDINARY> 1153
<CHANGES> 0
<NET-INCOME> 2540
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
