SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
______________________
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
June 30, 1995 0-16677
(For Quarter Ended) (Commission file number)
MID-WEST SPRING MANUFACTURING COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
11-2661683
(I.R.S. Employer Identification No.)
1404 JOLIET RD. - UNIT C, ROMEOVILLE, IL 60441
(Address of principal executive offices)
708-739-3800
(Registrants telephone number, including area code)
PATHE TECHNOLOGIES INC.
(Former name, changed since last report)
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
31,000,000 shares, $.0001 par value, 9,314,139
outstanding as of August 11, 1995
(Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date)
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended June
30, 1995 are not necessarily indicative of results that may be expected for the
year ended December 31, 1995.
Information with respect to all periods ending June 30, 1995 and 1994 is
unaudited and the balance sheet data at December 31, 1994 has been derived from
audited financial statements.
MID-WEST SPRING MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 55,000 $ 408,000
Trade Accounts Receivable, net 5,279,000 3,846,000
Inventories
Finished Goods 3,386,000 2,811,000
Work-in-Process 2,200,000 1,762,000
Raw Materials and Parts 3,004,000 2,756,000
___________ ___________
8,590,000 7,329,000
Prepaid Expenses and Other 739,000 583,000
___________ ___________
TOTAL CURRENT ASSETS 14,663,000 12,166,000
Property, Plant & Equipment, net 19,688,000 18,695,000
Purchase Cost in Excess of Assets Acquired 8,469,000 8,610,000
Other 1,382,000 1,396,000
__________ ___________
$44,202,000 $ 40,867,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes Payable to Bank 3,898,000 600,000
Accounts Payable 2,482,000 2,740,000
Accrued Payroll & Other Expenses 887,000 945,000
Income Taxes Payable -- 52,000
Accrued Interest -- --
__________ __________
TOTAL CURRENT LIABILITIES 7,267,000 4,337,000
Long-Term Debt 26,451,000 26,437,000
Deferred Income Taxes and Other 4,280,000 4,028,000
Preferred Stock of Mid-West Spring
& Stamping Corp. 2,227,000 2,227,000
COMMON STOCKHOLDERS' EQUITY:
Common Stock, par value $.0001; 31,000,000
shares authorized; 10,570,289 shares
issued, respectively -- --
Paid-in-Capital 6,559,000 6,559,000
Retained Earnings (Deficit) (1,703,000) (1,842,000)
Treasury Stock, at cost (1,256,150 shares) (879,000) (879,000)
__________ __________
TOTAL COMMON STOCKHOLDERS' EQUITY 3,977,000 3,838,000
__________ __________
$44,202,000 $40,867,000
See Notes
</TABLE>
MID-WEST SPRING MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended, Six months ended,
June 30, June 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
NET SALES $10,133,000 $8,204,000 $19,755,000 $15,761,000
Cost and expenses:
Cost of sales 7,850,000 6,114,000 15,251,000 11,666,000
Selling and
administrative 1,274,000 980,000 2,531,000 1,921,000
Amortization of
intangibles 70,000 73,000 141,000 146,000
9,194,000 7,167,000 17,923,000 13,733,000
OPERATING INCOME 939,000 1,037,000 1,832,000 2,028,000
Interest expense 881,000 431,000 1,663,000 893,000
_________ _________ __________ __________
Income before income
taxes 58,000 606,000 169,000 1,135,000
Income taxes 15,000 220,000 30,000 405,000
_________ _________ __________ __________
NET INCOME $ 43,000 $ 386,000 $ 139,000 $ 730,000
Preferred Stock of
Mid-West Spring &
Stamping Corp. Dividend
Requirement 42,000 190,000 84,000 380,000
_________ _________ ___________ _________
Income attributable to
Common Shares $ 1,000 $ 196,000 $ 55,000 $ 350,000
Income Per
Common Share $ -- $ .02 $ .01 $ .04
Weighted average
number of shares
outstanding 10,069,877 9,915,316 10,069,877 9,905,354
See Notes
</TABLE>
MID-WEST SPRING MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF
COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK Additional Retained Treasury
earnings
Shares Amount Paid-in-Capital (deficit) Stock
<S> <C> <C> <C> <C> <C>
Balance,
12/31/94 10,570,289 $ - $ 6,559,000 ($1,842,000) ($ 879,000)
NET INCOME 96,000
__________ ____ ___________ __________ _________
Balance,
03/31/95 10,570,289 - $ 6,559,000 ($1,746,000) ($ 879,000)
NET INCOME 43,000
__________ ____ ___________ __________ _________
Balance,
06/30/95 10,570,289 - $ 6,559,000 ($1,703,000) ($ 879,000)
See Notes
</TABLE>
MID-WEST SPRING MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED SUMMARY OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended
March 31,
1995 1994
<S> <C> <C>
CASH FLOWS FROM (USED) IN OPERATING ACTIVITIES:
Net Income (Loss) $ 139,000 $ 344,000
Adjustments to reconcile net income/loss to
net cash from operating activities:
Depreciation and amortization 1,020,000 471,000
Deferred income taxes -- 140,000
Changes in net operating assets and
liabilities, net of effects from
1993 acquisitions (3,152,000) (1,468,000)
(1,993,000) (513,000)
CASH FLOWS FROM (USED) IN INVESTING ACTIVITIES:
Purchase of equipment (1,794,000) (566,000)
(1,794,000) (566,000)
CASH FLOWS FROM (USED) IN FINANCING ACTIVITIES:
Proceeds from revolving line of credit, net 3,298,000 766,000
Principal payments on long-term debt, net -- 262,000
Cash overdraft -- 114,000
Other 136,000 (62,000)
3,434,000 1,080,000
NET INCREASE IN CASH ($ 353,000) $ 1,000
Cash, Beginning $ 408,000 $ 116,000
Cash, End $ 55,000 $ 117,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $1,720,000 $ 400,000
Income taxes 67,000 24,000
Noncash investing activities:
Reverse purchase of Pathe -- --
Noncash financing activities:
Common Stock issued -- 278,000
Redeemable Preferred Stock of Mid-West
Spring and Stamping Corp.
dividend requirement -- 33,000
</TABLE>
See Notes
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. Preferred Stock
At June 30, 1995, there were $544,000 of accumulated and undeclared
dividends in respect to Preferred Stock of Mid-West Spring and Stamping
Corporation.
2. Taxes
A reconciliation between the Company's effective tax rate and the US
statutory rate (34%) at June 30, is as follows:
1995 1994
Statutory tax expense $ 51,000 $ 386,000
Nondeductible amortization
of cost in excess of net
assets acquired 50,000 58,000
Other, various items ( 71,000) ( 39,000)
$ 30,000 $ 405,000
At June 30, 1995, the Company has net operating loss carryforwards of $4.5
million for income tax purposes that expire in the years 2000 through 2008. The
timing of utilization of these carryforwards may be subject to annual
limitations. $2.0 million of these carryforwards resulted from the Company's
1993 reverse purchase of Pathe. For financial reporting purposes, a valuation
allowance of $424,000 has been recognized to offset the deferred tax assets
related to those carryforwards.
Significant components of the Company's deferred tax liabilities and assets
as of January 1, 1995 are as follows:
Deferred tax liabilities:
Tax over book depreciation and
bases differences on property,
plant, equip. $4,649,000
Inventories 418,000
Total deferred
tax liabilities 5,067,000
Deferred tax assets:
Net operating loss
carryforwards 1,725,000
Provision for 1993
special charges 94,000
Other - net 241,000
Total deferred
tax assets 2,060,000
Valuation allowance for
deferred tax assets ( 424,000)
Net deferred
tax asset 1,636,000
Net deferred
tax liabilities $ 3,431,000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
OVERVIEW
The Company's net sales for the six months and second quarter ended June
30, 1995, increased 25.3% and 23.5% to $19,755,0000 and $10,133,0000,
respectively. Approximately one-half of the net sales increase in both periods
was attributable to the Company's die casting division formed in December 1994.
All, but the Romeoville, IL, manufacturing operations recorded the balance of
the net sales increase. The Company's booked orders were $11.5 million.
Operating income for the same periods decreased $196,000 (9.7%) and $98,000
(9.4%) to $1,832,000 and $939,000, respectively. The decrease was primarily
attributable to operating loses of $75,000 and $120,000 from the die casting
division and a decrease in the first quarter in operating income from Pathe
Advanced Composites. The increase in net sales from spring operations were not
fully realized as the operations incurred higher raw material and direct labor
costs.
Net income for the reported periods decreased $591,000 and $343,000 to
$139,000 and $43,000, respectively.
NET SALES
The Company's net sales for the six months ended June 30, 1995, were
$19,755,0000, up 25.3% from the $15,761,000 recorded in the 1994 comparable
period. Spring operations contributed $3,845,000 in net sales increase
including $2,220,000 in sales from the newly formed die casting division. Pathe
Advanced Composites contributed $149,000 in net sales increase. All of the
spring manufacturing plants, except for Romeoville, IL, recorded increased
sales. The Romeoville plant decrease in net sales, all in the second quarter -
reflects some delays in raw material deliveries and temporary inefficiencies in
manufacturing as the plant converts to a full CNC operation. While Pathe
Advanced Composite's sales have increased for the six months in 1995, the mix
has changed from stitching/fabrication (higher margin) to manufacturing and
technical assistance reflecting the Company's award, along with Ingeroll, of the
NASA/McDonnell Douglas prototype production stitching machine and the Company's
sole award to manufacture the new generation Pathe 9104 stitching machine for
McDonnell Douglas' Huntington Beach testing facility. Booked orders from Spring
operations (including blanket orders) were $10.4 million including $1.0 million
from the Die Casting Division. Booked orders are down $.5 million compared to
March 31, 1995, reflecting a slight softening in the US manufacturing economy
and the attendant affect on demand for spring products. This trend continued in
July 1995. Booked orders for Pathe Advanced Composite's were $1.1 million.
Noteworthy, in Pathe's order log, is the first order - prior to completion of
the prototype - of the Company's newly announced CNC chain stitching machine
primarily for the mattress industry; several orders are pending final completion
of the prototype.
The Company's net sales for the second quarter 1995 were $10,133,000, up
23.5%, from the $8,204,000 recorded in the comparable 1994 quarter. Spring
operations contributed $1,838,000 including $1,053,000 in net sales from the
newly formed die casting division. Pathe Advanced Composites contributed $91,000
in net sales increase. All spring manufacturing plants, except for Romeoville,
IL, recorded increased net sales. The Romeoville plant experienced a $167,000
decrease in net sales as a result of delays in raw material deliveries and
temporary inefficiencies in the full changeover to CNC manufacturing equipment.
The die casting division experienced reduced sales in June 1995 compared to the
monthly net sales average for the first five months due to unforeseen equipment
breakdowns due in part to poor manufacturing practices. The lead times for spare
parts and repairs are 4-6 weeks and the equipment is in the process of being
repaired. Accordingly, the trend of reduced sales continued into July and
August.
OPERATING INCOME
Operating income for the six months ended June 30, 1995, decreased $196,000
to $1,832,000 compared to $2,028,000 for the comparable period. The decrease in
operating income was attributable to a decrease of $88,000 ($111,000 in the
first quarter 1995) from Pathe Advanced Composites operations, resulting, as
expected, from the mix of stitching fabrication services in the first half of
1994, which commands a higher gross profit margin, to a cost plus arrangement
with NASA/McDonnell Douglas in respect to equipment manufacturing and technical
assistance on various new projects. These new projects, which commenced in the
first quarter 1995, should benefit the second half 1995 comparisons to 1994. The
Spring operations' increases in operating income ($148,000) was partially offset
by $75,000 in operating losses, in the second quarter, at the die casting
division. Spring operations' increase in net sales was not fully realized at the
operating income level due to raw material price increases, increased direct
labor as the Company attempts to balance its backorder level with customer
expectations, and some manufacturing inefficiencies as the Company integrates
new equipment and processing technologies into its manufacturing operations.
Operating income for the second quarter 1995 decreased $98,000 to $939,000
compared to $1,037,000 for the comparable 1994 quarter. The decrease in
operating income was attributable to an increase of $23,000 from Pathe Advanced
Composites offset by a $120,000 loss from the newly-formed die casting division.
Cost of Sales, as a percentage of sales, for the first half 1995 increased
3.2% to 77.2% due to: 1) product mix in sales at Pathe Advanced Composites; 2)
below expectations gross profit margin at the die casting division due to
manufacturing inefficiencies caused by equipment breakdowns; and, 3) .3%
increase in cost of sales of spring operations due to raw material price
increases and increased direct labor costs. Spring operations have not been able
to balance backorders with customer expectations and obtain price increases to
compensate for premium charges related to sales lead times, as the spring
operation continues to increase it's market share through customer satisfaction
and competitive pricing.
Cost of Sales, as a percentage of sales, for the second quarter 1995
increased 3% to 77.5% due to: 1) product mix at Pathe Advanced Composites; 2)
below expectation gross profit margin (7.2% compared to 12% in first quarter
1995 vs. expectation of 15-20%); and, 3) .5% increase in cost of sales at the
spring operation.
Selling and Administrative expenses increased $610,000 to $2,531,000
(12.8% of sales) for the six months ended June 30, 1995 compared to $1,921,000
for the prior year period. Selling expenses increased $251,000 to $1,063,000
(5.4% of sales) compared to $812,000 (5.2%) for the year ago period. Selling
expenses, as a percentage of sales, increased due to higher promotional expenses
related to expanded product introductions in the Mid-West Express catalog and
higher fixed selling expenses of the die casting operation. Administration
expenses increased $359,000 to $1,468,000 (7.4% of sales) compared to
$1,109,000 (7.0%) for the comparable period. The increase was attributable to
increased fixed administrative expenses related to the die casting operation.
Selling and Administrative expenses increased $294,000 to $1,274,000 (12.6%
of sales) for the second quarter 1995 compared to $980,000 (11.9% of sales).
Selling expenses increased $81,000 to $501,000 (5.0%) compared to $420,000 a
year ago. The percentage increase was attributable to the higher fixed selling
expenses of the die casting operation. Administrative expenses increased
$213,000 to $773,000 (7.6% of sales) for the second quarter compared to $560,000
(6.8% of sales) for the prior year. Again, the increase was attributable to the
fixed administrative expenses of the newly-formed die casting operation.
Interest expense for the six months and three months ended June 30, 1995
increased $770,000 to $1,663,000 and $450,000 to $881,000 for the respective
periods. The increases were due to higher debt balances and effective rate on
borrowings as the consequence of the Company's fixed rate, debt refinancing in
December 1994.
INCOME TAX
The provision for income taxes for the periods presented was based on the
estimated effective tax rate for the year.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1995, the Company's current assets ($14.7 million) exceed
current liabilities ($7.3 million) by $7.4 million which compares to the $7.8
million excess of current assets over current liabilities at December 31, 1994.
Included in current liabilities at June 30, 1995 and December 31, 1994 is $3.9
million and $.5 million, respectively, borrowed under its revolving credit
agreement which expires in June, 1996. The Company, in December 1994, refinanced
its long-term debt and has successfully, in each of the past five years, been
able to "roll-over" its revolving credit agreement.
Since inception (June 1989), the Company has generated approximately $9.0
million in operating cash flow which has been used to fund a continuing
modernization and automation program through capital equipment purchases,
acquisitions to expand products and markets and increased working capital
requirements for its Spring operations. Before the reduction for changes in net
operating assets and liabilities of $2.0 million and $1.5 million for the six
months ended June 30, 1995 and 1994, respectively, cash flow from operating
activities were $1.2 million and $1.0 million for 1995 and 1994, respectively.
Included in cash flow from operations is $1,663,000 and $893,000 in interest
expense for 1995 and 1994, respectively.
Short term debt at June 30 1995 includes $3.9 million borrowed under the
Company's $5 million revolving credit line which was renewed in June 1994 and
1995 and amended in December 1994 (coincidental with the long-term refinancing)
and expires in June 1996. The Company expects, as it has successfully done in
the past, to renew or refinance its revolving credit line prior to expiration.
In December 1994, the Company completed an important objective toward
improving its total capitalization and long-term liquidity and reducing its
exposure to fluctuating interest rates with a $27.0 million 11.25% fixed rate,
long-term debt financing including $.5 million of detachable warrants, and $.5
million private equity offering. The net proceeds (after expenses) were used to
repay; 1) all variable interest rate short-term and medium-term borrowings; 2)
all the 14% subordinated and junior subordinated notes; 3) $4.6 million in
redeemable preferred and preferred stock of Mid-West Spring and; 4) repurchase
1,256,150 shares of the Company's Common Stock. The new long-term debt facility
permits the Company to maintain up to $5 million revolving line of credit. The
new debt facilities require the Company, among other things, to maintain a
current ratio of 1:1 or greater; tangible net worth, as defined, greater than
$3.5 million; fixed charges coverage ratio of 1.70:1.0 (2:1 after December
1995); and debt coverage ratio of 5:5 or less (decreasing to 4.5:1 after
December 1996). In addition, the debt facility provides that the prepayment of
principal may, under certain circumstances, result in additional interest
charges of up to approximately 8.75%. The effect of the new fixed rate
refinancing will cause interest expense, which is deductible for income tax
purposes, to increase $1.4 million over 1994 level of $1.7 million and the
Preferred Stock of Mid-West Spring dividend requirement, which is not deductible
for income tax purposes, to decrease $.6 million - an amount that was increasing
at a 10% compound rate.
Cash flows from operations, revolving line of credit and long-term debt
refinancing at increased amounts, have been the Company's main source of capital
to fund its operating and investing activities. Increased cash flow from
operations and/or additional equity capital will most likely be required if the
Company is to increase or accelerate its capital spending or acquisition
programs.
In 1995, the Company plans capital expenditures of approximately $2.0
million in each of 1995 and 1996 in order to continue to expand its existing
products and markets. Future capital expenditures are expected to be funded by
cash from operations. The Company believes it has a sufficient operating cash
flow and working capital base to meet all of its obligations for the foreseeable
future, including possible acquisitions to expand its existing products and
markets.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS
(a) Exhibits
- (27) Financial Data Schedule
(b) On July 24, 1995, the Company filed Form 8-K (Item 5.) noting five
actions approved by the shareholders at their annual meeting, as follows:
1) election of five directors; 2) change of the Company's name to Mid-West
Spring Manufacturing Company (formerly Pathe Technologies Inc.); 3)
adoption of the 1995 Stock Incentive Plan; 4) increase of the authorized
number of shares of its Common Stock to 31,000,000 shares (from 20,000,000
shares); and, 5) approve the directors of the Company, at their discretion,
if, and when, in the best interest of the Company, to effect a one-for-
seven reverse stock split.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MID-WEST SPRING MANUFACTURING COMPANY
By: /s/ Richard G. Reece
________________________________
Richard G. Reece,
Chief Financial Officer
August 14, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 55,000
<SECURITIES> 0
<RECEIVABLES> 5,279,000
<ALLOWANCES> 0
<INVENTORY> 8,590,000
<CURRENT-ASSETS> 14,663,000
<PP&E> 19,688,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 44,202,000
<CURRENT-LIABILITIES> 7,267,000
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 3,977,000
<TOTAL-LIABILITY-AND-EQUITY> 44,202,000
<SALES> 19,755,000
<TOTAL-REVENUES> 19,755,000
<CGS> 15,251,000
<TOTAL-COSTS> 17,923,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,663,000
<INCOME-PRETAX> 169,000
<INCOME-TAX> 30,000
<INCOME-CONTINUING> 139,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 139,000
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
