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.
March 31, 1996 0-16677
(For Quarter Ended) (Commission file number)
MID-WEST SPRING MANUFACTURING COMPANY, INC.
(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 60446
(Address of principal executive offices)
708-739-3800
(Registrants telephone number, including area code)
PATHE TECHNOLOGIES, INC.
(Former name, former address and former fiscal year, if 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, 9,290,594
outstanding as of May 10, 1996.
(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 month period ended March 31, 1996 are not necessarily indicative of
results that may be expected for the year ended December 31, 1996.
Information with respect to all periods ending March 31, 1996 and 1995
is unaudited and the balance sheet data at December 31, 1995 has been derived
from audited financial statements.
MID-WEST SPRING MANUFACTURING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ 45,000 $ 564,000
Trade Accounts Receivable, net 4,917,000 4,380,000
Inventories
Finished Goods 5,189,000 4,913,000
Work-in-Process 1,708,000 1,609,000
Raw Materials and Parts 2,091,000 2,414,000
8,988,000 8,936,000
Prepaid Expenses and Other 589,000 600,000
TOTAL CURRENT ASSETS 14,539,000 14,480,000
Property, Plant & Equipment, net 19,679,000 19,934,000
Purchase Cost in Excess of Assets Acquired 8,257,000 8,328,000
Other 1,531,000 1,584,000
$44,006,000 $ 44,326,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash Overdraft $ -- $ 622,000
Notes Payable to Bank 4,223,000 4,121,000
Accounts Payable 2,735,000 2,872,000
Accrued Payroll & Other Expenses 1,658,000 1,698,000
Income Taxes Payable -- 32,000
Accrued Interest 826,000 --
TOTAL CURRENT LIABILITIES 9,442,000 9,345,000
Long-Term Debt 26,476,000 26,468,000
Deferred Income Taxes and Other 3,631,000 3,664,000
Preferred Stock of Mid-West Spring
Manufacturing Company 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) (3,430,000) (3,038,000)
Treasury Stock,at cost(1,279,695 shares) (899,000) (899,000)
_________ _________
TOTAL COMMON STOCKHOLDERS' EQUITY 2,230,000 2,622,000
$44,006,000 $44,326,000
See Notes
</TABLE>
MID-WEST SPRING MANUFACTURING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
March 31
1996 1995
<S> <C> <C>
NET SALES $9,272,000 $9,622,000
Cost and expenses:
Cost of sales 7,698,000 7,401,000
Selling and administrative 958,000 1,257,000
Amortization of intangibles 69,000 71,000
8,725,000 8,729,000
OPERATING INCOME 547,000 893,000
Interest expense 939,000 782,000
_________ _________
Income (loss) before income taxes (392,000) 111,000
Income taxes -- 15,000
_________ _________
NET INCOME (LOSS) $ (392,000) $ 96,000
Preferred Stock of Mid-West Spring
Manufacturing Co. Dividend Requirement 61,000 42,000
_________ _________
Income (loss)attributable to
Common Shares $ (453,000) $ 54,000
INCOME (LOSS)PER COMMON SHARE $( .05) $ .01
Weighted average number of
shares outstanding 9,290,594 10,069,877
See Notes
</TABLE>
MID-WEST SPRING MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF
COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK Additional Retained Treasury
Shares Paid-in-Capital (Deficit) Stock Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 10,570,289 $ 6,559,000 ($3,038,000) ($ 899,000) 2,622,000
NET LOSS (392,000) ( 392,000)
__________ _________ __________ __________ ________
Balance, March 31, 1996 10,570,289 6,559,000 ($3,430,000) ($ 899,000) $2,230,000
See Notes
</TABLE>
MID-WEST SPRING MANUFACTURING COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED SUMMARY OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
March 31,
1996 1995
<S> <C> <C>
CASH FLOWS FROM (USED) IN OPERATING ACTIVITIES:
Net Income (Loss) $(392,000) $ 96,000
Adjustments to reconcile net income/loss to
net cash from operating activities:
Depreciation and amortization 527,000 508,000
Deferred income taxes -- --
Changes in net operating assets and
liabilities, net of effects from
1993 acquisitions 59,000 ( 1,786,000)
194,000 ( 1,182,000)
CASH FLOWS FROM (USED) IN INVESTING ACTIVITIES:
Purchase of equipment ( 201,000) ( 700,000)
( 201,000) ( 700,000)
CASH FLOWS FROM (USED) IN FINANCING ACTIVITIES:
Proceeds from revolving line of credit, net 102,000 1,494,000
Principal payments on long-term debt, net -- --
Cash overdraft (622,000) 192,000
Other 8,000 ( 74,000)
( 512,000) 1,612,000
NET INCREASE IN CASH $( 519,000) $( 270,000)
Cash, Beginning $ 564,000 $ 408,000
Cash, End $ 45,000 $ 138,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 88,000 $ 27,000
Income taxes -- --
Noncash investing activities:
Reverse purchase of Pathe -- --
Noncash financing activities:
Common Stock issued -- --
Redeemable Preferred Stock of Mid-West
Spring dividend requirement -- --
See Notes
</TABLE>
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. PREFERRED STOCK
At March 31, 1996, there were $753,000 of accumulated and undeclared
dividends in respect to Preferred Stock of Mid-West Spring Manufacturing Co.
2. TAXES
A reconciliation between the Company's effective tax rate and the US
statutory rate (34%) at March 31, is as follows:
1996 1995
Statutory tax expense (benefit) $(133,000) $33,000
Nondeductible amortization of cost
in excess of net assets acquired 24,000 24,000
Other, various items (109,000) ( 42,000)
$ 0 $ 15,000
At March 31, 1996, the Company has net operating loss carryforwards of
$6.4 million for income tax purposes that expire in the years 2000 through
2010. 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, 1996 are as follows:
Deferred tax liabilities:
Tax over book depreciation and bases
differences on property, plant, equip. $4,997,000
Inventories 414,000
Other 9,000
Total deferred tax liabilities 5,420,000
Deferred tax assets:
Net operating loss carryforwards 2,437,000
Provision for 1993 special charges --
Other - net 393,000
Total deferred tax assets 2,830,000
Valuation allowance for deferred
tax assets ( 424,000)
Net deferred tax asset 2,406,000
Net deferred tax liabilities $ 3,014,000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
OVERVIEW
The Company's net sales decreased $350,000 or 3.6% to $9,272,000
attributable to lower than expected sales from Spring and Stamping. Operating
income decreased $346,000 to $547,000. The decrease in operating income was
attributable to lower sales volume from the spring plants ($336,000) and
higher production costs from the die cast division ($257,000). The spring
plants have continued to make productivity improvements that have lowered
direct labor as a percent of sales by 4.9%. However poor results from the die
cast division (loss $406,000) have continued to hurt the Company's earnings.
NET SALES
The Company's net sales for the first quarter ended March 31, 1996, were
$9,272,000, down 3.6% from the $9,622,000 recorded in the comparable 1995
quarter. Spring's operation contributed $575,000 of the net sales decrease
with a drop in sales from its newly-formed die casting division of $238,000.
Pathe Advanced Composite's sales increased by approximately $225,000 as they
were able to ship two chain stitch machines.
Spring's die casting operation continues to slip with a quarter ending
backlog of $969,000 reflecting weak demand from existing customers. While
Pathe Advanced Composite's sales remained constant at approximately $291,000,
a major step forward has been achieved in the development of chain stitch
machinery sales. In April Pathe unveiled its new chain stitching machine at
the ISPA show in New Orleans. This resulted in $1.5 million in new orders.
The Company's booked orders at March 31, 1996, were $8.5 million compared to
$8.3 million and $12.3 million at December 31, 1995 and March 31, 1995,
respectively. The change in backlog from March of 1995 to March of 1996
reflects Company improvements in on time deliveries (from 80% in 1995 to 92%
in 1996)and to an increasing competitive pricing environment in the market
place. Booked orders from Spring (including blanket orders) were $8.0 million
including $.9 million from the die casting division. Booked orders for Pathe
were $.5 million since the quarter ended just prior to the ISPA show.
OPERATING INCOME
Operating income decreased $346,000 to $547,000 compared to $893,000 for
the comparable quarter. The decrease in operating income was attributable to
increased costs of production at the die cast division (up $257,000)and weak
sales from the spring plants (down $336,000). Pathe's operating loss was
$37,000 as the division absorbed higher costs relating to the shipment of the
first two chain stitch machines. Their margins are expected to rebound as the
production process is smoothed out.
Cost of sales, as a percentage of sales, for the first quarter 1996
increased 6.1 % to 83.0% attributable to the continued production problems at
the die casting division. Direct labor at the spring plants fell 4.9% and
manufacturing overhead fell $87,000 as managements productivity programs took
effect. Having achieved these productivity gains and cost reductions at the
spring plants the Company is now prepared to more aggressively price its
product to win back market share. Management is seeking solutions to the die
casting division's poor results (loss of $406,000). The options being
considered include selling or closing this facility.
Selling and Administrative expenses decreased $299,000 to $958,000
(10.3% of net sales) for the first quarter compared to $1,257,000 (13.1%) for
the comparable year ago quarter. Selling and Administrative expenses
decreased due to managements efforts to reduce overhead. Spring has lowered
its travel expense by $40,000 compared to the same period last year. Due to
the consolidation of the Casting divisions sales force with the Company's in
1995, the Company was able to save approximately $45,000 in sales related
expenses. Administrative expenses decreased approximately $155,000 to
$569,000 (6.1%) compared to $724,000 (7.5%) for the comparable year ago
quarter. The decrease was attributable to the consolidation of the
administrative functions of the Casting division with that of the Company's
amounting to a savings of approximately $75,000. Also, executive and office
salaries at the Corporate headquarters decreased approximately $65,000 due to
turnover and Mr. Kenneth Scipta's resignation as the Company's president
effective January 1, 1996 to assume the duties of president of the Special
Products Division of Mid-West Spring.
Interest expense increased $157,000 from the comparable quarter to
$939,000. The increase was due to a higher debt balances and effective rate
on borrowings as a 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 March 31, 1996, the Company's current assets ($14.5 million) exceed
current liabilities ($9.4 million) by $5.1 million which compares to the $5.1
million excess of current assets over current liabilities at December 31,
1995. Included in current liabilities at March 31, 1996 and December 31, 1995
is $4.2 million and $4.1 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 $.1 million and $1.8 million for the
quarter ended March 31, 1996 and 1995, respectively, cash flow from operating
activities were $.1 million and $.6 million for 1996 and 1995, respectively.
Included in cash flow from operations is $939,000 and $782,000 in interest
expense for 1996 and 1995, respectively.
Short term debt at March 31, 1996 includes $4.2 million borrowed under
the Company's $5 million revolving credit line which was renewed in June 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 1996, the Company plans capital expenditures of approximately $1.0 to
$1.5 million in each of 1996 and 1997 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) Reports on Form 8-K: None
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 MFG. CO., INC.
By /s/Michael B. Curran
Michael B. Curran,
Chief Financial Officer
May 17, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Mid-West
Spring Manufacturing Company, Inc.'s Form 10-Q and is qualified in its entirety
by reference to such Form 10-Q filing.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 45,000
<SECURITIES> 0
<RECEIVABLES> 4,980,000
<ALLOWANCES> 63,000
<INVENTORY> 8,988,000
<CURRENT-ASSETS> 14,539,000
<PP&E> 27,819,000
<DEPRECIATION> 8,140,000
<TOTAL-ASSETS> 44,006,000
<CURRENT-LIABILITIES> 9,442,000
<BONDS> 0
0
2,227,000
<COMMON> 0
<OTHER-SE> 2,230,000
<TOTAL-LIABILITY-AND-EQUITY> 44,006,000
<SALES> 9,272,000
<TOTAL-REVENUES> 9,272,000
<CGS> 7,698,000
<TOTAL-COSTS> 7,698,000
<OTHER-EXPENSES> 1,027,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 939,000
<INCOME-PRETAX> (392,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (392,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (392,000)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
