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, 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 60441
(Address of principal executive offices)
708-739-3800
(Registrants telephone number, including area code)
(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 August 12, 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 and six month periods ended June 30, 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 June 30, 1996, and 1995,
is unaudited and the balance sheet data at December 31, 1995 has been derived
from audited financial statements.
<TABLE>
MID-WEST SPRING MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ -- $ 564,000
Trade Accounts Receivable, net 4,810,000 4,380,000
Inventories
Finished Goods 5,281,000 4,913,000
Work-in-Process 1,354,000 1,609,000
Raw Materials and Parts 1,957,000 2,414,000
8,592,000 8,936,000
Prepaid Expenses and Other 639,000 600,000
TOTAL CURRENT ASSETS 14,041,000 14,480,000
Property, Plant & Equipment, net 19,110,000 19,934,000
Purchase Cost in Excess of Assets Acquired 8,187,000 8,328,000
Other 1,479,000 1,584,000
$42,817,000 $ 44,326,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Cash Overdraft 22,000 622,000
Notes Payable to Bank 4,781,000 4,121,000
Accounts Payable 3,554,000 2,872,000
Accrued Payroll & Other Expenses 2,493,000 1,698,000
Income Taxes Payable -- 32,000
Accrued Interest 27,000 --
TOTAL CURRENT LIABILITIES 10,877,000 9,345,000
Long-Term Debt 26,484,000 26,468,000
Deferred Income Taxes and Other 3,617,000 3,664,000
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) (6,048,000) (3,038,000)
Treasury Stock, at cost (1,279,695 shares) (899,000) (899,000)
TOTAL COMMON STOCKHOLDERS' EQUITY (388,000) 2,622,000
$42,817,000 $44,326,000
See Notes
</TABLE>
<TABLE>
MID-WEST SPRING MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
NET SALES $ 8,910,000 $10,133,000 $18,182,000 $19,755,000
Cost and expenses:
Cost of sales 7,449,000 7,850,000 15,147,000 15,251,000
Selling and administrative 1,082,000 1,274,000 2,040,000 2,531,000
Amortization of intangibles 69,000 70,000 138,000 141,000
Special charges 2,000,000 -- 2,000,000 --
10,600,000 9,194,000 19,325,000 17,923,000
OPERATING INCOME(LOSS) (1,690,000) 939,000 (1,143,000) 1,832,000
Interest expense 928,000 881,000 1,867,000 1,663,000
Income (loss) before
Income taxes (2,618,000) 58,000 (3,010,000) 139,000
Income taxes -- 15,000 -- 30,000
NET INCOME(LOSS) $(2,618,000) $ 43,000 $(3,010,000) $ 169,000
Preferred Stock of Mid-West
Spring & Stamping Corp.
Dividend Requirement 62,000 42,000 123,000 84,000
Income (loss) attributable
to Common Shares $(2,680,000) $ 1,000 $(3,133,000) $ 55,000
INCOME PER COMMON SHARE $ (.29) $ -- $ (.34) $ .01
Weighted average number of
shares outstanding 9,290,594 10,069,877 9,290,594 10,069,877
See Notes
</TABLE>
<TABLE>
MID-WEST SPRING MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF
COMMON STOCKHOLDERS' EQUITY
<CAPTION>
COMMON Additional
STOCK Paid-in Retained Treasury
Shares 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 INCOME (392,000) (392,000)
Balance,
March 31, 1996 10,570,289 $6,559,000 ($3,430,000) ($899,000) $2,230,000
NET INCOME (2,618,000) (2,618,000)
Balance,
June 30, 1996 10,570,289 $6,559,000 ($6,048,000) ($899,000) ($388.000)
See Notes
</TABLE>
<TABLE>
MID-WEST SPRING MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED SUMMARY OF CASH FLOWS
<CAPTION>
Six months ended
June 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM (USED) IN OPERATING ACTIVITIES:
Net Income (Loss) $(3,010,000) $ 139,000
Adjustments to reconcile net income/loss to
net cash from operating activities:
Depreciation and amortization 1,054,000 1,020,000
Deferred income taxes -- --
Changes in net operating assets and
liabilities, net of effects from
1993 acquisitions 1,405,000 ( 3,152,000)
(551,000) ( 1,993,000)
CASH FLOWS FROM (USED) IN INVESTING ACTIVITIES:
Purchase of equipment (90,000) ( 1,794,000)
(90,000) ( 1,794,000)
CASH FLOWS FROM (USED) IN FINANCING ACTIVITIES:
Proceeds from revolving line of credit, net 660,000 3,298,000
principal payments on long-term debt, net -- --
Cash overdraft (600,000) --
Other 17,000 136,000
77,000 3,434,000
NET INCREASE IN CASH ($ 564,000) ($ 353,000)
Cash, Beginning $ 564,000 $ 408,000
Cash, End $ -- $ 55,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $1,765,000 $1,720,000
Income taxes 50,000 67,000
Noncash investing activities:
Reverse purchase of Pathe -- --
Noncash financing activities:
Common Stock issued -- --
Redeemable Preferred Stock of Mid-West
Spring and Stamping Corp
dividend requirement -- --
See Notes
</TABLE>
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. PREFERRED STOCK
At June 30, 1996, there were $815,000 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:
1996 1995
---- ----
Statutory tax expense ($890,000) $ 51,000
Nondeductible amortization of cost
in excess of net assets acquired 138,000 50,000
Other, various items 752,000 (71,000)
$ 0 $ 30,000
At June 30, 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 for the six months and second quarter ended
June 30, 1996, decreased 8.0% and 12.1% to $18,182,0000 and $8,910,000,
respectively, attributable to lower than expected sales from Spring and
Stamping. Operating income for the same periods decreased $2,975,000
(162.4%) and $2,629,000 (280.0%) to ($1,143,000) and ($1,690,000),
respectively. The decrease in operating income was attributable to continued
operating losses from the Advanced Pressure Casting Division and to a special
charge in the second quarter relating to the closing of that division. The
spring plants have continued to make productivity improvements that have
lowered direct labor as a percent of sales by 3.7% for the year.
NET SALES
The Company s net sales for the six months ended June 30, 1996, were
$18,182,000, down 8.0% from the $19,755,000 recorded in the 1995 comparable
period. Spring operations decreased $1,600,000 in net sales due to lower
sales from the die cast division as well as lower sales from the spring
plants for the 1995 comparable period. The spring plants experienced lower
than expected sales (down $1.1 million for the year and down $.8 million for
the quarter) due to competitive pressures and customer service problems
dating back to 1995 operations. Spring s die casting operation continues its
downward trend (down $.5 million for the year) as the company prepared the
plant for closing. Booked orders from Spring and Stamping (including blanket
orders) were $7.0 million, this compares to a backlog of $8.0 million at
June 30, 1995.
Pathe Advanced Composites contributed a modest $27,000 sales increase over
the 1995 comparable period. Backlog increased to $1.7 million from $1.1
million at June 1995. This division has entered into full scale production of
its multi-needle mattress quilting machine. This machine was successfully
introduced to the public at the ISPA show in March of 1996. Initial orders
received at the show amounted to approximately $1.5 million.
OPERATING INCOME
Operating income for the six months ended June 30, 1996, decreased
$2,975,000 to ($1,143,000) compared to $1,832,000 for the comparable period.
The decrease in operating income was attributable to operating losses at APC
($1,078,000 loss for the year, in addition there was a $2,000,000 special
charge for the plant closing). The spring plants showed an increase in
operating income of $190,000 for the year. This was attributable to lower
direct labor costs and higher operating efficiencies through out the company.
This is especially impressive when you consider the $1.1 million dollar
decrease in sales.
Cost of Sales, as a percentage of sales, for the first half 1996
increased 6.1% to 83.3% due entirely to continued operating inefficiencies at
Advance Pressure Castings. The spring plants showed significant improvement
in direct labor (down 3.7% from last year) which was offset by the decreases
in sales volume and the related effects on fixed costs.
Selling and Administrative expenses decreased $491,000 to $2,040,000
(11.2% of sales) for the six months ended June 30, 1996, compared to
$2,531,000 for the prior year period. Selling expenses decreased in travel
and entertainment ($60k) and commissions ($50k). These decreases are
attributed to cost cutting measures and the lower sales volume for the first
half of 1996. Administrative salaries decreased as the company reassigned
personnel to catalog sales in an effort to develop that market.
Interest expense for the six months and three months ended June 30,
1996, increased $204,000 to $1,867,000 and $47,000 to $928,000 for the
respective periods. The increases were due to higher debt balances and
effective rate on borrowings.
SPECIAL CHARGES
The Company has booked a $2.0 million reserve towards the closing cost of
Advance Pressure Casting. This entry assumes a 50% liquidation value on
equipment and inventory. There are also lease obligations that run through
December of 1999 included in this accrual. The plant is expected to cease
all operations in August of 1996.
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, 1996, the Company's current assets ($14.0 million) exceed
current liabilities ($10.9 million) by $3.1 million which compares to the
$5.2 million excess of current assets over current liabilities at
December 31, 1995. Included in current liabilities at June 30, 1996, and
December 31, 1995, is $4.8 million and $4.1 million, respectively, borrowed
under its revolving credit agreement which expires in December, 1996. The
Company has successfully, in each of the past five years, been able to "roll-
over" its revolving credit agreement.
Before the changes in net operating assets and liabilities of $1.4
million and ($3.2) million for the, six months ended June 30, 1996 and 1995,
respectively, cash flow from operating activities were ($2.0) million and
$1.2 million for 1996 and 1995, respectively. Included in cash flow from
operations is $1,765,000 and $1,663,000 in interest expense for 1996 and
1995, respectively.
Short term debt at June 30, 1996, includes $4.8 million borrowed under
the Company's $5 million revolving credit line which was renewed in June 1996
and will expire in December of 1996. The Company expects, as it has
successfully done in the past, to renew or refinance its revolving credit
line prior to expiration.
The Company is in violation of certain restrictive loan covenants in
its loan agreement with American National Bank ("ANB") and its Senior
Note Agreement with John Hancock Mutual Life Insurance Company ("John
Hancock"). The covenants relate principally to tangible net worth, the
fixed charge coverage ratio and earnings before income tax, deprecication
and amortization. ANB has agreed to amend the covenants after which the
Company will no longer be in violation. The Company is in discussions with
John Hancock about a similar amendment.
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 equities 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 as amended in December of
1995 require the Company, among other things, to maintain a current ratio of
1:1 or greater; tangible net worth, as defined, greater than $1.5 million and
fixed charge's coverage ratio of 1:1 or greater. 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%. Due to the Company breaking several covenants, in December of 1995,
under the long-term financing agreement, the lender increased the interest
rate by 1/2% to amend the covenants.
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
million 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 3. DEFAULTS UPON SENIOR SECURITIES
The Company is in violation of certain restrictive loan covenants in
its loan agreement with American National Bank ("ANB") and its Senior
Note Agreement with John Hancock Mutual Life Insurance Company ("John
Hancock"). The covenants relate principally to tangible net worth, the
fixed charge coverage ratio and earnings before income tax, deprecication
and amortization. ANB has agreed to amend the covenants after which the
Company will no longer be in violation. The Company is in discussions
with John Hancock about a similar amendment.
ITEM 6. EXHIBITS AND REPORTS
(a) Exhibit 27: Financial Data Schedule
(b) Reports on 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 MANUFACTURING COMPANY
By /s/ Michael B. Curran
----------------------------------
Michael B. Curran,
Chief Financial Officer
August 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 4,942,000
<ALLOWANCES> 132,000
<INVENTORY> 8,592,000
<CURRENT-ASSETS> 14,041,000
<PP&E> 27,614,000
<DEPRECIATION> 8,504,000
<TOTAL-ASSETS> 42,817,000
<CURRENT-LIABILITIES> 10,877,000
<BONDS> 0
0
0
<COMMON> 2,227,000
<OTHER-SE> (388,000)
<TOTAL-LIABILITY-AND-EQUITY> 42,817,000
<SALES> 18,182,000
<TOTAL-REVENUES> 18,182,000
<CGS> 15,147,000
<TOTAL-COSTS> 15,147,000
<OTHER-EXPENSES> 4,178,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,867,000
<INCOME-PRETAX> (3,010,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,010,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,010,000)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
</TABLE>
