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
Sept. 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, 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, 9,314,139
outstanding as of November 10, 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 nine month periods ended September 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 September 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>
Sept. 30, DECEMBER 31,
1995 1994
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 36,000 $ 408,000
Trade Accounts Receivable, net 5,077,000 3,846,000
Inventories
Finished Goods 3,476,000 2,811,000
Work-in-Process 2,226,000 1,762,000
Raw Materials and Parts 3,428,000 2,756,000
9,130,000 7,329,000
Prepaid Expenses and Other 910,000 583,000
TOTAL CURRENT ASSETS 15,153,000 12,166,000
Property, Plant & Equipment, net 20,013,000 18,695,000
Purchase Cost in Excess of Assets Acquired 8,408,000 8,610,000
Other 1,498,000 1,396,000
$45,072,000 $ 40,867,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes Payable to Bank 4,118,000 600,000
Accounts Payable 2,645,000 2,740,000
Accrued Payroll & Other Expenses 1,181,000 945,000
Income Taxes Payable -- 52,000
Accrued Interest 766,000 --
TOTAL CURRENT LIABILITIES 8,710,000 4,337,000
Long-Term Debt 26,459,000 26,437,000
Deferred Income Taxes and Other 4,058,000 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) (2,062,000) (1,842,000)
Treasury Stock, at cost(1,256,150 shares) (879,000) (879,000)
TOTAL COMMON STOCKHOLDERS' EQUITY 3,618,000 3,838,000
$45,072,000 $40,867,000
See Notes
</TABLE>
MID-WEST SPRING MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Nine months
ended, Sept. 30, ended Sept. 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
NET SALES $ 9,143000 $8,422,000 $28,898,000 24,183,000
Cost and expenses:
Cost of sales 7,305,000 6,488,000 22,556,000 18,146,000
Selling and administrative 1,412,000 1,119,000 3,943,000 3,040,000
Amortization of intangibles 71,000 74,000 212,000 220,000
8,788,000 7,673,000 26,711,000 21,406,000
OPERATING INCOME 355,000 749,000 2,187,000 2,777,000
Interest expense 894,000 463,000 2,557,000 1,356,000
Income (loss)before income
taxes ( 539,000) 286,000 ( 370,000) 1,421,000
Provision (benefit) for
Income taxes ( 180,000) 86,000 ( 150,000) 491,000
NET INCOME (LOSS) ($ 359,000) $ 200,000 ($ 220,000) $ 930,000
Preferred Stock of Mid-West
Spring & Stamping Corp.
Dividend Requirement 46,000 198,000 130,000 578,000
Income (loss)attributable to
Common Shares ($ 405,000) $ 2,000 ($ 350,000) $ 352,000
Income (loss) Per Common Share ($ .04) $ .00 ($ .04) $ .04
Weighted average number of
shares outstanding 10,069,877 9,915,316 10,069,877 9,908,802
See Notes
</TABLE>
MID-WEST SPRING MANUFACTURING COMPANY AND SUBSIDIARIES<PAGE>
CONDENSED CONSOLIDATED STATEMENT OF
COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK Additional Retained Treasury
Paid-in- earnings
Shares Amount Capital (deficit) Stock
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 10,570,289 $ - $ 6,559,000 ($1,842,000) ($ 879,000)
NET INCOME 96,000
Balance, March 31, 1995 10,570,289 - $ 6,559,000 ($1,746,000) ($ 879,000)
NET INCOME 43,000
Balance, June 30, 1995 10,570,289 - $ 6,559,000 ($1,703,000) ($ 879,000)
NET LOSS ( 359,000)
Balance, Sept. 30, 1995 10,570,289 - $ 6,559,000 ($2,062,000) ($ 879,000)
See Notes
</TABLE>
MID-WEST SPRING MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED SUMMARY OF CASH FLOWS
<TABLE>
<CAPTION>
Nine months ended
September 30,
1995 1994
<S> <C> <C>
CASH FLOWS FROM (USED) IN OPERATING ACTIVITIES:
Net Income (Loss) ($ 220,000) $ 930,000
Adjustments to reconcile net income/loss to
net cash from operating activities:
Depreciation and amortization 1,537,000 1,457,000
Deferred income taxes ( 150,000) 426,000
Changes in net operating assets and
liabilities, net of effects from
1993 acquisitions (2,504,000) ( 2,531,000)
(1,337,000) 282,000
CASH FLOWS FROM (USED) IN INVESTING ACTIVITIES:
Purchase of equipment (2,545,000) ( 2,161,000)
(2,545,000) ( 2,161,000)
CASH FLOWS FROM (USED) IN FINANCING ACTIVITIES:
Proceeds from revolving line of credit, net 3,518,000 1,614,000
Principal payments on long-term debt, net -- 394,000
Cash overdraft -- 3,000
Other ( 8,000) ( 167,000)
3,510,000 1,844,000
NET INCREASE IN CASH ($ 372,000) ($ 35,000)
Cash, Beginning $ 408,000 $ 116,000
Cash, End $ 36,000 $ 81,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $1,680,000 $ 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
See Notes
</TABLE>
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
1. Preferred Stock
At September 30, 1995, there were $590,000 of accumulated and undeclared
dividends in respect to Preferred Stock of Mid-West Spring and Stamping
Corporation.
2. Taxes
A reconciliation between the Company's effective tax rate and the US
statutory rate (34%) at September 30, is as follows:
1995 1994
Statutory tax expense ($ 126,000) $483,000
Nondeductible amortization of cost
in excess of net assets acquired 75,000 87,000
Other, various items ( 99,000)( 79,000)
($150,000) $491,000
At September 30, 1995, the Company has net operating loss carryforwards
of $4.9 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 nine months and third quarter ended
September 30, 1995, increased 19.5% and 8.6% to $28,898,0000 and $9,143,000,
respectively. For the nine and three month periods, the Company's newly
formed die casting division contributed $3.0 million and $.8 million of sales
increases. Spring operations contributed $1.2 million in sales increases for
the first nine months; and, for the third quarter, recorded $.3 million in
sales decrease reflecting customer delays in shipments as they balance
inventory levels. The Company's booked orders were $11.2 million.
Operating income for the same periods decreased $590,000 and $394,000 to
$2,187,000 and $355,000, respectively. The decrease was primarily
attributable to operating loses of $335,000 and $260,000 from the die casting
division and a decrease in the third quarter in operating income from Springs
operation. In the third quarter, Spring operations' direct manufacturing
costs were excessive compared to current shipment volumes. The Company, based
on recent shipment trends, has implemented a program to moderate this
imbalance by reducing, over the next six months, approximately $1.1 million
in indirect manufacturing costs.
Income for the reported periods decreased $1,150,000 and $559,000 to net
loss of $220,000 and $359,000, respectively.
NET SALES
The Company's net sales for the nine months ended September 30, 1995,
were $28,898,0000, up 19.5% from the $24,183,000 recorded in the 1994
comparable period. Spring operations contributed $4,246,000 in net sales
increase including $3,029,000 in sales from the newly formed die casting
division. Pathe Advanced Composites contributed $469,000 in net sales
increase. All of the spring manufacturing plants, except for Romeoville, IL,
recorded increased sales. The Romeoville plant decrease in net sales,
approximating $365,000 in the second and third quarters, reflects some
delays in raw material deliveries and temporary inefficiencies in
manufacturing as the plant converts to a full CNC operation. In September,
the Company, reacting to the continued trend of decreased shipments at
Romeoville, formed a special task force to review and implement changes to
production scheduling and organization. Shipments increased in September and
October with October 1995 shipments ahead of October 1994. While Pathe
Advanced Composite's sales have increased for the nine months in 1995, the
mix has changed from stitching/fabrication (higher margin) to manufacturing
and technical assistance reflecting; 1)the Company's award, along with
Ingersoll, of the NASA/McDonnell Douglas prototype production stitching
machine; 2) the Company's sole award to manufacture the new generation Pathe
9104 stitching machine for McDonnell Douglas' Huntington Beach testing
facility; and 3)demand for CNC chain stitching equipment. Booked orders from
Spring operations (including blanket orders) were $10.2 million including
$1.0 million from the die casting division. Booked orders are down $.2
million compared to June 30, 1995, reflecting a slight softening in the US
manufacturing economy and the attendant affect on demand for spring products.
This trend continued in October 1995, albeit at a slower rate. Booked orders
for Pathe Advanced Composite's were $1.0 million. Noteworthy, in Pathe's
order log, are five orders - 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 third quarter 1995 were $9,143,000, up
8.6%, from the $8,422,000 recorded in the comparable 1994 quarter. Spring
operations contributed $493,000 including $808,000 in net sales from the
newly formed die casting division. Pathe Advanced Composites contributed
$228,000 in net sales increase. The Romeoville, Mentone, St. Paul and
Michigan plants experienced a $414,000 decrease in net sales as a result of a
softening in demand for spring products as customers balanced inventory
levels. In October, all plants recorded increases in net sales. The die
casting division experienced reduced sales in the third quarter 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 major parts and repairs are scheduled for mid-November and the
equipment is in the process of being restored and repaired. Accordingly, the
trend of reduced sales continued into October.
OPERATING INCOME
Operating income for the nine months ended September 30, 1995, decreased
$590,000 to $2,187,000 compared to $2,777,000 for the comparable period.
Operating income from Spring operations decreased $548,000 including $335,000
in operating losses from the die casting division. The die casting division
is suffering the effects of equipment breakdowns. The division expects to
complete is major equipment repairs and new equipment purchases in November
1995, which should help normalize the manufacturing inefficiencies
experienced since May 1995. The other Spring plants recorded decreases in
operating income, in the third quarter, on lower sales and continued
increases in health and welfare costs.
Operating income for the second quarter 1995 decreased $394,000 to
$355,000 compared to $749,000 for the comparable 1994 quarter. Operating
income from Spring operations decreased $591,000 including $260,000 in
operating losses from the die casting division. The Company anticipates, upon
the completion of equipment repairs and new equipment purchases, the division
should return to profitable operations. For the other Spring operations, the
Company, responding to continued softness in demand for springs has
instituted a program to reduce, through headcount reductions and
centralization, indirect manufacturing costs by $1.1 million over the next
six months. To date, the Company has reduced indirect manufacturing headcount
by 31 people.
Cost of Sales, as a percentage of sales, for the first nine months
increased 3.0% to 78.0% 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) .7% increase in cost of sales of spring operations due to increased
direct and indirect labor costs and increased health and welfare 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 third quarter 1995
increased 2.9% to 79% due to below expectation gross profit margin at the die
casting division - (16%) compared to 12% in the first quarter 1995 vs.
expectation of 15-20% - and 1.7% increase in cost of sales at the other
spring operations due to indirect manufacturing inefficiencies.
Selling and Administrative expenses increased $903,000 to $3,943,000
(13.6% of sales) for the nine months ended September 30, 1995 compared to
$3,040,000 (12.6% of sales) for the prior year period. Selling expenses
increased $228,000 to $1,509,000 (5.2% of sales) compared to $1,281,000
(5.3%) for the year ago period. Administrative expenses increased $675,000
to $2,434,000 (8.4% of sales) compared to $1,759,000 (7.3%) for the
comparable period. The increase was attributable to increased fixed
administrative expenses related to the die casting operation and increased
health and welfare costs at corporate.
Selling and Administrative expenses increased $293,000 to $1,412,000
(15.4% of sales) for the third quarter 1995 compared to $1,119,000 (13.3% of
sales). Selling expenses increased $3,000 to $472,000 (5.2%) compared to
$469,000 (5.6% of sales) a year ago. Administrative expenses increased
$290,000 to $940,000 (10.3% of sales) for the third quarter compared to
$650,000 (7.7% of sales) for the prior year. Again, the increase was
attributable to the fixed administrative expenses of the newly-formed die
casting operation and increased health and welfare costs at corporate..
Interest expense for the nine months and three months ended September
30, 1995 increased $1,201,000 to $2,557,000 and $431,000 to $894,000 for the
respective periods. The increases were due to higher debt balances to finance
increased working capital and capital expenditure requirements and the higher
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 September 30, 1995, the Company's current assets ($15.1 million)
exceed current liabilities ($8.7 million) by $6.4 million which compares to
the $7.8 million excess of current assets over current liabilities at
December 31, 1994. Included in current liabilities at September 30, 1995 and
December 31, 1994 is $4.1 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
$9.7 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 $2.5 million and $2.5 million for the
nine months ended September 30, 1995 and 1994, respectively, cash flow from
operating activities were $1.2 million and $2.8 million for 1995 and 1994,
respectively. Included in cash flow from operations is $2,557,000 and
$1,356,000 in interest expense for 1995 and 1994, respectively.
Short term debt at September 30 1995 includes $4.1 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 $2.6
million in 1995 in order to continue to expand its existing products and
markets and to restore and upgrade the equipment at the die casting division.
Future capital expenditures, which are expected to be nominal, 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) Exhibit (27) Financial Data Schedule
(b) On July 24, 1995, the Company filed Form 8-K (Item5.) noting five
actions approved by the shareholders at their annual meeting, as
follows: 1) Election of five directors: C. Stephen Clegg, Kenneth E.
Scipta, William V. Codos, George A. Stinson and Jacob Pollock. The votes
cast in favor of this slate were 6,609,175; 2) Change of the Company's
name to Mid-West Spring Manufacturing Company (formerly Pathe
Technologies Inc.) The votes cast is favor of this proposal were
6,601,150 and against was 8,950.; 3) Adoption of the 1995 Stock
Incentive Plan. The votes cast in favor of this proposal were 5,920,801
and against were 20,500.; 4) Increase of the authorized number of shares
of its Common Stock to 31,000,000 shares (from 20,000,000 shares). The
votes cast in favor of this proposal were 6,592,000 and against were
17,000; 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. The votes cast in favor of this
proposal were 6,592,815 and against were 17,285.
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
November 10, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Pathe
Technologies Inc.'s Form 10-Q and is qualified in its entirety by reference to
such Form 10-Q filing.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 36,000
<SECURITIES> 0
<RECEIVABLES> 5,077,000
<ALLOWANCES> 0
<INVENTORY> 9,130,000
<CURRENT-ASSETS> 15,153,000
<PP&E> 20,013,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 45,072,000
<CURRENT-LIABILITIES> 8,710,000
<BONDS> 0
<COMMON> 3,618,000
0
2,227,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 45,072,000
<SALES> 28,898,000
<TOTAL-REVENUES> 0
<CGS> 22,556,000
<TOTAL-COSTS> 26,711,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,557,000
<INCOME-PRETAX> (370,000)
<INCOME-TAX> (150,000)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (220,000)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> 0
</TABLE>
