SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For Quarterly Period Ended September 30, 1998
Commission File Number 1-12068
MASCOTECH, INC.
(Exact name of Registrant as specified in its Charter)
Delaware 38-2513957
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
21001 Van Born Road, Taylor, Michigan 48180
(Address of principal executive offices) (Zip Code)
(313) 274-7405
(Telephone Number)
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, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Shares Outstanding at
Class October 30, 1998
Common stock, par value $1 per share 46,096,000
<PAGE>
MASCOTECH, INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheet -
September 30, 1998 and December 31, 1997 1
Consolidated Condensed Statements of Income
for the Three and Nine Months Ended
September 30, 1998 and 1997 2
Consolidated Condensed Statement of
Cash Flows for the Nine Months
Ended September 30, 1998 and 1997 3
Notes to Consolidated Condensed Financial
Statements 4-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-12
Part II. Other Information and Signature 13-14
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MASCOTECH, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
September 30, 1998 and December 31, 1997
(Dollars in thousands)
<TABLE>
September 30, December 31,
ASSETS 1998 1997
<S> <C> <C>
Current assets:
Cash and cash investments $ 29,020 $ 41,110
Marketable securities - GmbH 2,540 45,970
Receivables 224,380 125,930
Inventories 187,050 73,860
Deferred and refundable income taxes 28,540 36,270
Prepaid expenses and other assets 15,830 13,310
Total current assets 487,360 336,450
Equity and other investments in affiliates 92,900 263,300
Property and equipment, net 672,020 417,030
Excess of cost over net assets of acquired
companies 740,560 65,610
Notes receivable and other assets 59,040 62,290
Total assets $2,051,880 $1,144,680
LIABILITIES
Current liabilities:
Accounts payable $ 119,230 $ 70,120
Accrued liabilities 156,380 114,650
Total current liabilities 275,610 184,770
Convertible subordinated debentures 310,000 310,000
Other long-term debt 1,015,150 282,000
Deferred income taxes and other long-term
liabilities 184,500 157,250
Total liabilities 1,785,260 934,020
SHAREHOLDERS' EQUITY
Common stock, $1 par:
Authorized: 250 million;
Outstanding: 47.5 and 47.3 million 47,460 47,250
Paid-in capital 36,360 41,060
Retained earnings 231,050 157,790
Accumulated other comprehensive loss (290) (2,560)
Less: Restricted stock awards (47,960) (32,880)
Total shareholders' equity 266,620 210,660
Total liabilities and
shareholders' equity $2,051,880 $1,144,680
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
1
<PAGE>
MASCOTECH, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
For the Three and Nine Months Ended September 30, 1998 and 1997
(Dollars in thousands except per share amounts)
<TABLE>
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net sales $ 399,500 $ 222,030 $1,233,740 $ 688,510
Cost of sales (299,350) (187,680) (912,130) (543,870)
Selling, general and
administrative expenses (51,160) (22,730) (151,090) (68,280)
Charge for disposition of
businesses, net --- --- (15,580) ---
Operating profit 48,990 11,620 154,940 76,360
Other income (expense), net:
Interest expense, Masco Corporation --- (2,530) --- (7,500)
Other interest expense (21,430) (6,990) (60,820) (21,780)
Equity and interest income
from affiliates 3,120 8,910 9,240 34,360
Gain from change in investment --- --- --- 13,210
Gain from disposition of an equity
affiliate --- 46,160 --- 46,160
Deferred gain recognized from
disposition of business --- --- 7,000 ---
Other income, net (2,380) 6,610 3,560 17,850
(20,690) 52,160 (41,020) 82,300
Income before income taxes 28,300 63,780 113,920 158,660
Income taxes 11,510 25,120 34,570 62,690
Net income $ 16,790 $ 38,660 $ 79,350 $ 95,970
Preferred stock dividends --- --- --- $ 6,240
Earnings attributable to
common stock $ 16,790 $ 38,660 $ 79,350 $ 89,730
Basic earnings per share $ .38 $ .86 $1.80 $2.32
Diluted earnings per share $ .33 $ .70 $1.47 $1.74
Cash dividends declared per share $ .07 $ .06 $ .13 $ .16
Cash dividends paid per share $ .07 $ .06 $ .19 $ .16
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
2
<PAGE>
MASCOTECH, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 1998 and 1997
(Dollars in thousands)
<TABLE>
Nine Months Ended
September 30
1998 1997
<S> <C> <C>
CASH FROM (USED FOR):
OPERATIONS:
Net cash from earnings $ 148,560 $ 71,290
(Increase) decrease in inventories (9,890) 4,820
(Increase) in receivables (11,690) (5,540)
Increase in accounts payable and
accrued liabilities 29,240 9,250
Decrease in marketable securities 43,430 5,590
Other, net (2,900) (2,670)
Net cash from operating activities 196,750 82,740
FINANCING:
Payment of debt (400,620) (67,860)
Increase in debt 1,089,290 20,000
Retirement of Company Common Stock (36,150) (6,610)
Other, net (21,590) (29,050)
Net cash from (used for) financing
activities 630,930 (83,520)
INVESTMENTS:
Capital expenditures (74,250) (32,650)
Cash from sale of businesses, net 25,020 76,560
Acquisition of businesses, net of
cash acquired (864,420) (11,100)
Proceeds from redemptions of debt
by affiliates 80,500 ---
Other, net (6,620) 15,520
Net cash (used for) from investing
activities (839,770) 48,330
CASH AND CASH INVESTMENTS:
(Decrease) increase for the nine months (12,090) 47,550
At January 1 41,110 19,400
At September 30 $ 29,020 $ 66,950
Supplemental Cash Flow Information:
Net cash paid during the period for:
Interest $ 55,380 $ 28,020
Income taxes $ 32,930 $ 20,290
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
3
<PAGE>
MASCOTECH, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
A. In the opinion of the Company, the accompanying unaudited consolidated
condensed financial statements contain all adjustments, which are normal
and recurring in nature, necessary to present fairly its financial
position as at September 30, 1998 and the results of operations for the
three and nine months ended September 30, 1998 and 1997 and cash flows for
the nine months ended September 30, 1998 and 1997. Certain amounts for
the year ended December 31, 1997 have been reclassified to conform to the
presentation adopted in 1998.
B. In January 1998, the Company completed the acquisition of TriMas
Corporation ("TriMas") by purchasing all the outstanding shares of TriMas
not already owned by the Company for approximately $920 million. TriMas
is a diversified proprietary products company with leadership product
positions in commercial, industrial and consumer markets and had 1997
sales in excess of $660 million. The Company previously owned 37 percent
of TriMas.
The results for 1998 reflect TriMas sales and operating results from the
date of acquisition. The acquisition has been accounted for as a purchase
and the excess of the aggregate purchase price over the fair value of net
assets acquired of approximately $670 million is being amortized over 40
years.
The following pro forma results of operations reflect this transaction as
if it had occurred on January 1, 1997. The pro forma data does not
purport to be indicative of the results which would actually have been
reported if the transaction had occurred on such date (in thousands,
except per share amounts).
Nine Months Ended
September 30
1998 1997
<TABLE>
<S> <C> <C>
Net sales $1,269,690 $1,204,170
Net income $ 78,980 $ 89,238
Diluted earnings per share $1.46 $1.63
</TABLE>
C. In connection with the TriMas acquisition in early 1998, the Company
entered into a new $1.3 billion credit facility. This new facility
includes a $500 million term loan with principal payments as follows:
1998 - $25 million; 1999 - $40 million; 2000 - $60 million; 2001 - $75
million; and 2002 - $190 million. The remainder of the term loan and the
$800 million revolver terminate in 2003. The Company has the ability and
intent to refinance current amounts on a long-term basis under the
revolver.
To reduce the impact of changes in interest rates, the Company entered
into interest rate swaps on $400 million of the Company's floating rate
debt in the second quarter of 1998. The aggregate interest rate on these
swaps is approximately seven percent including the applicable margin under
the Company's revolving credit agreement. For interest rate instruments
that effectively hedge interest rate exposures, the net cash amounts paid
or received on the agreements are accrued and recognized as an adjustment
to interest expense.
4
<PAGE>
MASCOTECH, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
D. Inventories by component are as follows (in thousands):
<TABLE>
September 30 December 31,
1998 1997
<S> <C> <C>
Finished goods $ 85,540 $ 22,160
Work in process 43,440 22,990
Raw materials 58,070 28,710
$187,050 $ 73,860
</TABLE>
E. Property and equipment, net reflects accumulated depreciation of $304
million and $265 million as at September 30, 1998 and December 31, 1997,
respectively.
F. In January 1998, the Company received $48 million of cash from MSX
International, Inc. ("MSXI") in payment of certain amounts due MascoTech,
resulting from the sale of the Company's engineering and technical
business services units to MSXI in early 1997. As a result, the Company
realized a pre-tax gain of $7 million in the first quarter of 1998 from
the partial recognition of a gain that was deferred at the time of the
sale pending the receipt of cash.
G. In June 1998, the Company recorded a pre-tax gain of approximately $25
million related to the receipt of additional consideration based on the
operating performance of the Company's stamping businesses sold in 1996.
The gain, which is non taxable, was included in the caption "charge for
disposition of businesses, net" in the income statement.
5
<PAGE>
MASCOTECH, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
H. In the second quarter of 1998, the Company recorded a non-cash charge
aggregating approximately $41 million pre-tax (approximately $22 million
after tax or $.37 per common share) to reflect the write-down of certain
long lived assets principally related to the plan to dispose of certain
businesses and to accrue exit costs of approximately $8 million. The
disposition of these businesses is expected to occur in early 1999 with
the cash portion of the proceeds applied to reduce the Company's
indebtedness and to provide capital to invest in its remaining
businesses. The disposition of these businesses does not meet the
criteria for discontinued operations treatment for accounting purposes;
accordingly, the sales and results of operations of these businesses
will be included in continuing operations until disposition. The
businesses to be disposed had annual sales of $132 million, $130
million and $109 million in 1997, 1996 and 1995 respectively, and
operating profit of $20 million, $23 million and $19 million in 1997,
1996 and 1995, respectively.
The expected proceeds from the sale of the businesses to be disposed was
estimated by the Company's management based on a variety of factors
including: historical and projected operating performance, competitive
market position, perceived strategic value to potential acquirors,
tangible asset values and other relevant factors. In addition,
management's estimate of the expected proceeds included input from
independent parties familiar with business valuations of this nature.
Future periods will include the operating results of the businesses to be
sold and any additional costs to be incurred in connection with the sale
or liquidation of the remaining businesses which cannot be accrued at
September 30, 1998, as well as the result of differences between estimated
and actual proceeds. In addition, management expects that certain of the
businesses to be disposed may be sold for gains; such gains will be
recognized when realized.
I. Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income."
Accordingly, the Company's total comprehensive income for the period was
as follows:
<TABLE>
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Net income $16,790 $38,660 $79,350 $95,970
Other comprehensive income (loss) 4,380 250 2,270 (8,250)
Total comprehensive income $21,170 $38,910 $81,620 $87,720
</TABLE>
6
<PAGE>
MASCOTECH, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
J. The following are reconciliations of the numerators and denominators used
in the computations of basic and diluted earnings per share:
<TABLE>
Three Months Ended Nine Months Ended
September 30 September 30
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Weighted average number of
shares outstanding 43,920 45,010 43,980 38,750
Income $ 16,790 $ 38,660 $ 79,350 $ 95,970
Less preferred stock dividends --- --- --- 6,240
Earnings used for basic earnings
per share computation $ 16,790 $ 38,660 $ 79,350 $ 89,730
Basic earnings per share $ .38 $ .86 $ 1.80 $ 2.32
Total shares used for basic earnings
per share computation 43,920 45,010 43,980 38,750
Dilutive securities:
Stock options 1,000 1,300 1,260 1,290
Assumed conversion of preferred
stock at January 1, 1997 --- --- --- 6,960
Convertible debentures 10,000 10,000 10,000 10,000
Contingently issuable shares 3,940 2,240 3,760 2,120
Total shares used for diluted
earnings per share computation 58,860 58,550 59,000 59,120
Earnings used for basic earnings
per share computation $ 16,790 $ 38,660 $ 79,350 $ 89,730
Add back of preferred stock dividends --- --- --- 6,240
Add back of debenture interest 2,380 2,380 7,140 7,140
Earnings used for diluted
earnings per share computation $ 19,170 $ 41,040 $ 86,490 $103,110
Diluted earnings per share $ .33 $ .70 $ 1.47 $ 1.74
</TABLE>
Diluted earnings per share reflect the potential dilution that would occur
if securities or other contracts to issue common stock were converted or
exercised into common stock.
7
<PAGE>
MASCOTECH, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(concluded)
K. In June 1998, the Company acquired for cash the Gruppo TOV group of
companies, with manufacturing facilities in Valmadrera, Italy. Gruppo
TOV manufactures rings, locking levers, steel drum closures and specialty
equipment for automation and tooling. In a separate transaction, the
Company has also acquired certain assets relating to the production and
sale of threaded flanges and plugs for steel drums in North American
markets.
In August 1998, the Company acquired K-Tech Manufacturing, a Wheeling,
Illinois based manufacturer of industrial fasteners for metal and plastic
applications. K-Tech's products, markets and manufacturing processes are
highly complementary to the Company's specialty fastener product group.
The combined purchase price for these three acquisitions aggregated
approximately $60 million including approximately one million shares of
company common stock, with the balance in cash. The acquisitions were
accounted for as purchase transactions.
L. On June 15, 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS No. 133). SFAS No.
133 is effective for quarters of all fiscal years beginning after June 15,
1999 (January 1, 2000 for the Company). SFAS No. 133 requires that all
derivative instruments be recorded on the balance sheet at their fair
value. Changes in the fair value of derivatives are recorded each period
in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and, if it is, the
type of hedge transaction. The Company is currently evaluating the impact
SFAS No. 133 will have on its financial statements, if any.
8
<PAGE>
MASCOTECH, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MascoTech sales for the third quarter 1998, aided by the previously
announced acquisition on January 22, 1998 of TriMas Corporation, increased 80
percent to $400 million from $222 million in 1997. Sales for the nine months
ended September 30, 1998 increased 79 percent to $1.2 billion from $689 million
in 1997.
Income in the third quarter 1998 was $16.8 million or $.33 per common
share compared with $38.7 million or $.70 per common share. Income in 1997 was
impacted by a pre-tax gain of approximately $46 million related to the transfer
of the Company's equity holdings in Emco Limited ("Emco") to Masco Corporation
("Masco"). This gain was partially offset by costs, of approximately $14
million, associated with a plant closure and the Company's share of a special
charge recorded by an equity affiliate and other expenses. Excluding the impact
of the gain and unusual expenses, income in the third quarter of 1997 would have
been $19.2 million or $.37 per common share.
Operating profit for the nine months ended September 30, 1998 was impacted
by the charge (approximately $41 million) principally related to the disposition
of certain businesses. This charge was partially offset by the gain
(approximately $25 million) related to additional consideration received by the
Company resulting from the disposition of certain stamping operations in 1996.
Operating profit for the nine months ended September 30, 1997 was impacted by a
charge of approximately $9 million related to a plant closure. The following
information related to sales, operating profit and margins is presented on a pro
forma basis, as though MascoTech and TriMas were combined for the three and nine
month periods ended September 30, 1998 and 1997 and excluding the unusual pre-
tax income and charges mentioned above.
Sales in the third quarter would have increased approximately two percent
to $400 million in 1998 from $391 million in 1997; operating profit after
general corporate expense would have been $49 million as compared with $44
million.
Sales for the nine months ended September 30, 1998 and 1997, would have
increased approximately five percent to $1.3 billion as compared with $1.2
billion in 1997. Operating profit after general corporate expense for the nine
months ended September 30, 1998 and 1997 would have been approximately $174
million and $163 million, respectively.
Sales in the third quarter 1998 for the metalworking businesses increased
three percent even though operations were negatively impacted by a strike at an
important customer. European operations continued their strong performance with
sales up six percent. This sales increase was achieved despite a 37 percent
decrease in sales of tubular products relating to the phase-out of certain
programs and a reduction in sales of constant velocity joints which
is directly related to reduced demand in the Russian market. Excluding recent
acquisitions, third quarter sales for our Specialty Fastener and Special
Container businesses were moderately reduced from 1997 levels. Fastener sales
were impacted by softer market conditions impacting aerospace and agricultural
product applications. Specialty Container products were negatively impacted
principally by economic conditions in Asia which reduced compressed gas cylinder
product sales. Sales for our Corporate Companies product group approximated
1997 levels. Sales for our Towing Systems product group continued to be strong,
primarily driven by demand for new products. The Company's aftermarket group
experienced a sales decline in the third quarter and for the nine months ended
September 30, principally due to soft economic conditions impacting certain
products.
Operating margins including increased amortization expense and before
general corporate expense approximated 13.4 percent for the quarters ended
September 30, 1998 and 1997, respectively.
9
<PAGE>
MASCOTECH, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Third quarter 1998 margins for our Metal Forming business were comparable
to 1997 despite the impact of the launch of a new connecting rod plant in
Valencia, Spain, and the strike at an important customer. Margins for the
aftermarket businesses were hampered by the continued soft business conditions
affecting certain of our aftermarket products. Margins for Specialty Fasteners
were also reduced from 1997 third quarter levels principally as a result of
certain production difficulties which have been addressed and reduced volumes
for certain products. Margins for Towing Systems and Specialty Container
products were improved from 1997, and margins for Corporate Companies
approximated 1997 levels.
The Company's low effective tax rate, as compared with the statutory rate,
for the nine months ended September 30, 1998 is the result of the recognition of
a non-taxable gain from the sale of the Company's stamping businesses recorded
in the second quarter of 1998. On a pro forma basis, excluding both the gain
and charge, the effective year to date tax rate would be comparable to the third
quarter of 1998.
The Board of Directors declared a dividend of $.07 per common share,
payable on November 16, 1998 to shareholders of record on October 16, 1998.
Although the Company incurred increased debt with the purchase of TriMas,
the Company's interest coverage ratio and debt to cash flow ratio are expected
to remain strong. The Company expects that its ratio of debt to total debt plus
equity will improve from the operating performance of its businesses and the
disposition of certain financial assets. During the second quarter of 1998 the
Company entered into interest rate swap agreements to limit the effect of any
increases in the interest rates on its floating rate debt. The effect of these
agreements is to limit the interest rate exposure on $400 million of the
Company's floating rate debt for an average period of approximately five years.
The Company has reduced debt by approximately $310 million, excluding
acquisition debt and repurchases of common stock, from the pro forma level of
$1,561 million at December 31, 1997, assuming the acquisition of TriMas had
occurred on December 31, 1997. This reduction was the result of the liquidation
of financial assets, operating performance and receipt of the contingent
consideration from the sale of the Company's stamping business. Additional
borrowings available under the Company's new revolving credit agreement and
otherwise, and anticipated internal cash flows are expected to provide
sufficient liquidity to fund the Company's debt repayment requirements,
foreseeable working capital, capital expansion programs and other investment
needs. At September 30, 1998, current assets were approximately two times
current liabilities.
Year 2000
The year 2000 issue is the result of computer programs having been written
using two digits, rather than four, to define the applicable year. Any of the
Company's computers, computer programs, manufacturing and administration
equipment that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. If any of the Company's systems or
equipment that have date-sensitive software use only two digits, system failures
or miscalculations may result causing disruptions of operations, including,
among other things, a temporary inability to process transactions or send and
receive electronic data with third parties or engage in similar business
activities.
10
<PAGE>
MASCOTECH, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
As a key supplier to the automotive industry, the Company's major exposure
for Year 2000 problems is the effect of shutting down production at one of its
automotive customer's manufacturing facilities. While lost revenues from such
an event are a concern for the Company, the greater risks are the consequential
damages for which the Company could be liable if it in fact is found responsible
for the shutdown of one of its customer's manufacturing facilities. Such a
finding could have a material adverse impact on the Company's results of
operations.
The most likely way in which the Company would shut down production at an
automotive customer's facility is by being unable to supply parts to that
customer. The parts supplied by the Company, in most instances, are integral
components of the end products produced by customers, and the inability to
provide parts may render the customer unable to manufacture and sell its
products. Disruptions in the Company's computer systems and applications could
prevent the Company from being able to manufacture and ship its parts. Examples
are failures in the Company's manufacturing application software, computer chips
embedded in manufacturing equipment and lack of supply of materials from its
suppliers. The Company's parts do not contain computer devices that require
remediation to meet Year 2000 requirements. A review of the Company's status
with respect to remediating its computer systems for Year 2000 compliance is
presented below.
The Company has had in place an internal review team that is addressing
the Year 2000 issues that encompasses operating and administrative areas of the
Company. In addition, the Company has engaged professional consultants to
assist Company personnel to identify significant Year 2000 issues in a timely
manner. Also, executive management and the Board of Directors regularly
monitors the status of the Company's Year 2000 remediation plans. The process
includes an assessment of issues and development of remediation plans, where
necessary, as they relate to internally used software, computer hardware and the
use of computer applications in the Company's manufacturing processes.
For its information technology, the Company currently utilizes a mid-
range, non-mainframe based computing environment which is complemented by a
series of local-area networks ("LANs") that are connected via a wide-area
network ("WAN"). Substantially all operating systems related to the mid-range
systems, LANs and WAN have been updated to comply with Year 2000 requirements.
In addition, upgraded and modified versions of the Company's financial,
manufacturing, human resource, and other packaged software applications which
are Year 2000 ready are in the process of being integrated into the Company's
overall system. The Company presently expects that this integration will be
substantially completed in the next several months.
The Company utilizes non-mainframe computers and software in its various
production processes throughout the world. In several locations it has retained
outside consultants to assist it in identifying potential Year 2000 issues in
those processes, and evaluating the readiness of the computer systems used in
those processes. General findings to date have identified minimal changes that
need to be made to these systems. Problems generally relate to old personal
computers or memory chips which are being replaced.
Although there can be no assurance that the Company will identify and
correct every Year 2000 issue found in the computer applications used in its
production processes, the Company believes that it has in place a comprehensive
program to identify and correct any such issues, and expects to have
substantially completed the remediation of its production systems in early
1999. At the present time, the Company does not believe that it requires a
contingency plan with respect to its information technology and production
processes, and has therefore not developed one.
11
<PAGE>
MASCOTECH, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(concluded)
The Company is also reviewing its building and utility systems (heat,
light, phones, etc.) for Year 2000 impact. Many of these systems are Year 2000
ready. While the Company is working diligently with all of its utility
suppliers and has no reason to expect that they will not meet their required
Year 2000 compliance targets, there can be no assurance that these suppliers
will in fact meet the Company's requirements. The failure of any such supplier
to fully remediate its systems for Year 2000 compliance could cause a disruption
of one or more of the Company's plants, which could impact the Company's ability
to meet its obligations to supply products to its customers.
The Company has also commenced a program to determine the Year 2000
compliance efforts of its equipment and material suppliers. The Company has
sent comprehensive questionnaires to all of its significant suppliers regarding
their Year 2000 compliance and is attempting to identify any problem areas with
respect to them. The Company has been working with its key suppliers including
its steel suppliers to ensure that it will receive key components without
disruption. This program will be ongoing and the Company's efforts with respect
to specific issues identified will depend in part upon its assessment of the
risk that any such issues may have a material adverse impact on its operations.
Unfortunately, the Company cannot control the conduct of its suppliers,
and therefore cannot guarantee that Year 2000 problems originating with a
supplier will not occur. The Company has not yet developed contingency plans in
the event of a Year 2000 failure caused by a supplier or third party, but would
intend to do so if a specific problem is identified through the programs
described above. In some cases, especially with respect to its utility vendors,
alternative suppliers may not be available.
As a key supplier in the auto industry, the Company takes an active role
in many industry-sponsored organizations, including the Automotive Industry
Action Group ("AIAG"). The AIAG has been proactive in working with OEMs and
suppliers to ensure that the industry as a whole addresses the Year 2000
problem. Tools to assist in achieving compliance include standardized
questionnaires, regular meetings of members, follow-up by AIAG personnel
regarding answers to questionnaires, etc. The Company continues to work with
such industry groups to ensure compliance.
The information presented above sets forth the key steps the Company is
taking to address the Year 2000 issue. The cost of Year 2000 compliance for the
Company is expected to approximate $11-$15 million, including: replacement costs
of $6-$8 million which are normal and recurring; upgrades of $2-$3 million which
are normal and recurring; repair/programming costs of $2-$3 million and other
costs of $1 million, will not be material to the Company's consolidated results
of operations and financial position. The majority of the replacement and
upgrade costs would have been incurred by the Company over time as part of its
regular information system replacement process.
Forward-Looking Statements
Statements in this quarterly report on Form 10-Q, which are not historical
facts are forward looking statements that involve certain risks and uncertainty,
including but not limited to, risks associated with the uncertainty of future
financial results, conditions within the markets in which the Company competes,
labor relations of the Company and certain of its customers and other
uncertainties detailed in the Company's filings with the Securities and Exchange
Commission.
12
<PAGE>
PART II. OTHER INFORMATION
MASCOTECH, INC.
Items 1, 3, 4 and 5 are not applicable.
Item 2. Changes in Securities
(a) Not applicable.
(b) Not applicable.
(c) During the third quarter of 1998 the Company issued 1,006,974
shares of common stock in connection with the acquisition of
K-Tech Mfg. Inc., a U.S. manufacturer of industrial
fasteners. The shares were issued to the shareholders of
K-Tech Mfg. Inc., in a transaction that did not involve a
public offering and the issuance was therefore exempt
under Section 4(2) of the Securities Act.
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 4 Amendment No. 1 dated as of September 22, 1998
to the Rights Agreement.
Exhibit 12 Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
13
<PAGE>
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.
MASCOTECH, INC.
(Registrant)
Date: November 13, 1998 By: /s/Timothy Wadhams
Timothy Wadhams
Executive Vice President,
Finance and Administration
(Principal financial officer
and authorized signatory)
14
<PAGE>
MASCOTECH, INC.
EXHIBIT INDEX
Exhibit
Exhibit 4 Amendment No. 1 dated as of September 22,
1998 to the Rights Agreement
Exhibit 12 Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock
Dividends
Exhibit 27 Financial Data Schedule
Exhibit 4
AMENDMENT NO. 1 TO RIGHTS AGREEMENT
AMENDMENT NO. 1 dated as of September 22, 1998 to
the Rights Agreement dated as of February 20, 1998 (the
"Rights Agreement") between MascoTech, Inc., a Delaware
corporation (the "Company"), and The Bank of New York, as
Rights Agent (the "Rights Agent").
W I T N E S S E T H
WHEREAS, the parties hereto desire to amend the
Rights Agreement in certain respects;
NOW, THEREFORE, the parties hereto agree as
follows:
Section 1. Defined Terms; References. (a)
Unless otherwise specifically defined herein, each term
used herein which is defined in the Rights Agreement has
the meaning assigned to such term in the Rights
Agreement. Each reference to "hereof", "hereunder",
"herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other
similar reference contained in the Rights Agreement
shall, after this Amendment becomes effective, refer to
the Rights Agreement as amended hereby.
(b) Section 1 of the Rights Agreement is hereby
amended by deleting the definition of "Continuing
Directors" contained therein.
(c) Section 1 of the Rights Agreement is hereby
amended by deleting the word "Continuing" from subsection
(a) of the definition of "Acquiring Person".
(d) Section 1 of the Rights Agreement is hereby
amended by deleting the words ", and in accordance with,
"from subsection (b)(ii)(A) of the definition of
"Beneficial Owner".
(e) Section 1 of the Rights Agreement is hereby
amended by deleting from the definition of "Distribution
Date" both instances of the word "Continuing".
Section 2. Exercise of Rights; Expiration Date of
Rights. Section 7(d) of the Rights Agreement is hereby
amended by deleting the word "Continuing" from the first
sentence thereof.
Section 3. Adjustment of Purchase Price, Number
and Kind of Shares or Number of Rights. Section 11 of
the Rights Agreement is hereby amended by:
<PAGE>
(a) replacing the words "a majority of the
Continuing Directors has determined to be@ in the first
sentence of subsection (a)(iii) thereof with the word
"are";
(b) replacing each instance of the words "(as
determined by the Continuing Directors based upon the
advice of a nationally recognized investment banking firm
selected by the Continuing Directors)" in subsection
(a)(iii) thereof with the words "(based upon the advice
of a nationally recognized investment banking firm)";
(c) deleting the second sentence of subsection
(a)(iii) thereof;
(d) replacing the words "first and/or second
sentence of this Section 11(a)(iii)" in the third
sentence of subsection (a)(iii) thereof with the words
"preceding sentence";
(e) replacing the words "Substitution Period in
order to seek any authorization of additional shares
and/or" in the third sentence of subsection (a)(iii)
thereof with the words "30-day period set forth above in
order";
(f) replacing the words "such first and/or
second" in the third sentence of subsection (a)(iii)
thereof with the words "the preceding";
(g) deleting the words ", or, if at the time of
such selection there is an Acquiring Person, by a
majority of the Continuing Directors" from the second
sentence of subsection (d)(i) thereof;
(h) replacing the words "majority of the
Continuing Directors" in the third sentence of subsection
(d)(i) thereof with the words "nationally recognized
investment banking firm";
(i) deleting the words "by a majority of the
Continuing Directors, or, if there are no Continuing
Directors," from the fourth sentence of subsection (d)(i)
thereof;
(j) deleting the words "selected by the Board of
Directors" from the fourth sentence of subsection (d)(i)
thereof;
(k) deleting the words "by a majority of the
Continuing Directors then in office, or, if there are no
Continuing Directors," from subsection (d)(iii) thereof;
and
2
<PAGE>
(l) deleting the words "selected by the Board of
Directors" from subsection (d)(iii) thereof.
Section 4. Fractional Rights and Fractional Shares.
Section 14(a) of the Rights Agreement is hereby amended
by:
(a) deleting the words ", or, if at the time of
such selection there is an Acquiring Person, by a
majority of the Continuing Directors" from the
penultimate sentence thereof; and
(b) replacing the words "majority of the Continuing
Directors" in the last sentence thereof with
the words "nationally recognized investment banking
firm".
Section 5. Redemption. Section 23(a) of the
Rights Agreement is hereby amended by:
(a) deleting the word "Continuing" in the first
sentence thereof; and
(b) deleting the proviso from the first sentence
thereof and the semicolon immediately preceding such
proviso.
Section 6. Exchange. (a) Section 24(a) of the
Rights Agreement is hereby amended by deleting the word
"Continuing"in the first sentence thereof.
(b) Section 24(b) of the Rights Agreement is hereby
amended by replacing the word "Continuing" in the first
sentence thereof with the words "majority of the".
Section 7. Supplements and Amendments. Section 27
of the Rights Agreement is hereby amended in its entirety
to read in full as follows:
Prior to the Distribution Date, the Company may, and
the Rights Agent shall, if the Company so directs,
supplement or amend any provision of this Agreement in
any respect without the approval of any holders of
certificates representing shares of Common Stock. At any
time when the Rights are no longer redeemable, the
Company may, and the Rights Agent shall if the Company so
directs, supplement or amend this Agreement without the
approval of any holders of Right Certificates in order to
cure any ambiguity or correct or supplement any provision
contained herein which may be defective or inconsistent
with any other provisions herein; provided that no such
supplement or amendment may (a) adversely affect the
interests of the holders of Rights as such (other than an
Acquiring Person or an Affiliate or Associate of an
Acquiring Person), (b) cause
3
<PAGE>
this Agreement again to become amendable other than in
accordance with this sentence, or (c) cause the Rights
again to become redeemable. Upon the delivery of a
certificate from an appropriate officer of the Company
which states that the proposed supplement or amendment is
in compliance with the terms of this Section, the Rights
Agent shall execute such supplement or amendment. Prior
to the Distribution Date, the interests of the holders of
Rights shall be deemed coincident with the interests of
the holders of Common Stock.
Section 8. Determination and Actions by the Board
of Directors, Etc . Section 29 of the Rights Agreement
is hereby amended by:
(a) deleting the first parenthetical from the
second sentence thereof; and
(b) deleting the second parenthetical clause and the
words "or the Continuing Directors" from the last
sentence thereof.
Section 9. Severability. Section 31 of the
Rights Agreement is hereby amended by deleting the
proviso contained therein and the semicolon that
immediately precedes such proviso.
Section 10. Form of Right Certificate. Exhibit B
to the Rights Agreement is hereby amended by deleting the
word "Continuing" in subparagraph (a) of the seventh
paragraph thereof.
Section 11. Summary of Terms. Exhibit C to the
Rights Agreement is hereby amended by:
(a) deleting the words "Continuing" from the
first footnote thereof;
(b) deleting the second footnote thereof;
(c) deleting the word "Continuing" under the
heading "Exchange";
(d) deleting both instances of the word
"Continuing" under the heading "Redemption".
(e) restating the language under the heading
"Amendments" in its entirety to read in full as follows:
Prior to the Distribution Date, the Rights
Agreement may be amended in any respect.
4
<PAGE>
After the Distribution Date, the Rights Agreement
may be amended by the Board of Directors in any respect
that does not (i) adversely affect the Rights holders
(other than any Acquiring Person and certain affiliated
persons), (ii) cause the Rights Agreement again to become
amendable other than in accordance with this paragraph or
(iii) cause the Rights again to become redeemable.
Section 12. Governing Law. This Amendment shall be
governed by and construed in accordance with the laws of
the State of Delaware without regard to any applicable
conflicts of law rules, except that the rights and
obligations of the Rights Agent shall be governed by the
laws of the State of New York.
Section 13. Counterparts. This Amendment may be
signed in any number of counterparts, each of which shall
be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
Section 14. Effectiveness. This Amendment shall
become effective upon execution by each of the parties
hereto of a counterpart hereof.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed as of the date first
above written.
MASCOTECH, INC.
By: /s/Richard A. Manoogian
Name: Richard A. Manoogian
Title: Chairman
THE BANK OF NEW YORK
By: /s/John Sivertsen
Name: John Sivertsen
Title: Vice President
6
Exhibit 12
MASCOTECH, INC.
Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends
(Dollars in thousands)
<TABLE>
9 Months
Ended
Sep. 30, For The Years Ended December 31
1998 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C>
Earnings (Loss) Before Income
Taxes and Fixed Charges:
Income (loss) from continuing
operations before income
taxes (credit),
extraordinary item and
cumulative effect of
accounting change, net..... $113,920 $190,290 $ 77,220 $100,280 $(264,490) $121,180
Deduct equity in
undistributed earnings
of less-than-fifty-
percent owned companies.... (5,840) (46,030) (31,650) (29,590) (23,350) (19,930)
Add interest on
indebtedness, net.......... 60,970 36,650 30,350 51,500 51,290 83,000
Add amortization of debt
expense.................... 2,520 900 1,490 1,670 3,450 4,390
Estimated interest factor
for rentals................ 2,880 2,100 6,350 7,070 6,220 5,550
Earnings (loss) before income
taxes and fixed charges.... $174,450 $183,910 $ 83,760 $130,930 $(226,880) $194,190
Fixed Charges:
Interest on indebtedness,
net........................ $ 61,080 $ 36,770 $ 30,590 $ 51,690 $ 51,540 $ 83,110
Amortization of debt
expense.................... 2,520 900 1,490 1,670 3,450 4,390
Estimated interest factor
for rentals................ 2,880 2,100 6,350 7,070 6,220 5,550
Total fixed charges...... 66,480 39,770 38,430 60,430 61,210 93,050
Preferred stock dividend
requirement (a)............ --- 10,300 21,570 21,970 14,630 25,860
Combined fixed charges and
preferred stock dividends.. $ 66,480 $ 50,070 $ 60,000 $ 82,400 $ 75,840 $118,910
Ratio of earnings to
fixed charges................ 2.6 4.6 2.2 2.2 -- (b) 2.1
Ratio of earnings to combined
fixed charges and preferred
stock dividends.............. 2.6 3.7 1.4 1.6 -- (c) 1.6
</TABLE>
(a) Represents amount of income before provision for income taxes required to
meet the preferred stock dividend requirements of the Company and its 50%
owned companies.
(b) 1994 results of operations are inadequate to cover fixed charges by
$288,090.
(c) 1994 results of operations are inadequate to cover combined fixed charges
and preferred stock dividends by $302,720.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER
30, 1998 MASCOTECH, INC. 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 29,020
<SECURITIES> 2,540
<RECEIVABLES> 224,380
<ALLOWANCES> 0
<INVENTORY> 187,050
<CURRENT-ASSETS> 487,360
<PP&E> 976,185
<DEPRECIATION> 304,165
<TOTAL-ASSETS> 2,051,880
<CURRENT-LIABILITIES> 275,610
<BONDS> 1,325,150
0
0
<COMMON> 47,460
<OTHER-SE> 219,160
<TOTAL-LIABILITY-AND-EQUITY> 2,051,880
<SALES> 1,233,740
<TOTAL-REVENUES> 1,233,740
<CGS> 912,130
<TOTAL-COSTS> 912,130
<OTHER-EXPENSES> 15,580
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60,820
<INCOME-PRETAX> 113,920
<INCOME-TAX> 34,570
<INCOME-CONTINUING> 79,350
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79,350
<EPS-PRIMARY> 1.80
<EPS-DILUTED> 1.47
</TABLE>
