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 March 31, 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 April 30, 1998
Common stock, par value $1 per share 47,276,000
<PAGE>
MASCOTECH, INC.
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheet -
March 31, 1998 and December 31, 1997 1
Consolidated Condensed Statement of Income
for the Three Months Ended
March 31, 1998 and 1997 2
Consolidated Condensed Statement of
Cash Flows for the Three Months
Ended March 31, 1998 and 1997 3
Notes to Consolidated Condensed Financial
Statements 4-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7
Part II. Other Information and Signature 8-9
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MASCOTECH, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
March 31, 1998 and December 31, 1997
(Dollars in thousands)
<TABLE>
March 31, December 31,
ASSETS 1998 1997
<S> <C> <C>
Current assets:
Cash and cash investments $ 76,740 $ 41,110
Marketable securities 18,630 45,970
Receivables 241,800 125,930
Inventories 177,290 73,860
Deferred and refundable income taxes 30,030 36,270
Prepaid expenses and other assets 15,650 13,310
Total current assets 560,140 336,450
Equity and other investments in affiliates 85,810 263,300
Property and equipment, net 716,380 417,030
Excess of cost over net assets of acquired
companies 658,110 65,610
Notes receivable and other assets 81,030 62,290
Total assets $2,101,470 $1,144,680
LIABILITIES
Current liabilities:
Accounts payable $ 116,110 $ 70,120
Accrued liabilities 156,560 114,650
Total current liabilities 272,670 184,770
Convertible subordinated debentures 310,000 310,000
Other long-term debt 1,082,310 282,000
Deferred income taxes and other long-term
liabilities 194,000 157,250
Total liabilities 1,858,980 934,020
SHAREHOLDERS' EQUITY
Common stock, $1 par:
Authorized: 250 million;
Outstanding: 47.3 million 47,330 47,250
Paid-in capital 41,490 41,060
Retained earnings 190,550 157,790
Accumulated other comprehensive income (4,610) (2,560)
Less: Restricted stock awards (32,270) (32,880)
Total shareholders' equity 242,490 210,660
Total liabilities and
shareholders' equity $2,101,470 $1,144,680
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
1
<PAGE>
MASCOTECH, INC.
CONSOLIDATED CONDENSED STATEMENT OF INCOME
For the Three Months Ended March 31, 1998 and 1997
(Dollars in thousands except per share amounts)
<TABLE>
Three Months Ended March 31
1998 1997
<S> <C> <C>
Net sales $ 400,760 $ 233,440
Cost of sales (296,370) (177,140)
Selling, general and
administrative expenses (45,560) (22,710)
Operating profit 58,830 33,590
Other income (expense), net:
Interest expense, Masco Corporation --- (2,470)
Other interest expense (18,610) (7,240)
Equity and interest income
from affiliates 2,100 11,260
Gain from change in investment of
an equity affiliate --- 13,210
Deferred gain recognized from
disposition of business 7,000 ---
Other income, net 5,700 5,730
(3,810) 20,490
Income before income taxes 55,020 54,080
Income taxes 22,280 21,420
Net income $ 32,740 $ 32,660
Preferred stock dividends --- $ 3,240
Earnings attributable to
common stock $ 32,740 $ 29,420
Basic earnings per share $ .74 $ .83
Diluted earnings per share $ .60 $ .59
Cash dividends declared per share -- $ .05
Cash dividends paid per share $ .06 $ .05
</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 Three Months Ended March 31, 1998 and 1997
(Dollars in thousands)
<TABLE>
Three Months Ended
March 31
1998 1997
<S> <C> <C>
CASH FROM (USED FOR):
OPERATIONS:
Net cash from earnings $ 44,900 $ 14,870
(Increase) in inventories (4,380) (1,420)
(Increase) in receivables (34,040) (4,000)
Increase in accounts payable and
accrued liabilities 29,160 16,950
Decrease (increase) in marketable
securities, net 27,340 (6,920)
Other, net (880) (3,290)
Net cash from operating activities 62,100 16,190
FINANCING:
Payment of debt (284,450) (61,590)
Increase in debt 1,040,000 ---
Payment of preferred stock dividends --- (3,240)
Payment of common stock dividends (2,810) (1,880)
Other, net 200 1,770
Net cash from (used for) financing
activities 752,940 (64,940)
INVESTMENTS:
Capital expenditures (24,830) (8,300)
Cash from sale of businesses, net --- 76,560
Acquisition of businesses, net of cash
acquired (820,260) (11,100)
Proceeds from redemptions of debt by
affiliates 56,900 ---
Advances to affiliate --- (7,700)
Other, net 8,780 (3,770)
Net cash (used for) from investing
activities (779,410) 45,690
CASH AND CASH INVESTMENTS:
Increase (decrease) for the three months 35,630 (3,060)
At January 1 41,110 19,400
At March 31 $ 76,740 $ 16,340
Supplemental Cash Flow Information:
Net cash paid during the period for:
Interest $ 14,340 $ 5,970
Income taxes $ 4,190 $ 2,660
</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 March 31, 1998 and the results of operations and cash flows
for the three months ended March 31, 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 the first quarter of 1998 reflect TriMas sales and
operating results from the date of acquisition. The consolidated
condensed financial statements reflect a tentative purchase price
allocation which will be adjusted upon the completion of on-going
valuations.
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).
<TABLE>
Three Months Ended March 31
1998 1997
<S> <C> <C>
Net sales $436,710 $397,660
Net income $ 32,420 $ 22,640
Diluted earnings per share $.60 $.42
</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.
D. Inventories by component are as follows (in thousands):
<TABLE>
March 31, December 31,
1998 1997
<S> <C> <C>
Finished goods $ 76,570 $ 22,160
Work in process 41,730 22,990
Raw materials 58,990 28,710
$177,290 $ 73,860
</TABLE>
E. Property and equipment, net reflects accumulated depreciation of $271
million and $265 million as at March 31, 1998 and December 31, 1997,
respectively.
4
<PAGE>
MASCOTECH, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(continued)
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
resulting from the partial recognition of a deferred gain that was
deferred at the time of the sale pending the receipt of cash.
G. 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
March 31,
1998 1997
<S> <C> <C>
Net income $32,740 $32,660
Other comprehensive loss (2,050) (7,120)
Total comprehensive income $30,690 $25,540
</TABLE>
5
<PAGE>
MASCOTECH, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(concluded)
H. The following are reconciliations of the numerators and denominators used
in the computations of basic and diluted earnings per share:
<TABLE>
Three Months Ended March 31
1998 1997
<S> <C> <C>
Weighted average number of shares
outstanding 44,270 35,450
Income $ 32,740 $ 32,660
Less preferred stock dividends --- 3,240
Earnings used for basic earnings per
share computation $ 32,740 $ 29,420
Basic earnings per share $ 0.74 $ 0.83
Total shares used for basic earnings
per share computation 44,270 35,450
Dilutive securities:
Stock options and warrants 1,210 1,270
Assumed conversion of preferred stock
at January 1, 1997 --- 10,800
Convertible debentures 10,000 10,000
Contingently issuable shares 3,000 2,020
Total shares used for diluted
earnings per share computation 58,480 59,540
Earnings used for basic earnings per
share computation $ 32,740 $ 29,420
Add back of preferred stock dividends --- 3,240
Add back of debenture interest 2,380 2,380
Earnings used for diluted
earnings per share computation $ 35,120 $ 35,040
Diluted earnings per share $ 0.60 $ 0.59
</TABLE>
Diluted earnings per share reflect the potential dilution that would occur
if securities or other contracts to issue common stock were exercised or
converted into common stock.
6
<PAGE>
MASCOTECH, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MascoTech sales for the first quarter 1998, aided by the previously
announced acquisition of TriMas Corporation which was completed on January 22,
1998 for approximately $920 million, increased 72 percent to $401 million from
$233 million in 1997. Income in the first quarter of 1998 was $32.7 million or
$.60 per common share, compared with $29.4 million or $.59 per common share
after preferred dividends in 1997. The results for the first quarter of 1998
reflect TriMas sales and results of operations from the date of acquisition.
The Company previously owned 37 percent of TriMas.
Results for first quarter 1998 benefitted from pre-tax gains aggregating
approximately $12 million which resulted from partial recognition of a deferred
gain related to the 1997 divestiture of a business and gains from the Company's
marketable securities portfolio. These gains were more than offset by increased
interest expense resulting from increased indebtedness related to the TriMas
acquisition, and lower affiliate income as compared to 1997. Results for 1997
benefitted from pre-tax gains aggregating approximately $18 million as a result
of an equity transaction by an affiliate of the Company and gains from the
Company's marketable securities portfolio.
Assuming that the MascoTech and TriMas results were consolidated for the
entire first quarters of 1998 and 1997, pro forma sales would have increased
approximately 10 percent to $437 million as compared with $398 million for first
quarter 1997. Sales benefitted from increased light truck production, increased
sales in Europe, increased demand for aerospace and large diameter industrial
fasteners and from the mild spring weather which positively impacted sales for
the Company's towing systems product group. In addition, the Company's
aftermarket, corporate companies and specialty container product groups had
modest sales increases.
Operating profit on a pro forma basis for first quarter 1998 would have
increased approximately 12 percent to $63 million as compared with $56 million
for first quarter 1997. Earnings per share, excluding unusual income and
expenses, on a pro forma basis for first quarter 1998 and 1997 would have been
$.48 and $.40, respectively. Operating margins, before general corporate
expense and the additional amortization and depreciation expense related to the
TriMas acquisition, approximated 17 percent in both the first quarters of 1998
and 1997. Operating margins for the Company's specialty fastener product group
improved due to increased sales volume which offset modest operating margin
declines for the Company's metalworking and aftermarket product groups.
Metalworking product group margins were negatively impacted by a previously
announced work stoppage at one of the Company's manufacturing facilities and
higher than anticipated product start-up costs related to the Company's
hydroforming process. Operating margins for the Company's aftermarket product
group were negatively impacted by soft economic conditions impacting certain
products.
The Company paid a cash dividend of $.06 per common share in the first
quarter of 1998 and the Board of Directors declared a dividend of $.06 per share
on April 2, 1998 payable on May 11, 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. 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 March 31, 1998, current
assets were approximately two times current liabilities.
7
<PAGE>
PART II. OTHER INFORMATION
MASCOTECH, INC.
Items 1 through 5 are not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
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:
1. A Current Report on Form 8-K dated January 30, 1998 was filed by
MascoTech, Inc. during the quarter ended March 31, 1998 reporting
under Item 2. "Acquisition or Disposition of Assets," the
completion of the tender offer for shares of TriMas Corporation.
2. A Current Report on Form 8-K dated February 23, 1998 was filed by
MascoTech, Inc. during the quarter ended March 31, 1998 reporting
under Item 5, "Other Events," the Company's declaration of a
dividend of one preferred stock purchase right (a "Right") for each
outstanding share of common stock of the Company payable to holders
of record on February 27, 1998. The Rights become exercisable upon
certain events set forth in the Rights Agreement dated as of
February 20, 1998 between the Company and The Bank of New York, as
Rights Agent. The Rights have certain anti-takeover effects and may
cause substantial dilution to a person that attempts to acquire the
Company without a condition to such an offer that a substantial
number of the Rights be acquired or that the Rights be redeemed or
declared invalid.
3. A Current Report on Form 8-K/A dated April 6, 1998 was filed by
MascoTech, Inc. reporting under Item 2. "Acquisition or Disposition
of Assets," to include the required financial information relating
to the acquisition of TriMas which was not available at the time of
the initial filing on Form 8-K.
8
<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: May 14, 1998 By: /s/Timothy Wadhams
Timothy Wadhams
Senior Vice President and
Chief Financial Officer
(Chief accounting officer
and authorized signatory)
9
<PAGE>
MASCOTECH, INC.
EXHIBIT INDEX
Exhibit Sequential
Page No.
Exhibit 12 Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock
Dividends 11
Exhibit 27 Financial Data Schedule 12
Exhibit 12
MASCOTECH, INC.
Computation of Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends
(Dollars in thousands)
<TABLE>
3 Months
Ended
March 31, 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..... $ 55,020 $190,290 $ 77,220 $100,280 $(264,490) $121,180
Deduct equity in
undistributed earnings
of less-than-fifty-
percent owned companies.... (920) (46,030) (31,650) (29,590) (23,350) (19,930)
Add interest on
indebtedness, net.......... 18,690 36,650 30,350 51,500 51,290 83,000
Add amortization of debt
expense.................... 970 900 1,490 1,670 3,450 4,390
Estimated interest factor
for rentals................ 1,150 2,100 6,350 7,070 6,220 5,550
Earnings (loss) before income
taxes and fixed charges.... $ 74,910 $183,910 $ 83,760 $130,930 $(226,880) $194,190
Fixed Charges:
Interest on indebtedness,
net........................ $ 18,700 $ 36,770 $ 30,590 $ 51,690 $ 51,540 $ 83,110
Amortization of debt
expense.................... 970 900 1,490 1,670 3,450 4,390
Estimated interest factor
for rentals................ 1,150 2,100 6,350 7,070 6,220 5,550
Total fixed charges...... 20,820 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.. $ 20,820 $ 50,070 $ 60,000 $ 82,400 $ 75,840 $118,910
Ratio of earnings to
fixed charges................ 3.6 4.6 2.2 2.2 -- (b) 2.1
Ratio of earnings to combined
fixed charges and preferred
stock dividends.............. 3.6 3.7 1.4 1.6 -- (c) 1.6
(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>
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31,
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 76,740
<SECURITIES> 18,630
<RECEIVABLES> 241,800
<ALLOWANCES> 0
<INVENTORY> 177,290
<CURRENT-ASSETS> 560,140
<PP&E> 987,000
<DEPRECIATION> (270,620)
<TOTAL-ASSETS> 2,101,470
<CURRENT-LIABILITIES> 272,670
<BONDS> 1,392,310
0
0
<COMMON> 47,330
<OTHER-SE> 195,160
<TOTAL-LIABILITY-AND-EQUITY> 2,101,470
<SALES> 400,760
<TOTAL-REVENUES> 400,760
<CGS> 296,370
<TOTAL-COSTS> 296,370
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,610
<INCOME-PRETAX> 55,020
<INCOME-TAX> 22,280
<INCOME-CONTINUING> 32,740
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,740
<EPS-PRIMARY> .74
<EPS-DILUTED> .60
</TABLE>
