<PAGE> 1
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 JUNE 30, 1999
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 JULY 31, 1999
----- ---------------------
COMMON STOCK, PAR VALUE $1 PER SHARE 44,670,000
<PAGE> 2
MASCOTECH, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheet -
June 30, 1999 and December 31, 1998 1
Consolidated Condensed Statements of Income
for the Three and Six Months Ended
June 30, 1999 and 1998 2
Consolidated Condensed Statement of
Cash Flows for the Six Months
Ended June 30, 1999 and 1998 3
Notes to Consolidated Condensed Financial
Statements 4-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-11
Part II. Other Information and Signature 12-13
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MASCOTECH, INC.
CONSOLIDATED CONDENSED BALANCE SHEET
JUNE 30, 1999 AND DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 1999 1998
------ ---------- ------------
<S> <C> <C>
Current assets:
Cash and cash investments $ 33,990 $ 29,390
Receivables 247,020 223,340
Inventories 168,580 198,350
Deferred and refundable income taxes 25,290 26,590
Prepaid expenses and other assets 16,110 23,710
---------- ----------
Total current assets 490,990 501,380
Equity and other investments in affiliates 98,940 93,560
Property and equipment, net 661,190 678,130
Excess of cost over net assets of acquired
companies 736,910 764,220
Notes receivable and other assets 46,220 53,250
---------- ----------
Total assets $2,034,250 $2,090,540
========== ==========
LIABILITIES
Current liabilities:
Accounts payable $ 106,870 $ 114,830
Accrued liabilities 147,220 135,230
---------- ----------
Total current liabilities 254,090 250,060
Convertible subordinated debentures 305,000 310,000
Long-term debt 1,009,070 1,078,240
Deferred income taxes and other long-term
liabilities 202,490 198,360
---------- ----------
Total liabilities 1,770,650 1,836,660
---------- ----------
SHAREHOLDERS' EQUITY
Preferred stock, $1 par:
Authorized: 25 million;
Outstanding: None --- ---
Common stock, $1 par:
Authorized: 250 million;
Outstanding: 44.8 million and 45.8 million 44,780 45,780
Paid-in capital 1,730 16,820
Retained earnings 289,530 245,860
Accumulated other comprehensive loss (21,150) (7,460)
Less: Restricted stock awards (51,290) (47,120)
---------- ----------
Total shareholders' equity 263,600 253,880
---------- ----------
Total liabilities and
shareholders' equity $2,034,250 $2,090,540
========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
1
<PAGE> 4
MASCOTECH, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 436,510 $ 433,480 $ 885,170 $ 834,240
Cost of sales (322,820) (316,410) (655,460) (612,780)
Selling, general and
administrative expenses (55,250) (54,370) (112,400) (99,930)
Gain (charge) for disposition of
businesses, net 16,540 (15,580) 26,550 (15,580)
Charge for asset impairment (17,510) --- (17,510) ---
--------- --------- --------- ---------
Operating profit 57,470 47,120 126,350 105,950
--------- --------- --------- ---------
Other income (expense), net:
Interest expense (19,610) (20,780) (39,830) (39,390)
Equity and interest income
from affiliates, net 3,800 4,020 5,530 6,120
Loss from change in investment
of an equity affiliate (3,150) --- (3,150) ---
Deferred gain recognized from
disposition of business --- --- --- 7,000
Other, net 170 240 (3,480) 5,940
--------- --------- --------- ---------
(18,790) (16,520) (40,930) (20,330)
--------- --------- --------- ---------
Income before income taxes 38,680 30,600 85,420 85,620
Income taxes 12,570 780 35,450 23,060
--------- --------- --------- ---------
Net income $ 26,110 $ 29,820 $ 49,970 $ 62,560
========= ========= ========= =========
Basic earnings per share $ .64 $ .68 $1.21 $1.42
===== ===== ===== =====
Diluted earnings per share $ .51 $ .54 $ .98 $1.14
===== ===== ===== =====
Cash dividends declared per share $ .07 $ .06 $ .14 $ .06
===== ===== ===== =====
Cash dividends paid per share $ .07 $ .06 $ .14 $ .12
===== ===== ===== =====
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
2
<PAGE> 5
MASCOTECH, INC.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-----------------
1999 1998
---- ----
<S> <C> <C>
CASH FROM (USED FOR):
OPERATIONS:
Net cash from earnings $ 102,520 $ 106,300
(Increase) decrease in inventories 10,980 (2,630)
(Increase) decrease in receivables (38,830) (22,940)
Increase (decrease) in accounts payable
and accrued liabilities 2,250 12,870
Decrease in marketable securities, net --- 36,750
Decrease (increase) in prepaid expenses
and other current assets 8,420 (10)
Other, net (4,040) (1,210)
---------- ----------
Net cash from operating activities 81,300 129,130
---------- ----------
FINANCING:
Payment of debt (79,000) (397,470)
Increase in debt 4,260 1,063,550
Payment of common stock dividends (6,300) (5,650)
Retirement of Company common stock (16,280) ---
Other, net (6,720) (17,280)
---------- ----------
Net cash from (used for) financing
activities (104,040) 643,150
---------- ----------
INVESTMENTS:
Capital expenditures (72,330) (49,790)
Cash received from sale of businesses, net 90,470 25,020
Acquisition of businesses, net of
cash acquired --- (840,990)
Proceeds from redemptions of debt
by affiliates --- 80,500
Other, net 9,200 2,500
---------- ----------
Net cash from (used for) investing
activities 27,340 (782,760)
---------- ----------
CASH AND CASH INVESTMENTS:
Increase (decrease) for the six months 4,600 (10,480)
At January 1 29,390 41,110
---------- ----------
At June 30 $ 33,990 $ 30,630
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash paid during the period for:
Interest $ 40,450 $ 36,600
========== ==========
Income taxes $ 14,050 $ 19,600
========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
3
<PAGE> 6
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 June 30, 1999 and the results of operations for the three and six
months ended June 30, 1999 and 1998 and cash flows for the six months ended
June 30, 1999 and 1998. The results for first six months of 1998 include
TriMas sales and operating results from date of acquisition. Certain
amounts for the year ended December 31, 1998 have been reclassified to
conform to the presentation adopted in 1999.
B. Inventories by component are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- --------
<S> <C> <C>
Finished goods $ 70,520 $ 87,810
Work in process 49,810 47,960
Raw materials 48,250 62,580
-------- --------
$168,580 $198,350
======== ========
</TABLE>
C. Property and equipment, net reflects accumulated depreciation of $308
million and $313 million as at June 30, 1999 and December 31, 1998,
respectively.
D. The Company's total comprehensive income for the period was as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------ ------------------
1999 1998 1999 1998
------- ------- -------- -------
<S> <C> <C> <C> <C>
Net income $26,110 $29,820 $ 49,970 $62,560
Other comprehensive loss (2,910) (60) (13,690) (2,110)
------- ------- -------- -------
Total comprehensive income $23,200 $29,760 $ 36,280 $60,450
======= ======= ======== =======
</TABLE>
E. 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. The Company realized a pre-tax gain
of $7 million in the first quarter of 1998 resulting from the partial
recognition of a gain that was deferred at the time of the sale, pending
the receipt of cash.
F. 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, is included in the caption "charge for
disposition of businesses, net" in the income statement.
4
<PAGE> 7
MASCOTECH, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
G. 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.
In April 1999, the Company completed the sale of its aftermarket-related
and vacuum metalizing businesses for total proceeds aggregating
approximately $105 million, including $90 million of cash which was applied
to reduce the Company's indebtedness, a note receivable of $6 million and
retained equity interests in the ongoing businesses. These transactions
resulted in a pre-tax gain of approximately $26.5 million ($15.2 million
after tax), of which $10 million was recognized in the first quarter of
1999. The $10 million first quarter 1999 gain included $15.2 million ($6
million after-tax), resulting from the Company's revised estimate of the
fair market value of certain assets held for sale at March 31, 1999 and a
loss of approximately $5.2 million ($3.8 million after-tax) on a
transaction that closed in March 1999. The remaining pre-tax gain on
disposition of approximately $16.5 million ($13.0 million after-tax) was
recognized in the second quarter of 1999.
5
<PAGE> 8
MASCOTECH, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
H. Effective December 31, 1998, the Company adopted SFAS No. 131, "Disclosure
about Segments of an Enterprise and Related Information." The adoption of
SFAS No. 131 did not affect results of operations or financial position but
did affect the disclosure of segment information.
The Company purchased TriMas in January 1998 and the segment data for 1998
reflects TriMas as though the transaction had occurred on January 1, 1998,
consistent with the Company's internal management reporting.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES FROM EXTERNAL CUSTOMERS
Specialty Metal Formed Products $206,250 $192,420 $408,950 $394,050
Towing Systems 79,060 74,530 148,150 131,820
Specialty Fasteners 60,880 55,720 122,140 114,290
Specialty Packaging & Sealing Products 55,960 56,110 113,510 113,470
Specialty Industrial Products 26,150 27,890 53,610 57,100
Companies Sold or Held for Sale 8,210 26,810 38,810 59,750
-------- -------- -------- --------
Total $436,510 $433,480 $885,170 $870,480
======== ======== ======== ========
INTERSEGMENT REVENUES
Specialty Metal Formed Products $ 2,150 $ 970 $ 4,530 $ 1,970
Towing Systems 2,000 1,790 4,250 3,890
Specialty Fasteners 740 730 1,570 1,100
Specialty Packaging & Sealing Products --- --- --- ---
Specialty Industrial Products 190 190 360 430
Companies Sold or Held for Sale 230 820 930 1,580
-------- -------- -------- --------
Total $ 5,310 $ 4,500 $ 11,640 $ 8,970
======== ======== ======== ========
OPERATING PROFIT
Specialty Metal Formed Products $ 27,970 $ 28,110 $ 57,570 $ 59,460
Towing Systems 14,230 14,240 23,160 23,100
Specialty Fasteners 7,900 9,990 16,410 21,110
Specialty Packaging & Sealing Products 10,640 9,640 20,350 20,400
Specialty Industrial Products 2,470 3,690 6,610 7,870
Companies Sold or Held for Sale 750 2,640 4,390 7,060
-------- -------- -------- --------
Total $ 63,960 $ 68,310 $128,490 $139,000
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES FROM EXTERNAL CUSTOMERS
Revenues from external customers
for reportable segments $436,510 $433,480 $885,170 $870,480
TriMas sales prior to acquisition --- --- --- (36,240)
-------- -------- -------- --------
Total net sales $436,510 $433,480 $885,170 $834,240
======== ======== ======== ========
OPERATING PROFIT
Total operating profit for reportable
segments $ 63,960 $ 68,310 $128,490 $139,000
General corporate expenses (5,520) (5,610) (11,180) (12,520)
Net gain (charge) on disposition of
businesses 16,540 (15,580) 26,550 (15,580)
Charge for asset impairment (17,510) --- (17,510) ---
TriMas operating profit prior to
acquisition --- --- --- (4,950)
-------- -------- -------- --------
Total operating profit $ 57,470 $ 47,120 $126,350 $105,950
======== ======== ======== ========
</TABLE>
6
<PAGE> 9
MASCOTECH, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(CONCLUDED)
I. The following are reconciliations of the numerators and denominators used
in the computations of basic and diluted earnings per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted average number of
shares outstanding 40,890 43,760 41,170 44,010
======== ======== ======== ========
Earnings used for basic earnings
per share computation $ 26,110 $ 29,820 $ 49,970 $ 62,560
======== ======== ======== ========
Basic earnings per share $ .64 $ .68 $ 1.21 $ 1.42
======== ======== ======== ========
Total shares used for basic earnings
per share computation 40,890 43,760 41,170 44,010
Dilutive securities:
Stock options 600 1,550 570 1,380
Convertible debentures 9,840 10,000 9,840 10,000
Contingently issuable shares 3,960 4,070 3,890 3,720
-------- -------- -------- --------
Total shares used for diluted
earnings per share computation 55,290 59,380 55,470 59,110
======== ======== ======== ========
Earnings used for basic earnings
per share computation $ 26,110 $ 29,820 $ 49,970 $ 62,560
Add back of debenture interest 2,340 2,380 4,630 4,760
-------- -------- -------- --------
Earnings used for diluted
earnings per share computation $ 28,450 $ 32,200 $ 54,600 $ 67,320
======== ======== ======== ========
Diluted earnings per share $ .51 $ .54 $ .98 $ 1.14
======== ======== ======== ========
</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.
The 1999 basic earnings per share amounts for the quarters may not total to
the full year amounts due to the purchase and retirement of shares
throughout the year.
J. In second quarter 1999, an equity affiliate purchased and retired certain
of its outstanding common stock which increased the Company's equity
ownership interest in the affiliate from 29 percent to 36 percent. As a
result of the change in the Company's equity ownership interest in the
affiliate, the Company recognized a pre-tax loss of approximately $3.1
million.
K. In the second quarter 1999, the Company recorded a non-cash charge of $17.5
million related to an impairment of certain long lived assets, related to
its hydroforming equipment and intellectual property. The revised carrying
values of these assets were generally calculated based on expected future
cash flows which were determined to be insufficient to recover the related
carrying value.
7
<PAGE> 10
MASCOTECH, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MascoTech sales for the second quarter 1999 increased modestly to $437
million as compared with $433 million in 1998. Sales for the second quarter
1999, excluding the impact of the disposition of the Company's
aftermarket-related businesses and including recent acquisitions, would have
increased approximately five percent to $428 million in 1999 as compared with
$407 million in 1998.
Income in the second quarter of 1999 was $26.1 million or $.51 per common
share compared with $29.8 million or $.54 per common share in 1998. The second
quarter of 1999 benefited from a gain of approximately $16.5 million pre-tax,
related to the sale of the Company's aftermarket-related businesses. This gain,
which has a low effective tax rate, was offset by charges to reflect the
impairment in value of certain assets related to the Company's hydroforming
process, $17.5 million pre-tax, and approximately $3 million pre-tax to reflect
an equity transaction by one of the Company's affiliates.
In the second quarter 1998, the Company announced its intent to dispose of
its aftermarket-related businesses which resulted in a charge to earnings of
approximately $41 million pre-tax. Including a first quarter 1999 gain of
approximately $10 million pre-tax, the Company recovered approximately $26.5
million of the 1998 charge. The charge in 1998 offset a gain, approximately $25
million pre-tax, related to the receipt of contingent consideration in the
second quarter of 1998 which resulted from the 1996 disposition of a business.
This gain was non-taxable and is the principal reason for the lower effective
tax rate in the second quarter 1998.
Earnings per share, excluding the non-recurring income and charges
mentioned above, for second quarters 1999 and 1998 would have been $.50 for each
period.
The following information related to sales, operating profit and margins is
presented on a pro forma basis, as though MascoTech and TriMas, which was
acquired January 22, 1998, were combined for the six and three month periods
ended June 30, 1999 and 1998 and excludes the unusual pre-tax income and charges
mentioned above.
Sales for Specialty Metal Formed products increased seven percent in
the second quarter of 1999 despite continued sales declines experienced by
the Company's Tubular operations, reflecting the scheduled phase-out of
certain customer programs and by decreased sales for constant velocity
joints for aftermarket applications which continue to be negatively
impacted by softened market conditions. Excluding Tubular products sales,
Metal Formed products sales in North America increased 13 percent
reflecting new product launches and increased automotive production. Aided
by acquisitions, Specialty Fastener sales increased nine percent in the
second quarter of 1999 as compared with 1998. This segment continues to be
negatively impacted by reduced demand for aerospace, off-highway,
agricultural and certain other fastener applications. Sales of Towing
System products increased six percent in the second quarter 1999 as
compared with 1998. Second quarter 1999 sales for Specialty Packaging and
Sealing Products approximated 1998 levels as increased sales from recent
acquisitions were offset by a 23 percent decline in sales of compressed gas
cylinders principally as a result of global economic conditions and a 15
percent decline in sales of specialty gaskets and related products
principally as a result of reduced activity in the oil and gas industry.
Sales of Specialty Industrial products were down six percent in the second
quarter 1999 from 1998 levels.
8
<PAGE> 11
MASCOTECH, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
Sales for the six months ended June 30, 1999 would have increased two
percent to $885 million from $870 million in 1998. Sales for the six months
ended June 30, 1999, excluding the impact of the disposition of the
Company's aftermarket-related businesses and including recent acquisitions,
would have increased approximately four percent to $846 million in 1999 as
compared with $811 million in 1998. Operating profit after general
corporate expense for the six months ended June 30, 1999 and 1998 would
have been approximately $117 million and $126 million, respectively. For
the six month period ended June 30, 1999, sales of Specialty Metal Formed
products and Towing Systems increased four and twelve percent,
respectively, as compared with 1998. Aided by acquisitions, sales for
Specialty Fasteners increased seven percent while Specialty Packaging and
Sealing were comparable in first half 1999 as compared to 1998. Sales for
Specialty Industrial products declined six percent in first half 1999 from
1998 levels.
Operating margins approximated 13.4 percent and 14.5 percent for the
quarters ended June 30, 1999 and 1998, respectively. Although second
quarter 1999 operating margins were improved from first quarter 1999 levels
of 13.1 percent, margins continue to be negatively impacted by sales
declines for certain products including Tubular, constant velocity joint,
cylinder, certain fastener applications, and certain products impacted by
oil and gas prices. In addition, start up costs related to the launch of
new products and a new manufacturing facility also negatively impacted
operating performance.
The Company's low effective tax rate for the quarter ended June 30, 1999,
as compared with the statutory rate, is the result of the tax treatment accorded
the gain recognized in the second quarter related to the disposition of certain
businesses.
The Board of Directors declared a dividend of $.08 per common share,
payable on August 16, 1999, to shareholders of record on July 23, 1999. The
Company purchased and retired in the six month period ended June 30, 1999
approximately one million shares of Company Common Stock pursuant to an
outstanding Board of Directors authorization.
Although the Company incurred increased debt with the purchase of TriMas,
the Company's interest coverage ratio and debt to cash flow ratio 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 businesses and financial assets. Additional borrowings available under
the Company's revolving credit agreement and otherwise, and anticipated internal
cash flows, are expected to provide sufficient liquidity to fund the Company's
debt repayment requirements and foreseeable working capital, capital expansion
program and other investment needs.
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.
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.
9
<PAGE> 12
MASCOTECH, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONTINUED)
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
include failures in the Company's manufacturing application software or computer
controlled 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
Year 2000 issues that encompass 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 monitor 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
have been integrated into the Company's overall system. The Company is
substantially complete with this integration.
The Company utilizes non-mainframe computers and software in its various
production processes throughout the world. In several locations, the Company has
retained outside consultants to assist in identifying potential Year 2000 issues
in those processes, and evaluating the readiness of the computer systems used in
those processes. General findings have identified minimal changes that need to
be made to these systems. Problems generally relate to aged personal computers
or memory chips which have been substantially 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 has substantially completed
the remediation of its production systems.
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.
10
<PAGE> 13
MASCOTECH, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(CONCLUDED)
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 is developing contingency plans to mitigate external
risks that may influence its operations. 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, which 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 improvement 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.
11
<PAGE> 14
PART II. OTHER INFORMATION
MASCOTECH, INC.
Items 1, 2, 3 and 5 are not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of stockholders was held on May 18, 1999 at
which the stockholders voted upon the election of three nominees
for Class II Directors; ratification of the selection of
PricewaterhouseCoopers LLP as independent auditors for the
Company for 1999; and a shareholder proposal requiring two
candidates for each directorship to be filled at the annual
meetings. The following is a tabulation of the votes.
Election of Class II Directors
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
Peter A. Dow 38,167,877 498,544
Roger T. Fridholm 38,149,333 517,088
Frank M. Hennessey 38,178,566 487,855
</TABLE>
Approval of the appointment of PricewaterhouseCoopers LLP as
independent auditors of the Company for 1999
<TABLE>
<CAPTION>
Abstentions and
For Against Broker Non-Votes
<S> <C> <C> <C>
38,546,162 78,939 41,320
</TABLE>
Shareholder Proposal
<TABLE>
<CAPTION>
For Against Abstentions Broker Non-Votes
<S> <C> <C> <C> <C>
2,981,420 29,210,249 725,275 5,749,477
</TABLE>
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:
None.
12
<PAGE> 15
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: AUGUST 13, 1999 BY: /s/ Timothy Wadhams
----------------------------- --------------------------------------
Timothy Wadhams
Executive Vice President
Finance and Administration
(Principal financial officer
and authorized signatory)
13
<PAGE> 16
MASCOTECH, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE NO.
- ------- --------
<S> <C> <C>
Exhibit 12 Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock
Dividends 15
Exhibit 27 Financial Data Schedule 16
</TABLE>
14
<PAGE> 1
EXHIBIT 12
MASCOTECH, INC.
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND
PREFERRED STOCK DIVIDENDS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
6 MONTHS
ENDED
JUNE 30, FOR THE YEARS ENDED DECEMBER 31
-------------------------------------------------
1999 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------- --------
<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..... $ 85,420 $144,520 $190,290 $ 77,220 $100,280 $(264,490)
Deduct equity in
undistributed earnings
of less-than-fifty-
percent owned companies.... (5,430) (8,530) (46,030) (31,650) (29,590) (23,350)
Add interest on
indebtedness, net.......... 39,900 81,280 36,650 30,350 51,500 51,290
Add amortization of debt
expense.................... 1,380 3,250 900 1,490 1,670 3,450
Estimated interest factor
for rentals................ 1,620 3,620 2,100 6,350 7,070 6,220
-------- -------- ------- -------- -------- ---------
Earnings (loss) before income
taxes and fixed charges.... $122,890 $224,140 $183,910 $ 83,760 $130,930 $(226,880)
======== ======== ======== ======== ======== =========
FIXED CHARGES:
Interest on indebtedness,
net........................ $ 39,890 $ 81,740 $ 36,770 $ 30,590 $ 51,690 $ 51,540
Amortization of debt
expense.................... 1,380 3,250 900 1,490 1,670 3,450
Estimated interest factor
for rentals................ 1,620 3,620 2,100 6,350 7,070 6,220
-------- -------- -------- -------- -------- ---------
Total fixed charges...... 42,890 88,610 39,770 38,430 60,430 61,210
-------- -------- -------- -------- -------- ---------
Preferred stock dividend
requirement (a)............ --- --- 10,300 21,570 21,970 14,630
-------- -------- -------- -------- -------- ---------
Combined fixed charges and
preferred stock dividends.. $ 42,890 $ 88,610 $ 50,070 $ 60,000 $ 82,400 $ 75,840
======== ======== ======== ======== ======== =========
RATIO OF EARNINGS TO
FIXED CHARGES................ 2.9 2.5 4.6 2.2 2.2 -- (b)
=== === === === === ===
RATIO OF EARNINGS TO COMBINED
FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS.............. 2.9 2.5 3.7 1.4 1.6 -- (c)
=== === === === === ===
</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.
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from June 30,
1999 MascoTech, Inc. 10-Q and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 33,990
<SECURITIES> 0
<RECEIVABLES> 247,020
<ALLOWANCES> 0
<INVENTORY> 168,580
<CURRENT-ASSETS> 490,990
<PP&E> 969,190
<DEPRECIATION> (308,000)
<TOTAL-ASSETS> 2,034,250
<CURRENT-LIABILITIES> 254,090
<BONDS> 1,314,070
0
0
<COMMON> 44,780
<OTHER-SE> 218,820
<TOTAL-LIABILITY-AND-EQUITY> 2,034,250
<SALES> 885,170
<TOTAL-REVENUES> 885,170
<CGS> 655,460
<TOTAL-COSTS> 655,460
<OTHER-EXPENSES> (9,040)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,830
<INCOME-PRETAX> 85,420
<INCOME-TAX> 35,450
<INCOME-CONTINUING> 49,970
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,970
<EPS-BASIC> 1.21
<EPS-DILUTED> .98
</TABLE>
