-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LAloVSVb4uAy1tFkoGSoL5Wavh9RTGNZ+QMqaU47v9wEz4Y9ybGn+3g6dER1iUCu h3HjnBz4lpP5SwRXvnypvA== 0000745448-98-000022.txt : 19981116 0000745448-98-000022.hdr.sgml : 19981116 ACCESSION NUMBER: 0000745448-98-000022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MASCOTECH INC CENTRAL INDEX KEY: 0000745448 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 382513957 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12068 FILM NUMBER: 98747909 BUSINESS ADDRESS: STREET 1: 21001 VAN BORN RD CITY: TAYLOR STATE: MI ZIP: 48180 BUSINESS PHONE: 3132747405 MAIL ADDRESS: STREET 1: 21001 VAN BORN ROAD CITY: TAYLOR STATE: MI ZIP: 48180 FORMER COMPANY: FORMER CONFORMED NAME: MASCO INDUSTRIES INC DATE OF NAME CHANGE: 19930629 10-Q 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 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 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 PART I. FINANCIAL INFORMATION Item 1. Financial Statements MASCOTECH, INC. CONSOLIDATED CONDENSED BALANCE SHEET September 30, 1998 and December 31, 1997 (Dollars in thousands) September 30, December 31, ASSETS 1998 1997 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
The accompanying notes are an integral part of the consolidated condensed financial statements. 1 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) Three Months Ended Nine Months Ended September 30 September 30 1998 1997 1998 1997 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
The accompanying notes are an integral part of the consolidated condensed financial statements. 2 MASCOTECH, INC. CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS For the Nine Months Ended September 30, 1998 and 1997 (Dollars in thousands) Nine Months Ended September 30 1998 1997 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
The accompanying notes are an integral part of the consolidated condensed financial statements. 3 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 Net sales $1,269,690 $1,204,170 Net income $ 78,980 $ 89,238 Diluted earnings per share $1.46 $1.63
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 MASCOTECH, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (continued) D. Inventories by component are as follows (in thousands): September 30 December 31, 1998 1997 Finished goods $ 85,540 $ 22,160 Work in process 43,440 22,990 Raw materials 58,070 28,710 $187,050 $ 73,860
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 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: Three Months Ended Nine Months Ended September 30 September 30 1998 1997 1998 1997 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
6 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: Three Months Ended Nine Months Ended September 30 September 30 1998 1997 1998 1997 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
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 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 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 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 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 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 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 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 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 EX-4 2 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: (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 (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 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 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 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 EX-12 3 Exhibit 12 MASCOTECH, INC. Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends (Dollars in thousands) 9 Months Ended Sep. 30, For The Years Ended December 31 1998 1997 1996 1995 1994 1993 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
(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. EX-27 4
5 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. 1,000 9-MOS DEC-31-1998 SEP-30-1998 29,020 2,540 224,380 0 187,050 487,360 976,185 304,165 2,051,880 275,610 1,325,150 0 0 47,460 219,160 2,051,880 1,233,740 1,233,740 912,130 912,130 15,580 0 60,820 113,920 34,570 79,350 0 0 0 79,350 1.80 1.47
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