-----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, UwZkiQ176sscZkuvQD62vz/ZQQZRW4R3GK7mraFEo0NZLCKA0M7CZcy40c/5fiYG 9B/KStMlcTguCYk0udWlmA== 0000950124-99-006067.txt : 19991117 0000950124-99-006067.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950124-99-006067 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99752134 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 FORM 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, 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 OCTOBER 29, 1999 - ------------------------------------ --------------------- COMMON STOCK, PAR VALUE $1 PER SHARE 44,572,000
2 MASCOTECH, INC. INDEX PAGE NO. Part I. Financial Information Item 1. Financial Statements Consolidated Condensed Balance Sheet - September 30, 1999 and December 31, 1998 1 Consolidated Condensed Statements of Income for the Three and Nine Months Ended September 30, 1999 and 1998 2 Consolidated Condensed Statement of Cash Flows for the Nine Months Ended September 30, 1999 and 1998 3 Notes to Consolidated Condensed Financial Statements 4-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-12 Part II. Other Information and Signature 13-14 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MASCOTECH, INC. CONSOLIDATED CONDENSED BALANCE SHEET SEPTEMBER 30, 1999 AND DECEMBER 31, 1998 (DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, ASSETS 1999 1998 ------ ------------- ------------ Current assets: Cash and cash investments $ 12,350 $ 29,390 Receivables 238,190 223,340 Inventories 172,900 198,350 Deferred and refundable income taxes 25,340 26,590 Prepaid expenses and other assets 18,700 23,710 ---------- ---------- Total current assets 467,480 501,380 Equity and other investments in affiliates 106,700 93,560 Property and equipment, net 712,040 678,130 Excess of cost over net assets of acquired companies 785,480 764,220 Notes receivable and other assets 40,450 53,250 ---------- ---------- Total assets $2,112,150 $2,090,540 ========== ========== LIABILITIES Current liabilities: Accounts payable $ 107,260 $ 114,830 Accrued liabilities 136,900 135,230 ---------- ---------- Total current liabilities 244,160 250,060 Convertible subordinated debentures 305,000 310,000 Long-term debt 1,069,360 1,078,240 Deferred income taxes and other long-term liabilities 200,280 198,360 ---------- ---------- Total liabilities 1,818,800 1,836,660 ---------- ---------- SHAREHOLDERS' EQUITY Preferred stock, $1 par: Authorized: 25 million; Outstanding: None --- --- Common stock, $1 par: Authorized: 250 million; Outstanding: 44.6 and 45.8 million 44,580 45,780 Paid-in capital --- 16,820 Retained earnings 304,890 245,860 Accumulated other comprehensive loss (17,040) (7,460) Less: Restricted stock awards (39,080) (47,120) ---------- ---------- Total shareholders' equity 293,350 253,880 ---------- ---------- Total liabilities and shareholders' equity $2,112,150 $2,090,540 ========== ==========
The accompanying notes are an integral part of the consolidated condensed financial statements. 1 4 MASCOTECH, INC. CONSOLIDATED CONDENSED STATEMENTS OF INCOME FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 1999 1998 1999 1998 --------- --------- ---------- ---------- Net sales $ 399,300 $ 399,500 $1,284,470 $1,233,740 Cost of sales (299,960) (299,350) (955,420) (912,130) Selling, general and administrative expenses (51,030) (51,160) (163,430) (151,090) Gain (charge) for disposition of businesses, net --- --- 26,550 (15,580) Charge for asset impairment --- --- (17,510) --- --------- --------- ---------- ---------- Operating profit 48,310 48,990 174,660 154,940 --------- --------- ---------- ---------- Other income (expense), net: Interest expense (19,320) (21,430) (59,150) (60,820) Equity and interest income from affiliates, net 5,000 3,120 10,530 9,240 Loss from change in investment of an equity affiliate --- --- (3,150) --- Deferred gain recognized from disposition of business --- --- --- 7,000 Other, net (970) (2,380) (4,450) 3,560 --------- --------- ---------- ---------- (15,290) (20,690) (56,220) (41,020) --------- --------- ---------- ---------- Income before income taxes 33,020 28,300 118,440 113,920 Income taxes 12,820 11,510 48,270 34,570 --------- --------- ---------- ---------- Net income $ 20,200 $ 16,790 $ 70,170 $ 79,350 ========= ========= ========== ========== Basic earnings per share $ .49 $ .38 $1.71 $1.80 ========= ========= ========== ========== Diluted earnings per share $ .41 $ .33 $1.39 $1.47 ========= ========= ========== ========== Cash dividends declared per share $ .08 $ .07 $ .22 $ .13 ========= ========= ========== ========== Cash dividends paid per share $ .08 $ .07 $ .22 $ .19 ========= ========= ========== ==========
The accompanying notes are an integral part of the consolidated condensed financial statements. 2 5 MASCOTECH, INC. CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30 1999 1998 ---------- ---------- CASH FROM (USED FOR): OPERATIONS: Net cash from earnings $ 138,030 $ 148,560 (Increase) decrease in inventories 11,100 (9,890) (Increase) in receivables (21,350) (11,690) Increase (decrease) in accounts payable and accrued liabilities (13,020) 29,240 Decrease in marketable securities --- 43,430 (Increase) decrease in prepaid expenses and other current assets 6,510 (5,850) Other, net (2,420) 6,550 ---------- ---------- Net cash from operating activities 118,850 200,350 ---------- ---------- FINANCING: Payment of debt (35,190) (400,620) Increase in debt 22,240 1,089,290 Payment of common stock dividends (9,900) (8,920) Retirement of Company Common Stock (19,530) (36,150) Other, net 680 (12,670) ---------- ---------- Net cash from (used for) financing activities (41,700) 630,930 ---------- ---------- INVESTMENTS: Capital expenditures (100,800) (74,250) Cash received from sale of businesses, net 90,470 25,020 Acquisition of businesses, net of cash acquired (87,670) (864,420) Proceeds from redemptions of debt by affiliates --- 80,500 Other, net 3,810 (10,220) ---------- ---------- Net cash (used for) investing activities (94,190) (843,370) ---------- ---------- CASH AND CASH INVESTMENTS: (Decrease) for the nine months (17,040) (12,090) At January 1 29,390 41,110 ---------- ---------- At September 30 $ 12,350 $ 29,020 ========== ========== SUPPLEMENTAL CASH FLOW INFORMATION: Net cash paid during the period for: Interest $ 70,420 $ 55,380 ========== ========= Income taxes $ 27,220 $ 32,930 ========== =========
The accompanying notes are an integral part of the consolidated condensed financial statements. 3 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 September 30, 1999 and the results of operations for the three and nine months ended September 30, 1999 and 1998 and cash flows for the nine months ended September 30, 1999 and 1998. 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):
September 30, December 31, 1999 1998 ------------ ------------ Finished goods $ 75,200 $ 87,810 Work in process 50,640 47,960 Raw materials 47,060 62,580 -------- -------- $172,900 $198,350 ======== ========
C. Property and equipment, net reflects accumulated depreciation of $322 million and $313 million as at September 30, 1999 and December 31, 1998, respectively. D. The Company's total comprehensive income for the period was as follows:
Three Months Ended Nine Months Ended September 30 September 30 1999 1998 1999 1998 ------- ------- ------- ------- Net income $20,200 $16,790 $70,170 $79,350 Other comprehensive income (loss) 4,110 4,380 (9,580) 2,270 ------- ------- ------- ------- Total comprehensive income $24,310 $21,170 $60,590 $81,620 ======= ======= ======= =======
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 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, was included in the caption "charge for disposition of businesses, net" in the income statement. 4 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 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.
Three Months Ended Nine Months Ended September 30 September 30 ------------------- ---------------------- 1999 1998 1999 1998 -------- -------- ---------- ---------- REVENUES FROM EXTERNAL CUSTOMERS Specialty Metal Formed Products $197,880 $174,370 $ 606,830 $ 568,420 Towing Systems 65,670 61,730 213,820 193,550 Specialty Fasteners 58,800 53,820 180,940 168,110 Specialty Packaging & Sealing Products 50,440 53,820 163,950 167,290 Specialty Industrial Products 26,510 28,010 80,120 85,110 Companies Sold or Held for Sale --- 27,750 38,810 87,500 -------- -------- ---------- ---------- Total $399,300 $399,500 $1,284,470 $1,269,980 ======== ======== ========== ========== INTERSEGMENT REVENUES Specialty Metal Formed Products $ 2,180 $ 1,350 $ 6,710 $ 3,320 Towing Systems 1,980 1,360 6,230 5,250 Specialty Fasteners 1,020 1,510 2,590 2,610 Specialty Packaging & Sealing Products --- --- --- --- Specialty Industrial Products 210 220 570 650 Companies Sold or Held for Sale --- 570 930 2,150 -------- -------- ---------- ---------- Total $ 5,390 $ 5,010 $ 17,030 $ 13,980 ======== ======== ========== ========== OPERATING PROFIT Specialty Metal Formed Products $ 24,860 $ 19,060 $ 82,430 $ 78,520 Towing Systems 8,500 9,720 31,660 32,820 Specialty Fasteners 7,370 8,580 23,780 29,690 Specialty Packaging & Sealing Products 9,420 11,480 29,770 31,880 Specialty Industrial Products 3,080 3,450 9,690 11,320 Companies Sold or Held for Sale --- 1,690 4,390 8,750 -------- -------- ---------- ---------- Total $ 53,230 $ 53,980 $ 181,720 $ 192,980 ======== ======== ========== ========== Three Months Ended Nine Months Ended September 30 September 30 ------------------- ---------------------- 1999 1998 1999 1998 -------- -------- ---------- ---------- REVENUES FROM EXTERNAL CUSTOMERS Revenues from external customers for reportable segments $399,300 $399,500 $1,284,470 $1,269,980 TriMas sales prior to acquisition --- --- --- (36,240) -------- -------- ---------- ---------- Total net sales $399,300 $399,500 $1,284,470 $1,233,740 ======== ======== ========== ========== OPERATING PROFIT Total operating profit for reportable segments $ 53,230 $ 53,980 $ 181,720 $ 192,980 General corporate expenses (4,920) (4,990) (16,100) (17,510) Net gain (charge) on disposition of businesses --- --- 26,550 (15,580) Charge for asset impairment --- --- (17,510) --- TriMas operating profit prior to acquisition --- --- --- (4,950) -------- -------- ---------- ---------- Total operating profit $ 48,310 $ 48,990 $ 174,660 $ 154,940 ======== ======== ========== ==========
6 9 MASCOTECH, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED) I. 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 ------------------- ------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Weighted average number of shares outstanding 41,280 43,920 41,120 43,980 ======== ======== ======== ======== Earnings used for basic earnings per share computation $ 20,200 $ 16,790 $ 70,170 $ 79,350 ======== ======== ======== ======== Basic earnings per share $ .49 $ .38 $ 1.71 $ 1.80 ======== ======== ======== ======== Total shares used for basic earnings per share computation 41,280 43,920 41,120 43,980 Dilutive securities: Stock options 610 1,000 590 1,260 Convertible debentures 9,840 10,000 9,840 10,000 Contingently issuable shares 3,570 3,940 3,760 3,760 -------- -------- -------- -------- Total shares used for diluted earnings per share computation 55,300 58,860 55,310 59,000 ======== ======== ======== ======== Earnings used for basic earnings per share computation $ 20,200 $ 16,790 $ 70,170 $ 79,350 Add back of debenture interest 2,340 2,380 6,970 7,140 -------- -------- -------- -------- Earnings used for diluted earnings per share computation $ 22,540 $ 19,170 $ 77,140 $ 86,490 ======== ======== ======== ======== Diluted earnings per share $ .41 $ .33 $ 1.39 $ 1.47 ======== ======== ======== ========
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. 7 10 MASCOTECH, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONCLUDED) 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. L. In August 1999, the Company acquired Windfall Products, a St. Marys, Pennsylvania based manufacturer of transportation-related powder metal components. The acquisition was accounted for as a purchase with a purchase price, net of cash acquired, of approximately $88 million and results are included from date of acquisition. The excess of purchase price over fair value approximated $49 million and will be amortized over 40 years. 8 11 MASCOTECH, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MascoTech sales for the third quarter 1999 of $399 million were equal to third quarter 1998 sales. Income in the third quarter 1999 increased 20 percent to $20.2 million or $.41 per share, compared with $16.8 million or $.33 per share in 1998. Excluding the 1998 sales contribution from the Company's aftermarket-related businesses which were sold in early 1999, third quarter 1999 sales, aided by acquisitions, would have increased approximately seven percent. Results for the third quarter 1999 were favorably impacted by lower interest expense and increased equity earnings from affiliates as compared with third quarter 1998. Results for third quarter 1998 included a $1.2 million loss related to marketable securities. 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. 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 nine and three month periods ended September 30, 1999 and 1998 and excludes the unusual pre-tax income and charges mentioned above. Sales for the Company's Specialty Metal Formed products increased 13 percent in the third quarter 1999 as compared to 1998, reflecting new product launches and increased automotive production. Sales for the Company's Tubular operations and constant velocity joints for aftermarket applications exceeded 1998 levels, the first favorable quarter-to-quarter comparison for these products in some time. Excluding Tubular product sales, Specialty Metal Formed products sales in North America increased 17 percent. Aided by acquisitions, Specialty Fastener sales increased nine percent in the third quarter of 1999 as compared with 1998. This segment continues to be negatively impacted by reduced demand for aerospace, off-highway and agricultural fasteners and reductions in customer inventory levels. Sales of Towing System products increased six percent in the third quarter 1999 as compared with 1998. Third quarter 1999 sales for Specialty Packaging and Sealing Products declined six percent as a ten percent increase in sales of closures and dispensing systems was offset by a 30 percent decline in sales of compressed gas cylinders principally as a result of global economic conditions and a 14 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 five percent in the third quarter 1999 from 1998 levels. Sales for the nine months ended September 30, 1999 would have increased slightly to $1.28 billion from $1.27 billion in 1998. Sales for the nine months ended September 30, 1999, excluding the impact of the disposition of the Company's aftermarket-related businesses and including recent acquisitions, would have increased approximately five percent. Operating profit after general corporate expense for the nine months ended September 30, 1999 and 1998 would have been approximately $166 million and $174 million, respectively. For the nine month period ended September 30, 1999, sales of Specialty Metal Formed products and Towing Systems increased seven and ten percent, respectively, as compared with 1998. Aided by acquisitions, sales for Specialty Fasteners increased eight percent while Specialty Packaging and Sealing declined two percent in 1999 as compared to 1998. Sales for Specialty Industrial products declined six percent in 1999 from 1998 levels. 9 12 MASCOTECH, INC. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Operating margins approximated 12.1 percent and 12.3 percent for the quarters ended September 30, 1999 and 1998, respectively. Margins continue to be negatively impacted by sales declines for certain products including 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, operating inefficiencies at certain manufacturing facilities related to interruptions in electrical service due to unseasonably warm weather conditions and a new manufacturing facility also negatively impacted operating performance. The Company's effective tax rate for the quarter ended September 30, 1999 was 39 percent. This estimated rate reflects a slight reduction in the expected tax rate for 1999 as a result of a decrease in the estimate of foreign income as a percent of the Company's total income. Foreign income is normally taxed at rates in excess of the U. S. statutory rate. The Board of Directors declared a dividend of $.08 per common share, payable on November 15, 1999, to shareholders of record on October 15, 1999. The Company purchased and retired in the nine month period ended September 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. 10 13 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. 11 14 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. 12 15 PART II. OTHER INFORMATION MASCOTECH, INC. Items 1, 2, 3, 4 and 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: None. 13 16 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 15, 1999 BY: /s/ Timothy Wadhams -------------------------- -------------------------------------- Timothy Wadhams Executive Vice President, Finance and Administration (Principal financial officer and authorized signatory) 14 17 MASCOTECH, INC. EXHIBIT INDEX EXHIBIT Exhibit 12 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends Exhibit 27 Financial Data Schedule 15 EX-12 2 RATIO OF EARNINGS 1 EXHIBIT 12 MASCOTECH, INC. COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (DOLLARS IN THOUSANDS)
9 MONTHS ENDED FOR THE YEARS ENDED DECEMBER 31 SEP. 30 ------------------------------------------------- 1999 1998 1997 1996 1995 1994 -------- -------- -------- -------- --------- -------- 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..... $118,440 $144,520 $190,290 $ 77,220 $100,280 $(264,490) Deduct equity in undistributed earnings of less-than-fifty- percent owned companies.... (10,370) (8,530) (46,030) (31,650) (29,590) (23,350) Add interest on indebtedness, net.......... 59,270 81,280 36,650 30,350 51,500 51,290 Add amortization of debt expense.................... 2,070 3,250 900 1,490 1,670 3,450 Estimated interest factor for rentals................ 2,420 3,620 2,100 6,350 7,070 6,220 -------- -------- ------- -------- -------- --------- Earnings (loss) before income taxes and fixed charges.... $171,830 $224,140 $183,910 $ 83,760 $130,930 $(226,880) ======== ======== ======== ======== ======== ========= FIXED CHARGES: Interest on indebtedness, net........................ $ 59,240 $ 81,740 $ 36,770 $ 30,590 $ 51,690 $ 51,540 Amortization of debt expense.................... 2,070 3,250 900 1,490 1,670 3,450 Estimated interest factor for rentals................ 2,420 3,620 2,100 6,350 7,070 6,220 -------- -------- -------- -------- -------- --------- Total fixed charges...... 63,730 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.. $ 63,730 $ 88,610 $ 50,070 $ 60,000 $ 82,400 $ 75,840 ======== ======== ======== ======== ======== ========= RATIO OF EARNINGS TO FIXED CHARGES................ 2.7 2.5 4.6 2.2 2.2 -- (b) ======== ======== ======== ======== ======== ========= RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS.............. 2.7 2.5 3.7 1.4 1.6 -- (c) ======== ======== ======== ======== ======== =========
(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. 16 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEPTEMBER 30, 1999 MASCOTECH, INC. 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 9-MOS DEC-31-1999 SEP-30-1999 12,350 0 238,190 0 172,900 467,480 1,034,040 (322,000) 2,112,150 244,160 1,374,360 0 0 44,580 248,770 2,112,150 1,284,470 1,284,470 955,420 955,420 (9,040) 0 59,150 118,440 48,270 70,170 0 0 0 70,170 1.71 1.39
-----END PRIVACY-ENHANCED MESSAGE-----