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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 COMMISSION FILE NUMBER 1-12068
MASCOTECH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 38-2513957
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
21001 VAN BORN ROAD, TAYLOR, MICHIGAN 48180
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 313-274-7405
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
COMMON STOCK, $1.00 PAR VALUE NEW YORK STOCK EXCHANGE, INC.
4 1/2% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2003 NEW YORK STOCK EXCHANGE, INC.
SERIES A PARTICIPATING CUMULATIVE PREFERRED STOCK NEW YORK STOCK EXCHANGE, INC.
PURCHASE RIGHTS
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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 BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ ]
THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S COMMON STOCK HELD BY
NON-AFFILIATES OF THE REGISTRANT ON MARCH 13, 1998 (BASED ON THE CLOSING SALE
PRICE OF $22 11/16 OF THE REGISTRANT'S COMMON STOCK ON THE NEW YORK STOCK
EXCHANGE COMPOSITE TAPE ON SUCH DATE) WAS APPROXIMATELY $785,611,000.
NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK AT MARCH 13, 1998:
47,235,000 SHARES OF COMMON STOCK, PAR VALUE $1.00 PER SHARE
PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE FILED FOR ITS 1998
ANNUAL MEETING OF STOCKHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III OF
THIS FORM 10-K.
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TABLE OF CONTENTS
ITEM PAGE
- ---- ----
PART I
1. Business.................................................... 2
2. Properties.................................................. 7
3. Legal Proceedings........................................... 7
4. Submission of Matters to a Vote of Security Holders......... 8
Supplementary Item. Executive Officers of Registrant........ 8
PART II
5. Market for Registrant's Common Equity and Related 9
Stockholder Matters.........................................
6. Selected Financial Data..................................... 10
7. Management's Discussion and Analysis of Financial Condition 11
and Results of Operations...................................
8. Financial Statements and Supplementary Data................. 17
9. Changes in and Disagreements With Accountants on Accounting 42
and Financial Disclosure....................................
PART III
10. Directors and Executive Officers of the Registrant.......... 42
11. Executive Compensation...................................... 42
12. Security Ownership of Certain Beneficial Owners and 42
Management..................................................
13. Certain Relationships and Related Transactions.............. 42
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 43
8-K.........................................................
Signatures.................................................. 47
FINANCIAL STATEMENT SCHEDULES
MascoTech, Inc. Financial Statement Schedule................ F-1
TriMas Corporation and Subsidiaries Consolidated Financial
Statements.................................................. F-3
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PART I
ITEM 1. BUSINESS.
MascoTech, Inc. (the "Company") is a leading supplier of metal formed
components primarily for vehicle engine and drivetrain applications and
automotive aftermarket products. In early 1998, MascoTech acquired TriMas
Corporation, in which it had held a significant equity interest since 1989.
TriMas is a diversified manufacturer of proprietary products, including
specialty fasteners, towing systems, specialty container products and other
industrial products and holds leadership positions in commercial, industrial and
consumer niche markets. The addition of TriMas' businesses, as described below,
significantly diversifies MascoTech's operations.
BACKGROUND
MascoTech was incorporated under the laws of Delaware in 1984 as a
wholly-owned subsidiary of Masco Corporation, which in May, 1984 transferred to
MascoTech its industrial businesses. The Company became a separate public
company in July, 1984 when Masco Corporation distributed shares of Company
Common Stock as a special dividend to its stockholders. In late 1996, the
Company purchased from Masco Corporation 17 million shares of Company Common
Stock and warrants to acquire 10 million shares of Company Common Stock. Masco
Corporation currently owns approximately 17 percent of the Company's outstanding
Common Stock. Except as the context otherwise indicates, the terms "MascoTech"
and the "Company" refer to MascoTech, Inc. and its consolidated subsidiaries.
Once MascoTech became a separate, publicly owned company, it pursued
diversified growth in the transportation-related, architectural and defense
markets. Structural changes in recent years in the markets served by the
Company, combined with the growth opportunities and the capital requirements of
certain of the Company's Transportation-Related businesses, led the Company to
an evaluation of the prospects for all its businesses. In late 1994, the Company
adopted a plan to dispose of its architectural products, defense and certain of
its Transportation-Related businesses. The disposition of these businesses was
completed in 1996. In addition, in 1996, the Company disposed of its heavy-gauge
stamping operations and in early 1997, the Company completed the sale of its
engineering and technical services businesses to MSX International, Inc. As part
of that transaction, the Company purchased an approximate 45 percent common
equity interest in MSX International, Inc. See "Equity Investments -- Other
Equity Investments," elsewhere in Item 1 of this Report. The disposition of
these businesses did not meet the criteria for discontinued operations treatment
for accounting purposes; accordingly, the sales and results of operations of
these businesses are included in the results of continuing operations through
the date of disposition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Disposition of Businesses," included in
Item 7 of this Report.
RECENT DEVELOPMENTS
In January 1998, the Company acquired the remaining 63 percent of the
outstanding shares of common stock of TriMas Corporation it did not previously
own for approximately $920 million in a transaction that will be accounted for
as a purchase. The Company's decision to acquire TriMas was designed to achieve
two primary strategic objectives: to expand its advanced metalworking process
capabilities into additional transportation-related and other diversified
industrial markets and to create additional value from affiliate investments. A
substantial portion of TriMas' industrial products are manufactured with
metalworking technologies that are complementary to MascoTech's advanced
metalworking capabilities. In addition, approximately 50 percent of TriMas'
products are sold to transportation-related markets. For further discussion of
the factors considered in making the acquisition, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Recent
Developments," included in Item 7 of this Report. TriMas had net sales of
approximately $668 million and net income of approximately $66 million for the
twelve months ended December 31, 1997.
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In connection with the TriMas acquisition, the Company entered into a new
$1.3 billion credit facility which is secured by a pledge of the stock of
TriMas. See the Notes to the Company's Consolidated Financial Statements
captioned "Long-Term Debt," included in Item 8 of this Report.
MASCOTECH INDUSTRY SEGMENTS
The following table sets forth for the three years ended December 31, 1997,
the net sales and operating profit for MascoTech's industry segments (including
businesses held for sale or sold):
(IN THOUSANDS)
NET SALES
----------------------------------
1997 1996 1995
-------- ---------- ----------
Transportation-Related Products............................ $922,000 $1,151,000 $1,340,000
Specialty Products......................................... -- 130,000 338,000
-------- ---------- ----------
$922,000 $1,281,000 $1,678,000
======== ========== ==========
OPERATING PROFIT(1)(2)
----------------------------------
1997 1996 1995
-------- ---------- ----------
Transportation-Related Products............................ $124,000 $ 90,000 $ 144,000
Specialty Products......................................... -- 1,000 (3,000)
-------- ---------- ----------
$124,000 $ 91,000 $ 141,000
======== ========== ==========
Net sales include the sales of businesses held for sale or sold of $0, $412
million and $874 million in 1997, 1996 and 1995, respectively. Additional
financial information concerning the Company's operations by industry segments
as of and for the three years ended December 31, 1997 is set forth in the Note
to the Company's Consolidated Financial Statements captioned "Segment
Information," included in Item 8 of this Report.
(1) Amounts are before General Corporate Expense.
(2) Operating profit in 1996 includes a $32 million pre-tax loss principally
from the sale of MascoTech Stamping Technologies, Inc. ("MSTI"). Operating
profit in 1997 includes approximately $5 million of additional pre-tax
consideration earned from the sale of MSTI which was sold in 1996. These
items impacted the Company's Transportation-Related Products industry
segment. The Company may receive additional consideration contingent upon
the future earnings of MSTI through May 31, 1999. Operating profit in 1995
includes $25 million in net gains resulting from sales of non-core
businesses. These net gains were substantially offset by reductions in the
estimated proceeds the Company expected to receive from businesses to be
sold, aggregating $12 million, and by certain exit costs incurred in 1995
aggregating approximately $8 million. The net gains (charge) impact the
Company's industry segments as follows: Transportation-Related Products --
$21 million and Specialty Products -- $(2) million. The remaining $(14)
million of the net gains (charge) was allocated to General Corporate
Expense.
Sophisticated technology plays a significant role in MascoTech's businesses
and in the design, engineering and manufacturing of many of its products.
Products are manufactured utilizing a variety of metalworking and other process
technologies. Although published industry statistics are not available, the
Company believes that it is a leading independent producer of many of the
component parts that it produces using cold, warm or hot forming processes. The
Company manufactures a broad range of semi-finished components, subassemblies
and assembled products for the original equipment and aftermarket segments of
the global transportation industry. The Company provides components and products
for which reliability, quality and certainty of supply are major factors in
customers' selection of suppliers.
The Company manufactures engine, drivetrain and aftermarket products.
Engine and drivetrain products include semi-finished transmission shafts, drive
gears, engine connecting rods, wheel spindles and front wheel drive components.
Aftermarket products include fuel and emission systems components, windshield
wiper blades, constant-velocity joints, brake hardware repair kits and other
automotive accessories.
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The Company's metalworked products are manufactured using various process
technologies, including cold, warm and hot forming, powdered metalworking,
value-added machining, tubular steel fabricating and hydroforming. Approximately
60 percent of the Company's 1997 sales were of products made using cold, warm or
hot metal forming technologies. The Company believes that its metalworking
technologies provide cost-competitive, high-performance, quality components
required to meet the increasing demands of the automotive and truck markets it
serves.
Approximately 72 percent of the Company's 1997 sales were original
equipment automotive products and services. Sales to original equipment
manufacturers are made through factory sales personnel and independent sales
representatives. During 1997, sales to various divisions and subsidiaries of
Ford Motor Company, Chrysler Corporation, General Motors Corporation and New
Venture Gear, Inc. accounted for approximately 15 percent, 9 percent, 7 percent
and 17 percent, respectively, of the Company's net sales. Sales to the
automotive aftermarket are made primarily to distributors utilizing factory
sales personnel. Aftermarket products are sold to companies distributing into
the traditional, retail and heavy-duty segments of the automotive aftermarket.
TRIMAS INDUSTRY SEGMENTS
The following table sets forth for the three years ended December 31, 1997,
the net sales and operating profit for TriMas' industry segments:
(IN THOUSANDS)
NET SALES
------------------------------
1997 1996 1995
-------- -------- --------
Specialty Fasteners......................................... $161,640 $141,510 $141,050
Towing Systems.............................................. 201,410 189,540 175,000
Specialty Container Products................................ 218,920 189,320 165,670
Corporate Companies......................................... 85,940 79,860 71,770
-------- -------- --------
Total net sales........................................... $667,910 $600,230 $553,490
======== ======== ========
OPERATING PROFIT
------------------------------
1997 1996 1995
-------- -------- --------
Specialty Fasteners......................................... $ 29,630 $ 25,740 $ 27,290
Towing Systems.............................................. 31,190 31,480 31,080
Specialty Container Products................................ 46,810 42,890 39,040
Corporate Companies......................................... 14,490 11,980 8,420
-------- -------- --------
Total operating profit (before general corporate
expense)............................................... $122,120 $112,090 $105,830
======== ======== ========
Additional financial information concerning TriMas' operations by industry
segments as of and for the three years ended December 31, 1997 is set forth in
the note captioned "Business Segment and Geographic Area Information" in the
TriMas Corporation Consolidated Financial Statements, included in the schedules
to the Company's Consolidated Financial Statements.
TriMas' industrial products include standard and custom-designed ferrous,
nonferrous and special alloy fasteners for the building construction, farm
implement, medium and heavy-duty truck, appliance, aerospace, electronics and
other industries. Fasteners are sold through TriMas' own sales personnel and
independent sales representatives to both distributors and manufacturers in
these industries. TriMas manufactures towing systems products for the passenger
car, light truck, recreational vehicle, marine, agricultural and industrial
markets, including vehicle hitches, jacks, winches, couplers and related
accessories. TriMas' towing systems products are marketed to independent
installers, distributors, manufacturers and aftermarket retailers by its own
sales organization and independent sales representatives. TriMas also
manufactures: specialty container products, including industrial and consumer
container closures and dispensing products primarily for the chemical,
agricultural, refining, food, petrochemical and health care industries;
high-pressure seamless compressed gas cylinders primarily used for shipping,
storing and dispensing oxygen, nitrogen, argon and
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helium and a complete line of low-pressure welded cylinders used to contain and
dispense acetylene gas for the welding and cutting industries; and specialty
industrial gaskets for refining, petrochemical and other industrial
applications. Sales of specialty container products are made by TriMas' own
sales staff primarily to container manufacturers, industrial gas producers and
independent distributors.
In addition, TriMas manufactures flame-retardant facings and jacketings
used in conjunction with fiberglass insulation, principally for commercial and
industrial construction applications, pressure-sensitive specialty tape products
and a variety of specialty precision tools such as center drills, cutters, end
mills, reamers, master gears, gages and punches. TriMas also provides metal
treating services for manufacturers of fasteners and similar products. These
products and services are marketed to manufacturers and distributors by both
TriMas sales personnel and independent sales representatives.
GENERAL INFORMATION CONCERNING INDUSTRY SEGMENTS
No material portion of MascoTech's business is seasonal or has special
working capital requirements. Sales by the companies which form the TriMas
Towing Systems product group are stronger during the spring and summer of the
year. The Company does not consider backlog orders to be a material factor in
its industry segments. Except as noted above under "Industry Segments," no
material portion of its business is dependent upon any one customer or subject
to renegotiation of profits or termination of contracts at the election of the
federal government. Compliance with federal, state and local regulations
relating to the discharge of materials into the environment, or otherwise
relating to the protection of the environment, is not expected to result in
material capital expenditures by the Company or to have a material effect on the
Company's earnings or competitive position. See, however, "Legal Proceedings,"
included as Item 3 of this Report, for a discussion of certain pending
proceedings concerning environmental matters. In general, raw materials required
by the Company are obtainable from various sources and in the quantities
desired.
INTERNATIONAL OPERATIONS
The Company, through its subsidiaries including TriMas, has businesses
located in Australia, Canada, Czech Republic, England, Germany, Italy and
Mexico. Products manufactured by the Company outside of the United States
include forged automotive component parts, constant-velocity joints, specialty
container products and towing systems products. See the Note to the Company's
Consolidated Financial Statements captioned "Segment Information," included in
Item 8 of this Report and the note captioned "Business Segment and Geographic
Area Information" in the TriMas Corporation Consolidated Financial Statements,
included in the schedules to the Company's Consolidated Financial Statements for
a discussion of the Company's foreign operations and export sales.
The Company's foreign operations are subject to political, monetary,
economic and other risks attendant generally to international businesses. These
risks generally vary from country to country.
EQUITY INVESTMENTS
Information regarding the Company's equity investments is also set forth in
the Note to the Company's Consolidated Financial Statements captioned "Equity
and Other Investments in Affiliates," included in Item 8 of this Report.
TriMas Corporation
At December 31, 1997, the Company owned approximately 37 percent of the
outstanding common stock of TriMas Corporation. As described above, in January
1998 the Company completed the acquisition of TriMas by purchasing all of the
outstanding shares of TriMas not already owned by the Company.
Titan International, Inc.
The Company owns approximately 15 percent of the outstanding common stock
of Titan International, Inc. ("Titan"). Titan is a manufacturer of wheels, tires
and other products for agricultural, construction
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and other off-highway equipment markets. Titan's sales for the year ended
December 31, 1997 were approximately $690 million.
Delco Remy International, Inc.
In December 1997, Delco Remy International, Inc. ("Delco Remy") completed
an initial public offering of its common stock reducing the Company's equity
ownership interest to approximately 12 percent on a fully diluted basis (the
Company owns approximately 18 percent of the voting common stock). Delco Remy is
a manufacturer of automotive electric motors and other components. Delco Remy's
sales for the year ended July 31, 1997 were approximately $690 million.
Other Equity Investments
In addition to its equity investments in the publicly traded affiliates
described in the preceding paragraphs, the Company has investments in privately
held companies, including MSX International, Inc., a transportation-focused
engineering and technical services company formed in 1997 by an investor group
consisting of the Company, Citicorp Venture Capital, Ltd. and senior management
of MSX International to purchase the assets of the Company's engineering and
technical services businesses. The Company also has an investment in Saturn
Electronics & Engineering, Inc., a manufacturer of electromechanical and
electronic automotive components.
PATENTS AND TRADEMARKS
The Company holds a number of patents, patent applications, licenses,
trademarks and trade names. The Company considers its patents, patent
applications, licenses, trademarks and trade names to be valuable, but does not
believe that there is any reasonable likelihood of a loss of such rights which
would have a material adverse effect on the Company's industry segments or on
its present business as a whole.
COMPETITION
The major domestic and foreign markets for the Company's products are
highly competitive. Competition is based primarily on price, product engineering
and performance, technology, quality and overall customer service, with the
relative importance of such factors varying among products. The Company's global
competitors include a large number of other well-established independent
manufacturers as well as certain customers who have their own internal
manufacturing capabilities. Although a number of companies of varying size
compete with the Company, no single competitor is in substantial competition
with the Company with respect to more than a few of its product lines and
services.
EMPLOYEES
The Company employs approximately 9,000 people, which reflects the
acquisition of TriMas Corporation. Satisfactory relations have generally
prevailed between the Company and its employees.
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ITEM 2. PROPERTIES.
The following list sets forth the location of the Company's principal
manufacturing facilities and reflects the acquisition of TriMas.
California..................... Commerce (a)
Florida........................ Deerfield Beach and Ocala
Illinois....................... Wood Dale(a)
Indiana........................ Auburn(a), Elkhart, Elkhart (a), Frankfort (a),
Fort Wayne, Goshen(a), and North Vernon
Kentucky....................... Nicholasville
Louisiana...................... Baton Rouge (a)
Massachusetts.................. Plymouth (a)
Michigan....................... Burton, Canton, Canton (a), China Township,
Detroit, Detroit (a), Farmington Hills, Fraser,
Green Oak Township, Hamburg, Holland, Livonia,
Royal Oak, Troy, Warren(a) and Ypsilanti
New Jersey..................... Edison (a) and Netcong (a)
Ohio........................... Bucyrus, Canal Fulton, Lakewood(a), Lima,
Minerva and Port Clinton
Oklahoma....................... Tulsa
Pennsylvania................... Ridgway
Texas.......................... Houston (a) and Longview (a)
Wisconsin...................... Mosinee (a)
Australia...................... Hampton Park, Victoria (a) and Wakerley,
Queensland(a)
Canada......................... Fort Erie, Ontario (a) and Oakville, Ontario (a)
Czech Republic................. Brno
England........................ Leicester(a) and Wolverhampton
Germany........................ Neunkirchen(a), Nurnberg and Zell am Harmersbach
Italy.......................... Poggio Rusco
Mexico......................... Mexico City(a)
(a) Acquired by the Company in connection with the acquisition of TriMas.
The Company's principal manufacturing facilities range in size from
approximately 10,000 square feet to 420,000 square feet, substantially all of
which are owned by the Company and are not subject to significant encumbrances.
The Company's executive offices are located in Taylor, Michigan, and are
provided by Masco Corporation to the Company under a corporate services
agreement.
The Company's buildings, machinery and equipment have been generally well
maintained, are in good operating condition, and are adequate for current
requirements.
ITEM 3. LEGAL PROCEEDINGS.
A civil suit was filed in the United States District Court for the Central
District of California in April, 1983 by the United States of America and the
State of California against over 30 defendants, including the Company's NI
Industries, Inc. subsidiary ("NI"), for alleged release into the environment of
hazardous waste disposed of at the Stringfellow Disposal Site in California. The
plaintiffs have requested, among other things, that the defendants clean up the
contamination at that site. A consent decree has been entered into by the
plaintiffs and the defendants, including NI, providing that the consenting
parties perform partial remediation at the site. Another civil suit was filed in
the United States District Court for the Central District of California in
December, 1988 by the United States of America and the State of California
against more than 180 defendants, including NI, for alleged release into the
environment of hazardous waste disposed of at the Operating Industries, Inc.
site in California. This site served for many years as a depository for
municipal and
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industrial waste. The plaintiffs have requested, among other things, that the
defendants clean up the contamination at that site. Consent decrees have been
entered into by the plaintiffs and a group of the defendants, including NI,
providing that the consenting parties perform certain remedial work at the site
and reimburse the plaintiffs for certain past costs incurred by the plaintiffs
at the site. Based upon its present knowledge and subject to future legal and
factual developments, the Company does not believe that any of this litigation
will have a material adverse effect on its consolidated financial position,
results of operations or cash flow.
The Company is subject to other claims and litigation in the ordinary
course of its business, but does not believe that any such claim or litigation
will have a material adverse effect on its consolidated financial position,
results of operations or cash flow.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
SUPPLEMENTARY ITEM. EXECUTIVE OFFICERS OF REGISTRANT (PURSUANT TO INSTRUCTION 3
TO ITEM 401(B) OF REGULATION S-K).
OFFICER
NAME POSITION AGE SINCE
---- -------- --- -------
Richard A. Manoogian................... Chairman of the Board 61 1984
Frank M. Hennessey..................... Vice Chairman and Chief Executive Officer 59 1998
Lee M. Gardner......................... President and Co-Chief Operating Officer 51 1992
Brian P. Campbell...................... President and Co-Chief Operating Officer 57 1998
Timothy Wadhams........................ Senior Vice President -- Finance and Chief
Financial Officer 49 1984
Each of the executive officers is elected to a term of one year or less and
serves at the discretion of the Board of Directors. Mr. Manoogian has served for
more than five years as Director, Chairman of the Board and the Chief Executive
Officer of Masco Corporation, an affiliate of the Company that is a manufacturer
of home improvement and building products. Prior to joining MascoTech in 1998,
Mr. Hennessey served Masco Corporation for more than five years in various
managerial positions and most recently as Executive Vice President. He will
continue to provide consulting services to Masco Corporation as needed under an
informal arrangement with Masco. Mr. Campbell served as the President of TriMas
Corporation for more than five years. TriMas Corporation, formerly an equity
investment of the Company, became a wholly owned subsidiary in January 1998. See
Item 1 of this Report entitled "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," included in Item 7
of this Report.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded on the New York Stock Exchange
("NYSE") under the symbol "MSX." The following table sets forth for the periods
indicated the high and low sale prices of the Company's Common Stock as reported
on the NYSE Composite Tape and Common Stock dividends declared for the periods
indicated:
DIVIDENDS
HIGH LOW DECLARED
------------ ------------ ---------
1996
First Quarter......................................... $13 5/8 $10 3/8 $.04
Second Quarter........................................ $16 1/8 $12 1/2 .04
Third Quarter......................................... $15 1/2 $13 .05
Fourth Quarter........................................ $17 $13 1/2 .05
----
$.18
====
DIVIDENDS
HIGH LOW DECLARED
------------ ------------ ---------
1997
First Quarter......................................... $21 1/4 $16 $.05
Second Quarter........................................ $23 1/2 $18 1/2 .05
Third Quarter......................................... $22 1/2 $20 .12(A)
Fourth Quarter........................................ $21 5/16 $16 1/2 .06(A)
----
$.28
====
(A) In the Third Quarter of 1997, the Company declared and paid a $.06 per share
dividend and declared a $.06 per share dividend which was paid in the Fourth
Quarter of 1997. The dividend declared in the Fourth Quarter of 1997 was
paid in the First Quarter of 1998.
Future declarations of dividends on the Company's Common Stock are
discretionary with the Board of Directors and will depend upon the Company's
earnings, capital requirements, financial condition and other factors. In
addition, certain of the Company's long-term debt instruments contain provisions
that restrict the dividends that it may pay on its capital stock. Under the most
restrictive of these provisions, approximately $40 million would have been
available at December 31, 1997 for the payment of cash dividends and the
acquisition of Company capital stock. See the discussion under "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Financial Position and Liquidity," included in Item 7 of this Report and the
Note to the Company's Consolidated Financial Statements captioned "Long-Term
Debt," included in Item 8 of this Report.
On February 28, 1998, there were approximately 4,000 holders of record of
the Company's Common Stock.
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ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth summary consolidated financial information
of the Company, for the years and dates indicated:
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
Net sales.......................... $ 922,130 $1,281,220 $1,678,210 $1,702,260 $1,582,880
From continuing operations before
accounting change and
extraordinary items:
Income (loss).................... $ 115,240 $ 39,920 $ 59,190 $ (234,420) $ 70,890
Earnings (loss) per share........ $2.12 $.50 $.81 $(4.38) $.93
Dividends declared per common
share............................ $ .28 $.18 $.11 $ .11 $.06
At December 31:
Total assets..................... $1,144,680 $1,202,840 $1,421,720 $1,511,640 $1,769,960
Long-term debt................... $ 592,000 $ 752,400 $ 701,910 $ 868,240 $ 788,360
Results in 1997 include pre-tax gains approximating $83 million principally
related to the sale by the Company of its common stock holdings of an equity
affiliate, gains from the Company's marketable securities portfolio and income
resulting from equity transactions by affiliates. These gains were partially
offset by costs and expenses of approximately $24 million pre-tax related to
plant closure costs, the Company's share of special charges recorded by equity
affiliates, write-off of deferred charges, and employee termination and other
expenses.
Results for 1996 include an after-tax charge of approximately $26 million
related to the sale of MascoTech Stamping Technologies, Inc.
Results for 1995 include net gains of approximately $5 million pre-tax
related to the dispositions of businesses held for sale, and a gain of
approximately $5 million pre-tax resulting from the issuance of stock through a
public offering by an equity affiliate.
Results for 1994 include a pre-tax charge of $400 million, reflecting the
estimated loss on the planned disposition of a number of the Company's
businesses (see "Dispositions of Operations" note).
Results for 1994 include pre-tax gains of approximately $17.9 million
related to the sale by the Company of a portion of its common stock holdings of
an equity affiliate.
Results for 1993 include pre-tax income of approximately $9 million as a
result of gains associated with the sale of common stock through public
offerings by an equity affiliate. This income was largely offset by costs and
expenses related to cost-reduction initiatives, the restructuring of certain
operations and product lines, adjustments to the carrying value of certain
long-term assets, and other costs and expenses.
Results for 1993 were reduced by a charge of approximately $.03 per common
share reflecting the application of the increased 1993 federal corporate income
tax rate to adjust deferred tax balances as of December 31, 1992.
Income (loss) from continuing operations before accounting change and
extraordinary income (loss) attributable to common stock was $109.0 million,
$27.0 million, $46.2 million, $(247.4) million and $56.0 million after preferred
stock dividends in 1997, 1996, 1995, 1994 and 1993, respectively.
At December 31, 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share." Earnings (loss) per share have been
retroactively restated to conform with the earnings per share presentation
required under SFAS No. 128.
Earnings (loss) from continuing operations per common share in 1997, 1996,
1995 and 1993 are presented on a diluted basis. In 1994, basic loss per common
share is presented due to the reported loss from continuing operations. Basic
earnings per share from continuing operations were $2.70, $.54, $.85 and $1.11
in 1997, 1996, 1995 and 1993, respectively.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
CORPORATE DEVELOPMENT
RECENT DEVELOPMENTS
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 combined
companies have sales on a pro forma basis of approximately $1.6 billion for
1997.
For some time, MascoTech's key strategic objectives have included the
expansion of its advanced metalworking capabilities into additional
transportation-related and other markets, and the creation of more value for its
shareholders from its affiliate investments. The acquisition of TriMas by
MascoTech is consistent with these objectives.
MascoTech's advanced metalworking products are sold to
transportation-related markets, primarily for automotive light vehicle
applications. A substantial portion of TriMas' diversified industrial products
are manufactured with metalworking technologies that are complementary to
MascoTech's advanced metalworking capabilities. In addition, approximately 50
percent of TriMas' products are sold to transportation-related markets including
off-road vehicle, and aerospace, and for towing systems and accessory products,
automotive light vehicle (non-OEM), recreational vehicle, and marine markets.
The acquisition of TriMas significantly increases MascoTech's sales to
transportation-related markets and to other commercial and industrial markets
while at the same time reduces the dependence of MascoTech's operating results
on the automotive industry, which has historically been more cyclical. MascoTech
also believes that the acquisition of TriMas provides opportunities to expand
sales of certain of its products to TriMas' customers and to expand sales of
certain of TriMas' products to MascoTech's customers. In addition, the
acquisition permits MascoTech and TriMas to share research, technology and
expertise to the benefit of both companies.
MascoTech reviews on an ongoing basis its various affiliate investments
with the objective of maximizing the value of these investments for its
stockholders. In analyzing its alternatives related to its investment in TriMas,
MascoTech concluded that maintaining its current level of investment in TriMas
was not an attractive alternative since MascoTech's ownership of approximately
37 percent of the TriMas shares resulted in the inclusion in MascoTech's
after-tax earnings of 37 percent of TriMas' after-tax earnings, but with
additional taxes on those earnings also accrued by MascoTech. In addition,
TriMas' dividend distributions to MascoTech represented substantially less than
37 percent of TriMas' cash flow. MascoTech also considered the alternatives of a
third party sale of its shares or the distribution to MascoTech's shareholders
of its shares to be unattractive since either transaction would have resulted in
a tax to MascoTech in excess of $180 million (valuing MascoTech's equity
interest in TriMas for this purpose at $34.50 per share which equals the
acquisition price per share).
In addition to the expansion of its metalworking capabilities into
complementary markets, and the avoidance of a substantial tax that would result
from the sale or distribution of TriMas holdings, the acquisition of TriMas by
MascoTech adds high-margin complementary businesses that provide substantial
additional cash flow and human resources. MascoTech believes that the
acquisition should enhance its opportunity to create value for its shareholders
by diversifying its business mix, by improving its cost efficiencies, and by
expanding its growth opportunities.
SHARE REPURCHASE
The Company's major shareholder, Masco Corporation, had a long-standing
stated objective to simplify its corporate structure by reducing its affiliate
investments. More recently, Masco Corporation had committed to its shareholders
that Masco Corporation would reduce its investment in MascoTech to below 20
percent. Given the possible alternatives available to Masco Corporation to
accomplish this objective and the related uncertainty as to what action Masco
Corporation might take, together with the positive long-term outlook for
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MascoTech, the MascoTech Board of Directors decided to address this issue by
proactively pursuing the purchase of Masco Corporation's holdings in MascoTech.
The MascoTech Board of Directors believed that purchasing and retiring a
substantial number of MascoTech shares (at a reasonable price) would help create
long-term value for the Company's shareholders.
As a result, in late 1996, the Company purchased from Masco Corporation 17
million shares of MascoTech common stock and warrants to acquire 10 million
shares of MascoTech common stock, for approximately $266 million. As part of
this transaction, and given his role as Chairman of both Masco Corporation and
MascoTech, Richard Manoogian also agreed to sell to MascoTech one million shares
of MascoTech common stock at the then current market price of $13 5/8. As a
result, his seven percent ownership in MascoTech common stock remained
approximately the same after the share purchases. At December 31, 1997, Masco
Corporation owned approximately 17 percent of the MascoTech common stock
outstanding.
DISPOSITION OF BUSINESSES
In late 1994, the Company adopted a plan to dispose, by sale or
liquidation, a number of businesses, including its architectural products,
defense and certain of its transportation-related products and services
businesses, as part of its long-term strategic plan to increase the focus on its
proprietary metalworking capabilities. The disposition of these businesses did
not meet the criteria for discontinued operations treatment for accounting
purposes; accordingly, the sales and results of operations of these businesses
are included in continuing operations until disposition.
The Company's carrying value of a number of the businesses disposed
exceeded the estimated proceeds expected from such dispositions. To reflect the
estimated loss on the disposition of these businesses, the Company recorded a
non-cash charge in 1994 aggregating $400 million pre-tax for those businesses
for which a loss was anticipated.
In May 1996, the Company sold MascoTech Stamping Technologies, Inc.
("MSTI"), a wholly owned subsidiary, to Tower Automotive, Inc. ("Tower")
resulting in an after-tax loss of approximately $26 million ($.49 per common
share). The Company received initial consideration of approximately $80 million,
consisting principally of $55 million in cash, 785,000 shares of Tower common
stock and warrants to purchase additional Tower common stock. The Company
applied the cash proceeds (including approximately $14 million received from the
subsequent sale of 600,000 shares of Tower common stock) to reduce its
indebtedness. The Company may receive additional consideration, of which
approximately $5 million was earned in 1997, contingent upon the future earnings
of MSTI through May 31, 1999.
In early 1997, the Company completed the sale of its Technical Services
Group ("TSG," comprised of the Company's engineering and technical business
services units) to MSX International, Inc. Also included in this transaction
were the net assets of APX International ("APX") which were acquired by the
Company in November 1996. The sale resulted in total proceeds to the Company of
approximately $145 million, subject to certain adjustments, consisting of cash,
subordinated debentures, preferred stock and an approximate 45 percent common
equity interest in MSX International, Inc. Net proceeds to the Company
approximated $90 million, after taking into account the purchase price for APX
and taxes payable in connection with this transaction. In January 1998, the
Company received $48 million of cash from MSX International, Inc. in payment of
certain amounts due MascoTech, resulting in a realized pre-tax gain in the first
quarter 1998 of approximately $7 million (gain recognition was deferred at the
time of the transaction pending cash receipt).
Businesses sold had sales of $0, $412 million and $874 million in 1997,
1996 and 1995, respectively, and operating income (losses) before gains (charge)
on disposition of businesses, net of $0, $(13) million and $5 million in 1997,
1996 and 1995, respectively.
PROFIT MARGINS
Operating profit margins, excluding net gains in 1997 and 1995, and net
charges in 1996, from the disposition of businesses, were approximately ten
percent in 1997, eight percent in 1996 and six percent in
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1995. The increase in the operating profit margin in 1997 compared with the
previous two years is attributable to the disposition of businesses which had
margins lower than the Company's remaining operations.
CASH FLOWS AND CAPITAL EXPENDITURES
Net cash flows from operating activities decreased to $79 million in 1997
from $129 million in 1996. In 1996, net cash from operating activities included
approximately $30 million in refundable income taxes.
Reflecting the favorable long-term prospects for MascoTech, the Company's
Board of Directors authorized in 1994 the repurchase of 10 million shares of
Company Common Stock and Convertible Preferred Stock (converted into common
stock in 1997). Pursuant to this authorization, the Company has repurchased and
retired approximately 6.3 million shares of Company Common Stock and .5 million
shares of Convertible Preferred Stock since 1994 at a cost of approximately $90
million. In addition, in October 1996, the Company purchased and retired 18
million shares of Company Common Stock and warrants to purchase 10 million
shares of Company Common Stock for cash and notes approximating $280 million
(see "Corporate Development" above and "Shareholders' Equity" note to the
financial statements).
The Company in 1997 increased the quarterly dividend on its common stock to
$.06 per share from $.05.
Capital expenditures in 1997 were approximately $55 million as compared
with $44 million and $110 million in 1996 and 1995, respectively. During 1995,
the Company made significant expenditures in capital programs to support the
Company's metalworking and aftermarket businesses. These expenditures for new
advanced manufacturing technologies, product line extensions and capacity for
new products were the result of the Company's favorable long-term outlook for
these businesses and to meet increased demand for certain product programs.
INVENTORIES
The Company's investment in inventories for its businesses increased
modestly to approximately $74 million at December 31, 1997 as compared with $70
million in 1996. The Company's continued emphasis on inventory management,
utilizing Just-In-Time and other inventory management techniques, has
contributed to higher inventory turnover rates in recent years.
FINANCIAL POSITION AND LIQUIDITY
In connection with the TriMas acquisition in January 1998, the Company
entered into a new $1.3 billion credit facility. On a pro forma basis at
December 31, 1997 including the borrowings for the TriMas acquisition, debt as a
percent of total debt plus equity would be approximately 87 percent. The
Company's new credit facility includes a $500 million term loan and an $800
million revolver, both of which terminate in 2003. The interest rates applicable
to the new credit facility are principally at alternative floating rates which
would have approximated 6.5 percent at December 31, 1997. The new credit
facility requires the maintenance of a specified level of shareholders' equity
plus subordinated debt, with limitations on the ratios of total debt to cash
flow (as defined) and cash flow less capital expenditures (as defined) to
interest plus scheduled debt payments. In addition, there are limitations on
dividends, share repurchases and subordinated debt repurchases. Under the most
restrictive of these provisions, approximately $40 million would have been
available at December 31, 1997 for the payment of cash dividends and the
acquisition of Company capital stock. In addition, future cash dividends and any
acquisition of Company Common Stock could be further accomplished with internal
cash flows from operations.
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 from the
disposition of certain financial assets. The Company's financial assets include
equity ownership positions in two additional publicly traded companies with an
aggregate carrying value of approximately $53 million. This compares with an
aggregate quoted market value at December 31, 1997 (which may differ from the
amounts that could have been realized upon disposition) of approximately $104
million. On September 30, 1997, the Company
13
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exercised its option and exchanged its equity holdings in Emco Limited and
approximately $46 million in cash to Masco Corporation to satisfy the
indebtedness to Masco incurred in 1996 in connection with the Company's purchase
and retirement of certain of its common shares and warrants held by Masco.
At December 31, 1997 current assets, which aggregated approximately $336
million, were approximately two times current liabilities. Additional borrowings
available under the Company's new revolving credit agreement and otherwise,
anticipated internal cash flows, and to the extent necessary, future financings
in the financial markets are expected to provide sufficient liquidity to fund
the Company's foreseeable working capital, capital expansion programs and other
investment needs.
OTHER MATTERS
The Company is currently working to resolve the potential impact of the
year 2000 on the processing of date-sensitive information by the Company's
computerized information and other systems. The year 2000 problem is the result
of computer programs being written using two digits (rather than four) to define
the applicable year. Any of the Company's programs that have date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000, which could result in miscalculations or system failures. Based on
preliminary information, costs of addressing potential problems are not
currently expected to have a material adverse impact on the Company's financial
position, results of operations or cash flows in future periods. However, if the
Company, its customers or vendors are unable to resolve such processing issues
in a timely manner, the failure to do so could result in a material financial
risk. Accordingly, the Company is devoting the resources believed to be
necessary to resolve all significant year 2000 issues in a timely manner.
The Company's corporate services agreement with Masco Corporation expires
September 30, 1998. Negotiations have commenced to determine the scope of any
services to be acquired in the future and the cost of such services. It is
expected that a new agreement will be executed prior to September 30, 1998.
GENERAL FINANCIAL ANALYSIS
1997 VERSUS 1996
Sales of the Company's metalworking and aftermarket businesses increased
six percent to approximately $922 million from $869 million in 1996. Total sales
for 1997, however, declined to approximately $922 million from $1.3 billion in
1996, reflecting the previously announced disposition of certain businesses.
Income after preferred stock dividends in 1997 was $109 million or $2.12
per common share. Results in 1997 include pre-tax gains approximating $83
million principally related to the disposition of the Company's equity ownership
interest in Emco Limited, gains from the Company's marketable securities
portfolio and income resulting from equity transactions by affiliates. These
gains were partially offset by costs and expenses of approximately $24 million
pre-tax related to plant closure costs, the Company's share of special charges
recorded by equity affiliates, write-off of deferred charges, and employee
termination and other expenses. Excluding the gains and unusual costs, income
after preferred stock dividends in 1997 would have been approximately $73
million, or $1.50 per common share.
Income after preferred stock dividends in 1996 was $38.7 million or $.72
per common share. Results in 1996 include an after-tax loss of approximately $26
million related to the sale of the Company's heavy-gauge stamping operations
(MSTI), which more than offset after-tax income of approximately $11.7 million
related to the cumulative effect of an accounting change. Excluding the above
items, income in 1996 after preferred stock dividends would have been
approximately $53 million or $.98 per common share.
Operating profit in 1997 for the Company's metalworking and aftermarket
businesses, before general corporate expense, decreased to approximately $119
million from $136 million in 1996. Although 1997 results benefitted from
increased sales in the Company's transportation-related businesses, operating
performance was negatively impacted by work stoppages at certain North American
vehicle manufacturers, costs and expenses as a result of a strike at one of the
Company's manufacturing facilities and higher than anticipated product start-up
costs. Businesses sold had operating losses before general corporate expense and
gains (charge) on disposition of businesses, net of approximately $13 million
for 1996.
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In late 1996, the Company announced the planned sale of the Company's
Technical Services Group. Net assets of businesses held for sale decreased by
approximately $109 million during 1997 as a result of the sale which occurred on
January 3, 1997.
Other income (expense), net in 1997, was income of approximately $89
million as compared with income of approximately $8 million in 1996. Results for
1997 benefitted from a gain on the disposition of an equity affiliate, gains
from the Company's marketable securities portfolio, higher equity and interest
income from affiliates and income resulting from equity transactions by
affiliates. This income was partially offset by higher interest expense in 1997.
1996 VERSUS 1995
Sales of the Company's metalworking and aftermarket businesses increased
eight percent from 1995 to approximately $869 million, while sales of the
Company's businesses held for sale or sold decreased approximately 53 percent
from the comparable period in 1995 as a result of the disposition of a number of
such businesses. Sales for 1996 declined to $1.3 billion from $1.7 billion in
1995, reflecting the previously announced disposition of certain businesses.
Income after preferred stock dividends in 1996 was $38.7 million or $.72
per common share. Results in 1996 include an after-tax loss of approximately $26
million related to the sale of the Company's heavy-gauge stamping operations
(MSTI) which more than offset after-tax income of approximately $11.7 million
related to the cumulative effect of an accounting change. Income after preferred
stock dividends in 1995 was $46.2 million or $.81 per common share.
Operating profit in 1996 for the metalworking and aftermarket businesses,
before general corporate expense, increased to approximately $136 million from
$116 million in 1995, resulting from increased volume and the reduction of
launch and start-up costs and expenses related to the Company's capital
expansion programs. Businesses held for sale or sold (including MSTI and TSG)
had operating income (losses) before general corporate expense and gains
(charge) on disposition of businesses, net of approximately $(13) million and $5
million for 1996 and 1995, respectively.
In December 1994, the Company announced the planned disposition of a number
of businesses, including its architectural products, defense and certain of its
transportation-related products and services businesses, as part of its
long-term strategic plan to increase the focus on its core operating
capabilities. During 1995 and 1996, the Company completed the disposition of
such businesses for proceeds aggregating approximately $400 million. Net assets
of businesses held for sale decreased by approximately $167 million during 1996
as a result of the disposition of such businesses and from the reduction of
assets employed in these businesses through operating activity, asset sales and
the redeployment of certain assets. Net assets of businesses held for sale at
December 31, 1996 reflect the net assets of the Company's Technical Services
Group and APX International which were sold January 3, 1997.
In 1995, the Company sold businesses in transactions which resulted in net
gains of approximately $25 million. These net gains were substantially offset by
reductions in the estimated net proceeds that the Company expected to receive
from certain businesses remaining to be sold, aggregating approximately $12
million, and by certain exit costs related to the businesses sold or held for
sale incurred in 1995 aggregating approximately $8 million.
Other income (expense), net in 1996, was income of approximately $8 million
as compared with expense of approximately $9 million in 1995. Results for 1996
benefitted from reduced interest expense as proceeds from the disposition of
businesses were applied to reduce the Company's indebtedness as well as from
increased earnings from equity affiliates. Results for 1995 were impacted by
pre-tax income of approximately $5 million as a result of gains associated with
the sale of common stock through a public offering by an equity affiliate.
The Company's 1996 effective tax rate differs from the statutory rate
principally because a significant portion of the loss on the sale of the
heavy-gauge stamping operations does not result in a tax benefit.
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FORWARD-LOOKING STATEMENTS
This discussion and other sections of this annual report contain statements
reflecting the Company's views about its future performance and constitute
"forward-looking statements." These views involve risks and uncertainties that
are difficult to predict and may cause the Company's actual results to differ
significantly from the results discussed in such forward-looking statements.
Readers should consider that various factors may affect the Company's ability to
attain the projected performance, including; conditions within the markets in
which the Company competes, the cyclical nature of the automobile industry in
general, changes in the costs of raw materials, labor relations of the Company
and certain of its customers, the ability to supply new and existing products on
a timely, cost-effective basis, financial results of the Company's equity
investments, and general economic conditions. The Company undertakes no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events or otherwise.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of MascoTech, Inc.:
We have audited the accompanying consolidated balance sheet of MascoTech,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income and cash flows for each of the three years in
the period ended December 31, 1997 and the financial statement schedule as
listed in Item 14(a)(2)(i) of this Form 10-K. These financial statements and the
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of MascoTech, Inc.
and subsidiaries as of December 31, 1997 and 1996, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.
As discussed in the footnotes to the consolidated financial statements,
effective January 1, 1996, the Company changed its method of accounting for the
impairment of long-lived assets and for long-lived assets to be disposed of.
COOPERS & LYBRAND L.L.P.
Detroit, Michigan
February 17, 1998
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MASCOTECH, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
-------------- --------------
Current assets:
Cash and cash investments................................. $ 41,110,000 $ 19,400,000
Marketable securities..................................... 45,970,000 37,760,000
Receivables............................................... 125,930,000 127,530,000
Inventories............................................... 73,860,000 69,640,000
Deferred and refundable income taxes...................... 36,270,000 39,180,000
Prepaid expenses and other assets......................... 13,310,000 14,480,000
Net current assets of businesses held for disposition..... -- 85,980,000
-------------- --------------
Total current assets................................. 336,450,000 393,970,000
Equity and other investments in affiliates.................. 263,300,000 282,470,000
Property and equipment, net................................. 417,030,000 388,460,000
Excess of cost over net assets of acquired companies........ 65,610,000 69,140,000
Notes receivable and other assets........................... 62,290,000 45,950,000
Net non-current assets of businesses held for disposition... -- 22,850,000
-------------- --------------
Total assets......................................... $1,144,680,000 $1,202,840,000
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 67,240,000 $ 58,170,000
Accrued liabilities....................................... 114,650,000 96,910,000
Current portion of long-term debt......................... 2,880,000 3,370,000
-------------- --------------
Total current liabilities............................ 184,770,000 158,450,000
Long-term debt held by Masco Corporation.................... -- 151,380,000
Convertible subordinated debentures......................... 310,000,000 310,000,000
Other long-term debt........................................ 282,000,000 291,020,000
Deferred income taxes and other long-term liabilities....... 157,250,000 153,170,000
-------------- --------------
Total liabilities.................................... 934,020,000 1,064,020,000
-------------- --------------
Shareholders' equity:
Preferred stock, $1 par:
Authorized: 25 million; Outstanding: 10.8 million in
1996................................................. -- 10,800,000
Common stock, $1 par:
Authorized: 250 million; Outstanding: 47.3 million and
37.3 million......................................... 47,250,000 37,250,000
Paid-in capital........................................... 34,340,000 41,080,000
Retained earnings......................................... 157,790,000 61,060,000
Other..................................................... 4,160,000 14,770,000
Less: Restricted stock awards............................. (32,880,000) (26,140,000)
-------------- --------------
Total shareholders' equity........................... 210,660,000 138,820,000
-------------- --------------
Total liabilities and shareholders' equity........... $1,144,680,000 $1,202,840,000
============== ==============
The accompanying notes are an integral part of the consolidated financial
statements.
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MASCOTECH, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
------------- --------------- ---------------
Net sales.................................... $ 922,130,000 $ 1,281,220,000 $ 1,678,210,000
Cost of sales................................ (735,470,000) (1,048,110,000) (1,397,880,000)
------------- --------------- ---------------
Gross profit............................ 186,660,000 233,110,000 280,330,000
Selling, general and administrative
expenses................................... (89,930,000) (132,260,000) (176,810,000)
Gains (charge) on disposition of businesses,
net........................................ 4,980,000 (31,520,000) 5,290,000
------------- --------------- ---------------
Operating profit........................ 101,710,000 69,330,000 108,810,000
------------- --------------- ---------------
Other income (expense), net:
Interest expense, Masco Corporation........ (7,500,000) -- --
Other interest expense..................... (29,030,000) (29,970,000) (49,900,000)
Equity and other income from affiliates.... 43,360,000 40,460,000 31,420,000
Gain from disposition of an equity
affiliate............................... 46,160,000 -- --
Gains from changes in investments in equity
affiliates.............................. 18,190,000 -- 5,100,000
Other, net................................. 17,400,000 (2,600,000) 4,850,000
------------- --------------- ---------------
88,580,000 7,890,000 (8,530,000)
------------- --------------- ---------------
Income before income taxes and
cumulative effect of accounting
change, net........................... 190,290,000 77,220,000 100,280,000
Income taxes................................. 75,050,000 37,300,000 41,090,000
------------- --------------- ---------------
Income before cumulative effect of
accounting change, net................ 115,240,000 39,920,000 59,190,000
Cumulative effect of accounting change (net
of income taxes)........................... -- 11,700,000 --
------------- --------------- ---------------
Net income.............................. $ 115,240,000 $ 51,620,000 $ 59,190,000
============= =============== ===============
Preferred stock dividends.................... $ 6,240,000 $ 12,960,000 $ 12,960,000
============= =============== ===============
Earnings attributable to common stock... $ 109,000,000 $ 38,660,000 $ 46,230,000
============= =============== ===============
BASIC DILUTED BASIC DILUTED BASIC DILUTED
----- ------- ----- ------- ----- -------
Earnings per share:
Income before cumulative effect of
accounting change, net.............. $2.70 $2.12 $.54 $.50 $.85 $.81
Cumulative effect of accounting
change, net......................... -- -- .23 .22 -- --
----- ----- ---- ---- ---- ----
Earnings attributable to common
stock............................... $2.70 $2.12 $.77 $.72 $.85 $.81
===== ===== ==== ==== ==== ====
The accompanying notes are an integral part of the consolidated financial
statements.
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MASCOTECH, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995
------------ ------------- -------------
CASH FROM (USED FOR):
OPERATING ACTIVITIES:
Net income.................................. $115,240,000 $ 51,620,000 $ 59,190,000
Adjustments to reconcile net income to net
cash provided by operating activities,
excluding reclassification of businesses
held for disposition:
(Gains) charge on disposition of
businesses, net........................ (4,980,000) 31,520,000 (5,290,000)
Gains from changes in investments in
equity affiliates...................... (18,190,000) -- (5,100,000)
Gain from disposition of an equity
affiliate.............................. (46,160,000) -- --
Depreciation and amortization............. 43,460,000 44,470,000 47,070,000
Equity earnings, net of dividends......... (27,180,000) (31,650,000) (23,360,000)
Deferred income taxes..................... 17,520,000 8,640,000 51,330,000
(Increase) decrease in marketable
securities, net........................ (8,210,000) (24,890,000) 57,990,000
Decrease (increase) in receivables........ 2,670,000 10,200,000 (21,910,000)
Decrease in inventories................... 1,950,000 19,190,000 4,650,000
(Increase) decrease in prepaid expenses
and other current assets............... (1,280,000) 38,650,000 (1,900,000)
Increase (decrease) in accounts payable
and accrued liabilities................ 11,140,000 9,320,000 (9,070,000)
Other, net................................ (7,480,000) (8,820,000) 2,390,000
Net assets of businesses held for
disposition, net, including cumulative
effect of accounting change............... -- (19,240,000) 2,190,000
------------ ------------- -------------
Net cash from operating activities... 78,500,000 129,010,000 158,180,000
------------ ------------- -------------
FINANCING ACTIVITIES:
Increase in debt............................ 7,080,000 5,220,000 79,460,000
Payment of debt............................. (16,590,000) (114,900,000) (253,770,000)
Payment of note due to Masco Corporation.... (45,580,000) -- --
Retirement of preferred stock............... (8,360,000) -- --
Retirement of Company Common Stock.......... (6,610,000) (14,040,000) (13,130,000)
Repurchase of Company Common Stock and
warrants from Masco Corporation for
cash...................................... -- (116,000,000) --
Payment of dividends........................ (15,900,000) (22,940,000) (21,000,000)
Other, net.................................. (9,070,000) (8,610,000) (2,250,000)
------------ ------------- -------------
Net cash used for financing
activities........................ (95,030,000) (271,270,000) (210,690,000)
------------ ------------- -------------
INVESTING ACTIVITIES:
Cash received from sale of businesses....... 76,560,000 223,720,000 122,190,000
Acquisition of businesses................... (11,100,000) (47,200,000) (23,850,000)
Capital expenditures........................ (54,780,000) (42,390,000) (95,800,000)
Receipt of cash from notes receivable....... 17,330,000 9,300,000 6,570,000
Other, net.................................. 10,230,000 1,850,000 (2,170,000)
------------ ------------- -------------
Net cash from investing activities... 38,240,000 145,280,000 6,940,000
------------ ------------- -------------
CASH AND CASH INVESTMENTS:
Increase (decrease) for the year............ 21,710,000 3,020,000 (45,570,000)
At January 1................................ 19,400,000 16,380,000 61,950,000
------------ ------------- -------------
At December 31....................... $ 41,110,000 $ 19,400,000 $ 16,380,000
============ ============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
20
22
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTING POLICIES:
Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and all majority-owned subsidiaries. All significant
intercompany transactions have been eliminated. Corporations that are 20 to 50
percent owned are accounted for by the equity method of accounting; ownership
less than 20 percent is accounted for on the cost basis unless the Company
exercises significant influence over the investee. Capital transactions by
equity affiliates, which change the Company's ownership interest at amounts
differing from the Company's carrying amount, are reflected in other income or
expense and the investment in affiliates account.
The consolidated balance sheet at December 31, 1996 reflects the
segregation of net current and net non-current assets related to the disposition
of the Company's Technical Services Group ("TSG").
The Company has a corporate services agreement with Masco Corporation,
which at December 31, 1997 owned approximately 17 percent of the Company's
Common Stock. Under the terms of the agreement, the Company pays fees to Masco
Corporation for various corporate staff support and administrative services,
research and development and facilities. Such fees, which are determined
principally as a percentage of net sales, aggregated approximately $5.5 million
in 1997, $7.1 million in 1996, and $9.1 million in 1995.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements. Such estimates and assumptions also affect the reported amounts of
revenues and expenses during the reporting periods. Actual results may differ
from such estimates and assumptions.
Cash and Cash Investments. The Company considers all highly liquid debt
instruments with an initial maturity of three months or less to be cash and cash
investments. The carrying amount reported in the balance sheet for cash and cash
investments approximates fair value.
Marketable Securities. The Company's marketable equity securities holdings
are categorized as trading and, as a result, are stated at fair value. Changes
in the fair value of trading securities are recognized in earnings. Derivative
financial instruments, consisting principally of S&P futures contracts, are held
for purposes other than trading and are carried at market value. Changes in
market value of outstanding futures contracts are recognized in earnings.
Receivables. Receivables are presented net of allowances for doubtful
accounts of approximately $1.2 million and $2.0 million at December 31, 1997 and
1996, respectively.
Inventories. Inventories are stated at the lower of cost or net realizable
value, with cost determined principally by use of the first-in, first-out
method.
Property and Equipment, Net. Property and equipment additions, including
significant betterments, are recorded at cost. Upon retirement or disposal of
property and equipment, the cost and accumulated depreciation are removed from
the accounts, and any gain or loss is included in income. Repair and maintenance
costs are charged to expense as incurred.
Depreciation and Amortization. Depreciation is computed principally using
the straight-line method over the estimated useful lives of the assets. Annual
depreciation rates are as follows: buildings and land improvements, 2 1/2 to 10
percent, and machinery and equipment, 6 2/3 to 33 1/3 percent. Deferred
financing costs are amortized over the lives of the related debt securities. The
excess of cost over net assets of acquired companies is amortized using the
straight-line method over the period estimated to be benefitted, not exceeding
40 years. At each balance sheet date, management assesses whether there has been
a permanent impairment of the excess of cost over net assets of acquired
companies by comparing anticipated undiscounted future cash flows from operating
activities with the carrying amount of the excess of cost over net assets of
21
23
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
acquired companies. The factors considered by management in performing this
assessment include current operating results, business prospects, market trends,
potential product obsolescence, competitive activities and other economic
factors. Based on this assessment, there was no permanent impairment related to
the excess of cost over net assets of acquired companies at December 31, 1997.
At December 31, 1997 and 1996, accumulated amortization of the excess of
cost over net assets of acquired companies and patents was $33.2 million and
$29.4 million, respectively. Amortization expense was $9.3 million, $8.5 million
and $13.7 million in 1997, 1996 and 1995, respectively.
Income Taxes. The Company records income taxes in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 109 ("SFAS No. 109"), "Accounting
for Income Taxes." SFAS No. 109 is an asset and liability approach that requires
the recognition of deferred tax assets and liabilities for the expected future
tax consequences of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences, SFAS No. 109
generally allows consideration of all expected future events other than
enactments of changes in the tax law or tax rates. A provision has not been made
for U.S. or additional foreign withholding taxes on approximately $49 million of
undistributed earnings of foreign subsidiaries as those earnings are intended to
be permanently reinvested. Generally, such earnings become subject to U.S. tax
upon the remittance of dividends and under certain other circumstances. It is
not practicable to estimate the amount of deferred tax liability on such
undistributed earnings.
New Accounting Pronouncements and Reclassifications. At December 31, 1997,
the Company adopted SFAS No. 128, "Earnings Per Share," which replaces the
presentation of primary and fully diluted earnings per share, as computed under
Accounting Principles Board Opinion No. 15, with a presentation of basic and
diluted earnings per share. The financial statements have been retroactively
restated to conform with the earnings per share presentation required under SFAS
No. 128.
In addition, the Company has reclassified the unamortized cost of unvested
restricted stock awards from other assets to a separate component of
shareholders' equity (see "Stock Options and Awards" note). Prior periods have
been reclassified to conform to this and other presentations adopted in calendar
year 1997.
At January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
which resulted in a pre-tax gain (because the fair value of the businesses being
held for sale at January 1, 1996 exceeded the carrying value for such
businesses) of $16.7 million ($11.7 million after-tax), recorded as the
cumulative effect of an accounting change. The pro forma effect of the
retroactive application of the change on the financial statements for 1995 has
not been presented because the new method did not have a material effect on the
reported earnings.
In 1998, the Company will adopt the disclosure requirements of SFAS No.
130, "Reporting of Comprehensive Income," SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information," and SFAS No. 132,
"Employers' Disclosure about Pensions and Other Postretirement Benefits." The
adoption of these disclosures will not impact earnings per common share in 1998.
22
24
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EARNINGS PER SHARE:
The following are reconciliations of the numerators and denominators used
in the computations of basic and diluted earnings per share:
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
1997 1996 1995
-------- -------- --------
Weighted average number of shares outstanding............... 40,300 50,190 54,090
======== ======== ========
Income before cumulative effect of accounting change, net... $115,240 $ 39,920 $ 59,190
Less preferred stock dividends.............................. (6,240) (12,960) (12,960)
-------- -------- --------
Earnings used for basic earnings per share
computation....................................... $109,000 $ 26,960 $ 46,230
======== ======== ========
Basic earnings per share before cumulative effect of
accounting change, net.................................... $2.70 $.54 $.85
======== ======== ========
Total shares used for basic earnings per share
computation............................................... 40,300 50,190 54,090
Dilutive securities:
Stock options and warrants................................ 1,250 1,430 860
Assumed conversion of preferred stock at January 1,
1997................................................... 5,210 -- --
Convertible debentures.................................... 10,000 -- --
Contingently issuable shares.............................. 2,160 2,170 2,100
-------- -------- --------
Total shares used for diluted earnings per share
computation....................................... 58,920 53,790 57,050
======== ======== ========
Earnings used for basic earnings per share computation...... $109,000 $ 26,960 $ 46,230
Add back of preferred stock dividends....................... 6,240 -- --
Add back of debenture interest.............................. 9,530 -- --
-------- -------- --------
Earnings used for diluted earnings per share
computation....................................... $124,770 $ 26,960 $ 46,230
======== ======== ========
Diluted earnings per share before cumulative effect of
accounting change, net.................................... $2.12 $.50 $.81
======== ======== ========
Diluted earnings per share reflect the potential dilution that would occur
if securities or other contracts to issue common stock were exercised or
converted into common stock. The Company's preferred stock and convertible
debentures did not have a dilutive effect on earnings per share in 1996 and
1995.
SUPPLEMENTARY CASH FLOWS INFORMATION:
Significant transactions not affecting cash were: in 1997: the conversion
of the Company's outstanding shares of Dividend Enhanced Convertible Preferred
Stock on June 27, 1997 for approximately 10 million shares of Company Common
Stock (see "Shareholders' Equity" note); the exchange of approximately 9.9
million shares of the outstanding common stock of Emco Limited ("Emco") with a
value of approximately $106 million, in addition to the cash payment of
approximately $46 million, in payment of a promissory note due to Masco
Corporation; in 1996: in addition to cash received, approximately $25 million
comprised of both common stock and warrants (with a portion of the common stock
subsequently sold for approximately $14 million of cash), as consideration from
the sale of MascoTech Stamping Technologies, Inc.; in addition to the cash
payment by the Company of $121 million, notes approximating $159 million were
issued for the purchase of 18 million shares of the Company's Common Stock and
warrants to purchase 10 million shares of the Company's Common Stock (see
"Shareholders' Equity" note); in 1995: in addition to cash received,
approximately $34 million comprised of both notes receivable due from, and a 29
percent equity interest in, the acquiring company, as consideration for a
non-core business unit.
23
25
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Income taxes paid (refunded) were $44 million, $(12) million and $11
million in 1997, 1996 and 1995, respectively. Interest paid was $39 million, $30
million and $55 million in 1997, 1996 and 1995, respectively.
DISPOSITIONS OF OPERATIONS:
In late 1994, the Company adopted a plan to dispose, by sale or
liquidation, a number of businesses, including its architectural products,
defense and certain of its transportation-related products and services
businesses, as part of its long-term strategic plan to increase the focus on its
core operating capabilities. The Company has completed the disposition of such
businesses.
During 1995, the Company divested a number of such businesses, in separate
transactions, for aggregate proceeds of approximately $180 million, which
resulted in net gains of approximately $25 million. These net gains were
substantially offset by reductions in the estimated net proceeds the Company
expected to receive from certain remaining businesses to be sold, aggregating
approximately $12 million, and by certain exit costs incurred in 1995
aggregating approximately $8 million.
In May 1996, the Company sold MascoTech Stamping Technologies, Inc.
("MSTI"), a wholly owned subsidiary, to Tower Automotive, Inc. ("Tower")
resulting in an after-tax loss of approximately $26 million ($.49 per common
share), including after-tax losses of approximately $1 million related to the
closure of a MSTI manufacturing facility not included in the sale. The Company
received initial consideration of approximately $80 million, consisting
principally of $55 million in cash, 785,000 shares of Tower common stock and
warrants to purchase additional Tower common stock (200,000 shares at $18 per
share expiring May 31, 1999). The Company applied the cash proceeds (including
approximately $14 million received from the subsequent sale of 600,000 shares of
Tower common stock) to reduce its indebtedness. The Company may receive
additional consideration (up to $30 million), of which approximately $5 million
was earned in 1997, contingent upon the future earnings of MSTI through May 31,
1999.
On January 3, 1997, the Company sold its Technical Services Group
(comprised of the Company's engineering and technical business services units)
to MSX International, Inc. Also included in this transaction were the net assets
of APX International which were acquired by the Company in November 1996 for
approximately $44 million. The sale resulted in total proceeds to the Company of
approximately $145 million, subject to certain adjustments, consisting of cash,
$30 million of subordinated debentures, $18 million of preferred stock and an
approximate 45 percent common equity interest in MSX International, Inc. valued
at $2 million. In January 1998, the Company received $48 million of cash from
MSX International, Inc. in payment of the subordinated debentures and other
amounts due MascoTech resulting in a realized gain in the first quarter 1998
(gain recognition was deferred at the time of the transaction pending cash
receipt) of approximately $7 million. The remaining deferred gain of
approximately $20 million will be recognized upon the liquidation of the common
and preferred stock holdings for cash. The net assets of the Technical Services
Group and APX International are reflected on the consolidated balance sheet as
net assets of businesses held for disposition at December 31, 1996. The Company
did not reflect any revenues or expenses in the consolidated statement of income
related to APX International from the date of acquisition through January 3,
1997 as control was deemed to be temporary.
The disposition of businesses did not meet the criteria for discontinued
operations treatment for accounting purposes; accordingly, the sales and results
of operations of these businesses were included in continuing operations until
disposition. Businesses held for sale or sold, including MSTI and TSG, had sales
of $0, $412 million and $874 million in 1997, 1996 and 1995, respectively, and
operating income (losses) before gains (charge) on disposition of businesses,
net of $0, $(13) million and $5 million in 1997, 1996 and 1995, respectively.
24
26
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Amounts included in the consolidated balance sheet for net assets of
businesses held for disposition consist of the following at December 31, 1996:
(IN THOUSANDS)
1996
--------
Receivables................................................. $ 59,110
Other current assets........................................ 46,050
Current liabilities......................................... (19,180)
--------
Net current assets..................................... 85,980
--------
Property and equipment, net................................. 22,090
Other non-current assets and liabilities, net............... 760
--------
Net non-current assets................................. 22,850
--------
Net assets of businesses held for disposition.......... $108,830
========
INVENTORIES:
(IN THOUSANDS)
AT DECEMBER 31
------------------
1997 1996
------- -------
Finished goods............................................. $22,160 $21,020
Work in process............................................ 22,990 20,360
Raw material............................................... 28,710 28,260
------- -------
$73,860 $69,640
======= =======
EQUITY AND OTHER INVESTMENTS IN AFFILIATES:
Equity and other investments in affiliates consist primarily of the
following common stock interests in publicly traded affiliates:
AT DECEMBER 31
--------------------
1997 1996 1995
---- ---- ----
TriMas Corporation.......................................... 37% 41% 41%
Emco Limited................................................ -- 43% 43%
Titan International, Inc. .................................. 15% 12% 15%
Delco Remy International, Inc. (voting)..................... 18% 26% 25%
TriMas Corporation ("TriMas") is a diversified manufacturer of commercial,
industrial and consumer products (see "Subsequent Event" note). Emco Limited
("Emco") is a Canadian-based manufacturer and distributor of building and other
industrial products. Titan International, Inc. ("Titan") is a manufacturer of
wheels, tires and other products for agricultural, construction and off-highway
equipment markets. Delco Remy International, Inc. ("DRI") is a manufacturer of
automotive electronic motors and other components.
25
27
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The carrying amount of investments in affiliates at December 31, 1997 and
1996 and quoted market values at December 31, 1997 for publicly traded
affiliates (which may differ from the amounts that could have been realized upon
disposition) are as follows:
(IN THOUSANDS)
1997
QUOTED 1997 1996
MARKET CARRYING CARRYING
VALUE AMOUNT AMOUNT
-------- -------- --------
Common stock:
TriMas Corporation............................ $522,190 $137,740 $101,880
Emco Limited.................................. -- -- 49,400
Titan International, Inc. .................... 66,110 44,080 42,280
Delco Remy International, Inc. ............... 37,820 9,320 10,440
-------- -------- --------
Common stock holdings........................... 626,120 191,140 204,000
Subordinated debt of Emco Limited............... 35,130
--------
Investments in publicly traded affiliates....... $626,120 191,140 239,130
========
Other non-public affiliates..................... 72,160 43,340
-------- --------
Total........................................... $263,300 $282,470
======== ========
In June 1995, Titan sold newly issued common stock in a public offering and
issued common stock as a result of the conversion of convertible securities. The
Company recognized pre-tax income of approximately $5.1 million as a result of
the change in the Company's common equity ownership interest in Titan. In
December 1996, Titan called for redemption its 4 3/4% Convertible Subordinated
Notes which resulted in the issuance of approximately 4.5 million common shares,
reducing the Company's common equity ownership interest in Titan to
approximately 12 percent. As a result, the investment in Titan at December 31,
1996 was accounted for as available-for-sale. In March 1997, Titan repurchased
approximately 5.6 million shares of its common stock, increasing the Company's
common equity ownership interest in Titan to approximately 15 percent. As a
result, the investment in Titan has been accounted for under the equity method
of accounting.
In March 1997, TriMas called for redemption its 5% Convertible Subordinated
Debentures which resulted in the issuance of approximately 4.7 million common
shares, reducing the Company's common equity ownership in TriMas to
approximately 37 percent. The Company recognized pre-tax income of approximately
$13 million as a result of the change in the Company's common equity ownership
interest in TriMas.
In September 1997, the Company exercised its option and exchanged its
equity holdings in Emco, with a value approximating $106 million, and
approximately $46 million in cash to satisfy the indebtedness to Masco
Corporation incurred in 1996 in connection with the Company's purchase and
retirement of certain of its securities held by Masco Corporation. This
transaction resulted in a pre-tax gain of approximately $46 million. In
addition, the Company has an investment in Emco subordinated notes which are
classified as available-for-sale and, as a result, are recorded at fair value.
As a result of the sale of Emco equity, the Emco subordinated notes were
reclassified to other assets in 1997. The Company has recorded unrealized gains
of approximately $1 million and $2 million in 1997 and 1996, respectively, which
have been recorded as an adjustment to shareholders' equity.
In December 1997, DRI completed an initial public offering reducing the
Company's common equity ownership interest in DRI to approximately 12 percent on
a diluted basis (the Company owns approximately 18 percent of the voting common
stock). As a result of the change in the Company's common equity ownership
interest in DRI, the Company recognized pre-tax income of approximately $5
million.
26
28
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In addition to its equity and other investments in publicly traded
affiliates, the Company has equity and other investment interests in privately
held automotive related companies, including the Company's common equity
ownership in Saturn Electronics & Engineering, Inc., a manufacturer of
electromechanical and electronic automotive components, and MSX International,
Inc., a transportation-focused engineering and technical services company.
Equity in undistributed earnings of affiliates of $68 million at December
31, 1997, $57 million at December 31, 1996 and $38 million at December 31, 1995
are included in consolidated retained earnings.
Approximate combined condensed financial data of the Company's equity
affiliates accounted for under the equity method are as follows:
(IN THOUSANDS)
AT DECEMBER 31
-----------------------
1997 1996
---------- ---------
Current assets......................................... $1,117,940 $ 839,250
Current liabilities.................................... (520,900) (342,980)
---------- ---------
Working capital...................................... 597,040 496,270
Property and equipment, net............................ 612,060 453,350
Excess of cost over net assets of acquired companies... 371,190 257,160
Other assets........................................... 145,000 78,990
Long-term debt......................................... (702,390) (655,370)
Deferred income taxes and other long-term
liabilities.......................................... (82,610) (73,680)
---------- ---------
Shareholders' equity................................. $ 940,290 $ 556,720
========== =========
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31
--------------------------------------
1997 1996 1995
---------- ---------- ----------
Net sales.................................. $3,484,540 $2,959,980 $2,729,260
========== ========== ==========
Operating profit........................... $ 264,590 $ 269,440 $ 235,510
========== ========== ==========
Earnings attributable to common stock...... $ 108,230 $ 128,820 $ 92,700
========== ========== ==========
Equity and other income from affiliates consists of the following:
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31
--------------------------------
1997 1996 1995
-------- -------- --------
The Company's equity in affiliates' earnings
available for common shareholders................ $31,330 $35,190 $26,230
Interest and dividend income....................... 12,030 5,270 5,190
------- ------- -------
Equity and other income from affiliates............ $43,360 $40,460 $31,420
======= ======= =======
27
29
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PROPERTY AND EQUIPMENT, NET:
(IN THOUSANDS)
AT DECEMBER 31
----------------------
1997 1996
-------- --------
Cost:
Land and land improvements............................ $ 19,820 $ 17,530
Buildings............................................. 116,270 109,730
Machinery and equipment............................... 545,590 513,010
-------- --------
681,680 640,270
Less accumulated depreciation........................... 264,650 251,810
-------- --------
$417,030 $388,460
======== ========
Depreciation expense totalled $34 million, $37 million and $38 million in
1997, 1996 and 1995, respectively.
ACCRUED LIABILITIES:
(IN THOUSANDS)
AT DECEMBER 31
---------------------
1997 1996
-------- -------
Salaries, wages and commissions.......................... $ 17,690 $15,930
Income taxes............................................. 7,760 2,810
Interest................................................. 1,740 4,050
Insurance................................................ 24,740 33,940
Property, payroll and other taxes........................ 3,340 5,500
Other.................................................... 59,380 34,680
-------- -------
$114,650 $96,910
======== =======
28
30
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LONG-TERM DEBT:
(IN THOUSANDS)
AT DECEMBER 31
----------------------
1997 1996
-------- --------
6 5/8% Note held by Masco Corporation................... $ -- $151,380
4 1/2% Convertible Subordinated Debentures, due 2003 and
convertible into Company Common Stock at $31 per
share................................................. 310,000 310,000
Bank revolving credit agreement......................... 245,000 250,000
Other................................................... 39,880 44,390
-------- --------
594,880 755,770
Less current portion of long-term debt.................. 2,880 3,370
-------- --------
Long-term debt.......................................... $592,000 $752,400
======== ========
The interest rates applicable to the Company's revolving credit agreement
at December 31, 1997 are principally at alternative floating rates provided for
in the agreement (approximately six percent at December 31, 1997).
In connection with the TriMas acquisition in early 1998 (see "Subsequent
Event" note), the Company entered into a new $1.3 billion credit facility. This
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
amounts due in 1998 on a long-term basis.
The interest rates applicable to the new credit facility are principally at
alternative floating rates which would have approximated 6.5 percent at December
31, 1997. The new credit facility requires the maintenance of a specified level
of shareholders' equity plus subordinated debt, with limitations on the ratios
of total debt to cash flow (as defined) and cash flow less capital expenditures
(as defined) to interest plus scheduled debt payments. In addition, there are
limitations on dividends, share repurchases and subordinated debt repurchases.
Under the most restrictive of these provisions, approximately $40 million would
have been available at December 31, 1997 for the payment of cash dividends and
the acquisition of Company capital stock. The facility is collateralized by a
pledge of the stock of TriMas.
The note held by Masco Corporation was part of the consideration paid by
the Company in 1996 for the purchase of 17 million shares of MascoTech common
stock and warrants to purchase 10 million shares of MascoTech common stock from
Masco Corporation. In September 1997, the Company exercised its option and
exchanged its equity holdings in Emco Limited, with a value approximating $106
million, and approximately $46 million in cash to Masco Corporation to satisfy
this indebtedness.
The maturities of debt as at December 31, 1997 during the next five years
are as follows (not taking into account the new credit facility) (in millions):
1998 - $3; 1999 - $4; 2000 - $2; 2001 - $.7; and 2002 - $.5.
29
31
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SHAREHOLDERS' EQUITY:
(IN THOUSANDS)
RETAINED RESTRICTED
PREFERRED COMMON PAID-IN EARNINGS STOCK SHAREHOLDERS'
STOCK STOCK CAPITAL (DEFICIT) OTHER AWARDS EQUITY
--------- ------ ------- --------- ----- ---------- -------------
Balance, January 1, 1995... $ 10,800 $ 56,610 $ 318,960 $ (7,590) $ 2,360 $(19,050) $ 362,090
Net income............... -- -- -- 59,190 -- -- 59,190
Preferred stock
dividends............. -- -- -- (12,960) -- -- (12,960)
Common stock dividends... -- -- -- (6,260) -- -- (6,260)
Retirement of common
stock................. -- (1,210) (11,920) -- -- -- (13,130)
Translation adjustments,
net................... -- -- -- -- 6,210 -- 6,210
Exercise of stock
options............... -- 120 870 -- -- -- 990
Stock award purchases,
net of amortization... -- -- -- -- -- 2,000 2,000
-------- -------- --------- -------- -------- -------- ---------
Balance, December 31,
1995..................... 10,800 55,520 307,910 32,380 8,570 (17,050) 398,130
Net income............... -- -- -- 51,620 -- -- 51,620
Preferred stock
dividends............. -- -- -- (12,960) -- -- (12,960)
Common stock dividends... -- -- -- (9,980) -- -- (9,980)
Retirement of common
stock and warrants.... -- (18,720) (270,320) -- -- -- (289,040)
Translation adjustments
and other............. -- -- -- -- 6,200 -- 6,200
Exercise of stock
options............... -- 450 3,490 -- -- -- 3,940
Stock award purchases,
net of amortization... -- -- -- -- -- (9,090) (9,090)
-------- -------- --------- -------- -------- -------- ---------
Balance, December 31,
1996..................... 10,800 37,250 41,080 61,060 14,770 (26,140) 138,820
Net income............... -- -- -- 115,240 -- -- 115,240
Preferred stock
dividends............. -- 150 2,850 (6,240) -- -- (3,240)
Common stock dividends... -- -- -- (12,270) -- -- (12,270)
Retirement of common
stock................. -- (330) (6,280) -- -- -- (6,610)
Retirement of preferred
stock................. (450) -- (7,910) -- -- -- (8,360)
Conversion of outstanding
preferred stock....... (10,350) 9,750 600 -- -- -- --
Translation adjustments
and other............. -- -- -- -- (10,610) -- (10,610)
Exercise of stock
options............... -- 430 4,000 -- -- -- 4,430
Stock award purchases,
net of amortization... -- -- -- -- -- (6,740) (6,740)
-------- -------- --------- -------- -------- -------- ---------
Balance, December 31,
1997..................... -- $ 47,250 $ 34,340 $157,790 $ 4,160 $(32,880) $ 210,660
======== ======== ========= ======== ======== ======== =========
On June 27, 1997, the Company completed the conversion of all remaining
issued and outstanding shares of its Dividend Enhanced Convertible Preferred
Stock (DECS). Holders of DECS received in exchange for each share of DECS .955
of a share of the Company's Common Stock, par value $1.00 per share, resulting
in the issuance of approximately 10 million shares of Company Common Stock.
30
32
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
On October 31, 1996, the Company purchased from Masco Corporation 17
million shares of MascoTech common stock and warrants to purchase 10 million
shares of MascoTech common stock, for cash and notes approximating $266 million.
As part of this 1996 transaction, Richard A. Manoogian, Chairman of both Masco
Corporation and MascoTech, also sold to MascoTech one million shares of
MascoTech common stock (at the then current market price) for approximately
$13.6 million. In addition, as part of this transaction, Masco Corporation's
agreement to purchase from the Company, at the Company's option, up to $200
million of subordinated debentures was extended through 2002, and the corporate
services agreement with Masco Corporation was extended until September 30, 1998.
Masco Corporation also agreed that MascoTech will have the right of first
refusal to purchase the approximate 7.8 million shares of MascoTech common stock
that Masco Corporation continues to hold, should Masco Corporation decide to
dispose of such shares.
In addition, the Company repurchased and retired approximately .3 million
shares of its common stock and approximately .5 million shares of its preferred
stock in 1997, and approximately one million shares of its common stock in each
of 1996 and 1995 in open-market purchases, pursuant to a Board of Directors'
authorized repurchase program. At December 31, 1997, the Company may repurchase
approximately three million additional shares of Company Common Stock pursuant
to this repurchase authorization.
On the basis of amounts paid (declared), cash dividends per common share
were $.22 ($.28) in 1997, $.18 ($.18) in 1996 and $.14 ($.11) in 1995.
STOCK OPTIONS AND AWARDS:
The Company's Long Term Stock Incentive Plan (the "Plan") provides for the
issuance of stock-based incentives in various forms. At December 31, 1997,
outstanding stock-based incentives are in the form of restricted long-term stock
awards and stock options.
Pursuant to the Plan, the Company granted long-term stock awards, net, for
565,000, 480,000 and 461,000 shares of Company Common Stock during 1997, 1996
and 1995, respectively, to key employees of the Company and affiliated
companies. The weighted average fair value per share of long-term stock awards
granted during 1997, 1996 and 1995 on the date of grant was $19, $14 and $12,
respectively. Compensation expense for the vesting of long-term stock awards was
approximately $4.7 million, $2.3 million and $4.8 million in 1997, 1996 and
1995, respectively. The unamortized costs of unvested stock awards, aggregating
approximately $33 million at December 31, 1997, are being amortized over the
ten-year vesting periods and are a deduction from shareholders' equity.
Fixed stock options are granted to key employees of the Company and
affiliated companies and have a maximum term of 10 years. The exercise price of
each fixed option equals the market price of Company Common Stock on the date of
grant. These options either vest no later than 10 years after grant or in
installments beginning in the third year and extending through the eighth year
after grant.
31
33
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the status of the Company's stock options granted under the
Plan or prior plans for the three years ended December 31, 1997 is presented
below.
(SHARES IN THOUSANDS)
1997 1996 1995
----- ----- -----
Option shares outstanding, January 1........................ 4,290 3,440 3,620
Weighted average exercise price........................... $10 $ 8 $ 7
Option shares granted....................................... 80 1,370 --
Weighted average exercise price........................... $20 $15 --
Option shares exercised..................................... (500) (450) (120)
Weighted average exercise price........................... $ 8 $ 7 $ 7
Option shares canceled...................................... (100) (70) (60)
Weighted average exercise price........................... $16 $ 5 $ 5
Option shares outstanding, December 31...................... 3,770 4,290 3,440
Weighted average exercise price........................... $10 $10 $ 8
Weighted average remaining option term (in years)......... 4.7 5.3 4.4
Option shares exercisable, December 31...................... 1,430 1,710 1,640
Weighted average exercise price........................... $ 9 $ 9 $ 9
At December 31, 1997, options have been granted and are outstanding with
exercise prices ranging from $4 1/2 to $25 per share, the fair market values at
the dates of grant.
At December 31, 1997 and 1996, a combined total of 5,223,000 and 4,656,000
shares, respectively, of Company Common Stock were available for the granting of
options and incentive awards under the above plans.
The Company has elected to continue to apply the provisions of Accounting
Principles Board Opinion No. 25 and, accordingly, no stock option compensation
expense is included in the determination of net income in the statement of
income. The weighted average fair value on the date of grant of options granted
was $7.70 and $6.20 in 1997 and 1996, respectively. Had stock option
compensation expense been determined pursuant to the methodology of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," the pro forma effects on the Company's earnings per share would
have approximated $.02 and $.01 in 1997 and 1996, respectively, and had no
effect in 1995.
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions:
1997 1996 1995
----- ----- -----
Risk free interest rate................................ 6.5% 6.5% 7.3%
Dividend yield......................................... 1.4% 1.1% 1.1%
Volatility factor...................................... 35.0% 39.0% 39.0%
Expected option life (in years)........................ 5.5 5.5 5.5
EMPLOYEE BENEFIT PLANS:
Pension and Profit-Sharing Benefits. The Company sponsors defined-benefit
pension plans for most of its employees. In addition, substantially all salaried
employees participate in noncontributory profit-sharing plans, to which payments
are approved annually by the Directors. Aggregate charges to income under these
plans were $9 million in 1997, $11 million in 1996 and $13 million in 1995.
32
34
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net periodic pension cost for the Company's defined-benefit pension plans
includes the following components for the three years ended December 31, 1997:
(IN THOUSANDS)
1997 1996 1995
------- ------- -------
Service cost -- benefits earned during the year.... $ 3,480 $ 5,230 $ 4,680
Interest cost on projected benefit obligations..... 6,650 6,490 6,330
Actual return on assets............................ (2,830) (3,970) (6,540)
Net amortization and deferral...................... (2,790) (740) 1,600
------- ------- -------
Net periodic pension cost.......................... $ 4,510 $ 7,010 $ 6,070
======= ======= =======
Major assumptions used in accounting for the Company's defined-benefit
pension plans are as follows:
1997 1996 1995
----- ----- -----
Discount rate for obligations............................ 7.25% 7.50% 7.25%
Rate of increase in compensation levels.................. 5.00% 5.00% 5.00%
Expected long-term rate of return on plan assets......... 11.00% 11.00% 11.00%
The funded status of the Company's defined-benefit pension plans at
December 31, 1997 and 1996 is as follows:
(IN THOUSANDS)
1997 1996
----------- -----------
ACCUMULATED ACCUMULATED
BENEFITS BENEFITS
EXCEED EXCEED
RECONCILIATION OF FUNDED STATUS ASSETS ASSETS
------------------------------- ----------- -----------
Actuarial present value of benefit obligations:
Vested benefit obligation............................ $ 81,180 $ 72,450
======== ========
Accumulated benefit obligation....................... $ 87,830 $ 77,380
======== ========
Projected benefit obligation......................... $ 99,150 $ 89,620
Assets at fair value................................... 63,020 59,710
-------- --------
Projected benefit obligation in excess of plan
assets............................................ (36,130) (29,910)
Reconciling items:
Unrecognized net loss................................ 21,270 14,690
Unrecognized prior service cost...................... 8,290 8,050
Unrecognized net asset at transition................. (810) (930)
Adjustment required to recognize minimum liability... (17,580) (12,580)
-------- --------
Accrued pension cost................................... $(24,960) $(20,680)
======== ========
Postretirement Benefits. The Company provides postretirement medical and
life insurance benefits for certain of its active and retired employees.
The Company records its postretirement benefit plans in accordance with
Statement of Financial Accounting Standards No. 106 ("SFAS No. 106"),
"Employers' Accounting for Postretirement Benefits Other Than Pensions." This
statement requires the accrual method of accounting for postretirement health
care and life insurance based on actuarially determined costs to be recognized
over the period from the date of hire to the full eligibility date of employees
who are expected to qualify for such benefits. In conjunction with SFAS No. 106,
the Company recognizes the transition obligation on a prospective basis with the
net transition
33
35
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
obligation amortized over its remaining life. Net periodic postretirement
benefit cost includes the following components for the years ended December 31,
1997, 1996 and 1995:
(IN THOUSANDS)
1997 1996 1995
------ ------ ------
Service cost................................................ $ 300 $ 400 $ 300
Interest cost............................................... 1,400 1,600 1,900
Net amortization............................................ 700 800 1,100
------ ------ ------
Net periodic postretirement benefit cost.................... $2,400 $2,800 $3,300
====== ====== ======
Postretirement benefit obligations, none of which is funded, are summarized
as follows at December 31, 1997 and 1996:
(IN THOUSANDS)
1997 1996
-------- --------
Accumulated postretirement benefit obligations:
Retirees.................................................. $ 8,300 $ 13,900
Fully eligible active plan participants................... 500 800
Other active participants................................. 3,600 5,300
-------- --------
Total accumulated postretirement benefit obligation......... 12,400 20,000
Unrecognized prior service cost........................... (500) (300)
Unrecognized net gain..................................... 9,000 700
Unamortized transition obligation......................... (10,300) (11,000)
-------- --------
Accrued postretirement benefits............................. $ 10,600 $ 9,400
======== ========
The discount rate used in determining the accumulated postretirement
benefit obligation was 7.25 percent in both 1997 and 1996. The change in the
accumulated postretirement benefit obligation and the unrecognized net gain
amounts is the result of the change in the actuarial assumptions concerning the
health care cost trend rate. The assumed health care cost trend rate in 1997 was
nine percent, decreasing to an ultimate rate in the year 2007 of five percent.
If the assumed medical cost trend rates were increased by one percent, the
accumulated postretirement benefit obligation would increase by $.7 million and
the aggregate of the service and interest cost components of net periodic
postretirement benefit cost would increase by $.1 million.
34
36
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEGMENT INFORMATION:
The Company's business segments involve the sale of the following products
and services:
Transportation-Related Products and Services:
Precision products, generally produced using advanced metalworking
technologies with significant proprietary content, and
aftermarket products for the transportation industry.
Engineering and technical business services.
Specialty Products:
Other Industrial -- Principally doors, windows, security grilles and
office panels and partitions for commercial and residential
markets.
The Company's export sales approximated $71 million, $75 million and $85
million in 1997, 1996 and 1995, respectively.
Corporate assets consist primarily of cash and cash investments, marketable
securities, equity and other investments in affiliates and notes receivable.
35
37
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NET SALES OPERATING PROFIT(B)
---------------------------------- ------------------------------
1997 1996 1995 1997 1996 1995
-------- ---------- ---------- -------- -------- --------
The Company's operations by
industry segment are:
Transportation-Related Products
and Services(A)................. $922,000 $1,151,000 $1,340,000 $124,000 $ 90,000 $144,000
Specialty Products:
Other Industrial................ -- 130,000 338,000 -- 1,000 (3,000)
-------- ---------- ---------- -------- -------- --------
Total......................... $922,000 $1,281,000 $1,678,000 124,000 91,000 141,000
======== ========== ==========
Other income (expense), net....... 88,000 8,000 (9,000)
General corporate expense......... (22,000) (22,000) (32,000)
-------- -------- --------
Income before income taxes and
cumulative effect of accounting
change, net..................... $190,000 $ 77,000 $100,000
======== ======== ========
Corporate assets..................
Total assets..................
Foreign Operations(F)............. $100,000 $ 170,000 $ 166,000 $ 15,000 $ 17,000 $ 22,000
======== ========== ========== ======== ======== ========
(IN THOUSANDS)
ASSETS EMPLOYED AT
DECEMBER 31(C)
------------------------------------
1997 1996 1995
---------- ---------- ----------
The Company's operations by
industry segment are:
Transportation-Related Products
and Services(A)................. $ 712,000 $ 742,000 $ 870,000
Specialty Products:
Other Industrial................ -- 55,000 150,000
---------- ---------- ----------
Total......................... 712,000 797,000 1,020,000
Other income (expense), net.......
General corporate expense.........
Income before income taxes and
cumulative effect of accounting
change, net.....................
Corporate assets.................. 433,000 406,000 402,000
---------- ---------- ----------
Total assets.................. $1,145,000 $1,203,000 $1,422,000
========== ========== ==========
Foreign Operations(F)............. $ 138,000 $ 155,000 $ 140,000
========== ========== ==========
DEPRECIATION AND
PROPERTY ADDITIONS(D) AMORTIZATION(E)
---------------------------- -------------------------------
1997 1996 1995 1997 1996 1995
------- ------- -------- ------- ------- -------
The Company's operations by industry segments are:
Transportation-Related Products and Services................ $55,000 $41,000 $ 96,000 $43,000 $44,000 $45,000
Specialty Products:
Other Industrial.......................................... -- 3,000 14,000 -- 2,000 7,000
------- ------- -------- ------- ------- -------
Total................................................... $55,000 $44,000 $110,000 $43,000 $46,000 $52,000
======= ======= ======== ======= ======= =======
(A) Included within this segment are sales to one customer of $140 million, $232
million and $397 million in 1997, 1996 and 1995, respectively; sales to
another customer of $79 million, $146 million and $182 million in 1997, 1996
and 1995, respectively; sales to a third customer of $62 million, $122
million and $178 million in 1997, 1996 and 1995, respectively; and sales to
a fourth customer of $156 million, $155 million and $136 million in 1997,
1996 and 1995, respectively.
(B) Operating profit in 1996 includes a $32 million pre-tax loss principally
from the sale of MascoTech Stamping Technologies, Inc. ("MSTI"). Operating
profit in 1997 includes approximately $5 million of additional pre-tax
consideration earned from the sale of MSTI which was sold in 1996. These
items impacted the Company's Transportation-Related Products and Services
industry segment. The Company may receive additional consideration
contingent upon the future earnings of MSTI through May 31, 1999. Operating
profit in 1995 includes $25 million in net gains resulting from sales of
non-core businesses. These net gains were substantially offset by reductions
in the estimated proceeds the Company expected to receive from businesses to
be sold, aggregating $12 million, and by certain exit costs incurred in 1995
aggregating approximately $8 million. The net gains (charge) impact the
Company's industry segments as follows: Transportation-Related Products and
Services - $21 million and Specialty Products - $(2) million. The remaining
$(14) million of the net gains (charge) was allocated to General Corporate
Expense.
(C) Assets employed at December 31, 1996 and 1995 include net assets related to
the disposition of certain operations (see "Dispositions of Operations"
note).
(D) Property additions include approximately $2 million and $14 million in 1996
and 1995, respectively, of capital expenditures for those businesses held
for disposition related to the plan adopted in late 1994.
(E) Depreciation and amortization expense includes approximately $5 million in
1995 of expense for those businesses held for disposition related to the
plan adopted in late 1994.
(F) The Company's foreign operations are located principally in Western Europe.
36
38
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OTHER INCOME (EXPENSE), NET:
(IN THOUSANDS)
1997 1996 1995
------- ------- ------
Other, net:
Net realized and unrealized gains (losses) from marketable
securities............................................. $13,130 $ (160) $ 730
Interest income........................................... 3,440 1,160 2,390
Dividend income........................................... 650 420 950
Other, net................................................ 180 (4,020) 780
------- ------- ------
$17,400 $(2,600) $4,850
======= ======= ======
INCOME TAXES:
(IN THOUSANDS)
1997 1996 1995
-------- ------- --------
Income before income taxes and cumulative effect of
accounting change, net:
Domestic................................................ $173,410 $59,870 $ 78,870
Foreign................................................. 16,880 17,350 21,410
-------- ------- --------
$190,290 $77,220 $100,280
======== ======= ========
Provision for income taxes (credit):
Federal, current........................................ $ 40,290 $16,170 $(24,210)
State and local......................................... 6,810 4,650 6,110
Foreign, current........................................ 10,430 7,840 7,860
Deferred, principally federal........................... 17,520 8,640 51,330
-------- ------- --------
Income taxes on income before cumulative effect of
accounting change, net............................. $ 75,050 $37,300 $ 41,090
======== ======= ========
The components of deferred taxes at December 31, 1997 and 1996 are as
follows:
(IN THOUSANDS)
1997 1996
-------- --------
Deferred tax assets:
Inventories............................................ $ 2,440 $ 2,860
Accrued liabilities.................................... 35,660 35,170
Alternative minimum tax................................ -- 6,750
-------- --------
38,100 44,780
-------- --------
Deferred tax liabilities:
Property and equipment................................. 64,630 59,580
Other, principally equity investments in affiliates.... 62,240 57,370
-------- --------
126,870 116,950
-------- --------
Net deferred tax liability............................... $ 88,770 $ 72,170
======== ========
37
39
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following is a reconciliation of tax computed at the U.S. federal
statutory rate to the provision for income taxes allocated to income before
income taxes and cumulative effect of accounting change, net:
(IN THOUSANDS)
1997 1996 1995
------- ------- --------
U.S. federal statutory rate....................... 35% 35% 35%
------- ------- --------
Tax at U.S. federal statutory rate................ $66,600 $27,020 $ 35,100
State and local taxes, net of federal tax
benefit......................................... 4,430 3,020 3,970
Higher effective foreign tax rate................. 3,200 2,100 2,710
Non-deductible portion of charge for disposition
of businesses................................... -- 5,780 --
Amortization in excess of tax, net................ (760) (140) 1,630
Other, net........................................ 1,580 (480) (2,320)
------- ------- --------
Income taxes before cumulative effect of
accounting change, net....................... $75,050 $37,300 $ 41,090
======= ======= ========
38
40
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS:
In accordance with Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments," the following methods
were used to estimate the fair value of each class of financial instruments:
MARKETABLE SECURITIES, NOTES RECEIVABLE AND OTHER ASSETS
Fair values of financial instruments included in marketable securities,
notes receivable and other assets were estimated using various methods including
quoted market prices and discounted future cash flows based on the incremental
borrowing rates for similar types of investments. In addition, for variable-rate
notes receivable that fluctuate with the prime rate, the carrying amounts
approximate fair value.
LONG-TERM DEBT
The carrying amount of bank debt and certain other long-term debt
instruments approximate fair value as the floating rates inherent in this debt
reflect changes in overall market interest rates. The fair values of the
Company's subordinated debt instruments are based on quoted market prices. The
fair values of certain other debt instruments are estimated by discounting
future cash flows based on the Company's incremental borrowing rate for similar
types of debt instruments.
DERIVATIVES
The Company has limited involvement with derivative financial instruments,
and does not use derivatives for trading purposes. The derivatives, principally
consisting of S&P futures contracts, are intended to reduce the market risk
associated with the Company's marketable equity securities portfolio. The
Company's investment in futures contracts increases in value as a result of
decreases in the underlying index and decreases in value when the underlying
index increases. The contracts are financial instruments (with off-balance sheet
market risk), as they are required to be settled in cash. The Company's market
risk is subject to the price differential between the contract market value and
contract cost. The average monthly notional amount of derivative contracts in
1997 was approximately $17 million and there were no contracts outstanding at
December 31, 1997.
Futures contracts trade on organized exchanges, and as a result, settlement
of such contracts has little credit risk. Initial margin requirements are met in
cash or other instruments, and changes in the contract values are settled
periodically. Initial margin requirements are recorded as cash investments in
the balance sheet. Futures contracts are short-term in nature, usually less than
six months.
The carrying amounts and fair values of the Company's financial instruments
at December 31, 1997 and 1996 are as follows:
(IN THOUSANDS)
1997 1996
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
Cash and cash investments........................... $ 41,110 $ 41,110 $ 19,400 $ 19,400
Marketable securities, notes receivable and other
assets............................................ $ 80,760 $ 81,590 $124,270 $125,460
Long-term debt:
Bank debt......................................... $267,000 $267,000 $265,000 $265,000
4 1/2% Convertible Subordinated Debentures........ $310,000 $269,700 $310,000 $252,650
6 5/8% Note held by Masco Corporation............. -- -- $151,380 $151,380
Other long-term debt.............................. $ 15,000 $ 14,500 $ 26,020 $ 24,490
39
41
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
INTERIM AND OTHER SUPPLEMENTAL FINANCIAL DATA (UNAUDITED):
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
FOR THE QUARTERS ENDED
------------------------------------------------------------------------
DECEMBER SEPTEMBER JUNE MARCH
31ST 30TH 30TH 31ST
-------- --------- -------- --------
1997:
- -----
Net sales................................... $233,620 $222,030 $233,040 $233,440
Gross profit................................ $ 42,020 $ 34,350 $ 53,990 $ 56,300
Net income:
Income.................................... $ 19,270 $ 38,660 $ 24,650 $ 32,660
Income attributable to common stock....... $ 19,270 $ 38,660 $ 21,650 $ 29,420
Per common share:
Basic............................. $.43 $.86 $.61 $.83
Diluted........................... $.37 $.70 $.46 $.59
Market price per common share:
High...................................... $21 5/16 $22 1/2 $23 1/2 $21 1/4
Low....................................... $16 1/2 $20 $18 1/2 $16
1996:
- -----
Net sales................................... $271,450 $290,790 $345,060 $373,920
Gross profit................................ $ 58,160 $ 55,580 $ 57,930 $ 61,440
Income (loss) before accounting change
item...................................... $ 16,450 $ 19,390 $ (6,660) $ 10,740
Per common share:
Basic............................. $.32 $.30 $(.19) $.14
Diluted........................... $.28 $.28 $(.19) $.13
Net income (loss):
Income (loss)............................. $ 16,450 $ 19,390 $ (6,660) $ 22,440
Income (loss) attributable to common
stock.................................. $ 13,210 $ 16,150 $ (9,900) $ 19,200
Per common share:
Basic............................. $.32 $.30 $(.19) $.36
Diluted........................... $.28 $.28 $(.19) $.34
Market price per common share:
High...................................... $17 $15 1/2 $16 1/8 $13 5/8
Low....................................... $13 1/2 $13 $12 1/2 $10 3/8
Results for the first and fourth quarters 1997 include pre-tax gains of
approximately $13 million and $5 million, respectively, as a result of equity
transactions by affiliates of the Company.
Results for the first, second, third and fourth quarters 1997 include
pre-tax marketable securities gains (losses) of approximately $5.0 million, $4.0
million, $4.4 million and $(.3) million, respectively.
Results for the third quarter 1997 include a pre-tax gain of approximately
$46 million related to the transfer of the Company's equity holdings in Emco
Limited to Masco Corporation. This gain was partially offset by pre-tax costs
approximating $14 million associated with a plant closure and the Company's
share of a special charge recorded by an equity affiliate and other expenses.
Results for the fourth quarter 1997 include approximately $5 million
pre-tax of additional consideration earned from the sale of MascoTech Stamping
Technologies, Inc. which was sold in the second quarter 1996.
40
42
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
Results for the fourth quarter 1997 were negatively impacted by charges
aggregating approximately $10 million pre-tax principally related to severance,
the Company's share of a charge recorded by an equity affiliate, write-off of
deferred charges and loss on disposition of fixed assets.
Convertible securities were anti-dilutive in the first quarter 1996 for
purposes of computing diluted earnings per common share and earnings per common
share on income before accounting change.
Results for the second quarter 1996 include an after-tax loss of
approximately $26 million related to the sale of MascoTech Stamping
Technologies, Inc.
Net income for the first quarter of 1996 includes an after-tax gain of
approximately $12 million as a result of the adoption of Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," effective January 1, 1996
which was recorded as a cumulative effect of an accounting change.
The 1997 and 1996 income (loss) per common share amounts for the quarters
do not total to the full year amounts due to the purchase and retirement of
shares throughout the year.
SUBSEQUENT EVENT:
In January 1998, the Company completed its tender offer for all of the
outstanding shares of common stock of TriMas Corporation not held by the Company
for approximately $920 million in accordance with the terms of the Company's
previously announced acquisition agreement with TriMas.
The acquisition will be accounted for as a purchase in 1998. The purchase
price will be allocated to the previously unowned assets acquired and
liabilities assumed based upon their estimated fair values. The excess of the
purchase price over the net assets acquired will be amortized over a period not
exceeding 40 years. The purchase price allocation will be determined during 1998
when appraisals, other studies and additional information become available.
Results of operations for TriMas will be included with those of the Company for
periods subsequent to the date of the acquisition.
TriMas is a diversified proprietary products company with leadership
positions in commercial, industrial and consumer niche markets.
The following is summarized financial data of TriMas as of and for the year
ended December 31, 1997:
(IN THOUSANDS)
1997
--------
Current assets.............................................. $290,630
========
Total assets................................................ $708,460
========
Total liabilities........................................... $159,060
========
Net sales................................................... $667,910
========
Operating profit............................................ $113,700
========
41
43
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information regarding executive officers required by this Item is set forth
as a Supplementary Item at the end of Part I hereof (pursuant to Instruction 3
to Item 401(b) of Regulation S-K). Other information required by this Item will
be contained in the Company's definitive Proxy Statement for its 1998 Annual
Meeting of Stockholders, to be filed on or before April 30, 1998 and such
information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
Information required by this Item will be contained in the Company's
definitive Proxy Statement for its 1998 Annual Meeting of Stockholders, to be
filed on or before April 30, 1998, and such information is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information required by this Item will be contained in the Company's
definitive Proxy Statement for its 1998 Annual Meeting of Stockholders, to be
filed on or before April 30, 1998, and such information is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information required by this Item will be contained in the Company's
definitive Proxy Statement for its 1998 Annual Meeting of Stockholders, to be
filed on or before April 30, 1998, and such information is incorporated herein
by reference.
42
44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A) LISTING OF DOCUMENTS.
(1) Financial Statements. The Company's Consolidated Financial
Statements included in Item 8 hereof, as required at December 31,
1997 and 1996, and for the years ended December 31, 1997, 1996 and
1995, consist of the following:
Consolidated Balance Sheet
Consolidated Statement of Operations
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules.
(i) Financial Statement Schedule of the Company appended hereto,
as required for the years ended December 31, 1997, 1996 and
1995, consists of the following:
II. Valuation and Qualifying Accounts
(ii) TriMas Corporation and Subsidiaries Consolidated Financial
Statements appended hereto, as required at December 31, 1997
and 1996, and for the years ended December 31, 1997, 1996 and
1995, consist of the following:
Consolidated Statement of Income
Consolidated Balance Sheets
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
(3) Exhibits.
3.i Restated Certificate of Incorporation of MascoTech, Inc. and
amendments thereto.(filed herewith)
3.ii Bylaws of MascoTech, Inc., as amended.(filed herewith)
4.a.i Indenture dated as of November 1, 1986 between Masco
Industries, Inc. (now known as MascoTech, Inc.) and Morgan
Guaranty Trust Company of New York, as Trustee, and
Directors' resolutions establishing the Company's 4 1/2%
Convertible Subordinated Debentures Due 2003.(4)
4.a.ii Agreement of Appointment and Acceptance of Successor Trustee
dated as of August 4, 1994 among MascoTech, Inc., Morgan
Guaranty Trust Company of New York and The First National
Bank of Chicago.(3)
4.a.iii Supplemental Indenture dated as August 5, 1994 between
MascoTech, Inc. and The First National Bank of Chicago, as
trustee.(3)
4.b $1,300,000,000 Credit Agreement dated as of January 16, 1998
among MascoTech, Inc., MascoTech Acquisition, Inc., the
banks party thereto from time to time, The First National
Bank of Chicago, as Administrative Agent, Bank of America
NT&SA and NationsBank N.A., as Syndication Agents(7) and
Amendment No. 1 thereto dated as of February 10, 1998.
(filed herewith)
4.c Rights Agreement dated as of February 20, 1998, between
MascoTech, Inc. and The Bank of New York, as Rights
Agent.(10)
NOTE: Other instruments, notes or extracts from agreements
defining the rights of holders of long-term debt of
MascoTech, Inc. or its subsidiaries have not been filed
since (i) in each case the total amount of long-term debt
permitted thereunder does not exceed 10 percent of
MascoTech, Inc.'s consolidated assets, and (ii) such
instruments, notes and extracts will be furnished by
MascoTech, Inc. to the Securities and Exchange Commission
upon request.
43
45
10.a Assumption and Indemnification Agreement dated as of May 1, 1984 between Masco Corporation
and Masco Industries, Inc. (now known as MascoTech, Inc.).(1)
10.b Corporate Services Agreement dated as of January 1, 1987 between Masco Industries, Inc.
(now known as MascoTech, Inc.) and Masco Corporation (filed herewith), Amendment No. 1
dated as of October 31, 1996(8), and related letter agreement dated January 22,
1998.(filed herewith)
10.c Corporate Opportunities Agreement dated as of May 1, 1984 between Masco Corporation and
Masco Industries, Inc. (now known as MascoTech, Inc.)(1) and Amendment No. 1 dated as of
October 31, 1996.(8)
10.d Stock Repurchase Agreement dated as of May 1, 1984 between Masco Corporation and Masco
Industries, Inc. (now known as MascoTech, Inc.) and related letter dated September 20,
1985, Amendment to Stock Repurchase Agreement dated as of December 20, 1990 and amendment
to Stock Repurchase Agreement included in Agreement dated as of November 23, 1993.(4)
10.e Amended and Restated Securities Purchase Agreement dated as of November 23, 1993
("Securities Purchase Agreement") between MascoTech, Inc. and Masco Corporation, including
form of Note(5), Agreement dated as of November 23, 1993 relating thereto(4), and
Amendment No. 1 to the Securities Purchase Agreement dated as of October 31, 1996.(8)
10.f Registration Agreement dated as of March 31, 1993, between Masco Corporation and Masco
Industries, Inc. (now known as MascoTech, Inc.).(2)
10.g Corporate Opportunities Agreement dated as of December 27, 1988 among Masco Industries,
Inc. (now known as MascoTech, Inc.), Masco Corporation and TriMas Corporation. (filed
herewith)
10.h Stock Purchase Agreement dated as of October 15, 1996 between Masco Corporation and
MascoTech, Inc.(8)
NOTE: Exhibits 10.i through 10.z constitute the management contracts and executive compensatory
plans or arrangements in which certain of the Directors and executive officers of the
Company participate.
10.i MascoTech, Inc. 1991 Long Term Stock Incentive Plan (Amended and Restated April 23, 1997).
(filed herewith)
10.j MascoTech, Inc. 1984 Restricted Stock Incentive Plan (Restated December 6, 1995).(1)
10.k MascoTech, Inc. 1984 Stock Option Plan (Restated December 6, 1995).(1)
10.1 Masco Corporation 1991 Long Term Stock Incentive Plan. (Amended and Restated April 23,
1997).(filed herewith)
10.m Masco Corporation 1988 Restricted Stock Incentive Plan (Restated December 6, 1995).(1)
10.n Masco Corporation 1988 Stock Option Plan (Restated December 6, 1995).(1)
10.o MascoTech, Inc. Supplemental Executive Retirement and Disability Plan.(2)
10.p MascoTech, Inc. Benefits Restoration Plan.(2)
10.q MascoTech, Inc. 1997 Non-Employee Directors Stock Plan.(filed herewith)
10.r MascoTech, Inc. 1997 Annual Incentive Compensation Plan.(filed herewith)
10.s TriMas Corporation 1995 Long Term Stock Incentive Plan (Restated December 5, 1995).(filed
herewith)
10.t TriMas Corporation 1988 Restricted Stock Incentive Plan (Restated December 5, 1995).(filed
herewith)
10.u TriMas Corporation Supplemental Executive Retirement and Disability Plan.(filed herewith)
10.v TriMas Corporation Retirement Benefit Restoration Plan.(filed herewith)
44
46
10.w Employment Agreement dated as of December 10, 1997, between TriMas Corporation and Brian
P. Campbell.(filed herewith)
10.x Description of the MascoTech, Inc. Program for Estate, Financial Planning and Tax
Assistance. (filed herewith)
10.y Masco Corporation 1997 Annual Incentive Compensation Plan. (filed herewith)
10.z Masco Corporation 1997 Non-Employee Directors Stock Plan. (filed herewith)
10.aa Purchase Agreement dated as of January 26, 1990 between Masco Corporation and TriMas
Corporation.(filed herewith)
10.bb Stock Purchase Agreement between Masco Corporation and Masco Industries, Inc. (now known
as MascoTech, Inc.) dated as of December 23, 1991 regarding Masco Capital
Corporation(9)and Amendment thereto dated May 21, 1997.(filed herewith)
12 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends.(filed herewith)
21 List of Subsidiaries.(filed herewith)
23.a Consent of Coopers & Lybrand L.L.P. relating to MascoTech, Inc.'s Financial Statements and
Financial Statement Schedule.(filed herewith)
23.b Consent of Coopers & Lybrand L.L.P. relating to TriMas Corporation's Financial
Statements.(filed herewith)
27.a Financial Data Schedule as of and for the year ended December 31, 1997.(filed herewith)
27.b Financial Data Schedule as of and for the year-to-date periods ended September 30, 1997,
June 30, 1997 and March 31, 1997.(filed herewith)
27.c Financial Data Schedule as of and for the year-to-date periods ended December 31, 1996,
September 30, 1996, June 30, 1996 and March 31, 1996.(filed herewith)
27.d Financial Data Schedule as of and for the year ended December 31, 1995.(filed herewith)
(1) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1995.
(2) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1994.
(3) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994.
(4) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1993.
(5) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
Current Report on Form 8-K dated November 22, 1993.
(6) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
Current Report on Form 8-K dated June 22, 1993.
(7) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
Current Report on Form 8-K dated January 30, 1998.
(8) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
Current Report on Form 8-K dated November 13, 1996.
(9) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1996.
(10) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
Registration Statement on Form 8-A dated February 23, 1998.
THE COMPANY WILL FURNISH ANY OF ITS STOCKHOLDERS A COPY OF ANY OF THE ABOVE
EXHIBITS NOT INCLUDED HEREIN UPON THE WRITTEN REQUEST OF SUCH STOCKHOLDER AND
THE PAYMENT TO THE COMPANY OF THE REASONABLE EXPENSES INCURRED BY THE COMPANY IN
FURNISHING SUCH COPY OR COPIES.
45
47
(B) REPORTS ON FORM 8-K.
(1) A Current Report on Form 8-K dated October 15, 1997 was filed by
MascoTech, Inc. during the quarter ended December 31, 1997 reporting
under Item 2. "Acquisition or Disposition of Assets," the
disposition of the Company's ownership interest in Emco Limited and
the delivery of approximately $46 million cash to Masco Corporation
in payment of the promissory note issued by MascoTech, Inc. in
connection with MascoTech's purchase and retirement of certain of
its securities held by Masco Corporation. Included under Item 7 of
such report were the following exhibits:
(i) MascoTech, Inc. Pro Forma Combined Consolidated Condensed
Statement of Income for the year ended December 31, 1996
(Unaudited)
(ii) MascoTech, Inc. Pro Forma Consolidated Condensed Statement of
Income for the six months ended June 30, 1997 (Unaudited)
(iii) MascoTech, Inc. Pro Forma Consolidated Condensed Balance Sheet
as of June 30, 1997 (Unaudited)
(2) A Current Report on Form 8-K dated December 22, 1997 was filed by
MascoTech, Inc. during the quarter ended December 31, 1997 reporting
under Item 5. "Other Events," the execution of an Agreement and Plan
of Merger, dated as of December 10, 1997, by the Company, its wholly
owned subsidiary MascoTech Acquisition, Inc. ("Merger Sub") and
TriMas Corporation ("TriMas"), and Amendment No. 1 to Agreement and
Plan of Merger dated as of December 15, 1997 (as so amended, the
"Merger Agreement"). Pursuant to the Merger Agreement, Merger Sub
commenced an offer to purchase any and all outstanding shares of
TriMas common stock at a price of $34.50 per share, net to the
seller in cash.
(3) A Current Report on Form 8-K dated January 30, 1998 was filed by
MascoTech, Inc. during the quarter ended March 31, 1998 reporting
under Item 2. "Acquisition or Disposition of Assets," the completion
of the tender offer for shares of TriMas Corporation.
(4) A Current Report on Form 8-K dated February 23, 1998 was filed by
MascoTech, Inc. during the quarter ended March 31, 1998 reporting
under Item 5. "Other Events," the Company's declaration of a
dividend of one preferred stock purchase right (a "Right") for each
outstanding share of common stock of the Company payable to holders
of record on February 27, 1998. The Rights become exercisable upon
certain events set forth in the Rights Agreement dated as of
February 20, 1998 between the Company and The Bank of New York, as
Rights Agent. The Rights have certain anti-takeover effects and may
cause substantial dilution to a person that attempts to acquire the
Company without a condition to such an offer that a substantial
number of the Rights be acquired or that the Rights be redeemed or
declared invalid.
46
48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ TIMOTHY WADHAMS
------------------------------------
TIMOTHY WADHAMS
Senior Vice President -- Finance and
Chief Financial Officer
March 27, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
PRINCIPAL EXECUTIVE OFFICER:
/s/ FRANK M. HENNESSEY Vice Chairman and
- --------------------------------------------- Chief Executive Officer
FRANK M. HENNESSEY
PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER:
/s/ TIMOTHY WADHAMS Senior Vice President -- Finance
- --------------------------------------------- and Chief Financial Officer
TIMOTHY WADHAMS
/s/ RICHARD A. MANOOGIAN Chairman of the Board
- ---------------------------------------------
RICHARD A. MANOOGIAN
/s/ PETER A. DOW Director
- ---------------------------------------------
PETER A. DOW
/s/ ROGER T. FRIDHOLM Director
- ---------------------------------------------
ROGER T. FRIDHOLM
/s/ EUGENE A. GARGARO, JR. Director
- ---------------------------------------------
EUGENE A. GARGARO, JR.
/s/ WILLIAM K. HOWENSTEIN Director
- ---------------------------------------------
WILLIAM K. HOWENSTEIN
/s/ JOHN A. MORGAN Director
- ---------------------------------------------
JOHN A. MORGAN
March 27, 1998
47
49
MASCOTECH, INC.
FINANCIAL STATEMENT SCHEDULES
PURSUANT TO ITEM 14(a)(2) OF FORM 10-K
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
FOR THE YEAR ENDED DECEMBER 31, 1997
Schedules, as required for the years ended December 31, 1997, 1996 and 1995:
PAGE
----
II. Valuation and Qualifying Accounts....................... F-2
TriMas Corporation and Subsidiaries Consolidated Financial
Statements................................................ F-3
F-1
50
MASCOTECH, INC.
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------- ---------- --------------------------- ---------- -------------
ADDITIONS
---------------------------
CHARGED
BALANCE AT CHARGED (CREDITED)
BEGINNING TO COSTS TO OTHER BALANCE AT
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- --------------------------------- ---------- ------------ ----------- ---------- -------------
(A) (B)
Allowance for doubtful accounts,
deducted from accounts
receivable in the balance
sheet:
1997........................... $2,000,000 $ 500,000 $ 60,000 $1,380,000 $1,180,000
========== ========== =========== ========== ==========
1996........................... $1,880,000 $ 890,000 $ 20,000 $ 790,000 $2,000,000
========== ========== =========== ========== ==========
1995........................... $1,590,000 $ 400,000 $ 410,000 $ 520,000 $1,880,000
========== ========== =========== ========== ==========
NOTES:
(A) Allowance of companies acquired, and other adjustments, net in 1997 and
1995. Allowance of companies reclassified for businesses held for
disposition, and other adjustments, net in 1996 and 1995.
(B) Deductions, representing uncollectible accounts written off, less recoveries
of accounts written off in prior years.
F-2
51
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
of MascoTech, Inc.:
We have audited the consolidated balance sheet of TriMas Corporation and
subsidiaries as of December 31, 1997 and 1996, and the related consolidated
statements of income and cash flows for each of the three years in the period
ended December 31, 1997 as listed in Item 14(a)(2)(ii) of this Form 10-K. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of TriMas
Corporation and subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
As discussed in Note 2 to the financial statements, substantially all the
outstanding shares of the Company not already owned by MascoTech, Inc. were
acquired by them in January 1998. The Company is now a wholly owned subsidiary
of MascoTech, Inc.
COOPERS & LYBRAND L.L.P.
Detroit, Michigan
February 17, 1998
F-3
52
TRIMAS CORPORATION
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
------------- ------------- -------------
Net sales....................................... $ 667,910,000 $ 600,230,000 $ 553,490,000
Cost of sales................................... (447,940,000) (403,380,000) (371,470,000)
Selling, general and administrative expenses.... (106,270,000) (92,560,000) (83,340,000)
------------- ------------- -------------
Operating profit.............................. 113,700,000 104,290,000 98,680,000
Interest expense................................ (5,420,000) (10,810,000) (13,530,000)
Other, net (principally interest income)........ 6,790,000 7,110,000 6,690,000
------------- ------------- -------------
Income before income taxes and extraordinary
charge..................................... 115,070,000 100,590,000 91,840,000
Income taxes.................................... 43,730,000 39,230,000 35,820,000
------------- ------------- -------------
Income before extraordinary charge............ 71,340,000 61,360,000 56,020,000
Extraordinary charge related to becoming a
private company............................... (4,970,000)
------------- ------------- -------------
Net income.................................... $ 66,370,000 $ 61,360,000 $ 56,020,000
============= ============= =============
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
53
TRIMAS CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31,
----------------------------
1997 1996
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents................................. $105,380,000 $105,890,000
Receivables............................................... 83,340,000 80,390,000
Inventories............................................... 97,060,000 92,210,000
Other current assets...................................... 4,850,000 4,130,000
------------ ------------
Total current assets.............................. 290,630,000 282,620,000
Property and equipment...................................... 200,490,000 194,540,000
Excess of cost over net assets of acquired companies........ 177,770,000 174,710,000
Other assets................................................ 39,570,000 44,800,000
------------ ------------
Total assets.................................... $708,460,000 $696,670,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 31,430,000 $ 33,750,000
Other current liabilities................................. 36,710,000 45,430,000
------------ ------------
Total current liabilities......................... 68,140,000 79,180,000
Deferred income taxes and other............................. 44,950,000 39,920,000
Long-term debt.............................................. 45,970,000 187,120,000
------------ ------------
Total liabilities................................. 159,060,000 306,220,000
------------ ------------
Shareholders' equity:
Common stock, $.01 par value, authorized 100 million
shares, outstanding 41.3 million shares in 1997; 36.6
million shares in 1996................................. 410,000 370,000
Paid-in capital........................................... 260,310,000 155,690,000
Retained earnings......................................... 293,500,000 238,290,000
Cumulative translation adjustments........................ (4,820,000) (3,900,000)
------------ ------------
Total shareholders' equity........................ 549,400,000 390,450,000
------------ ------------
Total liabilities and shareholders' equity...... $708,460,000 $696,670,000
============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
54
TRIMAS CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
CASH FROM (USED FOR):
OPERATIONS:
Net income.................................... $ 66,370,000 $ 61,360,000 $ 56,020,000
Adjustments to reconcile net income to net
cash from operations:
Extraordinary charge..................... 4,970,000
Depreciation and amortization............ 25,680,000 22,930,000 21,480,000
Deferred income taxes.................... 4,830,000 2,100,000 5,560,000
(Increase) decrease in receivables....... (1,360,000) (1,460,000) (4,670,000)
(Increase) decrease in inventories....... (5,050,000) (2,430,000) (5,930,000)
Increase (decrease) in accounts payable
and other current liabilities.......... (9,900,000) 7,320,000 (2,500,000)
Other, net............................... (1,720,000) 1,260,000 (3,710,000)
------------ ------------ ------------
Net cash from operations............... 83,820,000 91,080,000 66,250,000
------------ ------------ ------------
INVESTMENTS:
Capital expenditures.......................... (28,560,000) (26,670,000) (23,470,000)
Acquisitions, net of cash acquired............ (27,490,000)
Contingent acquisition price paid (including
$7.0 million to MascoTech, Inc.)............ (11,250,000)
------------ ------------ ------------
Net cash from (used for) investments... (39,810,000) (54,160,000) (23,470,000)
------------ ------------ ------------
FINANCING:
Long-term debt:
Issuance................................. 23,750,000 27,920,000
Retirement............................... (55,980,000) (43,280,000) (51,470,000)
Fees related to becoming a private company.... (1,820,000)
Common stock dividends paid................... (10,470,000) (8,060,000) (6,590,000)
------------ ------------ ------------
Net cash from (used for) financing..... (44,520,000) (23,420,000) (58,060,000)
------------ ------------ ------------
CASH AND CASH EQUIVALENTS:
Increase (decrease) for the year.............. (510,000) 13,500,000 (15,280,000)
At beginning of the year...................... 105,890,000 92,390,000 107,670,000
------------ ------------ ------------
At end of the year.......................... $105,380,000 $105,890,000 $ 92,390,000
============ ============ ============
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
55
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of TriMas
Corporation and its wholly owned subsidiaries (the "Company"). All significant
intercompany transactions have been eliminated.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
AFFILIATES
As of December 31, 1997 MascoTech, Inc.'s common stock ownership in the
Company approximated 36.8 percent (see "Subsequent Event" note), and Masco
Corporation's common stock ownership approximated 3.8 percent. The Company has a
corporate services agreement with Masco Corporation. Under the terms of the
agreement, the Company pays a fee to Masco Corporation for various corporate
support staff, administrative services, and research and development services.
Such fee equals .8 percent of the Company's net sales, subject to certain
adjustments, and totaled $4.0 million, $3.3 million and $3.1 million in 1997,
1996 and 1995.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents. At December 31, 1997
the Company had $81.4 million invested in prime commercial paper of several
United States issuers having the highest rating given by one of the two
principal rating agencies.
RECEIVABLES
Receivables are presented net of an allowance for doubtful accounts of $2.0
million and $1.9 million at December 31, 1997 and 1996.
INVENTORIES
Inventories are stated at the lower of cost or net realizable value, with
cost determined principally by use of the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment additions, including significant betterments, are
recorded at cost. Upon retirement or disposal of property and equipment, the
cost and accumulated depreciation are removed from the accounts and any gain or
loss is included in income. Maintenance and repair costs are charged to expense
as incurred.
DEPRECIATION AND AMORTIZATION
Depreciation is computed principally using the straight-line method over
the estimated useful lives of the assets. Annual depreciation rates are as
follows: buildings and land improvements, 2 1/2 to 5 percent, and machinery and
equipment, 6 2/3 to 33 1/3 percent. The excess of cost over net assets of
acquired companies is
F-7
56
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1. ACCOUNTING POLICIES (CONTINUED)
being amortized using the straight-line method over the periods estimated to be
benefited, not exceeding 40 years. At December 31, 1997 and 1996, accumulated
amortization of the excess of cost over net assets of acquired companies and
other intangible assets was $42.7 million and $36.6 million. Amortization
expense was $6.1 million, $5.3 million and $5.0 million in 1997, 1996 and 1995.
As of each balance sheet date management assesses whether there has been an
impairment in the value of excess of cost over net assets of acquired companies
by comparing anticipated undiscounted future cash flows from the related
operating activities with the carrying value. The factors considered by
management in performing this assessment include current operating results,
trends and prospects, as well as the effects of obsolescence, demand,
competition and other economic factors. Based on this assessment there was no
impairment at December 31, 1997.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of financial instruments classified in the balance
sheet as current assets and current liabilities approximate fair values. The
fair value of notes receivable, a portion of which is included in both
receivables and other assets, based on discounted cash flows using current
interest rates, approximates the carrying value of $7.8 million at December 31,
1997.
The carrying amount of borrowings from banks approximates fair value as the
floating rates applicable to this debt generally reflect changes in overall
market interest rates.
FOREIGN CURRENCY TRANSLATION
Net assets of the Company's operations outside of the United States are
translated into U.S. dollars using current exchange rates with the effects of
translation adjustments deferred and included as a separate component of
shareholders' equity. Revenues, expenses and cash flows are translated at the
average rates of exchange during the period.
NOTE 2. SUBSEQUENT EVENT
On December 17, 1997 MascoTech Inc.("MascoTech"), through its wholly owned
subsidiary MascoTech Acquisition, Inc.("MascoTech Acquisition"), commenced a
tender offer to acquire all of the outstanding shares of the Company not already
owned by MascoTech. The tender offer was made in accordance with the terms of a
merger agreement between the Company, MascoTech and MascoTech Acquisition. The
tender offer expired on January 16, 1998 after approximately 95 percent of the
Company's outstanding shares not owned by MascoTech had been tendered. On
January 22, 1998 MascoTech Acquisition made payment on the tendered shares and
was merged with and into the Company, with the Company surviving as a private
and wholly owned subsidiary of MascoTech. During 1997 the Company recognized a
$5.0 million (pre-tax and after tax) extraordinary charge related to the
expenses incurred in connection with this going private transaction.
F-8
57
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3. ACQUISITIONS
During 1996 the Company acquired Queensland Towbars Pty. Ltd., The Englass
Group Limited, Heinrich Stolz GmbH and Beaumont Bolt & Gasket Co., all for an
aggregate $54.2 million of cash and assumed liabilities. The acquisitions were
accounted for as purchases. The aggregate excess of cost over net assets
acquired of $28.8 million is being amortized on a straight-line basis over 40
years. The results of operations of the acquired businesses have been included
in the consolidated financial statements from the respective acquisition dates.
During 1997 the Company paid $11.3 million to the former owners of
businesses acquired in previous years, including $7.0 million to MascoTech, Inc.
These payments resulted from the acquired businesses having achieved specified
levels of profitability during designated periods subsequent to the acquisition.
These payments were recorded as additional excess of cost over net assets of
acquired companies and are being amortized over the remainder of the original 40
year amortization period.
NOTE 4. SUPPLEMENTAL CASH FLOWS INFORMATION
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------
1997 1996 1995
---------- --------- ---------
Interest paid............................................... $ 7,420 $10,610 $13,560
======== ======= =======
Income taxes paid........................................... $ 41,080 $33,180 $30,690
======== ======= =======
Significant noncash transactions:
Conversion of convertible subordinated debentures into
common
stock.................................................. $106,000
========
Accrued fees related to becoming a private company........ $ 3,150
========
Common stock dividends declared, payable in subsequent
year................................................... $ 2,890 $ 2,200 $ 1,830
======== ======= =======
Assumption of liabilities as partial consideration for the
assets of companies acquired........................... $26,720
=======
Increase in obligation, including accrued interest, to
former owner, MascoTech, Inc., of business acquired,
recorded as additional excess of cost over net assets
of acquired companies.................................. $ 5,850
=======
NOTE 5. INVENTORIES
(IN THOUSANDS)
AT DECEMBER 31,
-----------------
1997 1996
------- -------
Finished goods.............................................. $53,260 $53,380
Work in process............................................. 15,430 14,340
Raw material................................................ 28,370 24,490
------- -------
$97,060 $92,210
======= =======
F-9
58
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6. PROPERTY AND EQUIPMENT
(IN THOUSANDS)
AT DECEMBER 31,
--------------------
1997 1996
-------- --------
Cost:
Land and land improvements................................ $ 14,080 $ 14,010
Buildings................................................. 71,420 71,260
Machinery and equipment................................... 261,070 240,960
-------- --------
346,570 326,230
Less accumulated depreciation............................... 146,080 131,690
-------- --------
$200,490 $194,540
======== ========
Depreciation expense was $19.5 million, $17.7 million and $16.4 million in
1997, 1996 and 1995.
NOTE 7. OTHER CURRENT LIABILITIES
(IN THOUSANDS)
AT DECEMBER 31,
------------------
1997 1996
------- -------
Employee wages and benefits................................. $19,890 $18,570
Dividends................................................... 2,890 2,200
Property taxes.............................................. 2,070 1,930
Current income taxes........................................ 1,690 3,810
Interest.................................................... 720 2,710
Amount due former owner, MascoTech, Inc., of business
acquired.................................................. 5,850
Other....................................................... 9,450 10,360
------- -------
$36,710 $45,430
======= =======
NOTE 8. LONG-TERM DEBT
(IN THOUSANDS)
AT DECEMBER 31,
------------------
1997 1996
------- --------
Borrowings from banks....................................... $42,130 $ 68,030
5% convertible subordinated debentures...................... 115,000
Other....................................................... 4,840 4,260
------- --------
46,970 187,290
Less current maturities..................................... 1,000 170
------- --------
$45,970 $187,120
======= ========
At December 31, 1997 borrowings from banks are owing under the Company's
L20.0 million revolving credit facility in England ($25.8 million) and its DM
30.0 million revolving credit facility in Germany ($16.3 million). At December
31, 1996 borrowings from banks are owing under the Company's domestic $350.0
million revolving credit facility ($33.0 million), its L20.0 million revolving
credit facility in England ($19.3 million), its DM 30.0 million revolving credit
facility in Germany ($9.0 million) and other borrowing arrangements in Germany
($6.7 million). The domestic facility, which was terminated in January, 1998 as
a result of the acquisition of the Company by MascoTech, Inc., permitted the
Company to borrow under several
F-10
59
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. LONG-TERM DEBT (CONTINUED)
different interest rate options, while the foreign facilities base interest
rates on the London Interbank Offered Rate (LIBOR). At December 31, 1997 the
blended interest rate on bank borrowings equaled 6.4 percent. The facilities
contain certain restrictive covenants, the most restrictive of which, at
December 31, 1997, required $381.5 million of shareholders' equity. The Company
had available credit of $8.6 million under its foreign revolving credit
facilities at December 31, 1997.
During 1997 the Company redeemed, for cash, $9.0 million of its $115.0
million of 5% Convertible Subordinated Debentures Due 2003. The remaining $106.0
million of debentures were converted into 4.7 million shares of TriMas
Corporation common stock at the conversion price of $22 5/8 per share.
NOTE 9. SHAREHOLDERS' EQUITY
(IN THOUSANDS)
CUMULATIVE
COMMON PAID-IN RETAINED TRANSLATION
STOCK CAPITAL EARNINGS ADJUSTMENTS TOTAL
------ -------- -------- ----------- --------
Balance, January 1, 1995................... $370 $155,210 $136,310 $(1,290) $290,600
Net income............................... 56,020 56,020
Common stock dividends................... (6,960) (6,960)
Other.................................... 220 (1,210) (990)
---- -------- -------- ------- --------
Balance, December 31, 1995................. 370 155,430 185,370 (2,500) 338,670
Net income............................... 61,360 61,360
Common stock dividends................... (8,440) (8,440)
Other.................................... 260 (1,400) (1,140)
---- -------- -------- ------- --------
Balance, December 31, 1996................. 370 155,690 238,290 (3,900) 390,450
Net income............................... 66,370 66,370
Common stock dividends................... (11,160) (11,160)
Convertible debt conversion.............. 40 104,160 104,200
Other.................................... 460 (920) (460)
---- -------- -------- ------- --------
Balance, December 31, 1997................. $410 $260,310 $293,500 $(4,820) $549,400
==== ======== ======== ======= ========
During 1997 $106.0 million of the Company's $115.0 million of 5%
Convertible Subordinated Debentures Due 2003 were converted into 4.7 million
shares of TriMas Corporation common stock at the conversion price of $22 5/8 per
share. As a result of the conversion, $1.8 million of costs associated with the
issuance of the debentures was charged against Paid-In-Capital.
F-11
60
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10. STOCK OPTIONS AND AWARDS
The Company's stock incentive plans include the TriMas Corporation 1995
Long Term Stock Incentive Plan, the 1988 Restricted Stock Incentive Plan and the
1988 Stock Option Plan. Company common stock available for grant under these
plans includes the 2,000,000 shares initially established under the 1995 plan,
plus additional shares resulting from certain reacquisitions of shares by the
Company.
The Company granted long-term incentive awards of Company common stock,
net, for 64,815 shares in 1997, 159,071 shares in 1996 and 290,588 shares in
1995, to key employees of the Company. The weighted average fair value per
share, on date of grant, of long-term incentive awards granted in 1997, 1996 and
1995 was $24.15, $19.66 and $23.21. Compensation expense recorded in 1997, 1996
and 1995 related to long-term incentive awards was $2.4 million, $2.2 million
and $1.6 million. The unamortized costs of incentive awards, aggregating $13.2
million at December 31, 1997, are being amortized over the vesting periods,
which are typically ten years.
Fixed stock options are granted to key employees of the Company and have a
maximum term of ten years. The exercise price of each fixed option equals the
market price of the Company's common stock on the date of grant. The options
generally vest in installments beginning in the second year and extending
through the eighth year after grant. For the three years ended December 31, 1997
stock option information is as follows:
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
--------- --------- ---------
Options outstanding, January 1.............................. 538,557 576,064 594,200
Options granted:
At option prices per share of $18.38-$25.50............... 890 16,154 4,864
Weighted average option price per share................... $23.89 $22.12 $23.35
Options exercised:
At option price per share of $8.88........................ 33,400 53,661 23,000
Options outstanding, December 31:
At option prices per share of $7.50-$8.88................. 484,139 517,539 571,200
Weighted average option price per share................ $8.42 $8.45 $8.49
Weighted average remaining term........................ 2.5 years 3.5 years 4.6 years
At option prices per share of $18.38-$25.50............... 21,908 21,018 4,864
Weighted average option price per share................ $22.46 $22.40 $23.35
Weighted average remaining term........................ 3.3 years 4.3 years 5.3 years
Exercisable, December 31.................................... 327,647 312,552 260,464
Weighted average option price per share................... $9.11 $8.94
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, in accounting for stock based compensation.
Accordingly, no compensation expense has been charged against income for fixed
stock option grants. Had compensation expense been determined based on the fair
value at the 1997, 1996 and 1995 grant dates, consistent with the methodology of
Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation, the pro forma effect on the Company's net income would not have
been material.
At December 31, 1997 and 1996, a combined total of 1,952,669 and 2,011,642
shares of Company common stock were available for the granting of options and
incentive awards under the aforementioned plans.
F-12
61
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. RETIREMENT PLANS
The Company has noncontributory retirement benefit plans, both defined
benefit plans and profit-sharing and other defined contribution plans, for most
of its employees.
The annual expense for all plans was:
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
------ ------ ------
Defined contribution plans.................................. $3,040 $2,480 $3,470
Defined benefit plans....................................... 2,290 2,660 1,690
------ ------ ------
$5,330 $5,140 $5,160
====== ====== ======
Contributions to profit-sharing and other defined contribution plans are
generally determined as a percentage of the covered employee's annual salary.
Defined benefit plans provide retirement benefits for salaried employees
based primarily on years of service and average earnings for the five highest
consecutive years of compensation. Defined benefit plans covering hourly
employees generally provide benefits of stated amounts for each year of service.
These plans are funded based on an actuarial evaluation and review of the
assets, liabilities and requirements of each plan. Plan assets are held by a
trustee and invested principally in cash equivalents and marketable equity and
fixed income instruments.
Net periodic pension cost of defined benefit plans includes the following
components:
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996 1995
------- ------- -------
Service cost................................................ $ 2,490 $ 2,670 $ 2,000
Interest cost............................................... 4,270 3,980 3,570
Actual (return) or loss on assets........................... (2,960) (4,010) (5,360)
Net amortization and deferral............................... (1,510) 20 1,480
------- ------- -------
$ 2,290 $ 2,660 $ 1,690
======= ======= =======
Weighted average rate assumptions used were as follows:
1997 1996 1995
---- ---- ----
Discount rate............................................... 7.3% 7.5% 7.3%
Rate of increase in compensation levels..................... 5.1% 5.1% 5.1%
Expected long-term rate of return on plan assets............ 10.6% 10.6% 10.7%
F-13
62
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11. RETIREMENT PLANS (CONTINUED)
The following table sets forth the funded status of the defined benefit
plans:
(IN THOUSANDS)
AT DECEMBER 31,
--------------------------------------------------------
1997 1996
-------------------------- --------------------------
PLANS PLANS PLANS PLANS
WHERE WHERE WHERE WHERE
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
Actuarial present value of:
Vested benefit obligation.................... $ 2,800 $48,110 $30,850 $12,060
======= ======= ======= =======
Accumulated benefit obligation............... $ 2,800 $49,370 $31,220 $14,190
======= ======= ======= =======
Projected benefit obligation................. $ 2,800 $60,540 $41,030 $15,270
Plan assets at fair value...................... 4,720 41,700 35,660 9,200
------- ------- ------- -------
Projected benefit obligation (in excess of) or
less than plan assets........................ 1,920 (18,840) (5,370) (6,070)
Unrecognized net (asset) or obligation......... (250) (170) (980) 390
Unrecognized prior service cost................ 2,340 400 1,680
Unrecognized net (gain) or loss................ (1,630) 14,340 5,630 3,240
Requirement to recognize minimum liability..... (5,520) (4,220)
------- ------- ------- -------
Prepaid pension cost or (pension
liability).............................. $ 40 $(7,850) $ (320) $(4,980)
======= ======= ======= =======
The Company provides postretirement health care and life insurance benefits
for certain eligible retired employees under unfunded plans. Some of the plans
have cost-sharing provisions. Net periodic postretirement benefit costs during
1997, 1996 and 1995 were $1.0 million, $1.0 million and $.8 million.
The aggregate accumulated postretirement benefit obligation of these
unfunded plans was $4.4 million and $7.1 million at December 31, 1997 and 1996.
The discount rates used in determining the accumulated postretirement benefit
obligations and the net periodic postretirement benefit costs were 7.25 percent,
7.5 percent and 7.25 percent in 1997, 1996 and 1995. The assumed health care
cost trend rate in 1997 was nine percent, decreasing to an ultimate rate in the
years subsequent to 2006 of five percent. A one percent increase in the assumed
health care cost trend rates would have increased the net periodic
postretirement benefit cost by $.1 million during 1997 and would have increased
the accumulated postretirement benefit obligation at December 31, 1997 by $.5
million. The Company is amortizing the unrecognized transition accumulated
postretirement benefit obligation and subsequent plan net gains and losses in
accordance with Statement of Financial Accounting Standards No. 106. The accrued
postretirement benefit obligation was $4.1 million and $3.5 million at December
31, 1997 and 1996.
F-14
63
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION
The Company's operations in its business segments consist principally of
the manufacture and sale of the following:
Specialty Fasteners: Cold formed fasteners and related metallurgical
processing.
Towing Systems: Vehicle hitches, jacks, winches, couplers and related
towing accessories.
Specialty Container Products: Industrial container closures, pressurized
gas cylinders and metallic and nonmetallic gaskets.
Corporate Companies: Specialty drills, cutters and specialized metal
finishing services, and flame-retardant facings and jacketings and
pressure-sensitive tapes.
F-15
64
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12. BUSINESS SEGMENT AND GEOGRAPHIC AREA INFORMATION (CONTINUED)
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------
1997 1996 1995
-------- -------- --------
NET SALES
Specialty Fasteners.................................... $161,640 $141,510 $141,050
Towing Systems......................................... 201,410 189,540 175,000
Specialty Container Products........................... 218,920 189,320 165,670
Corporate Companies.................................... 85,940 79,860 71,770
-------- -------- --------
Total net sales..................................... $667,910 $600,230 $553,490
======== ======== ========
OPERATING PROFIT
Specialty Fasteners.................................... $ 29,630 $ 25,740 $ 27,290
Towing Systems......................................... 31,190 31,480 31,080
Specialty Container Products........................... 46,810 42,890 39,040
Corporate Companies.................................... 14,490 11,980 8,420
-------- -------- --------
Total operating profit.............................. 122,120 112,090 105,830
Other income (expense), net.............................. 1,370 (3,700) (6,840)
General corporate expense................................ (8,420) (7,800) (7,150)
-------- -------- --------
Income before income taxes and extraordinary
charge............................................ $115,070 $100,590 $ 91,840
======== ======== ========
IDENTIFIABLE ASSETS AT DECEMBER 31
Specialty Fasteners.................................... $149,400 $143,060 $146,200
Towing Systems......................................... 155,500 158,840 151,160
Specialty Container Products........................... 244,600 231,610 149,790
Corporate Companies.................................... 58,020 57,220 56,230
Corporate (A).......................................... 100,940 105,940 112,980
-------- -------- --------
Total assets........................................ $708,460 $696,670 $616,360
======== ======== ========
CAPITAL EXPENDITURES
Specialty Fasteners.................................... $ 8,340 $ 4,500 $ 10,840
Towing Systems......................................... 4,770 9,160 4,790
Specialty Container Products........................... 13,580 23,170 5,780
Corporate Companies.................................... 1,830 2,690 2,030
Corporate.............................................. 40 10 30
-------- -------- --------
Total capital expenditures.......................... $ 28,560 $ 39,530(B) $ 23,470
======== ======== ========
DEPRECIATION AND AMORTIZATION
Specialty Fasteners.................................... $ 7,510 $ 7,510 $ 7,230
Towing Systems......................................... 6,460 6,070 5,610
Specialty Container Products........................... 8,860 6,690 6,140
Corporate Companies.................................... 2,780 2,590 2,430
Corporate.............................................. 70 70 70
-------- -------- --------
Total depreciation and amortization................. $ 25,680 $ 22,930 $ 21,480
======== ======== ========
- -------------------------
(A) Corporate assets consist primarily of cash and cash equivalents.
(B) Including $12.9 million from businesses acquired.
Sales of the Company's foreign operations equaled $74.2 million, $46.0
million and $33.7 million in 1997, 1996 and 1995. Identifiable assets of foreign
operations totaled $88.3 million, $82.9 million and $32.4 million at December
31, 1997, 1996 and 1995. Export sales equaled less than ten percent of total
sales for each of the three years presented.
F-16
65
TRIMAS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
NOTE 13. INCOME TAXES
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1997 1996 1995
-------- -------- -------
Income before income taxes and extraordinary charge:
Domestic................................................ $105,810 $ 92,990 $86,900
Foreign................................................. 9,260 7,600 4,940
-------- -------- -------
$115,070 $100,590 $91,840
======== ======== =======
Provision for income taxes:
Federal................................................. $ 31,090 $ 29,700 $23,810
State and local......................................... 5,170 4,690 4,460
Foreign................................................. 2,640 2,740 1,990
Deferred, principally federal........................... 4,830 2,100 5,560
-------- -------- -------
$ 43,730 $ 39,230 $35,820
======== ======== =======
The following is a reconciliation of the U.S. federal statutory tax rate to
the effective tax rate:
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
----- ----- -----
U.S. federal statutory tax rate............................. 35.0% 35.0% 35.0%
State and local taxes, net of federal tax benefit........... 2.9 3.0 3.1
Foreign taxes in excess of U.S federal tax rate............. .1 .1 .3
Nondeductible amortization of excess of cost over net assets
of acquired companies..................................... .6 .6 .7
Other, net.................................................. (.6) .3 (.1)
----- ----- -----
Effective tax rate..................................... 38.0% 39.0% 39.0%
===== ===== =====
Items that gave rise to deferred taxes:
(IN THOUSANDS)
AT DECEMBER 31,
------------------------------------------------------------------
1997 1996
------------------------------ ------------------------------
DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
------------ ------------ ------------ ------------
Property and equipment...................... $27,260 $23,940
Intangible assets........................... 6,300 4,960
Accrued employee benefits................... $3,350 $2,950
Inventory................................... 650 620
Other....................................... 1,050 4,710 1,420 4,480
------ ------- ------ -------
$5,050 $38,270 $4,990 $33,380
====== ======= ====== =======
F-17
66
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.i Restated Certificate of Incorporation of MascoTech, Inc. and
amendments thereto.(filed herewith)
3.ii Bylaws of MascoTech, Inc., as amended.(filed herewith)
4.a.i Indenture dated as of November 1, 1986 between Masco
Industries, Inc. (now known as MascoTech, Inc.) and Morgan
Guaranty Trust Company of New York, as Trustee, and
Directors' resolutions establishing the Company's 4 1/2%
Convertible Subordinated Debentures Due 2003.(4)
4.a.ii Agreement of Appointment and Acceptance of Successor Trustee
dated as of August 4, 1994 among MascoTech, Inc., Morgan
Guaranty Trust Company of New York and The First National
Bank of Chicago.(3)
4.a.iii Supplemental Indenture dated as August 5, 1994 between
MascoTech, Inc. and The First National Bank of Chicago, as
trustee.(3)
4.b $1,300,000,000 Credit Agreement dated as of January 16, 1998
among MascoTech, Inc., MascoTech Acquisition, Inc., the
banks party thereto from time to time, The First National
Bank of Chicago, as Administrative Agent, Bank of America
NT&SA and NationsBank N.A., as Syndication Agents(7) and
Amendment No. 1 thereto dated as of February 10, 1998.
(filed herewith)
4.c Rights Agreement dated as of February 20, 1998, between
MascoTech, Inc. and The Bank of New York, as Rights
Agent.(10)
NOTE: Other instruments, notes or extracts from agreements
defining the rights of holders of long-term debt of
MascoTech, Inc. or its subsidiaries have not been filed
since (i) in each case the total amount of long-term debt
permitted thereunder does not exceed 10 percent of
MascoTech, Inc.'s consolidated assets, and (ii) such
instruments, notes and extracts will be furnished by
MascoTech, Inc. to the Securities and Exchange Commission
upon request.
10.a Assumption and Indemnification Agreement dated as of May 1,
1984 between Masco Corporation and Masco Industries, Inc.
(now known as MascoTech, Inc.).(1)
10.b Corporate Services Agreement dated as of January 1, 1987
between Masco Industries, Inc. (now known as
MascoTech, Inc.) and Masco Corporation (filed herewith),
Amendment No. 1 dated as of October 31, 1996(8), and related
letter agreement dated January 22, 1998.(filed herewith)
10.c Corporate Opportunities Agreement dated as of May 1, 1984
between Masco Corporation and Masco Industries, Inc. (now
known as MascoTech, Inc.)(1) and Amendment No. 1 dated as of
October 31, 1996.(8)
10.d Stock Repurchase Agreement dated as of May 1, 1984 between
Masco Corporation and Masco Industries, Inc. (now known as
MascoTech, Inc.) and related letter dated September 20,
1985, Amendment to Stock Repurchase Agreement dated as of
December 20, 1990 and amendment to Stock Repurchase
Agreement included in Agreement dated as of November 23,
1993.(4)
10.e Amended and Restated Securities Purchase Agreement dated as
of November 23, 1993 ("Securities Purchase Agreement")
between MascoTech, Inc. and Masco Corporation, including
form of Note(5), Agreement dated as of November 23, 1993
relating thereto(4), and Amendment No. 1 to the Securities
Purchase Agreement dated as of October 31, 1996.(8)
10.f Registration Agreement dated as of March 31, 1993, between
Masco Corporation and Masco Industries, Inc. (now known as
MascoTech, Inc.).(2)
10.g Corporate Opportunities Agreement dated as of December 27,
1988 among Masco Industries, Inc. (now known as MascoTech,
Inc.), Masco Corporation and TriMas Corporation. (filed
herewith)
10.h Stock Purchase Agreement dated as of October 15, 1996
between Masco Corporation and MascoTech, Inc.(8)
NOTE: Exhibits 10.i through 10.z constitute the management
contracts and executive compensatory plans or arrangements
in which certain of the Directors and executive officers of
the Company participate.
67
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
10.i MascoTech, Inc. 1991 Long Term Stock Incentive Plan (Amended
and Restated April 23, 1997). (filed herewith)
10.j MascoTech, Inc. 1984 Restricted Stock Incentive Plan
(Restated December 6, 1995).(1)
10.k MascoTech, Inc. 1984 Stock Option Plan (Restated December 6,
1995).(1)
10.1 Masco Corporation 1991 Long Term Stock Incentive Plan.
(Amended and Restated April 23, 1997).(filed herewith)
10.m Masco Corporation 1988 Restricted Stock Incentive Plan
(Restated December 6, 1995).(1)
10.n Masco Corporation 1988 Stock Option Plan (Restated December
6, 1995).(1)
10.o MascoTech, Inc. Supplemental Executive Retirement and
Disability Plan.(2)
10.p MascoTech, Inc. Benefits Restoration Plan.(2)
10.q MascoTech, Inc. 1997 Non-Employee Directors Stock
Plan.(filed herewith)
10.r MascoTech, Inc. 1997 Annual Incentive Compensation
Plan.(filed herewith)
10.s TriMas Corporation 1995 Long Term Stock Incentive Plan
(Restated December 5, 1995).(filed herewith)
10.t TriMas Corporation 1988 Restricted Stock Incentive Plan
(Restated December 5, 1995).(filed herewith)
10.u TriMas Corporation Supplemental Executive Retirement and
Disability Plan.(filed herewith)
10.v TriMas Corporation Retirement Benefit Restoration
Plan.(filed herewith)
10.w Employment Agreement dated as of December 10, 1997, between
TriMas Corporation and Brian P. Campbell.(filed herewith)
10.x Description of the MascoTech, Inc. Program for Estate,
Financial Planning and Tax Assistance. (filed herewith)
10.y Masco Corporation 1997 Annual Incentive Compensation Plan.
(filed herewith)
10.z Masco Corporation 1997 Non-Employee Directors Stock Plan.
(filed herewith)
10.aa Purchase Agreement dated as of January 26, 1990 between
Masco Corporation and TriMas Corporation.(filed herewith)
10.bb Stock Purchase Agreement between Masco Corporation and Masco
Industries, Inc. (now known as MascoTech, Inc.) dated as of
December 23, 1991 regarding Masco Capital Corporation(9)and
Amendment thereto dated May 21, 1997.(filed herewith)
12 Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends.(filed herewith)
21 List of Subsidiaries.(filed herewith)
23.a Consent of Coopers & Lybrand L.L.P. relating to MascoTech,
Inc.'s Financial Statements and Financial Statement
Schedule.(filed herewith)
23.b Consent of Coopers & Lybrand L.L.P. relating to TriMas
Corporation's Financial Statements.(filed herewith)
27.a Financial Data Schedule as of and for the year ended
December 31, 1997.(filed herewith)
27.b Financial Data Schedule as of and for the year-to-date
periods ended September 30, 1997, June 30, 1997 and March
31, 1997.(filed herewith)
27.c Financial Data Schedule as of and for the year-to-date
periods ended December 31, 1996, September 30, 1996, June
30, 1996 and March 31, 1996.(filed herewith)
27.d Financial Data Schedule as of and for the year ended
December 31, 1995.(filed herewith)
68
(1) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1995.
(2) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1994.
(3) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994.
(4) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1993.
(5) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
Current Report on Form 8-K dated November 22, 1993.
(6) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
Current Report on Form 8-K dated June 22, 1993.
(7) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
Current Report on Form 8-K dated January 30, 1998.
(8) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
Current Report on Form 8-K dated November 13, 1996.
(9) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
Annual Report on Form 10-K for the year ended December 31, 1996.
(10) Incorporated by reference to the Exhibits filed with MascoTech, Inc.'s
Registration Statement on Form 8-A dated February 23, 1998.