1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
March 2, 1994
Date of Report (Date of earliest event reported)
MASCO CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 1-5794 38-1794485
- ---------------- ---------------- ---------------
(State or Other (Commission File (IRS Employer
Jurisdiction of Number) Identification
Incorporation) Number)
21001 Van Born Road, Taylor, Michigan 48180
- ---------------------------------------- ----------------
(Address of Principal Executive Offices) (Zip Code)
(313) 274-7400
(Registrant's telephone number, including area code)
2
Item 5. Other Events.
RECENT OPERATING RESULTS
On February 11, 1994 the Registrant announced the following year end
results.
Three Months Ended Twelve Months Ended
December 31 December 31
--------------------------------- ---------------------------------
1993 1992 1993 1992
----------- -------------- -------------- --------------
(Amounts in thousands except per share data)
Net Sales $ 1,010,000 $ 908,000 $ 3,886,000 $ 3,525,000
----------- ---------- ----------- -----------
Costs and Expenses:
Costs of Sales 687,930 616,640 2,621,630 2,381,040
Selling, General and
Adminstrative Expenses 222,740 204,620 860,540 785,420
Other Expense, Net 7,330 15,440 41,230 53,740
----------- ---------- ----------- -----------
918,000 836,700 3,523,400 3,220,200
----------- ---------- ----------- -----------
Income Before Tax 92,000 71,300 362,600 304,800
Income Taxes 34,400 28,300 141,500 121,700
----------- ---------- ----------- -----------
Net Income $ 57,600 $ 43,000 $ 221,100 $ 183,100
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Earnings Per Share $.38 $.29 $1.45 $1.21
------ ------ ------- -----
------ ------ ------- -----
Average Shares Outstanding 152,700 151,700
------- -------
------- -------
Net Sales for 1993 were $3,886 million, a 10 percent increase from
1992. Net income increased 21 percent to $221 million from $183 million in
1992, with earnings per share increasing to $1.45 from $1.21.
Net sales of $1,010 million in the fourth quarter of 1993 increased 11
percent from the 1992 fourth quarter. Net income for the quarter increased 34
percent to $58 million, with earnings per share increasing to $.38, compared
with $.29 in 1992.
Income in the fourth quarter of 1993 included an $18 million after-tax
gain from the redemption by MascoTech, Inc. of its $100 million of preferred
stock. This gain was principally offset by the Registrant's approximate $10
million after-tax equity share of MascoTech's loss provision for the
disposition of its energy-related businesses, as well as by charges related to
certain restructurings of Company operations.
For all of 1993, building and home improvement products achieved sales
and operating profit of $2,188 million and $412 million, respectively.
Sales of home furnishings products in 1993 were $1,698 million.
Operating profit was $69 million, a 15 percent increase over 1992 results.
Registrant is filing herewith certain financial information as follows:
(i) audited consolidated financial statements of the Registrant and
subsidiaries as of December 31, 1993 and 1992 and for the three years in the
period ended December 31, 1993 and (ii) the separate audited consolidated
financial statements of the Registrant's 50 percent-or-less owned significant
subsidiary, MascoTech, Inc. and subsidiaries, as of December 31, 1993 and 1992
and for the three years in the period ended December 31, 1993.
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FINANCIAL STATEMENTS OF MASCO CORPORATION
AND SUBSIDIARIES AS OF DECEMBER 31, 1993 AND 1992
AND FOR THE THREE YEARS ENDED DECEMBER 31, 1993
2
4
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of Masco Corporation:
We have audited the accompanying consolidated balance sheet of Masco
Corporation and subsidiaries as of December 31, 1993 and 1992, and the related
consolidated statements of income and cash flows for each of the three years in
the period ended December 31, 1993. 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 audits 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 Masco
Corporation and subsidiaries as of December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993 in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND
Detroit, Michigan
February 24, 1994
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5
MASCO CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993 AND 1992
ASSETS
1993 1992
-------------- --------------
Current Assets:
Cash and cash investments................................... $ 119,980,000 $ 45,350,000
Marketable securities....................................... 4,890,000 8,970,000
Receivables................................................. 610,120,000 547,840,000
Inventories................................................. 824,130,000 781,700,000
Prepaid expenses............................................ 84,700,000 81,680,000
-------------- --------------
Total current assets................................... 1,643,820,000 1,465,540,000
Equity investments in MascoTech, Inc.......................... 294,700,000 246,940,000
Other investment in MascoTech, Inc............................ -- 130,000,000
Equity investments in other affiliates........................ 54,630,000 85,740,000
Property and equipment........................................ 1,095,170,000 1,030,530,000
Excess of cost over acquired net assets....................... 605,170,000 627,300,000
Other assets.................................................. 327,570,000 400,510,000
-------------- --------------
Total assets........................................... $4,021,060,000 $3,986,560,000
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable............................................... $ 33,160,000 $ 94,810,000
Accounts payable............................................ 161,220,000 133,210,000
Accrued liabilities......................................... 296,060,000 263,490,000
-------------- --------------
Total current liabilities.............................. 490,440,000 491,510,000
Long-term debt................................................ 1,418,290,000 1,487,090,000
Deferred income taxes and other............................... 113,900,000 121,080,000
-------------- --------------
Total liabilities...................................... 2,022,630,000 2,099,680,000
-------------- --------------
Shareholders' Equity:
Common shares authorized: 400,000,000;
issued: 1993 -- 152,850,000; 1992 -- 152,470,000......... 152,850,000 152,470,000
Preferred shares authorized: 1,000,000...................... -- --
Paid-in capital............................................. 69,880,000 61,370,000
Retained earnings........................................... 1,805,170,000 1,685,010,000
Cumulative translation adjustments.......................... (29,470,000) (11,970,000)
-------------- --------------
Total shareholders' equity............................. 1,998,430,000 1,886,880,000
-------------- --------------
Total liabilities and shareholders' equity............. $4,021,060,000 $3,986,560,000
-------------- --------------
-------------- --------------
See notes to consolidated financial statements.
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MASCO CORPORATION
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
-------------- -------------- --------------
Net sales...................................... $3,886,000,000 $3,525,000,000 $3,141,000,000
Cost of sales.................................. 2,621,630,000 2,381,040,000 2,206,460,000
-------------- -------------- --------------
Gross profit............................ 1,264,370,000 1,143,960,000 934,540,000
Selling, general and administrative expenses... 860,540,000 785,420,000 686,210,000
-------------- -------------- --------------
Operating profit........................ 403,830,000 358,540,000 248,330,000
-------------- -------------- --------------
Other income (expense), net:
Re: MascoTech, Inc.:
Equity earnings (loss).................... 13,160,000 12,570,000 (9,170,000)
Interest and dividend income.............. 16,220,000 17,100,000 17,100,000
Gain from redemption of preferred stock... 28,300,000 -- --
Equity earnings (loss), other affiliates..... 5,580,000 4,720,000 (3,470,000)
Other, net................................... 1,330,000 12,510,000 (28,610,000)
Interest expense............................. (105,820,000) (100,640,000) (126,580,000)
-------------- -------------- --------------
(41,230,000) (53,740,000) (150,730,000)
-------------- -------------- --------------
Income before income taxes.............. 362,600,000 304,800,000 97,600,000
Income taxes................................... 141,500,000 121,700,000 52,700,000
-------------- -------------- --------------
Net income.............................. $ 221,100,000 $ 183,100,000 $ 44,900,000
-------------- -------------- --------------
-------------- -------------- --------------
Earnings per share............................. $1.45 $1.21 $.30
----- ----- ----
----- ----- ----
See notes to consolidated financial statements.
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MASCO CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
------------- ------------- -------------
CASH FLOWS FROM (FOR):
Operating Activities:
Net income.................................... $ 221,100,000 $ 183,100,000 $ 44,900,000
Depreciation and amortization................. 115,990,000 114,450,000 102,690,000
Equity (earnings) loss, net................... (13,800,000) (13,190,000) 38,090,000
Write-downs of long-term investments.......... -- -- 31,800,000
Deferred income taxes and other............... (8,500,000) 11,620,000 (3,550,000)
Gain from redemption of MascoTech preferred
stock, net of tax.......................... (17,550,000) -- --
------------- ------------- -------------
Total from earnings...................... 297,240,000 295,980,000 213,930,000
(Increase) in receivables..................... (42,520,000) (52,450,000) (13,180,000)
(Increase) decrease in inventories............ (38,840,000) (35,100,000) 17,560,000
Increase (decrease) in accounts payable and
accrued liabilities, net................... 45,050,000 (4,800,000) 25,310,000
------------- ------------- -------------
Net cash from operating activities....... 260,930,000 203,630,000 243,620,000
------------- ------------- -------------
Investing Activities:
Capital expenditures.......................... (166,540,000) (117,690,000) (112,990,000)
Currency translation adjustments.............. (17,500,000) (27,090,000) (15,820,000)
Sale of affiliate investments to MascoTech.... 87,500,000 -- --
Proceeds from redemption of MascoTech
preferred stock............................ 100,000,000 -- --
Acquisition of Masco Capital Corp............. -- -- (49,450,000)
Other, net.................................... 40,700,000 (63,380,000) (2,850,000)
------------- ------------- -------------
Net cash from (for) investing
activities............................ 44,160,000 (208,160,000) (181,110,000)
------------- ------------- -------------
Financing Activities:
Issuance of notes............................. 400,000,000 400,000,000 --
Retirement of notes........................... (200,000,000) (300,000,000) --
Issuance of Company common stock.............. -- -- 63,600,000
Increase in other debt........................ 290,770,000 460,470,000 449,690,000
Payment of other debt......................... (622,230,000) (480,000,000) (479,660,000)
Cash dividends paid........................... (99,000,000) (92,690,000) (85,150,000)
------------- ------------- -------------
Net cash (for) financing activities...... (230,460,000) (12,220,000) (51,520,000)
------------- ------------- -------------
Cash and Cash Investments:
Increase (decrease) for the year.............. 74,630,000 (16,750,000) 10,990,000
At January 1.................................. 45,350,000 62,100,000 51,110,000
------------- ------------- -------------
At December 31................................ $ 119,980,000 $ 45,350,000 $ 62,100,000
------------- ------------- -------------
------------- ------------- -------------
See notes to consolidated financial statements.
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MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTING POLICIES:
Principles of Consolidation. The consolidated financial statements include
the accounts of Masco Corporation and all majority-owned subsidiaries. All
significant intercompany transactions have been eliminated.
Average Shares Outstanding. The average number of common shares outstanding
in 1993, 1992 and 1991 approximated 152.7 million, 151.7 million and 149.9
million, respectively.
Cash and Cash Investments. The Company considers all highly liquid
investments with a maturity of three months or less to be cash and cash
investments.
Receivables. Accounts and notes receivable are presented net of allowances
for doubtful accounts of $19.1 million at December 31, 1993 and $16.3 million at
December 31, 1992.
Property and Equipment. Property and equipment, including significant
betterments to existing facilities, are recorded at cost. Upon retirement or
disposal, 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 to 10
percent, and machinery and equipment, 5 to 33 percent. Depreciation was $82.1
million, $79.4 million and $70.2 million in 1993, 1992 and 1991, respectively.
The excess of cost over net assets of acquired companies is being amortized
using the straight-line method over periods not exceeding 40 years; at December
31, 1993 and 1992, such accumulated amortization totalled $127.2 million and
$107.3 million, respectively. At each balance sheet date management assesses
whether there has been an impairment in the carrying value of excess of cost
over net assets of acquired companies primarily by comparing current and
projected sales, operating income and annual cash flows with the related annual
amortization expense. Purchase costs of patents are being amortized using the
straight-line method over their remaining lives. Amortization of intangible
assets was $33.9 million, $35.1 million and $32.5 million in 1993, 1992 and
1991, respectively.
Fair Value of Financial Instruments. The carrying value of financial
instruments reported in the balance sheet for current assets and current
liabilities approximates fair value. The fair value of financial instruments
that are carried as long-term investments (other than those accounted for by the
equity method) was based principally on quoted market prices for those or
similar investments or by discounting future cash flows using a discount rate
that approximates the risk of the investments. The fair value of the Company's
long-term debt instruments was based principally on quoted market prices for the
same or similar issues or the current rates offered to the Company for debt with
similar terms and remaining maturities. The aggregate market value of the
Company's long-term investments and long-term debt at December 31, 1993 was
approximately $230 million and $1,471 million, as compared with the Company's
carrying value of $200 million and $1,418 million, respectively. The aggregate
market value of the Company's long-term investments and long-term debt at
December 31, 1992 was approximately $530 million and $1,508 million, as compared
with the Company's carrying value of $537 million and $1,487 million,
respectively.
Recently Issued Professional Accounting Standards. Statement of Financial
Accounting Standards (SFAS) No. 112, Employers' Accounting for Postemployment
Benefits, SFAS No. 114, Accounting by Creditors for Impairment of a Loan and
SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities,
which become effective in 1994 and 1995, will not have a material impact on the
Company's financial statements.
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MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES:
(IN THOUSANDS)
AT DECEMBER 31
--------------------
1993 1992
-------- --------
Finished goods........................................... $312,470 $300,820
Raw material............................................. 280,450 243,510
Work in process.......................................... 231,210 237,370
-------- --------
$824,130 $781,700
-------- --------
-------- --------
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.
EQUITY INVESTMENTS IN AFFILIATES:
Equity investments in affiliates consist primarily of the following equity
and partnership interests:
AT DECEMBER 31
--------------------
1993 1992 1991
---- ---- ----
MascoTech, Inc.............................................. 42% 47% 47%
Hans Grohe, a German partnership............................ 27% 27% 27%
TriMas Corporation.......................................... 5% 7% 8%
Emco Limited, a Canadian company............................ -- 44% 44%
Mechanical Technology Inc................................... -- -- 49%
Excluding the partnership interest in Hans Grohe, for which there is no
quoted market value, the aggregate market value of the Company's equity
investments at December 31, 1993 (which may differ from the amounts that could
then have been realized upon disposition), based upon quoted market prices at
that date, was $889 million, as compared with the Company's related aggregate
carrying value of $315 million.
The Company's carrying value in the common stock of MascoTech, Inc.
(formerly Masco Industries, Inc.) exceeds its equity in the underlying net book
value by approximately $63 million at December 31, 1993. This excess,
substantially all of which resulted from repurchases by MascoTech of its common
stock, is being amortized over a period not to exceed 40 years. The Company's
carrying value in the common stock of TriMas Corporation exceeds its equity in
the underlying net book value by approximately $8 million at December 31, 1993.
The Company's carrying value of its investment in Hans Grohe at December 31,
1993 approximates the Company's equity in the underlying net book value in this
affiliate.
In March 1993, the Company and MascoTech partially restructured their
affiliate relationships through transactions that reduced the Company's common
equity interest in MascoTech from 47 percent to approximately 35 percent and
resulted in MascoTech's acquisition of the Company's investments in Emco
Limited. The Company received $87.5 million in cash, $100 million of 10%
exchangeable preferred stock and seven-year warrants to purchase 10 million
common shares of MascoTech at $13 per share. MascoTech received 10 million of
its common shares, $77.5 million of its 12% exchangeable preferred stock, the
Company's investments in Emco Limited and a modified option expiring in 1997 to
require the Company to purchase up to $200 million aggregate amount of debt
securities in MascoTech.
In November 1993, MascoTech redeemed for cash its $100 million of 10%
exchangeable preferred stock issued in March 1993. As a result of this
redemption, the Company realized a $28.3 million pre-tax gain.
In December 1993, following MascoTech's call for redemption, the Company
converted the 6% debentures due 2011 into MascoTech common stock, thereby
increasing the Company's common equity interest in MascoTech from approximately
35 percent to 42 percent.
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MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As part of the Company's efforts to de-emphasize equity investments, in
addition to its disposition of its investments in Emco Limited, in July 1992 the
Company sold its 49 percent equity interest in Mechanical Technology Inc. at
approximate carrying value.
Approximate combined condensed financial data of the above companies,
excluding data subsequent to 1991 of Emco Limited and Mechanical Technology Inc.
as to which the equity method was discontinued as of January 1, 1992, are
summarized in U.S. dollars as follows, in thousands:
1993 1992 1991
----------- ----------- -----------
At December 31:
Current assets........................ $ 846,780 $ 881,200 $ 1,190,160
Current liabilities................... (300,650) (371,350) (509,770)
----------- ----------- -----------
Working capital....................... 546,130 509,850 680,390
Property and equipment................ 720,290 755,290 882,530
Other assets.......................... 882,550 737,660 816,340
Long-term liabilities................. (1,213,940) (1,400,950) (1,810,060)
----------- ----------- -----------
Shareholders' equity.................. $ 935,030 $ 601,850 $ 569,200
----------- ----------- -----------
----------- ----------- -----------
Net sales............................... $ 2,230,330 $ 2,051,730 $ 2,706,880
----------- ----------- -----------
----------- ----------- -----------
Income (loss) from continuing
operations............................ $ 119,380 $ 56,690 $ (940)
----------- ----------- -----------
----------- ----------- -----------
Net income (loss) attributable to common
shareholders.......................... $ 96,090 $ 50,340 $ (2,070)
----------- ----------- -----------
----------- ----------- -----------
The Company's net equity in above income
(loss)................................ $ 18,740 $ 17,290 $ (12,640)
----------- ----------- -----------
----------- ----------- -----------
Cash dividends received by the Company
from affiliates....................... $ 4,940 $ 4,100 $ 25,450
----------- ----------- -----------
----------- ----------- -----------
Certain amounts for 1992 and 1991 have been restated to reflect MascoTech's
formal plan to divest its energy-related business segment.
Equity in undistributed earnings of affiliates of $132 million at December
31, 1993, $118 million at December 31, 1992 and $105 million at December 31,
1991 are included in consolidated retained earnings.
OTHER INVESTMENT IN MASCOTECH, INC.:
(IN THOUSANDS)
AT DECEMBER 31
--------------------
1993 1992
-------- --------
Convertible debentures, 6%, due 2011..................... -- $130,000
-------- --------
-------- --------
In December 1993, following MascoTech's call for redemption, the Company
converted the 6% debentures into MascoTech common stock at $18 per share.
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MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT:
(IN THOUSANDS)
AT DECEMBER 31
------------------------
1993 1992
---------- ----------
Land and improvements................................. $ 78,670 $ 77,080
Buildings............................................. 595,630 574,960
Machinery and equipment............................... 1,009,060 901,960
---------- ----------
1,683,360 1,554,000
Less accumulated depreciation......................... 588,190 523,470
---------- ----------
$1,095,170 $1,030,530
---------- ----------
---------- ----------
ACCRUED LIABILITIES:
(IN THOUSANDS)
AT DECEMBER 31
-----------------------
1993 1992
-------- --------
Salaries, wages and commissions....................... $ 60,910 $ 61,520
Insurance............................................. 35,180 31,010
Advertising and sales promotion....................... 32,370 26,260
Dividends payable..................................... 26,260 24,330
Income taxes.......................................... 26,110 17,820
Interest.............................................. 26,070 24,480
Employee retirement plans and other................... 89,160 78,070
-------- --------
$296,060 $263,490
-------- --------
-------- --------
LONG-TERM DEBT:
(IN THOUSANDS)
AT DECEMBER 31
------------------------
1993 1992
---------- ----------
Notes, 6.25%, due 1995............................... $ 200,000 $ 200,000
Notes, 8.75%, due 1996............................... -- 200,000
Notes, 9%, due 1996............................... 250,000 250,000
Notes, 6.625%, due 1999............................... 200,000 200,000
Notes, 9%, due 2001............................... 175,000 175,000
Notes, 6.125%, due 2003............................... 200,000 --
Notes, 7.125%, due 2013............................... 200,000 --
Notes payable to banks................................ -- 260,000
Convertible subordinated debentures, 5.25%, due
2012................................................ 177,930 177,930
Other................................................. 23,980 28,750
---------- ----------
1,426,910 1,491,680
Less current portion.................................. 8,620 4,590
---------- ----------
$1,418,290 $1,487,090
---------- ----------
---------- ----------
At December 31, 1993, all of the outstanding notes above are nonredeemable.
In March 1993, the $200 million of 8.75% notes due 1996 were redeemed at
par with borrowings under the Company's bank revolving-credit agreement.
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MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In August 1993, the Company issued $200 million of 7.125% notes due August
15, 2013. In September 1993, the Company issued $200 million of 6.125% notes due
September 15, 2003. The proceeds from these financings were used to eliminate
floating-rate borrowings under the Company's bank revolving-credit agreement.
In June 1992, the Company issued $200 million of 6.25% notes due June 15,
1995. In September 1992, the Company issued $200 million of 6.625% notes due
September 15, 1999. The proceeds from these financings were used to reduce
outstanding bank indebtedness.
The 5.25% subordinated debentures due February 15, 2012 are convertible
into common stock at $42.28 per share.
The notes payable to banks at December 31, 1992 relate to a $750 million
revolving-credit agreement, with any outstanding balance due and payable in
November 1995. Interest is payable on borrowings under this agreement based upon
various floating rates as selected by the Company.
Certain debt agreements contain limitations on additional borrowings and
restrictions on cash dividend payments and common share repurchases. At December
31, 1993, the amount of retained earnings available for cash dividends and
common share repurchases approximated $242 million under the most restrictive of
these provisions.
At December 31, 1993, the maturities of long-term debt during the next five
years were approximately as follows: 1994-$8.6 million; 1995-$204.1 million;
1996-$256.9 million; 1997-$1.1 million; and 1998-$1.0 million.
At December 31, 1993, the Company had shelf registration statements on file
with the Securities and Exchange Commission for up to $200 million of debt
securities as well as up to 9.6 million shares of its common stock.
Interest paid was approximately $104 million, $121 million and $127 million
in 1993, 1992 and 1991, respectively.
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MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SHAREHOLDERS' EQUITY:
(IN THOUSANDS)
1993 1992 1991
---------- ---------- ----------
Common Shares, $1 Par Value
Balance, January 1....................... $ 152,470 $ 153,210 $ 149,960
Shares issued............................ 380 1,470 3,250
Shares retired........................... -- (2,210) --
---------- ---------- ----------
Balance, December 31..................... 152,850 152,470 153,210
---------- ---------- ----------
Paid-In Capital
Balance, January 1....................... 61,370 64,950 --
Common shares issued..................... 8,510 25,050 64,950
Common shares retired.................... -- (28,630) --
---------- ---------- ----------
Balance, December 31..................... 69,880 61,370 64,950
---------- ---------- ----------
Retained Earnings
Balance, January 1....................... 1,685,010 1,596,180 1,638,390
Net income............................... 221,100 183,100 44,900
Cash dividends declared.................. (100,940) (94,270) (87,110)
---------- ---------- ----------
Balance, December 31..................... 1,805,170 1,685,010 1,596,180
---------- ---------- ----------
Cumulative Translation Adjustments
Balance, December 31..................... (29,470) (11,970) 15,120
---------- ---------- ----------
Treasury Shares Related to Merger
Balance, January 1....................... -- (30,550) (30,550)
Shares repurchased....................... -- (290) --
Shares retired........................... -- 30,840 --
---------- ---------- ----------
Balance, December 31..................... -- -- (30,550)
---------- ---------- ----------
Shareholders' Equity
Balance, December 31..................... $1,998,430 $1,886,880 $1,798,910
---------- ---------- ----------
---------- ---------- ----------
In April 1991, the Company issued 3 million shares of its common stock for
approximately $64 million. The proceeds from this offering were used to reduce
outstanding bank indebtedness.
On the basis of amounts paid (declared), cash dividends per share were $.65
($.66) in 1993, $.61 ($.62) in 1992 and $.57 ($.58) in 1991.
12
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MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTIONS AND AWARDS:
For the three years ended December 31, 1993, stock option data pertaining
to stock option plans for key employees of the Company and affiliated companies
are as follows:
1993 1992 1991
--------- --------- ---------
Option shares outstanding, January 1.......... 6,742,000 7,390,000 3,817,000
Option shares granted......................... 298,000 1,212,000 3,735,000
Option price................................ $27-$37 $25-$30 $21
Option shares exercised....................... 1,210,000 1,860,000 142,000
Option price................................ $2-$30 $2-$21 $2-$18
Option shares cancelled....................... 144,000 -- 20,000
Option price................................ $2-$21 -- $17-$21
Option shares outstanding, December 31........ 5,686,000 6,742,000 7,390,000
Option price................................ $10-$37 $2-$30 $2-$25
Option shares exercisable, December 31........ 1,457,000 1,326,000 2,076,000
Pursuant to restricted stock incentive plans, the Company granted long-term
incentive awards, net, for 100,000, 267,000 and 36,000 shares of common stock
during 1993, 1992 and 1991, respectively, to key employees of the Company and
affiliated companies. The unamortized costs of unvested awards under these
plans, aggregating approximately $47 million at December 31, 1993, are being
amortized over the ten-year vesting periods.
At December 31, 1993, a combined total of 10,595,000 shares of common stock
was available for the granting of stock options and incentive awards under the
above plans.
Pursuant to the 1984 Restricted Stock (MascoTech) Incentive Plan, the
Company may award to key employees of the Company and affiliated companies,
shares of common stock of MascoTech, Inc. held by the Company. No such awards
were granted in 1993, 1992 or 1991. At December 31, 1993, there were 4,694,000
of such shares available for granting future awards under this plan.
13
15
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EMPLOYEE RETIREMENT PLANS:
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 determined annually
by the Directors. Aggregate charges to income under the pension and
profit-sharing plans were $19.2 million in 1993, $16.9 million in 1992 and $15.9
million in 1991. At December 31, 1993, the combined assets of the Company's
defined-benefit pension plans exceed the combined accumulated benefit
obligation.
Net periodic pension cost for the Company's pension plans includes the
following components:
(IN THOUSANDS)
1993 1992 1991
------- ------- -------
Service cost -- benefits earned during the year.... $11,800 $10,850 $10,590
Interest cost on projected benefit obligation...... 17,240 15,280 14,820
Actual return on assets............................ (28,940) (12,190) (25,470)
Net amortization and deferral...................... 6,100 (9,810) 6,080
------- ------- -------
Net periodic pension cost.......................... $ 6,200 $ 4,130 $ 6,020
------- ------- -------
------- ------- -------
Major assumptions used in accounting for the Company's pension plans are as
follows:
1993 1992 1991
------ ----- ------
Discount rate for obligations........................ 7.25% 8.0% 8.25%
Rate of increase in compensation levels.............. 5.0 % 6.0% 5.75%
Expected long-term rate of return on plan assets..... 13.0 % 13.0% 12.75%
The funded status of the Company's pension plans at December 31, is
summarized as follows, in thousands:
1993 1992
-------------------------- --------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
----------- ----------- ----------- -----------
Actuarial present value of
benefit obligations:
Vested benefit
obligation............... $ 135,800 $ 54,130 $ 115,900 $33,890
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Accumulated benefit
obligation............... $ 142,110 $ 62,660 $ 122,500 $38,450
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Projected benefit
obligation............... $ 181,850 $ 68,420 $ 160,040 $41,960
Assets at fair value............ 158,630 47,790 150,650 32,190
----------- ----------- ----------- -----------
Projected benefit obligation
in excess of plan assets... (23,220) (20,630) (9,390) (9,770)
Reconciling items:
Unrecognized net loss......... 22,780 13,720 10,070 2,420
Unrecognized prior service
cost....................... 8,680 1,240 11,870 2,600
Unrecognized net (asset)
obligation at transition... (12,800) 1,400 (14,890) 2,300
Requirement to recognize
minimum liability.......... -- (11,170) -- (5,060)
----------- ----------- ----------- -----------
Accrued pension cost.......... $ (4,560) $ (15,440) $ (2,340) $(7,510)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
In January 1993, Statement of Financial Accounting Standards No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions, became
effective. The Company sponsors certain postretirement benefit plans that
provide medical, dental and life insurance coverage for eligible retirees and
dependents in the United States based on age and length of service. At December
31, 1993, the aggregate present value of the accumulated postretirement benefit
obligation approximated $10 million pre-tax and is being amortized over 20
years.
14
16
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEGMENT INFORMATION:
The Company's operations in the industry segments detailed below consisted
of the manufacture and sale principally of the following products:
Building and home improvement -- faucets; plumbing fittings; kitchen and
bath cabinets; showertubs, whirlpools and spas; kitchen appliances;
builders' hardware; venting and ventilating equipment; and water pumps.
Home furnishings products -- quality furniture, fabrics and other home
furnishings products.
Corporate assets consisted primarily of cash, real property and other
investments.
Pursuant to a corporate services agreement to provide MascoTech, Inc. with
certain corporate staff and administrative services, the Company charges a fee
approximating .8 percent of MascoTech net sales. This fee approximated $11
million in each of 1993, 1992 and 1991 and is included as a reduction of general
corporate expense.
(IN THOUSANDS)
NET SALES OPERATING PROFIT ASSETS AT DECEMBER 31
------------------------------------ ------------------------------- ------------------------------------
1993 1992 1991 1993 1992 1991 1993 1992 1991
---------- ---------- ---------- -------- -------- --------- ---------- ---------- ----------
The Company's
operations by
segment were:
Building and
home
improvement... $2,188,000 $1,991,000 $1,711,000 $412,000 $368,000 $ 273,000 $1,297,000 $1,262,000 $1,171,000
Home furnishings
products...... 1,698,000 1,534,000 1,430,000 69,000 60,000 38,000 1,886,000 1,778,000 1,661,000
---------- ---------- ---------- -------- -------- --------- ---------- ---------- ----------
Total....... $3,886,000 $3,525,000 $3,141,000 $481,000 $428,000 $ 311,000 $3,183,000 $3,040,000 $2,832,000
---------- ---------- ---------- -------- -------- --------- ---------- ---------- ----------
---------- ---------- ---------- -------- -------- --------- ---------- ---------- ----------
The Company's
operations by
geographic area
were:
United States... $3,194,000 $2,895,000 $2,610,000 $387,000 $334,000 $ 232,000 $2,638,000 $2,522,000 $2,363,000
European
Community..... 375,000 378,000 327,000 60,000 64,000 48,000 240,000 245,000 242,000
Other foreign
countries..... 317,000 252,000 204,000 34,000 30,000 31,000 305,000 273,000 227,000
---------- ---------- ---------- -------- -------- --------- ---------- ---------- ----------
Total, as
above..... $3,886,000 $3,525,000 $3,141,000 481,000 428,000 311,000 3,183,000 3,040,000 2,832,000
---------- ---------- ----------
---------- ---------- ----------
Other expense,
net............. (41,000) (54,000) (151,000)
General corporate
expense, net.... (77,000) (69,000) (62,000)
-------- -------- ---------
Income before
income
taxes(1)........ $363,000 $305,000 $ 98,000
-------- -------- ---------
-------- -------- ---------
Equity and other
investments
in affiliates... 349,000 463,000 448,000
Corporate
assets.......... 489,000 484,000 506,000
---------- ---------- ----------
Total
assets.... $4,021,000 $3,987,000 $3,786,000
---------- ---------- ----------
---------- ---------- ----------
DEPRECIATION AND
PROPERTY ADDITIONS AMORTIZATION
------------------------------------ -------------------------------
1993 1992 1991 1993 1992 1991
---------- ---------- ---------- -------- -------- ---------
The Company's
operations by
segment were:
Building and
home
improvement... $ 80,000 $ 80,000 $ 62,000 $ 48,000 $ 48,000 $ 42,000
Home furnishings
products...... 71,000 35,000 38,000 46,000 45,000 43,000
---------- ---------- ---------- -------- -------- ---------
Total....... $ 151,000 $ 115,000 $ 100,000 $ 94,000 $ 93,000 $ 85,000
---------- ---------- ---------- -------- -------- ---------
---------- ---------- ---------- -------- -------- ---------
(1) Income before income taxes and net income from foreign operations for 1993,
1992 and 1991 were $92 million and $55 million, $88 million and $54 million,
and $72 million and $43 million, respectively.
15
17
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER INCOME (EXPENSE), NET:
(IN THOUSANDS)
1993 1992 1991
--------- --------- ---------
Re: MascoTech, Inc.:
Equity earnings (loss)..................... $ 13,160 $ 12,570 $ (9,170)
--------- --------- ---------
Interest and dividend income............... 16,220 17,100 17,100
--------- --------- ---------
Gain from redemption of preferred stock.... 28,300 -- --
--------- --------- ---------
Equity earnings (loss), other affiliates..... 5,580 4,720 (3,470)
--------- --------- ---------
Other, net:
Income from cash and marketable
securities.............................. 3,250 4,330 4,100
Other interest income...................... 9,800 11,640 14,390
Other items................................ (11,720) (3,460) (47,100)
--------- --------- ---------
1,330 12,510 (28,610)
--------- --------- ---------
Interest expense............................. (105,820) (100,640) (126,580)
--------- --------- ---------
$ (41,230) $ (53,740) $(150,730)
--------- --------- ---------
--------- --------- ---------
Other items in 1991 include write-downs aggregating approximately $32
million pre-tax in the Company's long-term investments.
16
18
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES:
(IN THOUSANDS)
1993 1992 1991
-------- -------- --------
Income before income taxes:
Domestic...................................... $270,930 $216,460 $ 25,910
Foreign....................................... 91,670 88,340 71,690
-------- -------- --------
$362,600 $304,800 $ 97,600
-------- -------- --------
-------- -------- --------
Provision for income taxes:
Currently payable:
Federal.................................... $ 96,830 $ 62,360 $ 25,690
State and local............................ 13,530 12,500 8,660
Foreign.................................... 39,640 35,220 25,800
Deferred:
Federal, net............................... (5,570) 12,090 (10,740)
Foreign.................................... (2,930) (470) 3,290
-------- -------- --------
$141,500 $121,700 $ 52,700
-------- -------- --------
-------- -------- --------
Deferred tax assets at December 31:
Inventories................................... $ 12,080
Earlier recognition of expenses for financial
reporting purposes......................... 44,570
Other......................................... 1,550
--------
58,200
--------
Deferred tax liabilities at December 31:
Property and equipment........................ 145,880
Other......................................... 9,240
--------
155,120
--------
Net deferred tax liability at December 31.. $ 96,920
--------
--------
Provision for deferred income taxes for
temporary differences:
Accelerated tax deductions, including
depreciation............................... $ 900 $ 3,990 $ 8,760
Earlier recognition of gains and losses, net
for financial reporting purposes........... (9,400) 7,630 (16,210)
-------- -------- --------
$ (8,500) $ 11,620 $ (7,450)
-------- -------- --------
-------- -------- --------
The effective tax rate differs from the United States federal statutory
rate principally due to: equity earnings (1 percent in 1992 and -7 percent in
1991), higher tax rate applicable to foreign earnings (-1 percent in 1993, -2
percent in 1992 and -5 percent in 1991), amortization in excess of tax, net (-1
percent in 1993, -2 percent in 1992 and -6 percent in 1991), dividends-received
deduction (1 percent in 1993 and 1992 and 2 percent in 1991), state income tax
and other (-2 percent in 1993 and -4 percent in 1992 and 1991), and -1 percent
in 1993 to record the effect on deferred tax liabilities caused by the increase
in the tax rate from 34 percent to 35 percent.
Income taxes paid were approximately $135 million, $97 million and $54
million in 1993, 1992 and 1991, respectively.
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, which requires the use of an asset and liability method of accounting for
income taxes, became effective in January 1993.
17
19
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes result from temporary differences between the tax basis of
assets and liabilities and the related basis as reported in the consolidated
financial statements. Prior to 1993, the Company followed the requirements of
Statement of Financial Accounting Standards No. 96, Accounting for Income Taxes.
COMBINED FINANCIAL STATEMENTS (UNAUDITED):
The following presents the combined financial statements of the Company,
MascoTech, Inc. (formerly Masco Industries, Inc.), and TriMas Corporation as one
entity, with Masco Corporation as the parent company. Certain amounts for 1992
and 1991 have been restated to reflect MascoTech's formal plan to divest its
energy-related business segment. Intercompany transactions have been eliminated.
Amounts, except earnings per share, are in thousands.
AT DECEMBER 31
------------------------
1993 1992
---------- ----------
COMBINED BALANCE SHEET
Assets
Current assets:
Cash and cash investments........................... $ 272,950 $ 186,120
Marketable securities............................... 32,680 42,190
Receivables......................................... 906,500 857,550
Prepaid expenses.................................... 118,700 104,720
Deferred income taxes............................... 41,780 13,990
Inventories:
Finished goods................................... 393,820 414,270
Raw material..................................... 365,370 351,570
Work in process.................................. 281,680 298,940
---------- ----------
1,040,870 1,064,780
---------- ----------
Total current assets........................... 2,413,480 2,269,350
Equity investments in affiliates...................... 163,970 124,570
Property and equipment................................ 1,747,590 1,712,840
Excess of cost over acquired net assets............... 1,114,740 1,217,010
Net assets of discontinued operations................. 67,510 --
Other assets.......................................... 428,390 537,420
---------- ----------
Total assets................................... $5,935,680 $5,861,190
---------- ----------
---------- ----------
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable....................................... $ 36,310 $ 159,350
Accounts payable.................................... 277,070 253,680
Accrued liabilities................................. 428,720 403,510
---------- ----------
Total current liabilities...................... 742,100 816,540
Long-term debt........................................ 2,445,540 2,600,970
Deferred income taxes and other....................... 275,400 315,300
Other interests in combined affiliates................ 474,210 241,500
---------- ----------
Total liabilities.............................. 3,937,250 3,974,310
Equity of shareholders of Masco Corporation........... 1,998,430 1,886,880
---------- ----------
Total liabilities and shareholders' equity..... $5,935,680 $5,861,190
---------- ----------
---------- ----------
18
20
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31
-----------------------------------------
1993 1992 1991
----------- ----------- -----------
COMBINED STATEMENT OF INCOME
Net sales............................... $ 5,901,060 $ 5,360,330 $ 4,741,240
Cost of sales........................... (4,169,190) (3,797,980) (3,486,760)
Selling, general and administrative
expenses.............................. (1,112,300) (1,033,350) (916,670)
----------- ----------- -----------
Operating profit................. 619,570 529,000 337,810
----------- ----------- -----------
Other income (expense), net:
Interest expense...................... (189,610) (188,230) (259,520)
Other, net............................ 45,360 45,040 31,150
----------- ----------- -----------
(144,250) (143,190) (228,370)
----------- ----------- -----------
Income before income taxes and
other interests............... 475,320 385,810 109,440
Income taxes............................ 208,930 172,610 68,870
Other interests in combined
affiliates............................ 45,290 30,100 (4,330)
----------- ----------- -----------
Net income....................... $ 221,100 $ 183,100 $ 44,900
----------- ----------- -----------
----------- ----------- -----------
Earnings per share...................... $1.45 $1.21 $.30
----- ----- ----
----- ----- ----
19
21
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEARS ENDED DECEMBER 31
-------------------------------------
1993 1992 1991
----------- --------- ---------
COMBINED STATEMENT OF CASH FLOWS
Cash Flows From (For) Operating Activities:
Net income............................... $ 221,100 $ 183,100 $ 44,900
Depreciation and amortization............ 194,270 191,290 175,740
Equity (earnings) loss, net of
dividends............................. (4,840) (1,140) 18,530
Gain from change in investment........... (9,490) (16,700) --
Write-downs of long-term investments..... -- -- 31,800
Deferred income taxes and other.......... 7,590 15,860 1,980
Gain on sales of assets, net............. -- -- (21,500)
Other interests in net income (loss) of
combined affiliates, net.............. 45,290 30,100 (4,330)
----------- --------- ---------
Total from earnings................. 453,920 402,510 247,120
(Increase) in receivables................ (52,670) (75,340) (5,330)
(Increase) decrease in inventories....... (49,950) (36,550) 44,780
Increase (decrease) in accounts payable
and accrued liabilities, net.......... 37,230 (9,690) 31,330
Discontinued operations, net............. 16,700 830 (3,340)
----------- --------- ---------
Net cash from operating
activities....................... 405,230 281,760 314,560
----------- --------- ---------
Cash Flows From (For) Investing Activities:
Capital expenditures..................... (252,360) (198,170) (176,950)
Currency translation adjustments......... (17,500) (27,090) (15,820)
Acquisitions............................. -- -- (50,190)
Proceeds from sale of subsidiaries....... 33,170 -- 52,110
Other, net............................... 39,730 (45,810) 40,750
----------- --------- ---------
Net cash (for) investing
activities....................... (196,960) (271,070) (150,100)
----------- --------- ---------
Cash Flows From (For) Financing Activities:
Increase in debt......................... 862,800 872,140 514,410
Payment of debt.......................... (1,087,400) (915,630) (602,250)
Issuance of common shares................ -- 85,150 63,600
Issuance of preferred stock.............. 209,520 -- --
Cash dividends paid...................... (106,360) (93,410) (85,150)
----------- --------- ---------
Net cash (for) financing
activities....................... (121,440) (51,750) (109,390)
----------- --------- ---------
Cash and Cash Investments:
Increase (decrease) for the year......... 86,830 (41,060) 55,070
At January 1............................. 186,120 227,180 172,110
----------- --------- ---------
At December 31........................... $ 272,950 $ 186,120 $ 227,180
----------- --------- ---------
----------- --------- ---------
20
22
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
INTERIM FINANCIAL INFORMATION (UNAUDITED):
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
QUARTERS NET GROSS NET EARNINGS
ENDED SALES PROFIT INCOME PER SHARE
----------------------------------- ---------- ---------- -------- ---------
1993
December 31........................ $1,010,000 $ 322,070 $ 57,600 $ .38
September 30....................... 982,000 319,900 55,700 .36
June 30............................ 948,000 309,500 53,300 .35
March 31........................... 946,000 312,900 54,500 .36
---------- ---------- -------- ---------
$3,886,000 $1,264,370 $221,100 $1.45
---------- ---------- -------- ---------
---------- ---------- -------- ---------
1992
December 31........................ $ 908,000 $ 291,360 $ 43,000 $ .29
September 30....................... 899,000 293,500 50,800 .33
June 30............................ 867,000 285,300 48,500 .32
March 31........................... 851,000 273,800 40,800 .27
---------- ---------- -------- ---------
$3,525,000 $1,143,960 $183,100 $1.21
---------- ---------- -------- ---------
---------- ---------- -------- ---------
21
23
FINANCIAL STATEMENTS OF MASCOTECH, INC.
AND SUBSIDIARIES AS OF
DECEMBER 31, 1993 AND 1992 AND
FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 1993
22
24
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 (formerly Masco Industries, Inc.) as of December 31, 1993
and 1992, and the related consolidated statements of income and cash flows for
each of the three years in the period ended December 31, 1993. 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 MascoTech, Inc.
and subsidiaries as of December 31, 1993 and 1992, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1993, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND
Detroit, Michigan
February 24, 1994
23
25
MASCOTECH, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1993 AND 1992
1993 1992
-------------- --------------
ASSETS
Current assets:
Cash and cash investments................................... $ 83,200,000 $ 76,000,000
Receivables................................................. 238,820,000 272,920,000
Inventories................................................. 140,040,000 222,280,000
Deferred and refundable income taxes........................ 41,780,000 13,990,000
Prepaid expenses and other assets........................... 52,000,000 47,250,000
-------------- --------------
Total current assets................................... 555,840,000 632,440,000
Equity and other investments in affiliates.................... 170,510,000 81,460,000
Property and equipment, net................................... 490,190,000 537,420,000
Excess of cost over net assets of acquired companies.......... 439,760,000 479,400,000
Notes receivable and other assets............................. 66,100,000 76,590,000
Net assets of discontinued operations......................... 67,510,000 --
-------------- --------------
Total assets........................................... $1,789,910,000 $1,807,310,000
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................ $ 95,520,000 $ 103,620,000
Accrued liabilities......................................... 103,260,000 117,430,000
Current portion of long-term debt........................... 2,830,000 64,430,000
-------------- --------------
Total current liabilities.............................. 201,610,000 285,480,000
Long-term debt................................................ 788,360,000 1,065,390,000
Deferred income taxes and other long-term liabilities......... 132,310,000 103,040,000
-------------- --------------
Total liabilities...................................... 1,122,280,000 1,453,910,000
-------------- --------------
Shareholders' equity:
Preferred stock, $1 par: Authorized: 25,000,000;
Outstanding: 10.8 million in 1993 (liquidation value-$216
million) and .8 million in 1992 (liquidation value-$77.5
million)................................................. 10,800,000 780,000
Common stock, $1 par: Authorized: 250,000,000; Outstanding:
60,510,000 and 59,520,000................................ 60,510,000 59,520,000
Paid-in capital............................................. 367,290,000 84,390,000
Retained earnings........................................... 232,120,000 202,660,000
Cumulative translation adjustments.......................... (3,090,000) 6,050,000
-------------- --------------
Total shareholders' equity............................. 667,630,000 353,400,000
-------------- --------------
Total liabilities and shareholders' equity............. $1,789,910,000 $1,807,310,000
-------------- --------------
-------------- --------------
The accompanying notes are an integral part of the consolidated financial
statements.
24
26
MASCOTECH, INC.
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
--------------- --------------- ---------------
Net sales................................... $ 1,582,880,000 $ 1,455,320,000 $ 1,266,210,000
Cost of sales............................... (1,257,480,000) (1,159,050,000) (1,054,520,000)
--------------- --------------- ---------------
Gross profit......................... 325,400,000 296,270,000 211,690,000
Selling, general and administrative
expenses.................................. (179,680,000) (184,430,000) (168,100,000)
--------------- --------------- ---------------
Operating profit..................... 145,720,000 111,840,000 43,590,000
--------------- --------------- ---------------
Other income (expense), net:
Interest expense, Masco Corporation....... (6,990,000) (7,800,000) (7,800,000)
Other interest expense.................... (74,370,000) (78,190,000) (104,680,000)
Equity and interest income from
affiliates............................. 21,000,000 15,750,000 29,390,000
Gain from change in investment of equity
affiliates............................. 9,490,000 16,700,000 --
Gain from disposition of operations....... -- -- 21,500,000
Other, net................................ 26,330,000 9,950,000 5,530,000
--------------- --------------- ---------------
(24,540,000) (43,590,000) (56,060,000)
--------------- --------------- ---------------
Income (loss) from continuing operations
before income taxes (credit) and
extraordinary loss........................ 121,180,000 68,250,000 (12,470,000)
Income taxes (credit)....................... 50,290,000 29,210,000 (2,120,000)
--------------- --------------- ---------------
Income (loss) from continuing operations
before extraordinary loss................. 70,890,000 39,040,000 (10,350,000)
Discontinued operations (net of income
taxes):
Income (loss) from operations of
discontinued segment.............. 2,630,000 (610,000) 1,380,000
Loss on disposition.................. (22,270,000) -- --
--------------- --------------- ---------------
Income (loss) before extraordinary loss..... 51,250,000 38,430,000 (8,970,000)
Extraordinary loss (net of income taxes).... (3,650,000) -- --
--------------- --------------- ---------------
Net income (loss).................... $ 47,600,000 $ 38,430,000 $ (8,970,000)
--------------- --------------- ---------------
--------------- --------------- ---------------
Preferred stock dividends................... $ 14,930,000 $ 9,300,000 $ 9,600,000
--------------- --------------- ---------------
--------------- --------------- ---------------
Earnings (loss) attributable to
common stock...................... $ 32,670,000 $ 29,130,000 $ (18,570,000)
--------------- --------------- ---------------
--------------- --------------- ---------------
1993
-------------------
ASSUMING
FULL 1992 1991
PRIMARY DILUTION PRIMARY PRIMARY
------- -------- ------- -------
Earnings (loss) per common and common equivalent share:
Continuing operations.................................... $ .97 $ .91 $ .49 $(.33)
Discontinued operations:
Income (loss) from operations of discontinued
segment............................................. .05 .04 (.01) .02
Loss on disposition................................... (.39) * -- --
------- -------- ------- -------
Income (loss) before extraordinary loss.................. .63 .63 .48 (.31)
Extraordinary loss....................................... (.06) * -- --
------- -------- ------- -------
Earnings (loss) attributable to common stock............. $ .57 $ .57 $ .48 $(.31)
------- -------- ------- -------
------- -------- ------- -------
- -------------------------
* Anti-dilutive
The accompanying notes are an integral part of the consolidated financial
statements.
25
27
MASCOTECH, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
------------- ------------- -------------
CASH FROM (USED FOR):
OPERATIONS:
Net income (loss)............................... $ 47,600,000 $ 38,430,000 $ (8,970,000)
Gain, sale of assets............................ -- -- (21,500,000)
Gain from change in investment.................. (9,490,000) (16,700,000) --
Depreciation and amortization................... 59,810,000 59,920,000 59,040,000
Equity earnings, net of dividends............... (12,000,000) (5,250,000) (4,460,000)
Deferred taxes.................................. 15,590,000 3,130,000 3,270,000
(Decrease) in valuation allowance for marketable
securities.................................... -- -- (13,730,000)
(Increase) decrease in receivables.............. (5,900,000) (23,930,000) 9,780,000
(Increase) decrease in inventories.............. (2,990,000) (2,920,000) 25,120,000
(Increase) decrease in prepaid expenses......... (11,650,000) 4,010,000 (4,470,000)
Decrease in accounts payable and accrued
liabilities................................... (5,900,000) (12,930,000) (530,000)
Other, net, including extraordinary loss........ 8,180,000 13,540,000 2,950,000
Discontinued operations, net.................... 16,700,000 830,000 (3,340,000)
------------- ------------- -------------
Net cash from operating activities............ 99,950,000 58,130,000 43,160,000
------------- ------------- -------------
FINANCING:
Increase in debt................................ -- 11,670,000 14,720,000
Payment or repurchase of debt................... (150,020,000) (135,490,000) (122,430,000)
Issuance of preferred stock..................... 209,520,000 -- --
Retirement of preferred stock................... (100,000,000) -- --
Payment of dividends............................ (16,020,000) (9,300,000) (7,280,000)
Other, net...................................... 3,770,000 (2,240,000) --
------------- ------------- -------------
Net cash used for financing activities........ (52,750,000) (135,360,000) (114,990,000)
------------- ------------- -------------
INVESTMENTS:
Cash received from redemption of TriMas
subordinated debentures....................... -- 88,000,000 40,000,000
Cash paid Masco Corporation..................... (87,500,000) -- --
Cash received from dispositions:
Energy-related segment........................ 93,450,000 -- --
Masco Capital................................. -- -- 49,450,000
Other operations.............................. -- -- 52,110,000
Masco Capital distributions, net................ -- -- 21,220,000
Capital expenditures............................ (59,540,000) (60,000,000) (48,630,000)
Decrease in marketable securities, net.......... 2,980,000 3,150,000 26,190,000
Other, net...................................... 10,610,000 4,130,000 7,050,000
------------- ------------- -------------
Net cash (used for) from investing
activities................................. (40,000,000) 35,280,000 147,390,000
------------- ------------- -------------
CASH AND CASH INVESTMENTS:
Increase (decrease) for the year................... 7,200,000 (41,950,000) 75,560,000
At January 1....................................... 76,000,000 117,950,000 42,390,000
------------- ------------- -------------
At December 31................................ $ 83,200,000 $ 76,000,000 $ 117,950,000
------------- ------------- -------------
------------- ------------- -------------
The accompanying notes are an integral part of the consolidated financial
statements.
26
28
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. Capital
transactions by equity affiliates at amounts differing from the Company's
carrying amount are reflected in other income or expense and the investment in
affiliates account.
Certain amounts for the years ended December 31, 1992 and 1991 have been
reclassified to conform to the presentation adopted in 1993. The statements of
income and cash flows for 1993, 1992 and 1991 and related notes have been
reclassified to present the Energy-related segment as discontinued operations.
In addition, the balance sheet as of December 31, 1993 reflects the
Energy-related segment as discontinued operations (see "Discontinued Operations"
note). The balance sheet as of December 31, 1992 has not been reclassified for
discontinued operations. Effective June 23, 1993 the Company changed its name to
MascoTech, Inc. from Masco Industries, Inc.
The Company has a corporate services agreement with Masco Corporation,
which at December 31, 1993 owned approximately 42 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, including net sales related to
discontinued operations, aggregated approximately $11 million in each of 1993,
1992 and 1991.
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. At December 31, 1993, the Company has $33
million on deposit with a German bank that is subject to currency exchange rate
fluctuations.
Receivables. Receivables are presented net of allowances for doubtful
accounts of $5.1 million and $7.2 million at December 31, 1993 and 1992,
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
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
excess of cost over net assets of acquired companies at December 31, 1993.
At December 31, 1993 and 1992, accumulated amortization of the excess of
cost over net assets of acquired companies and patents was $98.4 million and
$105.1 million, respectively. Amortization expense was
27
29
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$22.2 million, $22.8 million and $21.2 million in 1993, 1992 and 1991,
respectively, including amortization expense of approximately $1.6 million in
each year related to discontinued operations.
Income Taxes. In January, 1993, the Company adopted Statement of Financial
Accounting Standards 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. Previously, the Company used the SFAS No. 96 asset and
liability approach that gave no recognition to future events other than the
recovery of assets and settlement of liabilities at their carrying amounts.
There was no income statement impact from the adoption of SFAS No. 109 and the
required balance sheet reclassification was immaterial. Provision is made for
U.S. income taxes on the undistributed earnings of foreign subsidiaries unless
such earnings are considered permanently reinvested.
Earnings (Loss) Per Common Share. Primary earnings (loss) per common share
are based on the weighted average number of shares of common stock and common
stock equivalents outstanding (including the dilutive effect of options and
warrants, utilizing the treasury stock method) of 57.4 million, 60.9 million and
59.7 million in 1993, 1992 and 1991, respectively, and earnings (loss) after
deducting preferred stock dividends of $14.9 million, $9.3 million and $9.6
million in 1993, 1992 and 1991, respectively.
Fully diluted earnings (loss) per common share are only presented when the
assumed conversion of convertible debentures is dilutive. Fully diluted earnings
per share in 1993 were calculated based on 68.8 million weighted average common
shares outstanding. Convertible securities did not have a dilutive effect on
earnings (loss) in 1992 or 1991. The shares of Dividend Enhanced Convertible
Stock DECSSM (the "DECS") issued in 1993 (see "Shareholders' Equity" note) are
common stock equivalents, but are not included in the calculation of primary or
fully diluted shares outstanding as such inclusion would be anti-dilutive.
In late 1993, approximately 10.4 million shares were issued as a result of
the conversion of the 6% Convertible Subordinated Debentures (see "Shareholders'
Equity" note). If such conversion had taken place at the beginning of 1993, the
primary earnings per common and common equivalent share amounts would have
approximated the amounts presented for earnings per common and common equivalent
share, assuming full dilution, for the year ended December 31, 1993.
Adoption of Statements of Financial Accounting Standards. The Company
expects that the adoption of Statements of Financial Accounting Standards
("SFAS") No. 112 "Employers' Accounting for Postemployment Benefits", SFAS No.
114 "Accounting by Creditors for Impairment of a Loan" and SFAS No. 115
"Accounting for Certain Investments in Debt and Equity Securities" will not have
a material impact on the financial position or the results of operations of the
Company when adopted in 1994 and 1995.
SUPPLEMENTARY CASH FLOWS INFORMATION:
Significant transactions not affecting cash were: in 1993: in addition to
the payment by the Company of $87.5 million, the non-cash portion of the
issuance of Company Preferred Stock and warrants in exchange for Company Common
Stock, Company Preferred Stock and Masco Corporation's holdings of Emco Limited
common stock and convertible debentures (see "Shareholders' Equity" note);
conversion of $187 million of convertible debentures into Company Common Stock
(see "Shareholders' Equity" note); and conversion of the Company's TriMas
Corporation ("TriMas") convertible preferred stock holdings into TriMas common
stock (see "Equity and Other Investments in Affiliates" note); and in 1991: an
exchange of certain operating assets (see "Dispositions of Other Operations"
note); and the assumption of liabilities of $18 million in partial exchange for
the acquisition of Creative Industries Group (see "Equity and Other Investments
in Affiliates" note).
28
30
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income taxes paid were $32 million in 1993 and $23 million in 1992. Income
tax refunds of $8 million were received in 1991. Interest paid was $82 million,
$91 million and $115 million in 1993, 1992 and 1991, respectively.
DISCONTINUED OPERATIONS:
In late November, 1993, the Company adopted a formal plan to divest its
Energy-related business segment, which consisted of seven business units.
Accordingly, the consolidated statements of income and cash flows and related
notes have been reclassified to present such Energy-related segment as
discontinued operations. During 1993, two such business units were sold for
approximately $93 million, including the sale of one business unit to the
Company's equity affiliate, TriMas for $60 million cash. The expected loss from
the planned disposition of the Company's Energy-related segment resulted in a
fourth quarter 1993 pre-tax charge of approximately $41 million (approximately
$22 million after-tax), including a provision for the businesses not yet sold
and the deferral of a portion of the gain (approximately $6 million after-tax)
related to the sale of the business to TriMas. The Company expects to sell the
remaining business units in privately negotiated transactions in 1994.
Selected financial information for discontinued operations is as follows as
at December 31, 1993 and for the period up to the decision to discontinue in
1993 and for the years ended December 31, 1992 and 1991:
(IN THOUSANDS)
1993 1992 1991
-------- -------- --------
Net sales....................................... $191,930 $201,520 $200,780
-------- -------- --------
-------- -------- --------
Operating income................................ $ 5,540 $ 3,050 $ 1,070
Other income (expense).......................... (480) (960) 910
-------- -------- --------
Pre-tax income.................................. 5,060 2,090 1,980
Income taxes.................................... 2,430 2,700 600
-------- -------- --------
Income (loss) from discontinued operations...... $ 2,630 $ (610) $ 1,380
-------- -------- --------
-------- -------- --------
AT
DECEMBER 31,
1993
--------
Receivables..................................... $ 34,890
Inventories..................................... 39,320
Non-current assets.............................. 40,690
Current liabilities............................. (14,550)
Other, principally provision for disposition
costs......................................... (32,840)
--------
Net assets of discontinued operations........... $ 67,510
--------
--------
The unusual relationship of income taxes to pre-tax income in 1992 results
principally from foreign losses for which no tax benefit was recorded. Operating
and pre-tax income include charges of $6 million in 1991, principally related to
the discontinuance of product lines and the cost of restructuring several
businesses.
DISPOSITIONS OF OTHER OPERATIONS:
In separate transactions from late 1989 to early 1991, the Company divested
itself of three subsidiaries and received consideration of approximately $160
million, of which $108 million was received in 1990. The remaining $52 million
was received in 1991. In addition, in 1991 the Company disposed of certain
equity affiliates, and exchanged operating assets aggregating approximately $27
million.
These transactions, including the disposition of Masco Capital Corporation
(see "Equity and Other Investments in Affiliates" note), resulted in an
approximate $22 million pre-tax gain in 1991.
29
31
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES:
(IN THOUSANDS)
AT DECEMBER 31
--------------------
1993 1992
-------- --------
Finished goods........................................... $ 39,400 $ 80,220
Work in process.......................................... 38,240 49,970
Raw material............................................. 62,400 92,090
-------- --------
$140,040 $222,280
-------- --------
-------- --------
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
--------------------
1993 1992 1991
---- ---- ----
TriMas Corporation.......................................... 43% 28% 41%
Emco Limited................................................ 43% -- --
Titan Wheel International, Inc. ............................ 21% 47% 20%
The carrying amount of investments in affiliates at December 31, 1993 and
1992 and quoted market values at December 31, 1993 for publicly traded
affiliates (which may differ from the amounts that could have been realized upon
disposition) are as follows:
(IN THOUSANDS)
1993
QUOTED 1993 1992
MARKET CARRYING CARRYING
VALUE AMOUNT AMOUNT
-------- -------- --------
Common stock:
TriMas Corporation............................. $387,830 $ 40,550 $ 42,630
Emco Limited................................... 65,190 50,470 --
Titan Wheel International, Inc. ............... 37,580 15,500 4,130
-------- -------- --------
Common stock holdings............................ 490,600 106,520 46,760
-------- -------- --------
Convertible debt:
Emco Limited................................... 33,520 30,700 --
-------- -------- --------
Convertible debt holdings........................ 33,520 30,700 --
-------- -------- --------
Investments in publicly traded affiliates........ $524,120 137,220 46,760
--------
--------
Other non public affiliates...................... 33,290 34,700
-------- --------
Total..................................... $170,510 $ 81,460
-------- --------
-------- --------
In 1988, the Company transferred several businesses to TriMas, a publicly
traded, diversified manufacturer of commercial, industrial and consumer
products. In exchange, the Company received $128 million principal amount of 14%
Subordinated Debentures (which were subsequently redeemed resulting in
prepayment premium income to the Company of $9 million in 1992 and $4 million in
1991), $70 million (liquidation value) of 10% Convertible Participating
Preferred Stock and 9.3 million shares of TriMas common stock.
During the second quarter of 1992, TriMas sold 9.2 million shares of newly
issued common stock at $9.75 per share in a public offering, which reduced the
Company's common equity ownership interest in TriMas to
30
32
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
28 percent from 41 percent. As a result, the Company recognized a pre-tax gain
of $16.7 million from the change in the Company's common equity ownership
interest in TriMas. In late 1993, the TriMas 10% Convertible Participating
Preferred Stock held by the Company was converted at a conversion price of $9
per share into 7.8 million shares of TriMas common stock, increasing the
Company's common equity ownership interest in TriMas to 43 percent.
In 1993, the Company sold a business unit to TriMas for $60 million cash
(see "Discontinued Operations" note).
Included in notes receivable are approximately $10.7 million of notes which
resulted from the sale by the Company of one million shares of its TriMas common
stock holdings to members of the Company's executive management group in
mid-1989. The notes have an effective interest rate of nine percent, payable at
maturity in mid-1994. Ownership and resale of certain of such shares is
restricted and subject to the continuing employment of these executives.
TriMas' Board of Directors declared a 100 percent stock distribution (one
additional share for every share held) to its shareholders effective July 19,
1993. TriMas share amounts and per share prices have been restated to reflect
this distribution.
The Company's holdings in Emco Limited ("Emco") were acquired from Masco
Corporation in 1993 (see "Shareholders' Equity" note). Emco is a major, publicly
traded, Canadian based manufacturer and distributor of building and other
industrial products with annual sales of approximately $800 million.
At December 31, 1992, the Company had an approximate 47 percent common
equity ownership interest in Titan Wheel International, Inc. ("Titan"), a
manufacturer of wheels and other products for agricultural, construction and
other off-highway equipment markets. In May, 1993, Titan completed an initial
public offering of three million shares of common stock at $15 per share
(including 292,000 shares held by the Company), reducing the Company's common
equity ownership interest in Titan to 24 percent. The Company's ownership
interest was further reduced in late 1993 to 21 percent as a result of the
issuance of additional common shares by Titan in connection with an acquisition
by Titan. These transactions resulted in 1993 gains aggregating approximately
$12.8 million pre-tax (principally in the second quarter) as a result of the
sale of shares held by the Company and from the change in the Company's common
equity ownership interest in Titan.
During the second quarter of 1991, the Company acquired the remaining 50
percent equity ownership interest of Creative Industries Group, which had sales
in 1990 of approximately $150 million.
In 1991, Masco Capital Corporation ("Masco Capital") sold its principal
asset and used the proceeds to repay its outstanding bank borrowings and to make
loan repayments and distributions to its shareholders, whereby the Company
received approximately $65 million (including repayment of $44 million advanced
during 1991). In addition, the Company subsequently sold its 50 percent equity
ownership interest in Masco Capital to the other shareholder, Masco Corporation,
for approximately $50 million (which resulted in a pre-tax gain of approximately
$5 million) and contingent amounts based on the future value of certain assets
held by Masco Capital.
In addition to its equity and other investments in publicly traded
affiliates, the Company retains interests in privately held manufacturers of
automotive components, including the Company's 50 percent common equity
ownership interests in Autostyle, Inc., a manufacturer of reaction injection
molded automotive components, and Elbi-Hi Ram, Inc., a manufacturer of
electrical and electronic automotive components.
31
33
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Approximate combined condensed financial data of the Company's equity
affiliates (including Emco after date of investment, Creative Industries Group
through date of acquisition (second quarter 1991) and Masco Capital through date
of disposition) are as follows:
(IN THOUSANDS)
AT DECEMBER 31
----------------------
1993 1992
--------- ---------
Current assets......................................... $ 657,680 $ 261,730
Current liabilities.................................... (222,580) (128,300)
--------- ---------
Working capital........................................ 435,100 133,430
Property and equipment, net............................ 349,740 214,760
Excess of cost over net assets of acquired companies... 170,760 113,660
Other assets........................................... 69,540 33,210
Long-term debt......................................... (628,520) (271,220)
Deferred income taxes and other long-term
liabilities.......................................... (34,950) (24,900)
--------- ---------
Shareholders' equity................................... $ 361,670 $ 198,940
--------- ---------
--------- ---------
FOR THE YEARS ENDED DECEMBER 31
----------------------------------
1993 1992 1991
---------- -------- --------
Net sales..................................... $1,412,620 $655,120 $684,990
---------- -------- --------
---------- -------- --------
Operating profit.............................. $ 119,780 $ 77,860 $ 82,000
---------- -------- --------
---------- -------- --------
Net income before preferred stock dividends... $ 57,280 $ 30,200 $ 24,300
---------- -------- --------
---------- -------- --------
Equity and interest income from affiliates consists of the following:
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31
----------------------------------
1993 1992 1991
---------- -------- --------
The Company's equity in affiliates' earnings
available for common shareholders........... $ 12,890 $ 5,250 $ 4,470
Dividends on TriMas preferred stock........... 5,250 7,000 7,000
Interest income............................... 2,860 3,500 17,920
---------- -------- --------
Equity and interest income from affiliates.... $ 21,000 $ 15,750 $ 29,390
---------- -------- --------
---------- -------- --------
32
34
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT, NET:
(IN THOUSANDS)
AT DECEMBER 31
--------------------
1993 1992
-------- --------
Cost:
Land and land improvements............................. $ 33,720 $ 39,740
Buildings.............................................. 158,750 182,460
Machinery and equipment................................ 605,600 669,800
-------- --------
798,070 892,000
Less accumulated depreciation............................ 307,880 354,580
-------- --------
$490,190 $537,420
-------- --------
-------- --------
Depreciation expense totalled $48 million, $46 million and $47 million in
1993, 1992 and 1991, respectively. These amounts include depreciation expense of
approximately $8 million in each year related to discontinued operations.
ACCRUED LIABILITIES:
(IN THOUSANDS)
AT DECEMBER 31
--------------------
1993 1992
-------- --------
Salaries, wages and commissions.......................... $ 22,970 $ 23,800
Income taxes............................................. 5,930 5,370
Interest................................................. 20,420 20,760
Insurance................................................ 11,010 12,150
Property, payroll and other taxes........................ 9,360 10,340
Other.................................................... 33,570 45,010
-------- --------
$103,260 $117,430
-------- --------
-------- --------
LONG-TERM DEBT:
(IN THOUSANDS)
AT DECEMBER 31
----------------------
1993 1992
-------- ----------
Held by Masco Corporation:
6% Convertible Subordinated Debentures, due 2011...... -- $ 130,000
Held by Banks and Others:
Bank revolving credit agreement, due 1997............. $295,000 410,000
10% Senior Subordinated Notes, due
March, 1995 (noncallable).......................... 233,150 233,150
10 1/4% Senior Subordinated Notes, due 1997........... 250,000 250,000
6% Convertible Subordinated Debentures, due 2011...... -- 56,890
Bank term loan, due 1996.............................. -- 31,090
Other................................................. 13,040 18,690
-------- ----------
791,190 1,129,820
Less current portion of long-term debt.................. 2,830 64,430
-------- ----------
Long-term debt.......................................... $788,360 $1,065,390
-------- ----------
-------- ----------
33
35
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1993, the Company entered into a new $675 million revolving credit
agreement with a group of banks, replacing its prior bank credit agreement
(which had consisted of a revolving credit facility and a bank term loan at
December 31, 1992). Amounts outstanding under the revolving credit agreement are
due in January, 1997; however, under certain circumstances, the due date may be
extended to July, 1998. The interest rates applicable to the revolving credit
agreement are principally at alternative floating rates provided for in the
agreement (approximately four percent at December 31, 1993).
The revolving credit agreement requires the maintenance of a specified
level of shareholders' equity, with limitations on the ratio of senior debt to
earnings, long-term debt (at December 31, 1993 additional borrowing capacity of
approximately $380 million was available under this agreement), intangible
assets and the acquisition of Company Capital Stock. Under the most restrictive
of these provisions, $120 million of retained earnings was available at December
31, 1993 for the payment of cash dividends and the acquisition of Company
Capital Stock.
The 6% Convertible Subordinated Debentures were converted into Company
Common Stock in late 1993 (see "Shareholders' Equity" note).
The senior subordinated notes contain limitations on the payment of cash
dividends and the acquisition of Company Capital Stock. In late 1993, the
Company called for redemption, on February 1, 1994, the $250 million of 10 1/4%
Senior Subordinated Notes. During 1992, the Company repurchased, in open-market
transactions, approximately $67 million of its 10% Senior Subordinated Notes at
prices approximating face value.
In early 1994, the Company issued, in a public offering, $345 million of
4 1/2% Convertible Subordinated Debentures due December 15, 2003. These
debentures are convertible into Company Common Stock at $31 per share. The net
proceeds were used to redeem the $250 million of 10 1/4% Subordinated Notes
(called in late 1993 for redemption on February 1, 1994) and to reduce other
indebtedness. In the fourth quarter of 1993, the Company recognized a $5.8
million pre-tax extraordinary charge ($3.7 million after-tax) related to the
call premium (1.25%) and unamortized prepaid debenture expense associated with
the call for early extinguishment of the $250 million of 10 1/4% Subordinated
Notes. The 10 1/4% Subordinated Notes are classified as non-current as the
Company had the intent and the ability to maintain these borrowings on a
long-term basis (due to the issuance of the 4 1/2% Convertible Subordinated
Debentures). The maturities of long-term debt during the next five years are as
follows (in millions): 1994 -- $3; 1995 -- $234; 1996 -- $1; 1997 -- $303; and
1998 -- $0.
34
36
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SHAREHOLDERS' EQUITY:
(IN THOUSANDS)
CUMULATIVE
PREFERRED COMMON PAID-IN RETAINED TRANSLATION SHAREHOLDERS'
STOCK STOCK CAPITAL EARNINGS ADJUSTMENTS EQUITY
--------- -------- -------- -------- ----------- ------------
Balance, January 1, 1991....... $ 780 $ 59,450 $ 83,800 $192,100 $19,880 $ 356,010
Net (loss)................... -- -- -- (8,970) -- (8,970)
Preferred stock dividends.... -- -- -- (9,600) -- (9,600)
Adjustment related to sale of
foreign operations........ -- -- -- -- (5,130) (5,130)
Translation adjustments,
net....................... -- -- -- -- (5,620) (5,620)
--------- -------- -------- -------- ---------- -----------
Balance, December 31, 1991..... 780 59,450 83,800 173,530 9,130 326,690
Net income................... -- -- -- 38,430 -- 38,430
Preferred stock dividends.... -- -- -- (9,300) -- (9,300)
Translation adjustments,
net....................... -- -- -- -- (3,080) (3,080)
Exercise of stock options.... -- 70 590 -- -- 660
--------- -------- -------- -------- ---------- ------------
Balance, December 31, 1992..... 780 59,520 84,390 202,660 6,050 353,400
Net income................... -- -- -- 47,600 -- 47,600
Preferred stock dividends.... -- -- -- (14,930) -- (14,930)
Common stock dividends....... -- -- -- (3,210) -- (3,210)
Retirement of 12%
Preferred................. (780) -- (76,720) -- -- (77,500)
Issuance of 10% Preferred.... 1,000 -- 99,000 -- -- 100,000
Issuance of warrants......... -- -- 70,800 -- -- 70,800
Issuance of DECS............. 10,800 -- 198,720 -- -- 209,520
Retirement of common stock... -- (10,000) (90,000) -- -- (100,000)
Retirement of 10%
Preferred................. (1,000) -- (99,000) -- -- (100,000)
Conversion of convertible
debentures................ -- 10,370 174,120 -- -- 184,490
Translation adjustments,
net....................... -- -- -- -- (9,140) (9,140)
Exercise of stock options.... -- 620 5,980 -- -- 6,600
--------- -------- -------- -------- ---------- ------------
Balance, December 31, 1993..... $ 10,800 $ 60,510 $367,290 $232,120 $(3,090) $ 667,630
--------- -------- -------- -------- ---------- ------------
--------- -------- -------- -------- ---------- ------------
On March 31, 1993, the Company acquired from Masco Corporation 10 million
shares of Company Common Stock, recorded at $100 million, $77.5 million of the
Company's previously outstanding 12% Exchangeable Preferred Stock, and Masco
Corporation's holdings of Emco Limited common stock and convertible debentures,
recorded at $80.8 million. In exchange, Masco Corporation received $100 million
(liquidation value) of the Company's 10% Exchangeable Preferred Stock,
seven-year warrants to purchase 10 million shares of Company Common Stock at $13
per share, recorded at $70.8 million, and $87.5 million in cash. The
transferable warrants are not exercisable by Masco Corporation if an exercise
would increase Masco Corporation's common equity ownership interest in the
Company above 35 percent. The cash portion of this transaction is included in
the accompanying statement of cash flows as cash used for investing activities
of $87.5 million. As part of this transaction, as modified in late 1993, Masco
Corporation agreed to purchase from the Company, at the Company's option through
March, 1997, up to $200 million of subordinated debentures. In late 1993, the
Company redeemed the 10% Exchangeable Preferred Stock for its $100 million
liquidation value.
In July, 1993, the Company issued 10.8 million shares of 6% Dividend
Enhanced Convertible Stock (DECS) at $20 per share ($216 million aggregate
liquidation amount) in a public offering (classified as
35
37
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Convertible Preferred Stock). The net proceeds from this issuance were used to
reduce the Company's indebtedness. On July 1, 1997, each of the then outstanding
shares of the DECS will convert into one share of Company Common Stock, if not
previously redeemed by the Company or converted at the option of the holder, in
both cases for Company Common Stock.
Each share of the DECS is convertible at the option of the holder anytime
prior to July 1, 1997 into .806 of a share of Company Common Stock, equivalent
to a conversion price of $24.81 per share of Company Common Stock. Dividends are
cumulative and each share of the DECS has 4/5 of a vote, voting together as one
class with holders of Company Common Stock.
Beginning July 1, 1996, the Company, at its option, may redeem the DECS at
a call price payable in shares of Company Common Stock principally determined by
a formula based on the then current market price of Company Common Stock.
Redemption by the Company, as a practical matter, will generally not result in a
call price that exceeds one share of Company Common Stock or is less than .806
of a share of Company Common Stock (resulting from the holder's conversion
option).
The Company's 6% Convertible Subordinated Debentures were called for
redemption in late 1993. Substantially all holders, including Masco Corporation,
exercised their right to convert these debentures into Company Common Stock (at
a conversion price of $18 per share), resulting in the issuance of approximately
10.4 million shares of Company Common Stock.
The Company's consideration for a 1987 acquisition included two million
shares of Company Common Stock which were subject to a stock value guarantee
agreement. During the second quarter of 1993, the Company's stock value
guarantee obligation was settled, resulting in no material financial impact to
the Company.
The Company commenced paying cash dividends on its Common Stock in August,
1993 and declared three and paid two quarterly dividends in 1993, each in the
amount of $.02 per common share.
STOCK OPTIONS AND AWARDS:
For the three years ended December 31, 1993, stock option data pertaining
to stock option plans for key employees of the Company and affiliated companies
are as follows:
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1993 1992 1991
------- ------ ------
Options outstanding, January 1................................. 4,540 3,770 2,220
Options granted................................................ 30 900 1,730
Option price per share.................................... $13-26 $6 1/8-10 3/4 $4 1/2
Options cancelled.............................................. -- 60 180
Option price per share.................................... -- $4 1/2 $4 1/2-9 1/8
Options exercised.............................................. 760 70 --
Option price per share.................................... $4 1/2-9 1/8 $9 1/8 --
------------ ------------- ------------
Options outstanding, December 31............................... 3,810 4,540 3,770
------------ ------------- ------------
------------ ------------- ------------
Options exercisable, December 31............................... 680 880 740
------------ ------------- ------------
------------ ------------- ------------
As of December 31, 1993, options have been granted and are outstanding with
exercise prices ranging from $4 1/2 to $26 per share, the fair market value at
the dates of grant.
Pursuant to restricted stock incentive plans, the Company granted long-term
incentive awards, net, for 202,000, 251,000 and 675,000 shares of Company Common
Stock during 1993, 1992 and 1991, respectively, to key employees of the Company
and affiliated companies. The unamortized costs of incentive awards,
36
38
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
aggregating approximately $20 million at December 31, 1993, are being amortized
over the ten-year vesting periods.
At December 31, 1993 and 1992, a combined total of 5,631,000 and 5,759,000
shares, respectively, of Company Common Stock were available for the granting of
options and incentive awards under the above plans.
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 $10.9 million in 1993, $10.3 million in 1992 and $8.3 million in
1991, including approximately $.9 million in each year related to discontinued
operations.
Net periodic pension cost for the Company's defined-benefit pension plans
includes the following components for the three years ended December 31, 1993:
(IN THOUSANDS)
1993 1992 1991
------- ------- -------
Service cost -- benefits earned during the year.... $ 4,110 $ 4,150 $ 4,140
Interest cost on projected benefit obligations..... 5,540 5,090 4,590
Actual return on assets............................ (7,730) (3,820) (5,450)
Net amortization and deferral...................... 1,600 (1,800) 430
------- ------- -------
Net periodic pension cost.......................... $ 3,520 $ 3,620 $ 3,710
------- ------- -------
------- ------- -------
Major assumptions used in accounting for the Company's defined-benefit
pension plans are as follows:
1993 1992 1991
----- ------ ------
Discount rate for obligations........................ 7.0% 8.25% 8.25%
Rate of increase in compensation levels.............. 5.0% 6.0% 6.0%
Expected long-term rate of return on plan assets..... 13.0% 13.0% 13.0%
37
39
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of the Company's defined-benefit pension plans at
December 31, 1993 and 1992 is as follows:
(IN THOUSANDS)
1993 1992
-------------------------- --------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
RECONCILIATION OF FUNDED STATUS BENEFITS ASSETS BENEFITS ASSETS
- ----------------------------------------------- ----------- ----------- ----------- -----------
Actuarial present value of benefit obligations:
Vested benefit obligation................. $23,040 $ 34,280 $20,780 $24,160
------- --------- ------- -------
------- --------- ------- -------
Accumulated benefit obligation............ $24,450 $ 38,650 $22,120 $31,200
------- --------- ------- -------
------- --------- ------- -------
Projected benefit obligation.............. $35,270 $ 39,920 $32,020 $33,030
Assets at fair value........................... 29,550 26,560 27,530 23,570
------- --------- ------- -------
Projected benefit obligation in excess of
plan assets............................. (5,720) (13,360) (4,490) (9,460)
Reconciling items:
Unrecognized net loss..................... 7,140 8,810 5,920 5,140
Unrecognized prior service cost........... 460 3,250 1,240 3,400
Unrecognized net (asset) obligation at
transition.............................. (1,340) (160) (1,940) 70
Adjustment required to recognize minimum
liability............................... -- (10,840) -- (6,900)
------- --------- ------- -------
(Accrued) prepaid pension cost............ $ 540 $ (12,300) $ 730 $(7,750)
------- --------- ------- -------
------- --------- ------- -------
Postretirement Benefits. The Company provides postretirement medical and
life insurance benefits for certain of its active and retired employees.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits
Other Than Pensions" ("SFAS 106") for its postretirement benefit plans. 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 the adoption
of SFAS 106, the Company elected to recognize the transition obligation on a
prospective basis and accordingly, the net transition obligation is being
amortized over 20 years. Net periodic postretirement benefit cost includes the
following components for the year ended December 31, 1993:
(IN THOUSANDS)
1993
Service cost.......................................................... $ 300
Interest cost......................................................... 1,900
Net amortization...................................................... 1,200
-------
Net periodic postretirement benefit cost.............................. $3,400
-------
-------
The incremental cost in 1993 of accounting for postretirement health care
and life insurance benefits under SFAS 106 amounted to approximately $1.7
million.
38
40
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Postretirement benefit obligations, none of which are funded, are
summarized as follows for the year ended December 31:
(IN THOUSANDS)
1993
------------
Accumulated postretirement benefit obligations:
Retirees............................................................... $ 19,400
Fully eligible active plan participants................................ 1,400
Other active participants.............................................. 6,400
------------
Total accumulated postretirement benefit obligation...................... 27,200
Unrecognized net loss.................................................. (2,900)
Unamortized transition obligation...................................... (22,500)
------------
Accrued postretirement benefits.......................................... $ 1,800
------------
------------
The discount rate used in determining the accumulated postretirement
benefit obligation was seven percent. The assumed health care cost trend rate in
1993 was 12 percent, decreasing to an ultimate rate in the year 2000 of seven
percent. If the assumed medical cost trend rates were increased by one percent,
the accumulated postretirement benefit obligation would increase by $2.6 million
and the aggregate of the service and interest cost components of net periodic
postretirement benefit cost would increase by $.2 million.
SEGMENT INFORMATION:
The Company's business segments involve the production and sale of the
following:
Transportation-Related Products:
Precision products, generally produced using advanced
metalworking technologies with significant proprietary content,
and aftermarket products for the transportation industry.
Specialty Products:
Architectural -- Doors, windows, security grilles and office
panels and partitions for commercial and
residential markets.
Other -- Products manufactured principally for the defense
industry.
Amounts related to the Company's Energy-related segment have been presented
as discontinued operations.
Corporate assets consist primarily of cash and cash investments, equity and
other investments in affiliates and notes receivable.
39
41
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS)
ASSETS EMPLOYED
NET SALES OPERATING PROFIT (B) AT DECEMBER 31
---------------------------------- ---------------------------- ----------------------------------
1993 1992 1991 1993 1992 1991 1993 1992 1991
---------- ---------- ---------- -------- -------- -------- ---------- ---------- ----------
The Company's operations
by industry segment are:
Transportation-Related
Products (A)............ $1,195,000 $1,058,000 $ 874,000 $160,000 $124,000 $ 74,000 $ 883,000 $ 851,000 $ 808,000
Specialty Products:
Architectural........... 289,000 291,000 273,000 (4,000) 2,000 (16,000) 313,000 321,000 322,000
Other................... 99,000 106,000 119,000 5,000 3,000 1,000 104,000 109,000 114,000
---------- ---------- ---------- -------- -------- -------- ---------- ---------- ----------
Total............. $1,583,000 $1,455,000 $1,266,000 161,000 129,000 59,000 1,300,000 1,281,000 1,244,000
---------- ---------- ----------
---------- ---------- ----------
Other expense, net........ (25,000) (44,000) (56,000)
General corporate
expense................. (15,000) (17,000) (15,000)
-------- -------- --------
Income (loss) from
continuing operations
before income taxes
(credit) and
extraordinary loss...... $121,000 $ 68,000 $(12,000)
-------- -------- --------
-------- -------- --------
Corporate assets.......... 422,000 318,000 449,000
Discontinued operations... 68,000 208,000 210,000
---------- ---------- ----------
Total assets...... $1,790,000 $1,807,000 $1,903,000
---------- ---------- ----------
---------- ---------- ----------
PROPERTY ADDITIONS DEPRECIATION AND AMORTIZATION
---------------------------- ----------------------------------
1993 1992 1991 1993 1992 1991
-------- -------- -------- ---------- ---------- ----------
The Company's operations by industry segment are:
Transportation-Related Products.......................... $52,000 $47,000 $37,000 $42,000 $42,000 $41,000
Specialty Products:
Architectural.......................................... 5,000 8,000 8,000 12,000 13,000 12,000
Other.................................................. 3,000 5,000 4,000 6,000 5,000 6,000
-------- -------- -------- ---------- ---------- ----------
Total............................................ $60,000 $60,000 $49,000 $60,000 $60,000 $59,000
-------- -------- -------- ---------- ---------- ----------
-------- -------- -------- ---------- ---------- ----------
- ---------------
(A) Included within this segment are sales to one customer of $324 million, $268
million and $217 million in 1993, 1992 and 1991, respectively; sales to
another customer of $222 million, $216 million and $201 million in 1993,
1992 and 1991, respectively; and sales to a third customer of $186 million,
$184 million and $126 million in 1993, 1992 and 1991, respectively.
(B) Included in 1991 operating profit (principally Transportation-Related
Products and Architectural Products) are charges of $27 million to reflect
the expenses related to the discontinuance of product lines, and the costs
of restructuring several businesses. Other expense, net in 1992 and 1991,
includes approximately $15 million and $14 million, respectively, to reflect
disposition costs related to idle facilities and other long-term assets.
40
42
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER INCOME (EXPENSE), NET:
(IN THOUSANDS)
1993 1992 1991
------- ------- --------
Other, net:
Gains from sales of marketable securities
(including the effect of valuation
allowances).................................. $11,550 $ 4,020 $ 12,010
Interest income................................. 9,570 9,260 7,890
Dividend income................................. 3,150 1,750 1,910
Other, net...................................... 2,060 (5,080) (16,280)
------- ------- --------
$26,330 $ 9,950 $ 5,530
------- ------- --------
------- ------- --------
Gains realized from sales of marketable securities are determined on a
specific identification basis at the time of sale.
INCOME TAXES:
(IN THOUSANDS)
1993 1992 1991
-------- -------- --------
Income (loss) from continuing operations before
income taxes (credit) and extraordinary loss:
Domestic...................................... $105,470 $ 57,880 $(34,780)
Foreign....................................... 15,710 10,370 22,310
-------- -------- --------
$121,180 $ 68,250 $(12,470)
-------- -------- --------
-------- -------- --------
Provision for income taxes:
Federal, current.............................. $ 17,940 $ 12,750 $(19,410)
State and local............................... 8,350 5,170 4,560
Foreign....................................... 8,410 8,160 9,460
Deferred, principally federal................. 15,590 3,130 3,270
-------- -------- --------
Income taxes (credit) on income (loss) from
continuing operations before income taxes
(credit) and extraordinary loss............ $ 50,290 $ 29,210 $ (2,120)
-------- -------- --------
-------- -------- --------
41
43
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred taxes as at December 31, 1993 were as
follows:
(IN THOUSANDS)
1993
--------
Deferred tax assets:
Charges for restructuring and other costs, net................... $ 7,450
Inventory........................................................ 8,430
Other, principally deductions reported in different periods for
financial reporting and tax purposes.......................... 18,330
--------
34,210
--------
Deferred tax liabilities:
Depreciation and amortization.................................... 90,350
Other, principally equity in undistributed earnings of
affiliates.................................................... 18,450
--------
108,800
--------
Net deferred tax liability....................................... $ 74,590
--------
--------
The following is a reconciliation of tax computed at the U.S. federal
statutory rate to the provision for income taxes (credit) allocated to income
(loss) from continuing operations before income taxes (credit) and extraordinary
loss:
(IN THOUSANDS)
1993 1992 1991
------- ------- -------
U.S. federal statutory rate........................ 35% 34% 34%
Tax (credit) at U.S. federal statutory rate........ $42,410 $23,210 $(4,240)
State and local taxes, net of federal tax
benefit.......................................... 5,430 3,390 3,030
Higher effective foreign tax rate.................. 2,910 4,670 1,870
U.S. tax benefit relating to foreign operations.... (90) (190) (2,000)
Dividends-received deduction....................... (2,290) (2,320) (2,360)
Amortization in excess of tax, net................. 3,820 4,780 4,210
Other, net......................................... (1,900) (4,330) (2,630)
------- ------- -------
Income taxes (credit) on income (loss) from
continuing operations before income taxes
(credit) and extraordinary loss............... $50,290 $29,210 $(2,120)
------- ------- -------
------- ------- -------
Provisions for deferred income taxes by temporary difference components for
the years ended December 31, 1992 and 1991 were as follows:
(IN THOUSANDS)
1992 1991
------- -------
Accelerated depreciation and amortization.................. $ 4,060 $ 550
Marketable securities valuation............................ (970) 4,660
Charges for restructuring and other costs, net............. (2,350) (1,300)
Deductions reported in different periods for financial
reporting and tax purposes............................... 60 (5,770)
Alternative minimum tax.................................... 680 5,180
Other, net................................................. 1,650 (50)
------- -------
$ 3,130 $ 3,270
------- -------
------- -------
42
44
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:
Notes Receivable and Other Assets. Fair values of financial instruments
included in 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.
The carrying amounts and fair values of the Company's financial instruments
at December 31, 1993 and 1992 are as follows:
(IN THOUSANDS)
1993 1992
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
Cash and cash investments............. $ 83,200 $ 83,200 $ 76,000 $ 76,000
Notes receivable and other assets..... $ 72,650 $ 80,220 $ 60,150 $ 68,050
Long-term debt:
Bank debt........................... $295,000 $295,000 $441,090 $441,090
6% Convertible Subordinated -- -- $186,890 $160,730
Debentures.......................
10% Senior Subordinated Notes....... $233,150 $243,640 $233,150 $237,230
10 1/4% Senior Subordinated Notes... $250,000 $254,380 $250,000 $251,880
Other long-term debt................ $ 9,120 $ 9,150 $ 10,780 $ 10,780
43
45
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 31ST SEPTEMBER 30TH JUNE 30TH MARCH 31ST
------------- -------------- --------- ----------
1993:
Net sales...................... $ 392,600 $373,680 $ 412,530 $404,070
Gross profit................... $ 76,440 $ 78,600 $ 85,610 $ 84,750
Income from continuing
operations before
extraordinary loss:
Income....................... $ 18,510 $ 15,000 $ 21,310 $ 16,070
Per common and common
equivalent share:
Primary................... $.23 $.17 $.34 $.22
Assuming full dilution.... $.22 $.17 $.31 $.22
Net income (loss):
Income (loss)................ $ (6,980) $ 15,320 $ 21,740 $ 17,520
Income (loss) attributable to
common stock.............. $ (11,660) $ 9,900 $ 19,240 $ 15,190
Per common and common
equivalent share:
Primary................... $(.20) $.18 $.35 $.25
Assuming full dilution.... $(.15) $.18 $.32 $.24
Market price per common share:
High......................... $28 1/8 $22 5/8 $21 $17 1/4
Low.......................... $18 3/4 $19 1/2 $15 3/4 $11 3/8
1992:
Net sales...................... $ 377,790 $358,240 $ 381,470 $337,820
Gross profit................... $ 70,560 $ 76,320 $ 79,340 $ 70,050
Income from continuing
operations:
Income....................... $ 7,190 $ 10,300 $ 13,510 $ 8,040
Per common and common
equivalent share.......... $.08 $.13 $.18 $.10
Net income:
Income....................... $ 8,480 $ 9,640 $ 12,020 $ 8,290
Income attributable to common
stock..................... $ 6,160 $ 7,310 $ 9,700 $ 5,960
Per common and common
equivalent share.......... $.10 $.12 $.16 $.10
Market price per common share:
High......................... $12 1/8 $13 5/8 $13 7/8 $11
Low.......................... $8 3/8 $10 3/8 $8 5/8 $4 3/4
Certain amounts presented above have been reclassified to present a segment
of the Company's business as discontinued operations (see "Discontinued
Operations" note).
Results for the second quarters of 1993 and 1992 include pre-tax income of
approximately $9 million and $25 million, respectively, as a result of gains
associated with the sale of common stock through public offerings by equity
affiliates and, in 1992, a prepayment premium related to the redemption of
debentures held by the
44
46
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company. 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 the third quarter of 1993 were reduced by a charge of
approximately $.04 per common share reflecting the recently increased 1993
federal corporate income tax rate.
The fourth quarter of 1993 net income includes the effect of a $5.8 million
pre-tax extraordinary charge ($3.7 million after-tax or $.06 per common share)
related to the early extinguishment of subordinated debt (see "Long-Term Debt"
note). The fourth quarter of 1993 net loss also includes an after-tax charge of
approximately $22 million ($.38 per common share) related to the disposition of
a segment of the Company's business (see "Discontinued Operations" note).
The 1993 results include the benefit of approximately $11.5 million pre-tax
income ($6.7 million after-tax or $.12 per common share), primarily in the third
and fourth quarters, resulting from net gains from sales of marketable
securities.
The 1992 results include the benefit of approximately $4 million pre-tax
income ($2 million after-tax or $.04 per common share), primarily in the fourth
quarter, resulting from net gains from sales of marketable securities.
The 1993 income (loss) per common share amounts for the quarters do not
total to the full year amounts due to the changes in the number of common shares
outstanding during the year and the dilutive effect of first, second and third
quarter 1993 results.
The calculation of earnings per common and common equivalent share for the
fourth quarter of 1993 results in dilution for income from continuing
operations, assuming full dilution. Therefore, the fully diluted earnings per
share computation is used for all computations, even though the result is
anti-dilutive for one of the per share amounts.
45
47
MASCOTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
The following supplemental unaudited financial data combine the Company
with Masco Capital Corporation (through date of disposition) and TriMas and have
been presented for analytical purposes. The Company had a common equity
ownership interest in TriMas of approximately 43 percent at December 31, 1993
and 28 percent at December 31, 1992. The interests of the other common
shareholders are reflected below as "Equity of other shareholders of TriMas."
All significant intercompany transactions have been eliminated.
(IN THOUSANDS)
AT DECEMBER 31
--------------------------
1993 1992
----------- -----------
Current assets...................................... $ 770,810 $ 813,570
Current liabilities................................. (252,810) (334,790)
----------- -----------
Working capital..................................... 518,000 478,780
Property and equipment, net......................... 652,420 682,310
Excess of cost over net assets of acquired
companies......................................... 526,260 591,330
Other assets........................................ 298,290 145,710
Bank and other debt................................. (1,027,250) (1,243,880)
Deferred income taxes and other long-term
liabilities....................................... (161,500) (196,420)
Equity of other shareholders of TriMas.............. (138,590) (104,430)
----------- -----------
Equity of shareholders of MascoTech................. $ 667,630 $ 353,400
----------- -----------
----------- -----------
FOR THE YEARS ENDED DECEMBER 31
----------------------------------------
1993 1992 1991
---------- ----------- -----------
Net sales................................ $2,022,240 $ 1,841,570 $ 1,604,180
---------- ----------- -----------
---------- ----------- -----------
Operating profit......................... $ 215,740 $ 170,460 $ 86,260
---------- ----------- -----------
---------- ----------- -----------
Income (loss) from continuing operations
before extraordinary loss.............. $ 70,890 $ 39,040 $ (10,350)
---------- ----------- -----------
---------- ----------- -----------
46
48
Item 7. Financial Statements, Pro Forma Financial
- -------------------------------------------------
Information and Exhibits.
------------------------
(c) Exhibits. The following Exhibits are filed herewith:
23.a Consent of Coopers & Lybrand relating to the financial
statements of Masco Corporation and subsidiaries.
23.b Consent of Coopers & Lybrand relating to the financial
statements of MascoTech, Inc. and subsidiaries.
99.a Computation of Earnings per Common Share for the three
years ended December 31, 1993.
99.b Computation of Ratio of Earnings to Combined Fixed
Charges for the five years ended December 31, 1993.
99.c Bylaws of the Company, as amended on May 19, 1993.
49
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, hereunto duly authorized.
MASCO CORPORATION
By: /s/ RICHARD G. MOSTELLER
Richard G. Mosteller
Senior Vice President -
Finance
Date: March 1, 1994
50
EXHIBIT INDEX
Exhibit
No. Description
- ------- -----------
23.a Consent of Coopers & Lybrand relating to the financial
statements of Masco Corporation and subsidiaries.
23.b Consent of Coopers & Lybrand relating to the financial
statements of MascoTech, Inc. and subsidiaries.
99.a Computation of Earnings per Common Share for the three
years ended December 31, 1993.
99.b Computation of Ratio of Earnings to Combined Fixed
Charges for the five years ended December 31, 1993.
99.c Bylaws of the Company, as amended on May 19, 1993.