Item 1. (a) Business - ------ --------
The Company is engaged primarily in the manufacture and distribution of "Moto Guzzi" brand motorcycles in Italy, Europe and elsewhere in the world. Until May, 1993, the Company, through its Italian subsidiaries, was also engaged in the manufacture and distribution of automobiles for its own account and, for a limited period, for other companies as well. The Company had manufactured and distributed luxury automobiles under the "Maserati" brand name, while until the end of 1992, the Company had also manufactured and distributed economy automobiles under the "Innocenti" brand name. Additionally, from 1989 through mid-1990, the Company manufactured vehicles for Chrysler Corporation, while from mid-1990 until the end of 1991, it built vehicles for Fiat Auto S.p.A.
In 1993, O.A.M. S.p.A., one of the Company's Italian subsidiaries, disposed of its controlling 51% equity interest in its Maserati S.p.A. manufacturing subsidiary to Fiat, following years of steadily declining Maserati sales and mounting losses, thereby ending the Company's 18-year involvement in automobile manufacturing. Fiat had acquired a 49% interest in the newly-formed Maserati subsidiary in 1990 when O.A.M. transferred the Maserati operating assets to its new subsidiary. See "Management's Discussion and Analysis of Financial --- Condition and Results of Operations -- The Company's Sale of Maserati Operations," below.
Motorcycle manufacturing and distribution continues through the Company's 89.1%-owned subsidiary, G.B.M. S.p.A., which is the successor to businesses acquired by the Company in 1972. Until 1989, G.B.M. had also manufactured and distributed a line of motorcycles and motor scooters under the "Benelli" brand name. The Benelli division was sold to an entity controlled by Biesse S.p.A. in October 1989, an entity in which G.B.M. retained a minority equity interest until 1990 when it also sold that interest to Biesse S.p.A.
The Company's wholly-owned subsidiary, Maserati Automobiles, Inc. ("MAI") had been the exclusive importer in the United States of G.B.M. motorcycles until 1990 when it sold its inventory of vehicles and spare parts to an unrelated third party, which then became the exclusive importer. MAI had also been the exclusive importer of Maserati vehicles in the United Sates, but had not imported any new vehicles since 1990. MAI sold its remaining spare parts inventory and suspended operations, in 1994. The subsidiary is in the process of winding up its affairs and selling its real property.
The Company was incorporated under the laws of the State of Maryland in 1917.
Other Subsidiaries - ------------------
The Company owns a controlling interest in a non-operating subsidiary, Nuova Callegari e Ghigi S.p.A. ("Callegari") and has substantially completed the liquidation of that subsidiary's assets. The Company's American Finance, S.p.A. subsidiary owns and operates a 59-room hotel in Modena. The hotel's operations are not material to the Company's consolidated operations.
(b) Industry Segment Information. ----------------------------
The Company operates in one industry segment: motorcycle manufacture and sales. For financial data concerning Company operations for the last three fiscal years, which include data attributable to Maserati, see the Financial Statements which accompany this report.
(c) Narrative Description of Business. ---------------------------------
G.B.M., the Company's motorcycle manufacturing subsidiary, manufactures a high priced line of motorcycles under the trademark "Moto Guzzi". G.B.M. will continue to sell Benelli finished goods inventory in stock until that inventory has been exhausted; the Company estimates it will complete the liquidation of Benelli inventory by the end of 1995. Moto Guzzi cycles, whose engines vary in size from a displacement of 350cc to 1100cc, vary in price to retail dealers in the Italian market from Lit. 6,450,000 ($3,977*) to Lit. 13,415,000 ($8,271). These price ranges do not take into account the 19% Italian value-added tax paid by Italian retail dealers.
In 1994, G.B.M. introduced one new model, the 1100 Sport. The 750cc PA was significantly restyled for 1994. All motorcycle manufacturing is conducted at G.B.M.'s Mandello, Italy facility. G.B.M. acquires completed power train components from outside suppliers, and performs finishing work and assembly into motorcycle bodies. G.B.M.'s operations were supervised in 1994 by the independent consulting firm of Temporary Integrated Management, S.r.l. ("TIM"). TIM is a unit of Finprogetti, S.p.A., an Italian corporation. The Company is in advanced negotiations with Finprogetti involving the purchase of TIM and certain other assets for newly issued shares of the Company's common stock. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations" below.
Italian prices for motorcycles traditionally have been higher than export prices. Prices in Italy are customarily reviewed and are increased to cover increases in production costs at periodic intervals. In 1994, Moto Guzzi increased prices of its various models once for its domestic sales and twice for export sales (to reflect weakening in the Italian Lire exchange rate),
- -------------------- * Italian lire amounts are reported in U.S. dollars based on the conversion rate of 1,622 lire to the dollar prevailing at December 31, 1994.
with such increases aggregating approximately 7% on average within Italy and 4% in respect of export sales. Export sales continued to reflect lower margins than domestic Italian sales.
Distribution - ------------
G.B.M. maintains a domestic distribution network of over 200 independent dealers. G.B.M. will continue to sell Benelli mopeds and Benelli motorcycles with engines of 125 cc or less until that inventory is exhausted sometime in 1995.
In 1994, a single importer-distributor acted as exclusive importer-distributor for Moto Guzzi in each of France, Japan, Sweden, Austria, Switzerland, Australia, the U.K., the United States and in Belgium/Holland. These distributors will continue to handle Moto Guzzi products in 1995.
In October 1989, G.B.M. formed A + G Motorod GmbH ("A&G"), a German corporation, with Aprilia S.p.A., another Italian manufacturer of motorcycles with small displacement engines. G.B.M. and Aprilia each owned 45% of A&G, having each invested Lit. 200,000,000 ($123,305) as equity; the managing director of A&G owned the remaining 10%. A&G distributes the motorcycles of both G.B.M. and Aprilia in the German market. On January 1, 1995, A&G required a capital infusion in which G.B.M. did not participate. As a result, its ownership interest declined to 25%. In 1996, G.B.M. can choose to continue to distribute products in Germany through A&G or can choose to distribute Moto Guzzi products through others.
No single Italian dealer accounted for more than 5% of the sales of Moto Guzzi in 1994. The Italian dealers who distribute Moto Guzzi motorcycles generally handle other brands as well.
Sales in 1994 of Moto Guzzi machines to the Italian and other governments were 17.7% of its total motorcycle sales revenues.
Italian dealers in 1994 normally paid for motorcycles on the following terms: if payment was received on receipt of a purchase order, a 4% discount was allowed; if payment was received 30 days after receipt of invoice, a 2% discount was allowed; if payment was received 60 days after receipt of invoice, a 1% discount was allowed. Payments made by dealers other than in cash are evidenced by promissory notes which were discounted at then-prevailing bank rates. Motorcycles sold for export are sold with a 3% discount if payment is made with delivery of a purchase order, and otherwise at full invoiced price.
In 1983, Centro Ricambi S.r.l. was organized as a wholly-owned subsidiary of a predecessor to G.B.M. to facilitate the distribution of spare parts for Guzzi and Benelli motorcycles. Its only business was the purchase from G.B.M. of such spare parts and their resale to Guzzi or Benelli dealers and distributors on substantially the same terms as motorcycles are sold. It will continue to sell Benelli parts until the supply is exhausted.
Backlogs - --------
Based on confirmed purchase orders received to date for 1995 delivery, G.B.M.'s entire production capacity for 1995 has been pre-sold, for the first time in that company's history. Backlog of Moto Guzzi for 1995 delivery as at January 1, 1995 was approximately Lit. 54,803,000,000 ($33,787,300) in the aggregate, representing 5,523 units compared to Lit 10,000,000,000 ($6,165,228) in 1994. Additionally, G.B.M. signed an agreement in March 1995 with a foreign purchaser to deliver over five years special-purpose engines based on the Company's motorcycle engine design. Backlogs under this agreement for 1995 delivery aggregate Lit. 2,576,000,000 ($1,588,163).
Competition - -----------
The sale of motorcycles is a highly competitive business, with competition typically coming from all powered passenger vehicles, as well as motorcycles. In 1994, G.B.M. sold 4,278 units, of which 4,149 had engine displacements of 350cc or greater, 77 had displacements of less than 350cc, and 52 were Benelli inventory. G.B.M.'s sales of its large motorcycles constituted a 3.2% share of the Italian domestic market for motorcycles with 350cc engines or greater, a 100% market share improvement compared to the prior year. In 1993, G.B.M. sold 3,477 units, of which 3,274 had engines of 350cc or greater. The market itself continued to contract significantly in 1994, with new vehicle registrations in Italy declining by 15% compared to 1993. The Italian market remains dominated by large, well-financed Japanese manufacturers. A number of foreign and domestic manufacturers, principally Cagiva, Honda, Yamaha, Kawasaki and Suzuki, sell their products in the Italian market. In 1994, the Italian market shares of the principal competitors of Moto Guzzi, on a unit basis were: Honda - 28.3%; Cagiva and Ducati - 8.9%; Yamaha - 19.2%; Aprilia - 3.5%; Suzuki - 11.7%; Kawasaki - 7.7%; and Harley Davidson 5.2%. From data available in early 1995, the market has begun to rebound, and G.B.M. anticipates that it will maintain its share of this larger market.
G.B.M. maintains an extremely small share of the worldwide motorcycle market, which is dominated by many of the same Japanese manufacturers that predominate in Italy.
Raw Materials - -------------
The source and supply of motorcycle raw materials, including aluminum for power train components, is not a significant issue for G.B.M. There are multiple reliable sources for motorcycle componentry as well as for manufactured engines. The cost of imported raw materials, however, is affected by variations in currency exchange rates. In 1994 the value of the Lire had declined relative to the currency of Italy's primary trading partners. The weakness of the Lire has resulted simultaneously in an increase in the cost of imported raw materials and in an improvement in the price competitiveness of Italian-made finished goods, such as G.B.M.'s motorcycles.
During 1994, average prices paid for raw materials, and components by G.B.M. increased by approximately 7.82% over 1993 average price levels, approximately half of which was due to the use of higher quality materials and to outsourcing of certain componentry.
MAI purchased all of its spare parts from O.A.M. in accordance with O.A.M.'s agreement with Fiat until MAI operations were suspended and its spare parts inventory sold in December, 1994.
Research and Development and Continuing Engineering - ---------------------------------------------------
G.B.M. is continuously engaged in company-sponsored programs of product improvement and development. Aggregate 1994 research and development expenditures by G.B.M. were Lit. 197,133,421 ($121,537) compared to Lit. 409,159,000 ($252,256) in 1993, and Lit. 219,852,597 ($134,544) in 1992.
In addition, during 1994, on-going programs continued relating to developing more powerful engines with improved performance and durability characteristics, superior braking systems, suspensions, frames, transmissions and other components applicable to two-wheeled vehicles. G.B.M. introduced the 1100cc Sport in 1994 and is planning to introduce in 1995 a 1000cc Custom and either a 1000cc Daytona Sport Racing or an 1100cc fuel injected Sport. The Company does not anticipate that the new models will require a significant capital commitment.
The other companies do not conduct research and development activities.
Seasonal Nature of Business - ---------------------------
There is no significant seasonal variation in the business of the Company or any of its subsidiaries except that traditionally vehicle production ceases during August of each year in Italy.
Working Capital Items - ---------------------
The subsidiaries of the Company are not affected by any unusual industry practices relating to returns of merchandise or extended payment, nor are they required to carry unusually significant inventories since their businesses are not seasonal.
Patents and Trademarks - ----------------------
Except as described below, the business of G.B.M. is not and has not been in any material respect dependent upon patents, licenses, franchises or concessions. The component parts of motorcycles are manufactured pursuant to well known techniques and include components which are not unique to its products, although some of these components are specially styled and designed. Management believes that the trade names "MOTOBI", "Moto Guzzi", and their related trademarks are well known and highly regarded throughout the world, and appropriate steps have been taken to protect G.B.M's rights in these trade names and trademarks in those countries representing significant markets.
Compliance with Governmental Regulations - ----------------------------------------
G.B.M., along with other motorcycle manufacturers, have incurred substantial costs in designing and testing products to comply with safety and emissions requirements. Such standards have added, and will continue to add, substantially to the price of the vehicles while competitive pressures have kept export prices lower than domestic Italian sales prices.
Having suspended imports of new Maserati vehicles since 1990, and having sold its controlling interest in the Maserati subsidiary in 1993, the Company is no longer subject to the required federal safety equipment and damage susceptibility regulations applicable only to automobiles, such as bumper durability, and front and side impact resistance and passive restraint systems insofar as they relate to newly manufactured post-1990 vehicles. Similarly, the Company also is no longer subject to state or federal automobile fuel economy or emissions regulations with respect to such vehicles.
All motorcycles produced by the Company and its subsidiaries for sale in the United States are manufactured with the intent to comply with all applicable federal safety standards. The Company's 1994 model year motorcycles complied with EPA emission standards applicable in all 50 states.
Employees and Employee Relations - --------------------------------
At December 31, 1994, G.B.M. had 303 employees, compared to 329 at December 31, 1993, of whom approximately 83% were engaged in factory production and the balance in various supervisory, sales, purchasing, administrative, design, engineering and clerical activities. At December 31, 1994, Centro Ricambi had 19 employees, down from 20 employees at December 31, 1993. Approximately 42% of Centro Ricambi's employees are
engaged in warehouse and shipping work, with the balance engaged in supervisory, purchasing, administrative and clerical activities. Labor costs increased approximately 0.4% in 1994 at Guzzi and Centro Ricambi and are estimated by Management to increase approximately 6% for 1995.
In 1994, G.B.M. did not avail itself of the Italian government furlough program. In 1993, workers were furloughed 48,622 production hours and G.B.M. utilized the government furlough program. The cost to the Company was immaterial.
Two national strikes in 1994 cost G.B.M. 3,217 production hours. G.B.M. was not the subject of any strikes or work stoppages in 1993. In Modena, the local Centro Recambi "company" contract expired on March 31, 1994. A new contract has not yet been signed. G.B.M.'s last "company" contract expired on December 31, 1992 and it also has not yet been renegotiated.
Under Italian law, persons in a company acquire the right to severance pay based upon salary and years of service. At December 31, 1994, the Company was obligated to pay employees an aggregate of Lit. 7,137,000,000 ($4,400,123), compared to Lit. 7,245,000,000 ($4,466,708) at December 31, 1993.
(d) Financial Information About Foreign and Domestic (Italian) Operations and Export Sales ----------------------------------------------
All motorcycle production occurs in Italy and foreign sales are made to distributors located outside Italy. Most foreign sales are made to Western European countries and the U.S. Although in the aggregate such sales are significant, sales to no particular country other than Germany, the United Kingdom, Holland and Argentina are significant. Sales to other continents are more insubstantial. In 1994, the Company had aggregate sales outside of Italy of Lit. 23,172,000,000 ($14,286,067). See Note M of Notes to Consolidated Financial Statements.
Set forth below are charts illustrating percentage of motorcycle sales revenues attributable to various geographic areas.
Geographic Areas - ---------------- Year Ended December 31
Benelli & Moto Guzzi Motorcycles 1994 1993 1992 -------------------------------- ---- ---- ----
Italy 38% 35% 37% Europe (other than Italy) 51% 41% 52% United States 5% 6% 6% Elsewhere 6% 18% 5%
All of MAI's activities, before it suspended operations, occurred in the United States, Puerto Rico and Canada.
Item 2.
Item 2. Properties - ------ ----------
The following facilities were, and unless so indicated, are presently, leased or owned by the Company in the active conduct of its business:
(a) 1,460 square feet of office space at 107 Monmouth Street, Red Bank, New Jersey 07701, in which are located the United States administrative offices of the Company, and which is occupied under a month-to-month lease, at a monthly rental of $970. This space is regarded as adequate for the present and foreseeable needs of the Company in the United States.
(b) Factory and office facilities owned in fee and located in Mandello del Lario, Italy in a group of one, two and three story buildings aggregating 54,550 square meters, which is the facility of the Guzzi division of G.B.M. This facility will operate in 1995 at approximately 50% of production capacity calculated as a percentage of available space, compared to a utilization rate of 30% in 1994.
(c) One single-story 2,800 square meter concrete building located in Modena, Italy and completed in late 1983, with an 8 meter ceiling, rented on a month-to-month basis by Centro Ricambi from DeTomaso- Modena, an affiliate of Mr. DeTomaso, at a monthly rental of Lit. 9,000,000 ($5,549) since January 1, 1984. This facility has been fully utilized as a spare parts distribution facility for Guzzi and Benelli.
(d) Additional executive offices and sales facilities located in Hotel Canalgrande in Modena, Italy comprising approximately 500 square feet of office space for which no rent is paid, and 5,000 square feet of exhibition and dining space made available at prevailing commercial rates when required. The hotel was erected in the fifteenth century, rebuilt in the eighteenth century and renovated in 1970. The corporation which owns the hotel is Mr. DeTomaso's affiliate, in which G.B.M. owns a 2.17% minority interest.
(e) Office, retail showroom, service and warehouse space at 1501 Caton Avenue, Baltimore, Maryland, situated on a 2.9 acre tract in a steel and masonry building of approximately 25,000 square feet, owned by MAI. The facility operated at approximately 40% of capacity in 1994.
(f) A 24,000 square foot steel and masonry warehouse located on 1.4 acres at 1221 Bernard Drive, Baltimore, Maryland owned by MAI. The warehouse is nine years old and has been utilized by MAI for new vehicle storage and preparation. Since new Maserati models have not been imported since 1990, the facility is essentially unutilized.
(g) A combined commercial and residential building in Rome owned by O.A.M. The two-story building occupies approximately 1100 square meters. The commercial portion (the basement, ground floor and access ramp) is rented to a Guzzi dealership pursuant to a long-term lease. The first floor is rented for residential purposes, and contains approximately 152 square meters of space.
(h) A 59 room, 2500 square meter hotel, owned by the Company's American Finance, S.p.A. subsidiary. The Hotel Roma in Modena, Italy, facility was built in the 19th Century in the town's historic centre.
Item 3.
Item 3. Legal Proceedings - ------ -----------------
A shareholder has commenced a litigation in federal court seeking to compel the Board of Directors to hold a shareholders meeting relating to the 1993 sale of Maserati to Fiat. While the Company believes the action is without merit, it is, in any event, currently in the process of scheduling a shareholders meeting. See "Submission of Matters to a Vote of Security Holders," below.
Item 4.
Item 4. Submission of Matters to - ------ a Vote of Security Holders --------------------------
On May 19, 1993, O.A.M. sold its remaining equity interest in its Maserati subsidiary to Fiat Auto S.p.A. As a result of the Maserati sale, the Company's principal operating subsidiary was G.B.M. The Company's Board of Directors resolved to convene a shareholders meeting to ratify the sale of Maserati and to discuss the future of G.B.M. In anticipation of such a meeting, the Company commissioned the preparation of an evaluation of the Company as of the day preceding the Maserati sale and as of a current date.
Just prior to the presentation of the evaluation report, the Company received an offer from the Italian investment firm of Finprogetti S.p.A. under which the Company would acquire certain subsidiaries of Finprogetti in exchange for newly issued shares of the Company's common stock, and Finprogetti would make or cause others to make additional capital
investments with the Company. Negotiations relating to this transaction are at an advanced stage, and are expected to be completed, and a final agreement executed shortly. The planned shareholders meeting has been postponed as a result of these developments, and is now planned for July 1995, by which time the agreement with Finprogetti should have been executed. In connection with the Finprogetti transaction, the Board of Directors expects to institute a repurchase policy under which shareholders will have an opportunity to realize fair value for most of their shares. Details of the transaction and of the policy will be provided in forthcoming proxy materials.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity - ------ and Related Stockholder Matters ---------------------------------------
As of March 31, 1995, there were 1,393 holders of record of Registrant's common stock.
The Company's common stock traded on the non-NASD over-the- counter market, commonly called the "pink sheets," in 1993 and until September 23, 1994. Since September 26, 1994 the common stock has traded on the NASDAQ small-capitalization market system. The reported prices represent inter-dealer prices, which do not include retail mark-ups, mark- downs or any commission to the broker-dealer, and may not necessarily represent actual transactions.
Bid Prices 1993 High Bid Low Bid - ---- ------------- ------------
1st Quarter 3 1/2 3 1/2 2nd Quarter 4 1/2 4 3rd Quarter - - 4th Quarter 2 2
- ----
lst Quarter 3 2 1/2 2nd Quarter 5 1/2 2 1/2 3rd Quarter through September 23 5 1/2 4 September 26 through September 30 5 4 1/2 4th Quarter 9 1/4 4 1/4
- ----
lst Quarter through March 22 9 1/2 7 3/4
No dividends were declared or paid during 1992, 1993 or 1994. Registrant does not believe that its capital needs will permit the payment of a dividend in the foreseeable future.
Item 6.
Item 6. Selected Financial Data. - ------ -----------------------
1 The above information for the year ended December 31, 1994, expressed in millions of Italian Lire, has been translated into U.S. Dollar equivalents in thousands of dollars (except for per share amounts), at the rate of exchange prevailing at December 31, 1994. The prevailing exchange rates as at the end of the five most recently completed fiscal years is as follows:
1622 Lire per U.S. Dollar at December 31, 1994 1713 Lire per U.S. Dollar at December 31, 1993 1478 Lire per U.S. Dollar at December 31, 1992 1147 Lire per U.S. Dollar at December 31, 1991 1127 Lire per U.S. Dollar at December 31, 1990
The high, low and average conversion rates for the years 1990-1994 are as follows: High Low Average ---- --- ------- 1994 1,689 1,539 1,612 1993 1,713 1,478 1,574 1992 1,475 1,066 1,243 1991 1,364 1,089 1,241 1990 1,300 1,109 1,138
2 Includes a gain of Lit. 105,622,000,000 resulting from the sale of 49% of Maserati, S.p.A. and 51% of Innocenti Milano, S.p.A. to Fiat.
3 Long-Term Debt includes Advances from Affiliates of Lit. 61,000,000,000.
Item 7.
Item 7. Management's Discussion and Analysis of - ------ Financial Condition and Results of Operations ---------------------------------------------
As a consequence of the sale of the Company's Maserati subsidiary in May, 1993, which is described in greater detail below, Management's discussion of the Company's operations in 1993 and 1992 deals only with the Company's continuing operations in those years since inclusion of the Company's discontinued Maserati operations would render the discussion not comparable. See Note C of Notes to Consolidated Financial Statements.
Results of Operations ---------------------
1994 Compared to 1993 ---------------------
The Company's operations improved markedly in 1994 compared to 1993 as a result of production and management changes made during the year at G.B.M. Unit sales of G.B.M. increased by 28%, to 4,880 motorcycles. Net sales increased by 24%, to Lit. 51,994,000,000 ($32,055,000). The increase in unit sales, moreover, was achieved despite an overall contraction in the Italian motorcycle market.
Despite the growth in sales, gross profits declined approximately 2% and gross profit margins declined approximately 3% from 1993. Gross profit margins in 1993 were favorably impacted by a reduction in cost of goods sold resulting from a change in that year's estimate of obsolescence reserves. Excluding the effect of that reduction, GBM achieved a small increase in gross profit margins in 1994 from its sale of motorcycles.
A 13% decline in sales, general and administrative expenses due to operating efficiencies, and a 52% decline in interest expenses due to retirement of debt more than offset reduced margins and, as a result, the Company's loss from continuing operations before minority interests dropped by nearly 64% to Lit. 2,467,000,000 ($1,520,962) in 1994 from Lit. 6,736,000,000 ($4,152,898) in 1993.
1993 Compared to 1992 ---------------------
Results for the 1993 fiscal year from continuing operations primarily reflect the operations of the Company's G.B.M. motorcycle subsidiary. G.B.M.'s Moto Guzzi unit sales declined 25% in 1993 compared to 1992, largely reflecting a comparable decline in overall motorcycle sales in Italy. Consolidated losses from continuing operations in the 1993 fiscal year increased by 69% to Lit. 6,736,000,000 ($4,152,898) from Lit. 3,967,000,000 ($2,445,746) in 1992. G.B.M.'s losses for the 1993 fiscal year were approximately Lit. 4,000,000,000 ($2,466,091).
Interest expense increased by 53.2% in 1993 compared to 1992 due to increased bank advances to finance operating losses. The increase in interest income was related to interest earned on amounts due from Fiat relating to the Maserati sale.
The Company adopted FASB Statement No. 109 "Accounting For Income Taxes" effective January 1, 1993. The principal effect of FASB Statement No. 109 is that utilization of the net operating loss carry forwards is reflected as a reduction of the tax provision rather than an extraordinary item.
The Company's Sale of Maserati Operations
On May 17, 1993, the Company's 84%-owned subsidiary O.A.M. S.p.A. completed the sale to Fiat Auto S.p.A. of its 51% equity interest in its Maserati S.p.A. subsidiary. Fiat had purchased the other 49% interest in Maserati in 1990, as part of a restructuring of O.A.M.'s manufacturing capacity related to the termination of its earlier assembly agreement with a unit of the Chrysler Corporation and the commencement of a new manufacturing agreement with Fiat.
Operations at Maserati, and, before its 1990 founding, at O.A.M., had been disappointing for many years. With significant unused manufacturing capacity at the subsidiary's Milan facility, Maserati and its O.A.M. predecessor, since 1984, had sought to create and maintain a viable alliance with a larger automobile manufacturer which would enable Maserati to make fuller and more profitable use of its plant and equipment as a means of achieving and maintaining profitability. The underutilization of Maserati's manufacturing capacity, with its resulting high ratio of fixed costs to unit sales, limited that company's ability to achieve additional market share through pricing strategies. Greater utilization, it was hoped, would permit fixed costs to be spread over a much greater volume of vehicles, improving the potential to achieve profitability.
In 1986, pursuing this goal, O.A.M. entered into a series of relationships with Chrysler and certain of its subsidiaries relating to the design, manufacture and assembly of a sports coupe, called the "TC." As part of the agreement, Chrysler acquired a 15.6% equity interest in O.A.M. and an option to purchase from Sig. Alejandro DeTomaso, the Company's Chairman and principal stockholder, all of his common and preferred stock. The option is exercisable at any time in 1996 or 1997 at the then-market price less $1,250,000. Sig. DeTomaso can repurchase the Chrysler option for $5,000,000 plus accumulated interest at 10% from October 1986.
The TC production arrangement however, largely due to modest customer interest in the car, terminated prematurely in 1988, leaving Maserati's manufacturing capacity again underutilized and its future in doubt.
In 1989 and 1990, with O.A.M.'s management continuing to hold the view that a strategic alliance was essential to the economic recovery of Maserati, the subsidiary entered into a series of agreements with Fiat. As a consequence, Maserati was formed as a subsidiary of O.A.M., the operating assets of O.A.M. were transferred to Maserati, and Fiat acquired 49% of the Maserati equity for Lit. 132,670,000,000 ($81,794,081), all of which was contributed to Maserati. Maserati also agreed to assemble a Fiat "Panda" model as a contract manufacturer for Fiat at a stated assembly fee per vehicle. Fiat agreed to purchase up to 30,000 such vehicles per year for three years.
Shortly thereafter, in mid-1990, the onset of the Gulf war and a worldwide recession produced a major decline in European car sales generally; the luxury segment occupied by Maserati was particularly hard hit. Fiat's Panda sales fell substantially below expectations, reducing the need for the quantity of vehicles the parties had contemplated. Fiat formally terminated the Panda production program in December 1991. Under the terms of the production agreement, there were no financial consequences to Fiat stemming from its having terminated the program. At the same time, the Italian economy as a whole was especially hard hit, due in part to a national corruption scandal involving major leaders of government, industry and finance.
O.A.M.'s management, with the approval of the Company's management, concluded that an upturn in European luxury vehicles sales was unlikely to occur in the foreseeable future. Absent an infusion of substantial additional capital, Maserati's ability to continue operations until the general economy and luxury car sales improved generally was highly unlikely.
With losses mounting at Maserati, in late 1991, its management attempted to reduce costs by terminating 500 workers, but Milanese labor unions obtained local judicial relief against the terminations. Labor strife plagued Maserati throughout 1992, causing several factory shutdowns, production stoppages and shipping delays. Losses were greatly magnified as a consequence. On January 22, 1993, after extended negotiations, Maserati, its labor unions and the Italian government resolved the dispute and related legal proceedings which stemmed from the 1991 terminations. The parties agreed to implement the terminations of Maserati's Milan work force in three stages, concluding on April 1, 1993. On March 31, 1993, operations at Maserati's Lambrate (Milan) facility ceased completely, thereby curtailing the single largest cause of its, and consequently the Company's, operating losses.
As part of the labor dispute resolution, the Italian government agreed to implement existing relocation and compensation programs for the benefit of the terminated workers; Maserati agreed to contribute Lit. 3,850,000,000 ($2,373,613) in connection with these government programs.
By the time Maserati's labor problems finally were resolved, however, the combination of the foregoing factors resulted in substantial operating losses at Maserati which no longer could continue operations without a massive cash infusion sufficient to cover its capital deficiency (as required by Italian law) and to fund projected further operated losses.
O.A.M. had looked to Fiat for operating capital. Since its initial 1990 investment in Maserati, Fiat had helped to finance the subsidiary's current operations by providing loans aggregating Lit. 61,000,000,000 ($37,607,891) by December 31, 1992. Maserati, as expected, continued to operate at a loss during this period, losing Lit. 88,176,000,000 ($54,362,515), exclusive of a tax credit, in 1992 and another Lit. 22,885,000,000 ($14,109,125) by the time O.A.M. sold its equity share in Maserati in May 1993. By the end of 1992, Maserati had accumulated a net capital deficiency of Lit. 102,484,000,000 ($63,183,724).
In connection with his discussions with Fiat regarding debt financing, the Company's chairman had expanded the discussions to include the possible acquisition by Fiat of O.A.M.'s majority interest in Maserati. Sig. De Tomaso was simultaneously dealing with the Milan labor litigation. Almost immediately after the conclusion of the labor negotiations, and with talks with Fiat having reached an advanced stage concerning the acquisition of Maserati, Sig. De Tomaso suffered a major stroke, and the Fiat talks were temporarily suspended.
O.A.M. management appointed Sig. De Tomaso's son, Sig. Santiago De Tomaso, to conclude the talks with Fiat, and an agreement to sell the Maserati subsidiary resulted on May 17, 1993. The financial terms contained in the final agreement, as executed, were substantially identical to those which had been negotiated between Fiat and the elder Sig. De Tomaso prior to his illness.
As required by the terms of agreement with O.A.M., Fiat paid the three installments on the aggregate Lit. 75,750,000,000 ($46,701,603) purchase price. The first installment was paid by the assignment to O.A.M. of Lit. 23,500,000,000 ($14,488,286) owed to Fiat by American Finance S.p.A., another Italian subsidiary of the Company. On January 1, 1994, Fiat paid O.A.M. the second installment of Lit. 23,750,000,000 ($14,642,417) in cash, forgave an O.A.M. debt of Lit. 1,500,000,000 ($924,784) and paid interest of Lit. 2,805,000,000 ($1,729,346). Fiat paid the final installment of Lit. 27,000,000,000 ($16,646,116) in cash, without interest, on January 1, 1995. The aggregate purchase price of Lit. 75,750,000,000 includes imputed interest of Lit. 4,826,000,000 ($2,975,339) from the final payment.
The agreement also contemplates, but does not require, the potential development of a parcel of land in Milan which is owned by Fiat's Maserati subsidiary which Maserati had used to manufacture Maserati and Innocenti automobiles. O.A.M. will be entitled to receive up to a 5.25% equity interest in the development company Fiat will form if certain conditions are met, including the realization by the development company of proceeds upon a sale of the parcel
in excess of its approximate Lit. 109,800,000,000 ($67,694,205) Maserati book value. Nothing in the agreement either requires Fiat to sell or otherwise develop the parcel or limits in any way the price at which the parcel could be sold. No assurance can be given that O.A.M. will receive any additional compensation relating to the development of the land and no amounts have been recorded on the financial statements of the Company therefor.
The sale of Maserati produced a gain of Lit. 183,118,000,000 ($112,896,424) in fiscal 1993, net of minority interests, which solely accounted for the Company's 1993 net income of Lit. 153,497,000,000 ($94,634,402). Maserati operations prior to the Fiat sale produced a net loss in 1993 of Lit. 22,885,000,000 ($14,109,125), compared to the net loss of Lit. 88,176,000,000 ($54,362,515) for the 1992 fiscal year, exclusive of a tax credit.
Liquidity and Capital Resources -------------------------------
Management anticipates that projected increases in production and sales at G.B.M. will require approximately $2,500,000 in additional capital to support operations. Management expects to fund such capital requirements from available cash at its other subsidiaries.
At December 31, 1994, the Company had working capital of Lit. 40,819,000,000 ($25,165,844). Additionally, the Company has Lit. 14,759,000,000 ($9,099,260) of investments in long term bonds of which all but Lit. 5,000,000 ($3,082,614) can be readily sold in established markets if necessary.
In addition to certain trade facilities available to finance import/expert trade, the Company has various line of credit arrangements with a number of Italian banks under which they may borrow up to Lit. 23,934,000,000 ($14,755,856) of which Lit. 8,150,000,000 ($5,024,661) was unused at December 31, 1994.
G.B.M. was past due at December 31, 1994 in payment of installments on a loan having an unpaid principal balance on such date of Lit. 4,151,000,000 ($2,559,186) and bearing interest at 11.5%. The Company and the lender are in an advanced stage of discussions for the full refinancing of the loan, which is expected to be completed within a matter of weeks. The lender has informally agreed to forebear from taking any action with respect to the default in the interim. The Company's American Finance, S.p.A. subsidiary was past due at December 31, 1993 on a loan having an unpaid principal balance on such date of Lit. 796,000,000 ($490,752) bearing interest at 5.15%; such loan was repaid in full in March, 1995 from funds made available from another subsidiary of the Company.
Transaction with Finprogetti ----------------------------
In February 1994, the Board of Directors resolved to examine a variety of actions which could be taken to accommodate the strongly expressed sentiments of some of the Company's shareholders that the public shareholders be "cashed out" of their equity positions at a price reflecting the fair market value of the Company's consolidated assets. To that end, the Board of Directors undertook a number of actions:
The Board of Directors explored transactions with G.B.M., involving possible joint ventures, sale or the refinancing of that subsidiary's operations. Efforts to identify a relationship which would fully reflect the Company's inherent value, were unsuccessful. Finprogetti, S.p.A. was then retained to provide temporary management for G.B.M. The spare parts inventory of MAI was sold at the end of 1994 and liquidation of its remaining assets is in progress. The Board also retained a major international firm of evaluators to determine the value of the Company prior to the Maserati sale and on a current basis. Contemporaneously with the presentation by the evaluators of their report to the Board of Directors, Finprogetti, S.p.A. presented an offer to the Board in which the Company would effectively acquire the Italian real estate assets of Finprogetti (estimated to have a value of Lit. 35,000,000,000), and its TIM unit in exchange for newly issued shares of the Company's common stock at the price of Lit. 20,106.73 per share. Finprogetti would also invest, or cause others to invest, an additional Lit. 15,000,000,000 in newly issued common stock at such price. The Company has reached an agreement-in- principle with Finprogetti consistent with its offer; the parties are nearing completion of a formal agreement and are engaged in mutual due diligence efforts.
Assuming the consummation of the transaction with Finprogetti, the Company plans to continue to build on the growth at G.B.M., to complete the winding up of the Company's non-performing Italian assets, and to seek new opportunities in which the "turn around" management skills of TIM can be employed profitably for the Company's benefit through its management of other troubled companies and through the investment opportunities such companies may present.
Expecting that a definitive agreement with Finprogetti will have been reached and executed by that time, the Board, at the next annual meeting of shareholders, currently planned for July, 1995, will ask shareholders to ratify the May 17, 1993 sale of Maserati to Fiat and will offer to shareholders who dissent from the ratification vote the opportunity to obtain the fair market value of their shares as of the date immediately prior to the Maserati sale. The Company's Board of Directors, including Sig. Alejandro DeTomaso, the controlling shareholder of the Company, ratified O.A.M.'s sale in 1993.
Additionally, the Company, subject to completing the Finprogetti transaction plans to offer to purchase up to 80% of the shares of those shareholders who vote to ratify the Maserati sale, at the same Lit. 20,106.73 price to be paid by Finprogetti and as determined by the asset valuation. This Annual Report shall not be construed as such an offer, nor as a solicitation of
proxies to ratify the Maserati sale. Any such offer, and any such solicitation, shall only be made by and pursuant to materials complying with applicable federal law.
Impact of Inflation -------------------
Management does not believe that inflation or price increases charged by Moto Guzzi for its products had a material effect on 1994, 1993 or 1992 net sales, revenues or income. Rather, competition from third parties selling products with better market acceptance is believed to account for lower unit sales in all three years. Management believes that market response to the Company's products is by far the most significant factor impacting sales, revenues and income. Currency exchange rates have a measurable effect on the prices paid by G.B.M. for imported raw materials, and on the prices charged for its finished goods. In recent years, the Italian lire has declined in value relative to the currencies of its trading partners. While this has increased the effective cost of raw materials to G.B.M., which G.B.M. has passed through in the price of its motorcycles, it has lowered the effective cost of those goods to purchasers in foreign markets.
ICW Annual Report on Form 10-K
Item 8, Item 14(a)(1) and (2) and Item 14(d)
List of Financial Statements and Financial Statement Schedule
Financial Statements, Financial Statement Schedules and Supplementary Data
Year Ended December 31, 1994
De Tomaso Industries, Inc.
Red Bank, New Jersey
Form 10-K--Item 14(a)(1) and (2)
De Tomaso Industries, Inc. and Subsidiaries
List of Financial Statements and Financial Statement Schedule
The following consolidated financial statements of De Tomaso Industries, Inc. and subsidiaries are included in Item 8:
Item 9. Changes in and Disagreements with Accountants - ------- in Accounting and Financial Disclosure ---------------------------------------------
None.
PART III
Information required to be included in Part III will be filed by amendment to this Annual Report on Form 10K within 120 days of the end of the Company's fiscal year.
PART IV
INDEX TO EXHIBITS ----------------- Page Number -----------
3(a) Restated Articles of Incorporation of Registrant (filed as Exhibit 3(a) to Registrant's 1981 Annual Report on Form 10-K and incorporated herein by reference).
3(b) By-laws of Registrant (filed as Exhibit 3(b) to Registrant's 1981 Annual Report on Form 10-K and incorporated herein by reference).
3(c) Articles of Amendment to Articles of Incorporation filed January 31, 1986 with Maryland Department of Assessments and Taxa- tion (filed as Exhibit 3(c) to Registrant's 1985 Annual Report on Form 10-K and incorporated herein by reference).
3(d) Articles of Incorporation, as amended by the Articles of Amendment described in 3(c), above (filed as Exhibit 3(d) to Registrant's 1985 Annual Report on Form 10-K and incorpo- rated herein by reference).
10(a) Agreement dated May 17,1993 between O.A.M. S.p.A., Fiat Auto, S.p.A. and other (filed as Exhibit 10.1 to the Current Report Dated May 17, 1993 filed on Form 8-K).
12. Subsidiaries: Maserati Automobiles Incorporated, G.B.M. S.p.A., American Finance S.p.A., O.A.M. S.p.A., Storm S.r.l., Centro Ricambi S.r.l., Nuova Callegari e Ghighi S.p.A., Tridentis Financiere, S.A., Newstead, Ltd.
SIGNATURES ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereupon duly authorized.
April 17, 1995 s/ Santiago DeTomaso ------------------------- Santiago DeTomaso President - Director
April 17, 1995 s/ Catherine D. Germano ------------------------- Catherine D. Germano Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacity and on the dates indicated.
April , 1995 ------------------------------------- Alejandro DeTomaso - Director
April 17, 1995 s/ Paolo Donghi ------------------------------------- Paolo Donghi - Director
April 17, 1995 s/ Roberto Corradi ------------------------------------- Roberto Corradi - Director
April 17, 1995 s/ Howard E. Chase ------------------------------------- Howard E. Chase Vice President - Director
April 17, 1995 s/ Patrick D'Angelo ------------------------------------- Patrick D'Angelo - Director
April 17, 1995 s/ Mario Tozzi Condivi ------------------------------------- Mario Tozzi Condivi - Director