-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QP2w3tkZ11pSK6UVWFChQK00JG8vd9t1H/v67byUJvw6VkEUU2/CRPSEv9ZBW4Ns +jk8LBBiNnJ45b7t3FhUlw== 0000062996-96-000020.txt : 19961118 0000062996-96-000020.hdr.sgml : 19961118 ACCESSION NUMBER: 0000062996-96-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MASCO CORP /DE/ CENTRAL INDEX KEY: 0000062996 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD FURNITURE [2510] IRS NUMBER: 381794485 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05794 FILM NUMBER: 96664940 BUSINESS ADDRESS: STREET 1: 21001 VAN BORN RD CITY: TAYLOR STATE: MI ZIP: 48180 BUSINESS PHONE: 3132747400 MAIL ADDRESS: STREET 1: 21001 VAN BORN ROAD CITY: TAYLOR STATE: MI ZIP: 48180 FORMER COMPANY: FORMER CONFORMED NAME: MASCO SCREW PRODUCTS CO DATE OF NAME CHANGE: 19731025 10-Q 1 MASCO CORPORATION 3RD QUARTER 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended September 30, 1996. Commission File Number 1-5794 MASCO CORPORATION (Exact name of Registrant as specified in its Charter) Delaware 38-1794485 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 21001 Van Born Road, Taylor, Michigan 48180 (Address of principal executive offices) (Zip Code) (313) 274-7400 (Telephone Number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Shares Outstanding at Class November 1, 1996 Common stock, par value $1 per share 160,455,000 MASCO CORPORATION INDEX Page No. Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheet - September 30, 1996 and December 31, 1995 1 Condensed Consolidated Statement of Income for the Three Months and Nine Months Ended September 30, 1996 and 1995 2 Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 1996 and 1995 3 Notes to Condensed Consolidated Financial Statements 4-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-12 Unaudited Information Regarding Equity Affiliates for the Three Months and Nine Months Ended September 30, 1996 and 1995 13 Part II. Other Information and Signature 14 MASCO CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET September 30, 1996 and December 31, 1995 (Dollars in thousands) September 30, December 31, ASSETS 1996 1995 Current assets: Cash and cash investments $ 196,500 $ 60,470 Accounts and notes receivable, net 526,040 439,900 Prepaid expenses and other 72,560 72,370 Inventories: Finished goods 135,150 130,070 Raw material 193,040 171,670 Work in process 88,940 90,020 417,130 391,760 Total current assets 1,212,230 964,500 Equity investments in MascoTech, Inc. 208,740 202,380 Equity investments in other affiliates 64,560 62,570 Investments in Furnishings International Inc. 342,370 --- Property and equipment, net 906,450 856,690 Excess of cost over acquired net assets 456,370 343,510 Other noncurrent assets 299,100 296,310 Net assets of discontinued operations --- 1,052,670 Total assets $3,489,820 $3,778,630 LIABILITIES Current liabilities: Notes payable $ 8,340 $ 25,690 Accounts payable 114,360 125,230 Accrued liabilities 374,870 294,930 Total current liabilities 497,570 445,850 Long-term debt 1,102,020 1,577,100 Deferred income taxes and other 113,060 100,250 Total liabilities 1,712,650 2,123,200 SHAREHOLDERS' EQUITY Common stock, par value $1 per share Authorized shares: 400,000,000 160,710 160,380 Preferred stock, par value $1 per share Authorized shares: 1,000,000 --- --- Paid-in capital 135,710 128,550 Retained earnings 1,484,200 1,366,330 Cumulative translation adjustments (3,450) 170 Total shareholders' equity 1,777,170 1,655,430 Total liabilities and shareholders' equity $3,489,820 $3,778,630 See notes to condensed consolidated financial statements. 1 MASCO CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME For the Three Months and Nine Months Ended September 30, 1996 and 1995 (Amounts in thousands except per share data) Three Months Ended Nine Months Ended September 30 September 30 1996 1995 1996 1995 Net sales $843,000 $738,000 $2,394,000 $2,173,000 Cost of sales 522,000 461,330 1,498,900 1,349,280 Gross profit 321,000 276,670 895,100 823,720 Selling, general and administrative expenses 180,900 159,270 520,200 476,940 Amortization of excess of cost over acquired net assets 3,300 2,700 8,600 7,000 Operating profit 136,800 114,700 366,300 339,780 Other (income) expense, net: Interest expense 20,900 17,820 54,900 53,480 Equity earnings from MascoTech, Inc. (6,700) (5,290) (10,000) (13,600) Other, net (13,700) (1,340) (31,600) (15,870) 500 11,190 13,300 24,010 Income from continuing operations before income taxes 136,300 103,510 353,000 315,770 Income taxes 54,500 41,440 141,200 126,370 Income from continuing operations 81,800 62,070 211,800 189,400 Income from operations of discontinued segment (net of income taxes of $3,360 and $10,330 for the three months and nine months ended September 30, 1995, respectively) --- 5,030 --- 15,500 Net income $ 81,800 $ 67,100 $ 211,800 $204,900 Earnings per share: Continuing operations $.51 $.39 $1.32 $1.19 Discontinued operations -- .03 -- .10 Earnings per share $.51 $.42 $1.32 $1.29 Cash dividends per share: Dividends paid $.19 $.18 $ .57 $ .54 Dividends declared $.20 $.19 $ .58 $ .55 Average shares outstanding 160,500 159,300 160,500 159,300 See notes to condensed consolidated financial statements. 2 MASCO CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For the Nine Months Ended September 30, 1996 and 1995 (Dollars in thousands) Nine Months Ended September 30 1996 1995 CASH FLOWS FROM (FOR) OPERATING ACTIVITIES OF CONTINUING OPERATIONS: Cash provided by continuing operations $258,500 $232,240 Increase in receivables (66,650) (80,610) Increase in inventories (7,420) (29,520) Decrease in prepaid expenses 1,440 1,810 Increase (decrease) in current liabilities 17,460 (1,980) Total cash from operating activities of continuing operations 203,330 121,940 CASH FLOWS FROM (FOR) INVESTING ACTIVITIES: Acquisition of companies (173,110) --- Capital expenditures (80,380) (112,690) Proceeds from sale of Formica investment --- 74,470 Proceeds from sales of investments 31,300 --- Other, net 9,030 (17,680) Total cash (for) investing activities of continuing operations (213,160) (55,900) Discontinued operations, net 29,030 22,300 Cash proceeds from sale of discontinued operations 707,630 --- Total cash from (for) investing activities 523,500 (33,600) CASH FLOWS FROM (FOR) FINANCING ACTIVITIES: Increase in debt 136,350 379,200 Payment of debt (635,720) (367,250) Cash dividends paid (91,430) (85,840) Total cash (for) financing activities of continuing operations (590,800) (73,890) CASH AND CASH INVESTMENTS: Increase for the period 136,030 14,450 At January 1 60,470 36,530 At September 30 $196,500 $ 50,980 See notes to condensed consolidated financial statements. 3 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS A. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary to present fairly its financial position as at September 30, 1996 and the results of operations for the three months and nine months ended September 30, 1996 and 1995 and cash flows for the nine months ended September 30, 1996 and 1995. The statement of income for the three months and nine months ended September 30, 1995, statement of cash flows for the nine months ended September 30, 1995 and related notes have been reclassified to present the Company's home furnishings products segment as discontinued operations. The condensed consolidated balance sheet as of December 31, 1995 also includes the home furnishings products segment as discontinued operations. The condensed consolidated balance sheet at December 31, 1995 was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles. Earnings per share are calculated based on the weighted average common shares outstanding. B. On April 1, 1996, the Company entered into an agreement for the sale of its home furnishings products businesses to Furnishings International Inc. The Company classified its home furnishings products segment as discontinued operations in late November 1995. Furnishings International's investors include 399 Venture Partners (a subsidiary of Citibank), certain members of Furnishings International's management, the Company and certain affiliates of Travelers Group Inc. On August 5, 1996, the Company finalized the sale of its home furnishings products businesses to Furnishings International Inc. Total proceeds to Masco from the sale are in excess of $1.0 billion with approximately $710 million of the purchase price in cash. The balance consists of $285 million of 12 percent pay-in-kind junior debt securities, approximately $57 million of 13 percent cumulative preferred stock, convertible preferred stock and 15 percent of the common stock of Furnishings International. The Company will record dividend income from the 13 percent cumulative preferred stock if and when such dividends are declared. The Company applied approximately $550 million of the proceeds from the sale of the home furnishings products businesses to reduce debt. Under a transitional services agreement, the Company will provide corporate related services for a fee to Furnishings International through April 30, 1997. If requested by Furnishings International, such services may continue after April 30, 1997, at a renegotiated fee. The Company's estimated $650 million charge for the disposition of the home furnishings products segment, which was recorded at December 31, 1995, approximated the actual loss on disposition. 4 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) C. Other (income) expense, net consists of the following, in thousands: Three Months Ended Nine Months Ended September 30 September 30 1996 1995 1996 1995 Interest expense $20,900 $17,820 $54,900 $ 53,480 Equity earnings from MascoTech, Inc. (6,700) (5,290) (10,000) (13,600) Equity earnings, other (2,000) (2,970) (5,900) (7,700) Interest income and gains from marketable securities and cash investments (13,700) (2,300) (25,300) (8,410) Other, net 2,000 3,930 (400) 240 $ 500 $11,190 $13,300 $ 24,010 Interest expense is presented net of interest expense allocated to discontinued operations of $2.0 million and $10.4 million for the three months ended September 30, 1996 and 1995 and $21.8 million and $31.3 million for the nine months ended September 30, 1996 and 1995, respectively. Equity earnings from MascoTech, Inc. for the nine months ended September 30, 1996 include the Company's equity share (approximately $11.7 million pre-tax) of losses resulting from MascoTech's disposition of its metal stamping businesses during the second quarter of 1996, and approximately $5.0 million of pre-tax income related to a MascoTech accounting change in the first quarter of 1996. Interest income and gains from marketable securities and cash investments for both the third quarter and nine months ended September 30, 1996 include interest income of $5.3 million from the 12 percent pay-in-kind junior debt securities of Furnishings International Inc. Also included for the third quarter and nine months ended September 30, 1996 are gains aggregating $5.2 million and $12.9 million, respectively, from the sale of certain of the Company's long-term investments. Other, net for the nine months ended September 30, 1996 includes a second quarter gain of approximately $4.4 million from the sale of certain common shares of TriMas Corporation. Included in other, net for the nine months ended September 30, 1995, was a $15.9 million gain from the sale of the Company's investment in Formica Corporation in the first quarter of 1995; this gain was largely offset by charges for product line disposals. 5 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) D. In the third quarter of 1996, the Company acquired E. Missel GmbH, a leading German manufacturer of plumbing specialty products; during the second quarter of 1996, the Company acquired the Moore Group Ltd., a United Kingdom manufacturer of kitchen and bath cabinets and Horst Breuer GmbH, a German manufacturer of shower enclosures. The aggregate purchase price for these companies was approximately $173 million. The acquisitions were accounted for as purchase transactions. These companies had combined annual net sales in 1995 of approximately $140 million. E. During October 1996, the Company announced and completed the sale to MascoTech, Inc. of 17 million shares of MascoTech common stock and warrants owned by the Company to purchase 10 million shares of MascoTech common stock. Under the sale agreement, the Company received approximately $266 million, with $115 million cash paid at closing. The balance of the consideration is due within one year of the closing and may be paid entirely in cash or, at MascoTech's option, cash and some or all of the publicly traded securities of Emco Limited held by MascoTech. The transaction reduced the Company's common equity ownership in MascoTech from 45 percent to approximately 21 percent. This transaction, when considered along with the conversion in mid-1997 of outstanding MascoTech preferred stock into MascoTech common stock, will reduce the Company's ownership in MascoTech to approximately 16 percent. F. The following presents the combined unaudited financial statements of the Company, MascoTech, Inc. and TriMas Corporation as one entity, with Masco Corporation as the parent company. The statement of income for the three months and nine months ended September 30, 1995 and the statement of cash flows for the nine months ended September 30, 1995 have been reclassified to present the Company's home furnishings products segment as discontinued operations. The balance sheet as of December 31, 1995 also includes the home furnishings products segment as discontinued operations. Intercompany transactions have been eliminated. Amounts, except per share data, are in thousands. 6 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) Note F - Continued: Combined Balance Sheet September 30, December 31, Assets 1996 1995 Current assets: Cash and cash investments $ 354,330 $ 169,240 Accounts and notes receivable, net 799,880 727,300 Prepaid expenses and other 76,580 56,280 Deferred income taxes 90,860 95,650 Net current assets of businesses held for disposition --- 62,410 Inventories: Raw material 245,040 230,290 Finished goods 199,020 198,680 Work in process 139,460 142,700 583,520 571,670 Total current assets 1,905,170 1,682,550 Equity investments in affiliates 216,790 199,330 Investments in Furnishings International Inc. 342,370 --- Property and equipment, net 1,491,770 1,496,840 Excess of cost over acquired net assets 704,360 618,190 Net noncurrent assets of businesses held for disposition --- 104,510 Net assets of discontinued operations --- 1,052,670 Other noncurrent assets 430,670 390,300 Total assets $5,091,130 $5,544,390 Liabilities and Shareholders' Equity Current liabilities: Notes payable $ 10,650 $ 31,050 Accounts payable 211,060 249,330 Accrued liabilities 538,150 406,570 Total current liabilities 759,860 686,950 Long-term debt 1,741,730 2,466,210 Deferred income taxes and other 316,740 271,030 Other interests in combined affiliates 495,630 464,770 Equity of shareholders of Masco Corporation 1,777,170 1,655,430 Total liabilities and shareholders' equity $5,091,130 $5,544,390 7 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) Note F - Continued: Three Months Ended Nine Months Ended September 30 September 30 Combined Statement of Income 1996 1995 1996 1995 Net sales $1,277,660 $1,269,410 $3,843,710 $3,881,900 Costs and expenses, net: Cost of sales 853,290 883,170 2,624,950 2,704,770 Selling, general and administrative expenses 236,470 223,520 698,290 683,000 (Gain) loss on disposition of businesses, net --- (7,790) 31,520 (5,290) Other (income) expense, net: Interest expense 29,410 32,130 83,690 103,030 Other income, net (20,620) (2,300) (48,720) (32,820) 8,790 29,830 34,970 70,210 1,098,550 1,128,730 3,389,730 3,452,690 Income from continuing operations before income taxes and other interests 179,110 140,680 453,980 429,210 Income taxes 77,350 61,200 196,600 187,510 Other interests in combined affiliates 19,960 17,410 48,660 52,300 Income from continuing operations 81,800 62,070 208,720 189,400 Income from operations of discontinued segment (net of income taxes) --- 5,030 --- 15,500 Cumulative effect of an accounting change, net --- --- 3,080 --- Net income $ 81,800 $ 67,100 $ 211,800 $ 204,900 Earnings per share: Continuing operations $.51 $.39 $1.30 $1.19 Discontinued segment -- .03 -- .10 Cumulative effect of an accounting change -- -- .02 -- Earnings per share $.51 $.42 $1.32 $1.29 Cash dividends per share: Dividends paid $.19 $.18 $ .57 $ .54 Dividends declared $.20 $.19 $ .58 $ .55 Average shares outstanding 160,500 159,300 160,500 159,300 8 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (concluded) Note F - Concluded: Nine Months Ended September 30 Combined Statement of Cash Flows 1996 1995 Cash Flows From (For) Operating Activities: Cash provided by continuing operations $ 359,450 $ 303,000 Increase in receivables (70,860) (122,480) (Increase) decrease in inventories 900 (33,400) (Increase) decrease in marketable securities, net (14,270) 54,460 Decrease in prepaid expenses 1,440 14,250 Increase (decrease) in current liabilities 44,750 (22,560) Total cash from operating activities 321,410 193,270 Cash Flows From (For) Investing Activities: Capital expenditures (125,510) (176,890) Acquisitions, net of cash acquired (199,050) (22,810) Proceeds from sale of discontinued operations 707,630 --- Proceeds from sale of subsidiaries 212,100 94,880 Proceeds from sales of investments 31,300 --- Proceeds from sale of Formica investment --- 74,470 Discontinued operations, net 29,030 22,300 Other, net 69,620 38,540 Total cash from investing activities 725,120 30,490 Cash Flows From (For) Financing Activities: Increase in debt 156,180 509,100 Payment of debt (909,020) (691,920) Cash dividends paid (108,600) (101,530) Total cash (for) financing activities (861,440) (284,350) Cash and Cash Investments: Increase (decrease) for the period 185,090 (60,590) At January 1 169,240 206,150 At September 30 $ 354,330 $ 145,560 9 MASCO CORPORATION Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIRD QUARTER 1996 AND THE FIRST NINE MONTHS 1996 VERSUS THIRD QUARTER 1995 AND THE FIRST NINE MONTHS 1995 Sales and Operations Consolidated net sales from continuing operations increased 14 percent and 10 percent for the third quarter and nine months ended September 30, 1996, respectively, from the comparable periods in 1995. After adjusting for acquisitions and the divestiture of two small operations, consolidated net sales for the third quarter and nine months ended September 30, 1996 increased 11 percent and 7 percent, respectively, from the comparable 1995 periods. Such increases primarily reflect increases in unit sales volume of faucets, cabinets and other kitchen and bath products. Excluding European acquisitions in 1996, net sales from European-based operations for the third quarter and nine months ended September 30, 1996 increased 3 percent and decreased 2 percent, respectively, from the comparable 1995 periods. Cost of sales as a percentage of sales for the third quarter of 1996 decreased to 61.9 percent as compared with 62.5 percent for the prior year quarter due to increased sales of higher margin products and the favorable influence of 1996 acquisitions. Selling, general and administrative expenses as a percentage of sales for the third quarter of 1996 decreased slightly to 21.5 percent from 21.6 percent for the third quarter of 1995. Cost of sales as a percentage of sales for the nine months ended September 30, 1996 increased to 62.6 percent from 62.1 percent for the comparable period in the prior year due to softness in the Company's European markets and under- utilized plant capacity and the influence of a higher percentage of lower margin sales to total sales during the first half of 1996. Selling, general and administrative expenses as a percentage of sales for the nine months ended September 30, 1996 decreased to 21.7 percent from 21.9 percent for the comparable prior year period; such decrease is the result of higher promotional and advertising costs in the prior-year period. The Company's operating profit margins from continuing operations improved in the third quarter of 1996 as compared with the third quarter of 1995 and declined slightly for the first nine months of 1996 as compared with the first nine months of 1995, principally for the reasons discussed above. Other (Income) Expense Included in other (income) expense, net for the third quarter of 1996 were equity earnings from MascoTech, Inc. of $6.7 million, as compared with equity earnings of $5.3 million for the comparable period of 1995. Equity earnings from MascoTech for the nine months ended September 30, 1996 of $10.0 million include the Company's $11.7 million pre-tax ($7.2 million after-tax) equity share of MascoTech's second quarter 1996 disposition charge resulting from the sale of its metal stamping businesses, as well as the Company's approximate $5.0 million pre-tax equity share of MascoTech's first quarter 1996 non-recurring income resulting from the cumulative effect of the adoption of a new accounting rule. 10 Included in other (income) expense, net for the third quarter of 1996 is interest income of $5.3 million from the 12 percent pay-in-kind junior debt securities of Furnishings International Inc. and gains aggregating $5.2 million from the sale of certain of the Company's long-term investments. Other (income) expense, net for the nine months ended September 30, 1996 includes the interest income discussed above, gains aggregating $12.9 million from the sale of certain of the Company's long-term investments and a $4.4 million gain from the sale of certain common shares of TriMas Corporation. Included in other (income) expense, net for the nine months ended September 30, 1995 was a $15.9 million gain from the sale of the Company's investment in Formica Corporation in the first quarter of 1995; this gain was largely offset by charges for product line disposals. Net Income and Earnings Per Share After-tax income from continuing operations for the third quarter of 1996 increased 32 percent to $81.8 million from $62.1 million in the comparable 1995 period, and income per share from continuing operations increased 31 percent to $.51 from $.39. After-tax income from continuing operations for the nine months ended September 30, 1996 increased 12 percent to $211.8 million from $189.4 million in the comparable 1995 period, and income per share from continuing operations increased 11 percent to $1.32 from $1.19. Sale of Home Furnishings Products Businesses On April 1, 1996, the Company entered into an agreement for the sale of its home furnishings products businesses to Furnishings International Inc. The Company classified its home furnishings products segment as discontinued operations in late November 1995. Furnishings International's investors currently include 399 Venture Partners (a subsidiary of Citibank), certain members of Furnishings International's management, the Company and certain affiliates of Travelers Group Inc. On August 5, 1996, the Company finalized the sale of its home furnishings products businesses to Furnishings International Inc. Total proceeds to Masco from the sale are in excess of $1.0 billion with approximately $710 million of the purchase price in cash. The balance consists of $285 million of 12 percent pay-in-kind junior debt securities, approximately $57 million of 13 percent cumulative preferred stock, convertible preferred stock and 15 percent of the common stock of Furnishings International. The Company will record dividend income from the 13 percent cumulative preferred stock if and when such dividends are declared. Proceeds from the transaction generated interest income of approximately $.02 in per share earnings for the third quarter of 1996. Looking forward, the Company expects to realize approximately $.04 in quarterly per share earnings related to interest income from proceeds of the transaction. Under a transitional services agreement, the Company will provide corporate-related services for a fee to Furnishings International through April 30, 1997. If requested by Furnishings International, such services may continue after such date, at a renegotiated fee. The Company applied approximately $550 million of the proceeds from the sale of the home furnishings products businesses to reduce debt. The balance of the proceeds will eventually be reinvested in the future growth of the Company. 11 The Company's estimated $650 million charge for the disposition of the home furnishings products segment, which was recorded at December 31, 1995, approximated the actual loss on disposition as of the sale date. The Company's former President and Chief Operating Officer, Wayne B. Lyon, has joined Furnishings International as its full-time Chairman, President and Chief Executive Officer. The Company's Executive Vice President and President- Building Products, Raymond F. Kennedy, was appointed as President and Chief Operating Officer in August 1996. Reduction of Investment in MascoTech, Inc. During October 1996, the Company announced and completed the sale to MascoTech, Inc. of 17 million shares of MascoTech common stock and warrants owned by the Company to purchase 10 million shares of MascoTech common stock. Under the sale agreement, the Company received approximately $266 million, with $115 million cash paid at closing. The balance of the consideration is due within one year of the closing and may be paid entirely in cash or, at MascoTech's option, cash and some or all of the publicly traded securities of Emco Limited held by MascoTech. The Company will earn interest income at 6.625 percent on the balance of the consideration. The interest income from the consideration should principally offset the reduction in equity earnings from MascoTech as a result of this transaction. The agreement also provided for the extension of the existing corporate services and financing commitment agreements between the Company and MascoTech. The Company realized a fourth quarter pre-tax gain of approximately $60 million ($35 million after-tax) from the sale and anticipates that this gain may be partially offset by certain fourth quarter 1996 charges. The transaction reduced the Company's common equity ownership in MascoTech from 45 percent to approximately 21 percent. This transaction, when considered along with the conversion in mid-1997 of outstanding MascoTech preferred stock into MascoTech common stock, will reduce the Company's ownership in MascoTech to approximately 16 percent. Other Financial Information At September 30, 1996 current assets were 2.4 times current liabilities. For the nine months ended September 30, 1996, cash of $203 million was provided by operating activities of continuing operations, by $708 million from the sale of discontinued operations, by $29 million from discontinued operations, by $31 million from the sales of investments and by $9 million from other cash inflows; cash decreased by $500 million for the net decrease in debt, by $173 million for the acquisition of companies, by $80 million for the purchase of property and equipment and by $91 million for cash dividends. The aggregate of the preceding items represents a net cash inflow of $136 million. The Company has on file with the Securities and Exchange Commission, an unallocated shelf registration pursuant to which the Company is able to issue up to a combined $759 million of debt and equity securities. The Company believes that its present cash balance, its cash flows from operations and, to the extent necessary, future financial market activities and bank borrowings, are sufficient to fund its working capital and other investment needs. During the third quarter of 1996, the Company increased the quarterly dividend to $.20 from $.19 per common share. This marks the 38th consecutive year in which dividends have been increased. 12 UNAUDITED INFORMATION REGARDING EQUITY AFFILIATES FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995 Equity investments in affiliates consist primarily of the following approximate common stock and partnership interests at September 30: 1996 1995 MascoTech, Inc. 45% 44% Hans Grohe, a German partnership 27% 27% TriMas Corporation 4% 5% During October 1996, the Company announced and completed the sale to MascoTech, Inc. of 17 million shares of MascoTech common stock and warrants owned by the Company to purchase 10 million shares of MascoTech common stock. The transaction reduced the Company's common equity ownership in MascoTech from 45 percent to approximately 21 percent. This transaction, when considered along with the conversion in mid-1997 of outstanding MascoTech preferred stock into MascoTech common stock, will reduce the Company's ownership in MascoTech to approximately 16 percent. The following presents the condensed financial data of MascoTech, Inc. Amounts are in thousands. Three Months Ended Nine Months Ended September 30 September 30 1996 1995 1996 1995 Sales - Net $290,790 $404,900 $1,009,770 $1,289,200 Gross Profit $ 55,580 $ 67,050 $ 174,950 $ 212,760 Net Income (After Preferred Stock Dividends) $ 16,150 $ 12,720 $ 25,450 $ 34,800 13 PART II. OTHER INFORMATION MASCO CORPORATION Items 1 through 5 are not applicable. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: 11 - Computation of Earnings Per Share 12 - Computation of Ratio of Earnings to Fixed Charges 27 - Financial Data Schedule (b) Reports on Form 8-K: Report on Form 8-K dated November 13, 1996 reporting under item 2 "Acquisition or Disposition of Assets," the announcement and completion of the sale to MascoTech, Inc. of 17 million shares of MascoTech common stock and warrants owned by the Company to purchase 10 million shares of MascoTech common stock. Report on Form 8-K dated August 5, 1996 reporting under item 2 "Acquisition or Disposition of Assets," the completion of the sale of the Company's home furnishings products businesses pursuant to the terms of an acquisition agreement between Furnishings International Inc. and the Company dated as of March 29, 1996, and amended as of June 29, 1996 and August 5, 1996. The following financial statements were filed with such report: Masco Corporation and Consolidated Subsidiaries Unaudited Proforma Condensed Consolidated Statement of Operations for the year ended December 31, 1995. Unaudited Proforma Condensed Consolidated Balance Sheet as of June 30, 1996. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MASCO CORPORATION (Registrant) Date: 11/13/96 By: /s/ RICHARD G. MOSTELLER Richard G. Mosteller Senior Vice President - Finance (Chief Financial Officer and Authorized Signatory) 14 MASCO CORPORATION EXHIBIT INDEX Exhibit Exhibit 11 Computation of Earnings Per Share Exhibit 12 Computation of Ratio of Earnings to Fixed Charges Exhibit 27 Financial Data Schedule EX-11 2 MASCO CORPORATION 3RD QUARTER 10-Q EXHIBIT 11 Exhibit 11 MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE Primary and Fully Diluted Earnings Per Share For the Three Months and Nine Months Ended September 30, 1996 and 1995 (Amounts in thousands except per share data) Three Months Ended Nine Months Ended September 30 September 30 1996 1995 1996 1995 Shares for computation of primary and fully diluted earnings per share: Weighted average number of shares outstanding 160,500 159,300 160,500 159,300 Common stock equivalents: Shares issuable assuming conversion of debentures 4,200 4,200 4,200 4,200 Stock options 900 700 900 700 Total shares for primary and fully diluted earnings per share computation 165,600 164,200 165,600 164,200 Income from continuing operations $81,800 $62,070 $211,800 $189,400 Add back of debenture interest, net 1,500 1,500 4,400 4,400 Adjusted earnings from continuing operations 83,300 63,570 216,200 193,800 Income from operations of discontinued segment --- 5,030 --- 15,500 Earnings attributable to common stock $83,300 $68,600 $216,200 $209,300 Primary and fully diluted earnings per share: Continuing operations $.50 $.39 $1.31 $1.18 Discontinued operations -- .03 -- .09 Primary and fully diluted earnings per share $.50 $.42 $1.31 $1.27 Earnings per share as reported $.51 $.42 $1.32 $1.29 This calculation is submitted in accordance with Regulation S-K Item 601(b)(11), although not required by APB Opinion No. 15, inasmuch as dilution for any period was less than 3 percent. EX-12 3 MASCO CORPORATION 3RD QUARTER 10-Q EXHIBIT 12 Exhibit 12 MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES Computation of Ratio of Earnings to Fixed Charges
(Thousands of Dollars) Nine Months Ended September 30, Year Ended December 31, 1996 1995 1994 1993 1992 1991 Earnings Before Income Taxes and Fixed Charges: Income from continuing operations before income taxes $353,000 $351,790 $292,830 $349,190 $296,020 $125,140 Deduct/add equity in undistributed (earnings) losses of fifty-percent- or-less-owned companies (9,630) (17,770) 106,200 (13,750) (13,210) 38,150 Add interest on indebtedness, net 54,850 73,400 60,360 62,860 57,190 71,640 Add amortization of debt expense 1,080 1,930 2,220 2,650 2,710 1,630 Add one-third of rentals 4,230 4,970 4,220 3,190 3,290 3,490 Earnings from continuing operations before income taxes and fixed charges $403,530 $414,320 $465,830 $404,140 $346,000 $240,050 Fixed Charges: Interest on indebtedness $ 56,960 $ 76,460 $ 63,220 $ 63,600 $ 69,890 $ 72,850 Amortization of debt expense 1,080 1,930 2,220 2,650 2,710 1,630 One-third of rentals 4,230 4,970 4,220 3,190 3,290 3,490 $ 62,270 $ 83,360 $ 69,660 $ 69,440 $ 75,890 $ 77,970 Ratio of earnings to fixed charges 6.5 5.0 6.7 5.8 4.6 3.1
EX-27 4 MASCO CORPORATION 3RD QUARTER 10-Q EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MASCO CORPORATION'S SEPTEMBER 30, 1996 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS 9-MOS SEP-30-1996 SEP-30-1995 JAN-1-1996 JAN-1-1995 SEP-30-1996 SEP-30-1995 196,500 50,980 0 0 526,040 463,580 0 0 417,130 407,170 1,212,230 984,220 906,450 831,770 0 0 3,489,820 4,448,530 497,570 397,660 1,102,020 1,650,540 0 0 0 0 160,710 160,280 1,616,460 2,170,700 3,489,820 4,448,530 2,394,000 2,173,000 2,394,000 2,173,000 1,498,900 1,349,280 1,498,900 1,349,280 0 0 0 0 54,900 53,480 353,000 315,770 141,200 126,370 211,800 189,400 0 15,500 0 0 0 0 211,800 204,900 1.32 1.29 1.32 1.29 Receivables and property and equipment are presented net of allowances for doubtful accounts and accumulated depreciation and amortization, respectively.
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