-----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, BvAhLiQAcKmMcbI9qCmYhuxLsENA/QBRMs49sNorXfaZ1bChzsql2nbGqQlHQ9ZU O636GWWPHhGOPxvsJbpmMg== /in/edgar/work/20001101/0000950124-00-006366/0000950124-00-006366.txt : 20001106 0000950124-00-006366.hdr.sgml : 20001106 ACCESSION NUMBER: 0000950124-00-006366 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20001101 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MASCO CORP /DE/ CENTRAL INDEX KEY: 0000062996 STANDARD INDUSTRIAL CLASSIFICATION: [3430 ] IRS NUMBER: 381794485 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-05794 FILM NUMBER: 750985 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/A 1 k58107ae10-qa.txt FORM 10-Q/A 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 10-Q/A AMENDMENT NO. 1 TO FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended JUNE 30, 2000. [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from to 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) Registrant's Telephone Number, Including Area Code: (313) 274-7400 --------------------------- 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 (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), 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 AUGUST 1, 2000 ----- -------------- COMMON STOCK, PAR VALUE $1 PER SHARE 457,092,100
2 MASCO CORPORATION LIST OF ITEMS AMENDED
PAGE NO. -------- Part I. Financial Information Item 1. Financial Statements 1-11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 12-15 Unaudited Information Regarding Equity Investments for the Three Months and Six Months Ended June 30, 2000 and 1999 16
EXPLANATORY NOTE: Items 1 and 2 of the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000 are hereby amended by deleting the Items in their entirety and replacing them with the Items attached hereto and filed herewith. The purpose of this amendment is to provide expanded disclosure regarding the Company's business segments in the segment information note to the financial statements included in the financial statements that were included in Item 1 of the subject Form 10-Q as originally filed (the "Original Filing") and to make corresponding changes to Management's Discussion and Analysis of Financial Condition and Results of Operations that was included in Item 2 of the Original Filing. The Company recently filed a Registration Statement on Form S-3 under the Securities Act of 1933. In the course of processing the Registration Statement, the staff of the Securities and Exchange Commission furnished comments to the Company. Based on the staff's comments, the Company revised the Segment Information note to its financial statements included in its Annual Report on Form 10-K for the year ended December 31, 1999 and filed Form 10-K/A Amendment No. 1 in order to provide this expanded disclosure in the Segment Information note and to make corresponding changes to Management's Discussion and Analysis of Financial Condition and Results of Operations. This Form 10-Q/A is being filed to make corresponding changes to information contained in the Original Filing. The Company's Form 10-Q continues to speak as of the date of the Original Filing and the disclosure in that report has not been updated to speak to any later date. Any items in the Original Filing not expressly changed hereby shall be as set forth in the Original Filing. All information continued in this amendment and the Original Filing is subject to updating and supplementing as provided in the Company's periodic reports filed with the SEC subsequent to the date of such reports. 3 MASCO CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET JUNE 30, 2000 AND DECEMBER 31, 1999 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
JUNE 30, DECEMBER 31, ASSETS 2000 1999 ------ ---------- ------------ Current assets: Cash and cash investments $ 122,820 $ 230,780 Accounts and notes receivable, net 1,192,790 1,002,630 Prepaid expenses and other 114,810 106,500 Inventories: Raw material 340,650 307,060 Finished goods 398,440 290,440 Work in process 199,450 172,370 ---------- ---------- 938,540 769,870 ---------- ---------- Total current assets 2,368,960 2,109,780 Equity investment in MascoTech, Inc. 75,650 69,930 Equity investments in other affiliates 128,320 133,550 Securities of Furnishings International Inc. 527,010 481,270 Property and equipment, net 1,797,970 1,624,360 Acquired goodwill, net 2,172,580 1,742,930 Other noncurrent assets 680,040 473,100 ---------- ---------- Total assets $7,750,530 $6,634,920 ========== ========== LIABILITIES ----------- Current liabilities: Notes payable $ 890,220 $ 62,300 Accounts payable 269,840 243,810 Accrued liabilities 621,460 540,320 ---------- ---------- Total current liabilities 1,781,520 846,430 Long-term debt 2,346,730 2,431,270 Deferred income taxes and other 230,710 220,720 ---------- ---------- Total liabilities 4,358,960 3,498,420 ---------- ---------- SHAREHOLDERS' EQUITY -------------------- Common stock, par value $1 per share Authorized shares: 900,000,000 448,660 443,510 Preferred stock, par value $1 per share Authorized shares: 1,000,000 --- --- Paid-in capital 690,040 601,990 Retained earnings 2,403,250 2,151,520 Other comprehensive income (loss) (150,380) (60,520) ---------- ---------- Total shareholders' equity 3,391,570 3,136,500 ---------- ---------- Total liabilities and shareholders' equity $7,750,530 $6,634,920 ========== ==========
See notes to condensed consolidated financial statements. 1 4 MASCO CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ---------------------- ---------------------- 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Net sales $1,871,000 $1,567,000 $3,617,000 $2,958,000 Cost of sales 1,196,700 986,200 2,322,600 1,860,600 ---------- ---------- ---------- ---------- Gross profit 674,300 580,800 1,294,400 1,097,400 Selling, general and administrative expenses 357,100 304,500 694,500 578,000 Amortization of acquired goodwill 15,900 10,300 30,100 18,600 ---------- ---------- ---------- ---------- Operating profit 301,300 266,000 569,800 500,800 ---------- ---------- ---------- ---------- Other income (expense), net: Interest expense (47,700) (28,200) (86,500) (54,800) Equity earnings from MascoTech, Inc. 4,200 4,400 8,500 8,400 Other, net 36,600 36,700 78,600 67,800 ---------- ---------- ---------- ---------- (6,900) 12,900 600 21,400 ---------- ---------- ---------- ---------- Income before income taxes 294,400 278,900 570,400 522,200 Income taxes 109,000 104,800 211,000 196,200 ---------- ---------- ---------- ---------- Net income $ 185,400 $ 174,100 $ 359,400 $ 326,000 ========== ========== ========== ========== Earnings per share: Basic $ .42 $ .40 $ .82 $ .75 ===== ===== ===== ===== Diluted $ .41 $ .39 $ .80 $ .73 ===== ===== ===== ===== Cash dividends declared and paid per share $ .12 $ .11 $ .24 $ .22 ===== ===== ===== =====
See notes to condensed consolidated financial statements. 2 5 MASCO CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (DOLLARS IN THOUSANDS)
SIX MONTHS ENDED JUNE 30 ----------------------- 2000 1999 --------- --------- CASH FLOWS FROM (FOR) OPERATING ACTIVITIES: Cash provided by operations $ 360,580 $ 350,850 Increase in receivables (117,640) (145,430) Increase in inventories (110,400) (75,220) Increase in accounts payable and accrued liabilities, net 68,550 54,840 --------- --------- Total cash from operating activities 201,090 185,040 --------- --------- CASH FLOWS FROM (FOR) FINANCING ACTIVITIES: Increase in debt 841,010 168,640 Payment of debt (136,820) (43,460) Purchase of Company common stock (20,560) (106,760) Cash dividends paid (107,260) (74,460) --------- --------- Total cash from (for) financing activities 576,370 (56,040) --------- --------- CASH FLOWS FROM (FOR) INVESTING ACTIVITIES: Acquisition of companies, net of cash acquired (509,950) (405,360) Capital expenditures (169,840) (157,240) Investments in non-operating assets, net (160,600) (49,140) Other, net (45,030) 22,610 --------- --------- Total cash (for) investing activities (885,420) (589,130) --------- --------- CASH AND CASH INVESTMENTS: Decrease for the period (107,960) (460,130) At January 1 230,780 553,150 --------- --------- At June 30 $ 122,820 $ 93,020 ========= =========
See notes to condensed consolidated financial statements. 3 6 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 June 30, 2000 and the results of operations for the three months and six months ended June 30, 2000 and 1999 and changes in cash flows for the six months ended June 30, 2000 and 1999. The condensed consolidated balance sheet at December 31, 1999 was derived from audited financial statements. The three month and six month periods ended June 30, 1999 have been restated to include the results of transactions accounted for as poolings of interests during the third quarter of 1999. The consolidated financial statements include the accounts of Masco Corporation and all majority-owned subsidiaries. All significant intercompany transactions have been eliminated. Corporations that are 20 to 50 percent owned are accounted for by the equity method of accounting; ownership less than 20 percent is accounted for on the cost basis unless the Company exercises significant influence over the investee. Capital transactions by equity affiliates, which change the Company's ownership interest at amounts differing from the Company's carrying amount, are reflected in other income or expense and the investment in affiliates account. The Company generally recognizes revenue as products are shipped to customers or services are rendered, net of applicable provisions for discounts, returns and allowances. The Company provides for its estimate of potential bad debt and warranty expense at the time of sale. 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. Cost in inventory includes purchased parts, materials, direct labor and applied manufacturing overhead. The financial statements of the Company's foreign subsidiaries are measured using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at exchange rates as of the balance sheet date. Revenues and expenses are translated at average rates of exchange in effect during the year. The resulting cumulative translation adjustments have been recorded as a separate component of shareholders' equity. Realized foreign currency transaction gains and losses are included in consolidated net income. Additional accounting policy disclosures are set forth in the Notes to Consolidated Financial Statements included in Part II, Item 8 of the Company's Annual Report on Form 10-K for the year ended December 31, 1999. B. The following are reconciliations of the numerators and denominators used in the computations of basic and diluted earnings per share, in thousands:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 --------------------- --------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Numerator: Net income $185,400 $174,100 $359,400 $326,000 ======== ======== ======== ======== Denominator: Basic shares (based on weighted average) 441,500 433,400 440,400 435,000 Add: Contingently issued award shares 7,100 7,400 7,100 7,300 Stock option dilution 1,600 3,600 1,600 3,800 -------- -------- -------- -------- Diluted shares 450,200 444,400 449,100 446,100 ======== ======== ======== ========
4 7 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) C. During the second quarter of 2000, the Company acquired Masterchem Industries, Inc., a manufacturer and supplier of paint primer and paint primer-related products and several smaller companies. In the first quarter of 2000, the Company acquired Tvilum-Scanbirk A/S, a manufacturer of ready-to-assemble products including cabinetry, shelving, storage units and workstations, and a smaller company. The aggregate net purchase price of these purchase acquisitions, excluding assumed debt of approximately $70 million, was approximately $600 million and included approximately four million shares of Company common stock valued at approximately $90 million. Combined 1999 annual net sales of the above companies was approximately $400 million. D. During the third quarter of 2000, the Company reported that it is participating in a transaction in which an affiliate of Heartland Industrial Partners, L.P. has agreed to acquire all of the common shares of MascoTech, Inc., an 18 percent owned affiliate of the Company. As part of the transaction, the Company would receive cash, preferred stock, an approximate ten percent minority interest in the new entity and a reduction from $200 million to $100 million in MascoTech's option to issue subordinated debt securities to the Company. A special committee of the Company's Board of Directors was advised by Merrill Lynch & Company and special legal counsel in the committee's negotiation of the Company's participation in this transaction. If the transaction is completed in the fourth quarter of 2000, as anticipated, the Company is expected to report a relatively modest after-tax gain from the sale. E. Other income (expense), net consists of the following, in thousands:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 -------------------- -------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Interest expense $(47,700) $(28,200) $(86,500) $(54,800) Equity earnings from MascoTech, Inc. 4,200 4,400 8,500 8,400 Equity earnings, other 700 2,300 1,700 3,900 Income from cash and cash investments 800 1,200 2,200 6,500 Other interest income 14,900 12,800 29,000 25,600 Other, net 20,200 20,400 45,700 31,800 -------- -------- -------- -------- $ (6,900) $ 12,900 $ 600 $ 21,400 ======== ======== ======== ========
Included in other interest income for the three months and six months ended June 30, 2000 and 1999 is interest income of approximately $12.8 million and $25.6 million, and approximately $11.3 million and $22.6 million, respectively, from the 12% pay-in-kind junior debt securities of Furnishings International Inc. (approximately $424 million principal amount at December 31, 1999). Other, net for the three month and six month periods ended June 30, 2000 and June 30, 1999 results primarily from income and gains, net regarding certain non-operating assets. 5 8 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) F. The following table presents information about the Company by segment and geographic area, in millions.
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30 ------------------------------------ ------------------------------------ 2000 1999 2000 1999 2000 1999 2000 1999 ------------------------------------ ------------------------------------ Net Sales (1) Operating Profit(2) Net Sales (1) Operating Profit(2) ------------------------------------ ------------------------------------ The Company's operations by segment were: Plumbing Products $ 489 $ 433 $ 94 $ 93 $ 962 $ 894 $ 186 $ 203 Cabinets and Related Products 655 567 101 93 1,286 1,061 188 171 Decorative Architectural Products 377 321 79 62 684 560 143 99 Insulation Installation and Other Services 199 118 28 19 382 190 53 29 Other Specialty Products 151 128 25 21 303 253 50 43 ------ ------ ------ ------ ------ ------ ------ ------ Total $1,871 $1,567 $ 327 $ 288 $3,617 $2,958 $ 620 $ 545 ====== ====== ====== ====== ====== ====== ====== ====== The Company's operations by geographic area were: North America $1,532 $1,296 $ 282 $ 254 $2,946 $2,461 $ 533 $ 480 International, principally Europe 339 271 45 34 671 497 87 65 ------ ------ ------ ------ ------ ------ ------ ------ Total, as above $1,871 $1,567 327 288 $3,617 $2,958 620 545 ====== ====== ====== ====== General corporate expense, net (25) (22) (50) (44) ------ ------ ------ ------ Operating profit, after general corporate expense 302 266 570 501 Other income (expense), net (7) 13 1 21 ------ ------ ------ ------ Income before income taxes $ 295 $ 279 $ 571 $ 522 ====== ====== ====== ======
(1) Inter-company sales among segments were not material. (2) Operating profit shown is after reduction for amortization of acquired goodwill. 6 9 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) G. The Company's total comprehensive income was as follows, in thousands:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ------------------ ------------------ 2000 1999 2000 1999 -------- -------- -------- -------- Net income $185,400 $174,100 $359,400 $326,000 Other comprehensive (loss) (70,710) (25,460) (89,860) (49,970) -------- -------- -------- --------- Total comprehensive income $114,690 $148,640 $269,540 $276,030 ======== ======== ======== ========
H. The Company is subject to lawsuits and claims pending or asserted with respect to matters arising in the ordinary course of business. A civil suit is pending in Superior Court in the State of Washington against Behr Process Corporation, a wholly owned subsidiary of the Company. The case involves four exterior wood coating products, which represent a relatively small part of Behr's total sales. The plaintiffs allege, among other things, that after applying these products, the wood surfaces suffered excessive mildewing in the unique humid climate of western Washington. The trial court has conditionally certified the case as a class action, including in this case all purchasers of the products who reside in nineteen counties in western Washington. Behr denies the allegations. Although Behr believes that the subject products have been purchased by thousands of consumers in western Washington, consumer complaints in the past have been relatively small compared to the total volume of products sold. In May 2000, the court entered a default against Behr as a discovery sanction. Thereafter, the jury returned a verdict awarding damages to the named plaintiffs. The damages awarded for the eight homeowner claims (excluding one award to the owners of a vacation resort) ranged individually from $14,500 to $38,000. The awards were calculated using a formula based on the product used, the nature and square footage of wood surface and certain other allowances. Under the verdict, the same formula will be used for calculating awards on claims that may be submitted by the subject purchasers of these products. In July 2000, the court awarded additional damages of $10,000 per claim to the eight homeowner claims, under the Washington Consumer Protection Act. This increased the total damages awarded on the homeowner claims to approximately $263,000. The court denied the plaintiffs' request for an award of additional damages on claims that may be submitted by other class members. In addition, the court granted the plaintiffs' motion for attorneys' fees. At this time, the Company is not in a position to estimate reliably the number of class members, the number of claims that may be filed or the awards that class members may seek. Although Behr is not able to estimate the amount of any potential liability, Behr believes that there have been numerous rulings by the trial court that constitute reversible error and that there are valid defenses to the lawsuit. Behr believes that there are substantial grounds for reversal and will appeal this verdict. 7 10 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note H - Concluded: Behr has recently received a letter from a consumer, on behalf of himself and all others similarly situated, alleging that Behr has violated the California Consumer Legal Remedies Act in the sale of exterior wood coating products. The letter requested that Behr pay all costs required to repair or replace the wood surfaces of individuals in the United States on which the products have been applied, and that Behr disgorge all of the profits received from the sale of the products. The consumer subsequently filed a complaint with another consumer in the San Joachin County, California Superior Court. In addition, Behr and the Company were recently served with complaints filed by two consumers in the Solano County and San Mateo County, California Superior Courts, and by a consumer in the Mobile County, Alabama Circuit Court. All of the complaints contain similar allegations regarding some of Behr's exterior wood coating products. The California complaints seek nationwide class action certification. The Alabama complaint seeks class action certification for consumers in Alabama, Florida, Georgia and Texas. The Company is investigating the allegations in the complaints and believes that there are substantial grounds for denial of class certification and that there are substantial defenses to the claims. I. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin Number 101, "Revenue Recognition in Financial Statements" (SAB 101). The guidelines in SAB 101 must be adopted during the fourth quarter of 2000. The Company is evaluating the effect, if any, that such an adoption may have on its financial position and results of operations. 8 11 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) J. The following presents the combined unaudited financial statements of the Company and MascoTech, Inc. as one entity with Masco Corporation as the parent company. Intercompany transactions have been eliminated. Amounts, except per share data, are in thousands. COMBINED BALANCE SHEET
JUNE 30, DECEMBER 31, ASSETS 2000 1999 ---------- ---------- Current assets: Cash and cash investments $ 125,660 $ 235,270 Receivables 1,401,780 1,221,590 Prepaid expenses and other 157,750 169,570 Inventories: Raw material 388,640 358,480 Finished goods 477,690 376,680 Work in process 249,660 218,310 ---------- ---------- 1,115,990 953,470 ---------- ---------- Total current assets 2,801,180 2,579,900 Equity investments in affiliates 244,510 244,280 Securities of Furnishings International Inc. 527,010 481,270 Property and equipment, net 2,535,300 2,347,040 Acquired goodwill, net 2,952,210 2,519,530 Other noncurrent assets 719,020 511,510 ---------- ---------- Total assets $9,779,230 $8,683,530 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable $ 892,610 $ 62,300 Accounts payable 389,870 358,300 Accrued liabilities 736,170 654,230 ---------- ---------- Total current liabilities 2,018,650 1,074,830 Long-term debt 3,630,510 3,804,160 Deferred income taxes and other 461,490 420,320 Other interests in combined affiliates 277,010 247,720 Equity of shareholders of Masco Corporation 3,391,570 3,136,500 ---------- ---------- Total liabilities and shareholders' equity $9,779,230 $8,683,530 ========== ==========
9 12 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note J - Continued:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 ---------------------- ---------------------- COMBINED STATEMENT OF INCOME 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Net sales $2,312,060 $2,000,700 $4,516,160 $3,837,360 ---------- ---------- ---------- ---------- Costs and expenses, net: Cost of sales 1,523,680 1,306,210 2,988,280 2,510,250 ---------- ---------- ---------- ---------- Selling, general and administrative expenses 429,990 371,020 837,760 699,960 ---------- ---------- ---------- ---------- Other income (expense), net: Interest expense (69,670) (48,520) (130,280) (96,070) Other income, net 44,730 38,230 87,990 68,140 ---------- ---------- ---------- ---------- (24,940) (10,290) (42,290) (27,930) ---------- ---------- ---------- ---------- 1,978,610 1,687,520 3,868,330 3,238,140 ---------- ---------- ---------- ---------- Income before income taxes and other interests 333,450 313,180 647,830 599,220 Income taxes 126,450 117,530 245,530 231,890 ---------- ---------- ---------- --------- Income before other interests 207,000 195,650 402,300 367,330 Other interests in combined affiliates 21,600 21,550 42,900 41,330 ---------- ---------- ---------- ---------- Net income $ 185,400 $ 174,100 $ 359,400 $ 326,000 ========== ========== ========== ========== Earnings per share: Basic $ .42 $ .40 $ .82 $ .75 ===== ===== ===== ===== Diluted $ .41 $ .39 $ .80 $ .73 ===== ===== ===== ===== Cash dividends declared and paid per share: $ .12 $ .11 $ .24 $ .22 ===== ===== ===== =====
10 13 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED) Note J - Concluded:
SIX MONTHS ENDED JUNE 30 ---------------------- COMBINED STATEMENT OF CASH FLOWS 2000 1999 --------- --------- CASH FLOWS FROM (FOR) OPERATING ACTIVITIES: Cash provided by operations $ 462,630 $ 452,580 Increase in receivables (154,500) (184,260) Increase in inventories (101,270) (64,240) Increase in accounts payable and accrued liabilities, net 99,200 65,510 --------- --------- Total cash from operating activities 306,060 269,590 --------- --------- CASH FLOWS FROM (FOR) FINANCING ACTIVITIES: Increase in debt 881,470 172,900 Payment of debt (270,770) (122,460) Purchase of Company common stock (20,560) (123,040) Cash dividends paid (113,120) (80,210) Other, net 10,790 (6,720) --------- --------- Total cash from (for) financing activities 487,810 (159,530) --------- --------- CASH FLOWS FROM (FOR) INVESTING ACTIVITIES: Acquisition of companies, net of cash acquired (531,040) (405,360) Capital expenditures (223,810) (229,570) Investments in non-operating assets, net (160,600) (49,140) Other, net 11,970 118,480 --------- --------- Total cash (for) investing activities (903,480) (565,590) --------- --------- CASH AND CASH INVESTMENTS: Decrease for the period (109,610) (455,530) At January 1 235,270 582,540 --------- --------- At June 30 $ 125,660 $ 127,010 ========= =========
11 14 MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECOND QUARTER 2000 AND THE FIRST SIX MONTHS 2000 VERSUS SECOND QUARTER 1999 AND THE FIRST SIX MONTHS 1999 Management's discussion and analysis of financial condition and results of operations pertaining to the three months and six months ended June 30, 1999 has been restated for transactions accounted for as poolings of interests during the third quarter of 1999. SALES AND OPERATIONS The following tables set forth the Company's net sales information by segment and geographic area, in millions:
PERCENT INCREASE (DECREASE) THREE MONTHS ENDED ------------------- JUNE 30, 2000 VS. 2000 VS. 2000 1999 1999 1999(A) ------------------ ---------- -------- NET SALES: Plumbing Products $ 489 $ 433 13% 8% Cabinets and Related Products 655 567 16% 6% Decorative Architectural Products 377 321 17% 13% Insulation Installation and Other Services 199 118 69% 30% Other Specialty Products 151 128 18% (5%) ------ ------ TOTAL $1,871 $1,567 19% 8% ====== ====== North America $1,532 $1,296 18% 10% International, principally Europe 339 271 25% (4%) ------ ------ TOTAL, AS ABOVE $1,871 $1,567 19% 8% ====== ====== SIX MONTHS ENDED JUNE 30, 2000 1999 ---------------- NET SALES: Plumbing Products $ 962 $ 894 8% 5% Cabinets and Related Products 1,286 1,061 21% 9% Decorative Architectural Products 684 560 22% 15% Insulation Installation and Other Services 382 190 101% 36% Other Specialty Products 303 253 20% (5%) ------ ------ TOTAL $3,617 $2,958 22% 9% ====== ====== North America $2,946 $2,461 20% 11% International, principally Europe 671 497 35% (3%) ------ ------ TOTAL, AS ABOVE $3,617 $2,958 22% 9% ====== ======
(A) Percent change in sales excluding purchase acquisitions Net sales for the three month and six month periods ended June 30, 2000 increased 19 percent and 22 percent, respectively, from the comparable periods in 1999. Excluding purchase acquisitions, net sales increased 8 percent and 9 percent for the three month and six month periods ended June 30, 2000, respectively, over the comparable periods of the prior year. Changes in net sales in the following discussion exclude the influence of purchase acquisitions. Net sales of Plumbing Products for the three months and six months ended June 30, 2000 increased 8 percent and 5 percent, respectively, and net sales of Cabinets and Related Products increased 6 percent and 9 percent, respectively, from the comparable periods of the prior year. These increases include higher unit sales volume of cabinets and faucets offset in part by the negative influence of a stronger U.S. dollar, which affected the translation of European operations included in these segments. Decorative Architectural Products sales for the three months and six months ended June 30, 2000 increased 13 percent and 15 percent, respectively, from the comparable periods of the prior year due largely to higher unit sales volume of these products. Sales of the Company's Insulation Installation and Other Services segment for the three months and six months ended June 30, 2000 increased 30 percent and 36 percent, respectively, from the comparable periods of the prior year due to higher installation sales of and higher prices for fiberglass insulation and broader geographic U.S. market penetration. Other Specialty Products sales for both the three month and six month periods ended June 30, 2000 decreased 5 percent from the comparable periods of the prior year. These decreases principally include the negative influence of a stronger U.S. dollar, which affected the translation of European operations included in this segment. Net sales from North American operations for the three months and six months ended June 30, 2000 increased 10 percent and 11 percent, respectively, from the comparable periods in 1999. Net sales from International operations for the three months and six months ended June 30, 2000 decreased approximately 4 percent and 3 percent, respectively, when compared with the comparable periods in 1999. A stronger U.S. dollar, principally against the German deutsche mark, had an unfavorable effect on the translation of International sales in the three month and six month periods ended June 30, 2000 as compared with the three month and six month periods of 1999; the Company anticipates that unfavorable foreign currency translation effects may continue for the balance of the year. Net sales from International operations for both the three month and six month periods ended June 30, 2000, in local currencies, increased by approximately 6 percent. Cost of sales as a percentage of sales increased to 64.0 percent and 64.2 percent for the three months and six months ended June 30, 2000, respectively, from 62.9 percent for both of the comparable periods in 1999. The increase in cost of sales as a percentage of sales includes the under-absorption of costs related to a slower than anticipated new product launch, plant start-up and relocation costs and a less favorable product mix. Excluding amortization of acquired goodwill ($15.9 million and $30.1 million for the three months and six months ended June 30, 2000, respectively), selling, general and administrative expenses as a percentage of sales for the three months and six months ended June 30, 2000, respectively, decreased to 19.1 percent and 19.2 percent from 19.4 percent and 19.5 percent for the comparable periods in 1999. The Company's cost- containment initiatives including the leveraging of fixed costs over a higher sales base contributed to the decrease in selling, general and administrative expenses as a percentage of sales. 12 15 MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company's operating profit margins, before general corporate expense and goodwill amortization, were 18.3 percent and 18.0 percent for the three months and six months ended June 30, 2000, respectively, as compared with 19.0 percent for both of the comparable periods in 1999. Operating profit margins, after general corporate expense and goodwill amortization, were 16.1 percent and 15.8 percent for the three months and six months ended June 30, 2000, respectively, as compared with 17.0 percent and 16.9 percent for the comparable periods in 1999. The Company's operating profit margin decreased in the three months and six months ended June 30, 2000, respectively, as compared with the comparable periods in 1999, due principally to higher cost of sales and higher goodwill amortization as a percentage of sales. OTHER INCOME (EXPENSE), NET Equity earnings from MascoTech, Inc. for the three months and six months ended June 30, 2000, respectively, were $4.2 million and $8.5 million as compared with equity earnings from MascoTech of $4.4 million and $8.4 million for the comparable periods of 1999. Included in other interest income for the three months and six months ended June 30, 2000 and 1999 is $12.8 million and $25.6 million, and $11.3 million and $22.6 million, respectively, of interest income from the 12% pay-in-kind junior debt securities of Furnishings International Inc. (approximately $424 million at December 31, 1999). Other, net for the three month and six month periods ended June 30, 2000 and June 30, 1999 results primarily from income and gains, net regarding certain nonoperating assets. Interest expense for the three months and six months ended June 30, 2000 was $47.7 million and $86.5 million, respectively, as compared with $28.2 million and $54.8 million for the comparable periods of 1999. The year 2000 increases primarily relate to borrowings for recent acquisitions. NET INCOME AND EARNINGS PER SHARE Net income for the second quarter of 2000 increased 6 percent to $185.4 million from $174.1 million in the comparable 1999 period. Diluted earnings per share for the second quarter of 2000 increased 5 percent to $.41 from $.39 for the comparable period of 1999. Net income for the six months ended June 30, 2000 increased 10 percent to $359.4 million from $326.0 million in the comparable 1999 period. Diluted earnings per share for the six months ended June 30, 2000 also increased 10 percent to $.80 from $.73 for the comparable period of 1999. OTHER FINANCIAL INFORMATION The Company's current ratio was 1.3 to 1 at June 30, 2000, and was negatively influenced by recent short-term acquisition-related borrowings; such ratio was 2.5 to 1 at December 31, 1999. The Company intends to refinance certain short-term borrowings with long-term borrowings. 13 16 MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the six months ended June 30, 2000, cash of $201.1 million was provided by operating activities. Cash provided by financing activities was $576.4 million, including $841.0 million from an increase in bank debt largely for acquisitions. Cash used for financing activities included $136.8 million for the payment of debt, $20.6 million for the purchase of Company common stock, and $107.3 million for cash dividends paid. Cash used for investing activities was $885.4 million, including $510.0 million for acquisitions, $169.8 million for capital expenditures, $160.6 million for investments in non-operating assets and $45.0 million for other cash outflows. The aggregate of the preceding items represents a net cash outflow of $108.0 million. Changes in working capital and debt as indicated on the statement of cash flows exclude the working capital and debt of acquired companies at the time of acquisition. First and second quarter 2000 cash from operations was affected by an expected and annually recurring seasonal first-half increase in accounts receivable (although there was no significant increase in receivable days). Most of the annual increase in accounts receivable resulting from sales increases is typically experienced in the first half of the year. During April 2000, the Company's Board of Directors authorized the repurchase of up to 40 million shares of its common stock in open-market transactions or otherwise. The Company has on file with the Securities and Exchange Commission ("SEC"), an unallocated shelf registration pursuant to which the Company is able to issue up to a combined $109 million of debt and equity securities. The Company filed a shelf registration statement with the SEC during the second quarter of 2000 to authorize the issuance of additional debt and equity securities; such registration statement has not yet become effective. The Company is subject to lawsuits and claims pending or asserted with respect to matters generally arising in the ordinary course of business. Note H of the Consolidated Financial Statements discusses specific claims pending against the Company and its subsidiary, Behr Process Corporation, with respect to several of Behr's exterior wood coating products. The Company believes that its present cash balance, its cash flows from operations and, to the extent necessary, bank borrowings and future financial market activities, are sufficient to fund its working capital and other investment needs. OUTLOOK FOR THE COMPANY The Company experienced a modest softening of incoming orders for home improvement products during the second quarter of 2000. This slowdown combined with continuing new product launch and plant relocation costs resulted in a reduction of the Company's earnings for the three month and six month periods ended June 30, 2000. Although the Company continues to expect increases in sales and earnings for the calendar year 2000 compared with 1999, if present trends continue for the balance of the year, the Company believes that its sales growth in the calendar year 2000 may be slightly lower than the previously anticipated sales increase of approximately 20 percent. The Company anticipates that the slightly lower sales increase combined with the impact of higher interest rates, a stronger U.S. dollar and the above-mentioned other costs will lower the previously anticipated increase in the Company's earnings for the calendar year 2000 compared with 1999. 14 17 MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OTHER MATTERS MascoTech, Inc. Transaction During the third quarter of 2000 the Company reported that it is participating in a transaction in which an affiliate of Heartland Industrial Partners, L.P. has agreed to acquire all of the common shares of MascoTech, Inc., an 18 percent owned affiliate of the Company. As part of the transaction, the Company would receive cash, preferred stock, an approximate ten percent minority interest in the new entity and a reduction from $200 million to $100 million in MascoTech's option to issue subordinated debt securities to the Company. A special committee of the Company's Board of Directors was advised by both Merrill Lynch & Company and special legal counsel in the committee's negotiation of the Company's participation in this transaction. If the transaction is completed in the fourth quarter of 2000, as anticipated, the Company is expected to report a relatively modest after-tax gain from the sale. Executive Stock Program During the third quarter of 2000, approximately 300 of the Company's key employees purchased from the Company 8.4 million shares of Company common stock totaling $156.0 million under a recently adopted Executive Stock Purchase Program ("Program"). The stock was purchased for cash at $18.50 per share, the approximate market price of the common stock at the time of purchase. The Program was made available worldwide to the Company's senior divisional and corporate management members. Participants in the Program financed their purchases with five-year full recourse personal loans, at a market interest rate, from a bank syndicate arranged by Bank One Capital Markets and syndicated by Bank One, N.A. Each participant is fully responsible at all times for repaying their bank loans when they become due and is personally responsible for 100 percent of any loss in the market value of the purchased stock. The Company has guaranteed repayment of the loans only in the event of a default by the participant. In order to subsidize the effective interest rate on the participants' loan and as a further inducement for continued employment beyond the end of this five-year Program, each participant received, as part of the Program, a restricted stock grant vesting over a ten-year period. All of these key employees, in order to participate in this Program, were also required to sign a one-year non-competition agreement for the Company businesses which employ them. The Executive Stock Purchase Program is a voluntary plan designed to increase at-risk stock ownership on the part of senior management, and thereby further align the Company's management team with the interests of its shareholders. European Currency Transition The Company is currently completing changes to existing systems to facilitate a smooth transition to the new single currency called the euro, introduced in Europe on January 1, 1999. The Company believes that conversion to the euro will not have a material effect on the Company's financial position or results of operations. 15 18 MASCO CORPORATION UNAUDITED INFORMATION REGARDING EQUITY INVESTMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999 Equity investments in affiliates consist primarily of the following approximate common stock and partnership interests at June 30:
2000 1999 ---- ---- Emco Limited, a Canadian company 42% 42% MascoTech, Inc. 18% 17% Hans Grohe, a German partnership 27% 27%
The following presents condensed financial data of MascoTech, Inc. Amounts are in thousands.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 -------------------- -------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Net Sales $442,310 $436,510 $901,710 $885,170 ======== ======== ======== ======== Gross Profit $114,080 $113,690 $233,480 $229,710 ======== ======== ======== ======== Net Income $ 26,180 $ 26,110 $ 52,000 $ 49,970 ======== ======== ======== ========
16 19 MASCO CORPORATION SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this amendment to be signed on its behalf by the undersigned thereunto duly authorized. MASCO CORPORATION (Registrant) DATE: November 1, 2000 BY: /s/ Richard G. Mosteller ----------------------- ------------------------------------- Richard G. Mosteller Senior Vice-President - Finance (Chief Financial Officer and Authorized Signatory) 17 -----END PRIVACY-ENHANCED MESSAGE-----