-----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, Ax0Q4nycCHGyJHPxVVy12BDDf7L+y3EB7gi8wx0BMbKjBkxJ3IJOGEI9SZsPT92G 0GS6AdD18yGtBK9b05CZpw== /in/edgar/work/20001101/0000950124-00-006371/0000950124-00-006371.txt : 20001106 0000950124-00-006371.hdr.sgml : 20001106 ACCESSION NUMBER: 0000950124-00-006371 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 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-K/A SEC ACT: SEC FILE NUMBER: 001-05794 FILM NUMBER: 751065 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-K/A 1 k58059e10-ka.txt AMENDMENT TO FORM 10-K 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K/A AMENDMENT NO. 1 TO FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 1999 [ ] 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 (I.R.S. Employer Identification No.) of Incorporation or Organization) 21001 VAN BORN ROAD, TAYLOR, MICHIGAN 48180 (Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 313-274-7400 Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, $1.00 par value New York Stock Exchange, Inc. Series A Participating Cumulative Preferred Stock Purchase Rights New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant on March 15, 2000 (based on the closing sale price of $19 5/16 of the Registrant's Common Stock as reported on the New York Stock Exchange Composite Tape on such date) was approximately $8,447,786,200. Number of shares outstanding of the Registrant's Common Stock at March 15, 2000: 447,382,000 shares of Common Stock, par value $1.00 per share Portions of the Registrant's definitive Proxy Statement filed for its 2000 Annual Meeting of Stockholders are incorporated by reference into Part III of Registrant's Annual Report on Form 10-K. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 LIST OF ITEMS AMENDED
PAGE ---- PART II Management's Discussion and Analysis of Financial Condition 7. and Results of Operations................................... 1 8. Financial Statements and Supplementary Data................. 11 PART IV Exhibits, Financial Statement Schedules, and Reports on Form 14. 8-K......................................................... 35
EXPLANATORY NOTE: Items 7 and 8 of the Company's Annual Report on Form 10-K for the year ended December 31, 1999 are hereby amended by deleting the Items in their entirety and replacing them with the Items attached hereto and filed herewith. Item 14 is hereby amended by replacing the specified portions indicated herein. 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 and Supplementary Data that were included in Item 8 of the subject Form 10-K 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 7 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 and is filing this 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. The Company's Form 10-K 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 contained 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 PART II ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The financial and business analysis below provides information which the Company believes is relevant to an assessment and understanding of the Company's consolidated financial position and results of operations. This financial and business analysis should be read in conjunction with the consolidated financial statements and related notes. The financial and business analysis for prior years has been restated to include the accounts and operations of transactions accounted for as poolings of interests ("pooled companies"). See Corporate Development section below. The following discussion and certain other sections of this report on Form 10-K may contain statements reflecting the Company's views about its future performance and constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. These views may involve risks and uncertainties that are difficult to predict and may cause the Company's actual results to differ materially from the results discussed in such forward-looking statements. Readers should consider that various factors, including changes in general economic conditions, nature of competition, relationships with key customers, industry consolidation, influence of e-commerce and other factors discussed in the "Overview" and "Outlook for the Company" sections below may affect the Company's ability to attain the projected performance. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. OVERVIEW The Company is engaged principally in the manufacture and sale of home improvement and building products. These products are sold to the home improvement and home construction markets through mass merchandisers, hardware stores, home centers, distributors and other outlets for consumers and contractors. The Company also supplies and installs insulation and other building products directly to builders and consumers and performs repair and restoration of residential, commercial and institutional facilities damaged by fire, wind, water and other disasters. Factors that affect the Company's results of operations include the levels of home improvement and residential construction activity principally in the U.S. and Europe (including repair and remodeling and new construction), cost management, fluctuations in European currencies (primarily the euro and British pound), the increasing importance of home centers as distributors of home improvement and building products and the Company's ability to maintain its leadership positions in its markets in the face of increasing global competition. Historically, the Company has been able to largely offset cyclical declines in housing markets through new product introductions and acquisitions as well as market share gains. CORPORATE DEVELOPMENT Mergers and acquisitions have historically contributed significantly to Masco's long-term growth, even though generally the initial impact on earnings is minimal after deducting transaction-related costs and expenses such as interest and added depreciation and amortization. The important earnings benefit to Masco arises from subsequent growth of such companies, since incremental sales are not impacted by these expenses. Pooling-of-Interests Transactions: During the third quarter of 1999, the Company completed mergers with Behr Process Corporation, a manufacturer of premium architectural coatings; Mill's Pride, L.L.P., a manufacturer of ready-to-assemble and assembled kitchen and bath cabinetry, bath vanities, home office workstations and entertainment centers, storage products, bookcases and kitchen utility products; and a smaller company. The Company issued approximately 104 million shares of common stock in exchange for all of the outstanding shares of these companies. The transactions have been accounted for as poolings of interests and, accordingly, the consolidated financial statements and related shares and per share data for all prior periods presented have been restated to include the accounts and operations of the pooled companies. The Company's net sales and net 1 4 income prior to these poolings for the first six months of 1999 (unaudited) were $2,416 million and $262.9 million, respectively, and for the years 1998 and 1997 were $4,345 million and $476.0 million and $3,760 million and $382.4 million, respectively. Purchase Acquisitions: During the third quarter of 1999, the Company acquired Arrow Fastener Company, a manufacturer of manual and electric staple gun tackers and staples and other fastening tools; H&H Tube, a manufacturer of brass, copper, steel and aluminum tubes; and Superia Radiatoren N.V., a Belgian-based manufacturer of standard plate radiators. The Company also acquired INRECON, L.L.C., a company specializing in repair and restoration of residential, commercial and institutional facilities damaged by fire, wind, water and other disasters. During the second quarter of 1999, the Company acquired Avocet Hardware PLC, a U.K. supplier of locks and other builders' hardware; The Cary Group, an insulation services company; and The GMU Group, a manufacturer and distributor of kitchen cabinets and cabinet components, headquartered in Spain. In the first quarter of 1999, the Company acquired A&J Gummers, a U.K. manufacturer of shower valve products, and The Faucet Queens, Inc., a supplier of plumbing accessories and hardware products. The aggregate net purchase price for these 1999 purchase acquisitions was approximately $850 million, including 1.6 million shares of Company common stock valued at $48 million. The excess of the aggregate acquisition costs for these purchase acquisitions over the calculated fair value of net assets acquired totaled approximately $680 million and has been recorded as acquired goodwill. Purchase agreements for certain of the 1999 purchase acquisitions include provisions for additional consideration to be paid if the acquired business achieves specific operating results in future periods, ranging from one to five years. Such additional consideration, when earned, is recorded as additional purchase price. The results of operations for these 1999 purchase acquisitions are included in the consolidated financial statements from the dates of acquisition. Had these companies been acquired effective January 1, 1998, pro forma unaudited consolidated net sales and net income would have approximated $6,537 million and $579 million for 1999 and $5,889 million and $590 million for 1998, respectively, and pro forma unaudited consolidated diluted earnings per share would have increased approximately $.02 for 1999 and $.05 for 1998. SECURITIES OF FURNISHINGS INTERNATIONAL INC. In late November 1995, the Company's Board of Directors approved a formal plan to dispose of the Company's home furnishings products segment. During August 1996, the Company completed the sale of its home furnishings products segment to Furnishings International Inc. Total proceeds to the Company from the sale were $1,050 million, with approximately $708 million of the purchase price in cash. The balance consisted of $285 million of 12% pay-in-kind junior debt securities, and equity securities totaling $57 million, consisting of 13% cumulative preferred stock, with a stated value of $55 million, 15 percent of the common stock of Furnishings International and convertible preferred stock. The junior debt securities mature in 2008 and are stated at face value; the Company is recording the 12% pay-in-kind interest income from these securities. The Company records dividend income from the 13% cumulative preferred stock when such dividends are declared. The convertible preferred stock represents transferable rights for up to a 25 percent common ownership, although the Company is restricted from maintaining an ownership in excess of 20 percent of Furnishings International's common equity. As such, the Company will not acquire additional common equity, except for purposes of resale. PROFIT MARGINS The percentage of operating profit on the Company's faucet sales is somewhat higher than that on most other products offered by the Company. The Company believes that the quality, styling, reliability of and available finishes for its faucets, manufacturing efficiencies and capabilities, its marketing and merchandising 2 5 activities, and the development of a broad line of products have accounted for the continued strength of its faucet sales. Net income as a percentage of sales was 9.0 percent in 1999 as compared with 10.7 percent and 9.9 percent in 1998 and 1997, respectively. After-tax return on shareholders' equity as measured by net income was 20.5 percent in 1999 as compared with 25.4 percent in 1998. Net income as a percentage of sales and after-tax profit return on shareholders' equity for 1999 were negatively affected by unusual third quarter after-tax expense, principally related to transactions accounted for as poolings of interests. FINANCIAL CONDITION Over the years, the Company has largely funded its growth through cash provided by a combination of operations and long-term bank and other borrowings, and by the issuance of common stock for certain acquisitions. Bank credit lines are maintained to ensure availability of short-term funds. At December 31, 1999, the Company had fully utilized its $750 million bank revolving-credit facility, principally to finance recent purchase acquisitions. Outstanding balances under this facility are due and payable in November 2001. During 1999, the Company entered into a $400 million 364-day credit facility. There was no outstanding balance due under this credit facility at December 31, 1999. Subsequent to December 31, 1999, the Company amended and restated this credit facility, increasing the amount of such facility to $1 billion and extending the maturity to March 2001. Certain debt agreements contain limitations on additional borrowings and a requirement for maintaining a certain level of net worth. At December 31, 1999, the Company was in compliance with these borrowing limitations, and the Company's net worth exceeded that requirement by approximately $806 million. During 1999, the Company increased its quarterly dividend nine percent to $.12 per share. This marks the 41st consecutive year in which dividends have been increased. Although the Company is aware of the greater interest in yield by many investors and has maintained an increased dividend payout in recent years, the Company continues to believe that its shareholders' long-term interests are best served by investing a significant portion of its earnings in the future growth of the Company. Maintaining high levels of liquidity and cash flow are among the Company's financial strategies. The Company's total debt as a percent of total capitalization increased to 44 percent at December 31, 1999 from approximately 41 percent at December 31, 1998 due principally to borrowings for purchase acquisitions. The relatively high cash flow of acquired companies should help the Company to reduce its total debt to total capitalization ratio. The Company's working capital ratio was 2.5 to 1 at December 31, 1999 compared with 2.1 to 1 at December 31, 1998; excluding $200 million of 6.625% notes, which matured September 15, 1999, the Company's working capital ratio was 2.4 to 1 at December 31, 1998. 3 6 CASH FLOWS Significant sources and uses of cash in the past three years are summarized as follows, in thousands: CASH SOURCES (USES)
1999 1998 1997 --------- --------- --------- Net cash from operating activities........... $ 490,610 $ 537,670 $ 470,220 Acquisitions of companies, net of cash acquired................................... (794,950) (322,880) (186,920) Cash proceeds from sale of subsidiary and TriMas investment.......................... -- 137,640 -- Capital expenditures......................... (350,850) (243,380) (215,190) Increases in debt, net....................... 578,990 315,740 262,270 Purchase of Company common stock for: Treasury................................... (99,600) (43,330) -- Long-term stock incentive award plan....... (6,840) (46,800) (29,110) Cash dividends paid.......................... (164,990) (145,290) (131,680) Capital contributions from shareholders of pooled companies........................... 11,490 1,520 245,450 Distributions to shareholders of pooled companies.................................. -- (45,950) (536,060) Other, net................................... 13,770 (42,440) 60,100 --------- --------- --------- Cash increase (decrease)........... $(322,370) $ 102,500 $ (60,920) ========= ========= =========
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES Cash from operating activities was $490.6 million in 1999 as compared with $537.7 million in 1998 and $470.2 million in 1997. During 1999, the Company's accounts receivable and inventories increased in total by $202.4 million and $122.9 million, respectively, primarily as a result of acquisitions, higher actual sales volume and higher anticipated sales volume. As compared with the average manufacturing company, the Company maintains a higher investment in inventories, which relates to the Company's business strategies of providing better customer service, establishing efficient production scheduling and benefiting from larger, more cost-effective purchasing. CASH FLOWS FROM (FOR) INVESTING ACTIVITIES Cash used for investing activities was $1,132.0 million in 1999, $471.1 million in 1998 and $342.0 million in 1997. Cash used for investing activities in 1999 included $795.0 million for 1999 purchase acquisitions. Such purchase acquisitions are set forth in the Note to the Company's Consolidated Financial Statements captioned "Purchase Acquisitions." Investing activities for 1998 and 1997 included cash for purchase acquisitions of $322.9 million and $186.9 million, respectively. Capital expenditures totaled $350.9 million in 1999 as compared with $243.4 million in 1998 and $215.2 million in 1997. These amounts primarily pertain to expenditures for additional facilities related to increased demand for existing products as well as for new products. The Company also continues to invest in automating its manufacturing operations and increasing its productivity, in order to be a more efficient producer and to improve customer service. The Company expects capital expenditures for 2000, excluding those of any 2000 acquisitions, to exceed $350 million. Depreciation and amortization expense for 1999 totaled $181.8 million, compared with $156.7 million for 1998 and $131.5 million for 1997; for 2000, depreciation and amortization expense, excluding any 2000 acquisitions, is expected to approximate $230 million. Costs of environmental responsibilities and compliance with existing environmental laws and regulations have not had, nor in the opinion of the Company are they expected to have, a materially adverse effect on the Company's capital expenditures, financial position or results of operations. 4 7 CASH FLOWS FROM (FOR) FINANCING ACTIVITIES Financing activities for 1999 provided cash of $319.1 million. Cash from financing activities for 1999 included $300 million from the issuance of 7.75% debentures, $479.0 million from a net increase in other debt (primarily bank debt to finance purchase acquisitions) and $11.5 million of capital contributions from shareholders of pooled companies. After giving effect to the issuance of debt securities in 1999, 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 total of $109 million of debt and equity securities. The Company intends to file a shelf registration statement with the SEC during 2000 to authorize the issuance of additional debt and equity securities. Cash used for financing activities for 1999 included $200 million for the retirement of 6.625% notes, which matured September 15, 1999, $165 million for cash dividends paid, $99.6 million for the acquisition of approximately 3.7 million shares of Company common stock in open-market transactions and $6.8 million for the acquisition of Company common stock for the Company's long-term stock incentive award plan. Acquisitions of Company common stock occurred during the first six months of 1999. As a result of pooling-of-interests requirements, the Company in mid-1999 canceled its share buy-back program. Financing activities for 1998 provided cash of $35.9 million. Cash from financing activities for 1998 included $250 million from the issuance of 6.625% debentures, $100 million from the issuance of 5.75% notes and a net increase in other debt of $74.3 million. Cash used for financing activities for 1998 included $108.6 million for the early retirement of certain of the Company's 9% notes and the payment of a premium associated with this early retirement, $145.3 million for cash dividends paid, $43.3 million for the acquisition of approximately 1.9 million shares of Company common stock in open-market transactions, $46.8 million for the acquisition of Company common stock for the Company's long-term stock incentive award plan and $44.4 million of net distributions to shareholders of pooled companies. Cash used for financing activities for 1997 totaled $189.1 million. Cash from financing activities for 1997 included a net increase in debt of $262.3 million. Cash used for financing activities included $29.1 million for the acquisition of Company common stock for the Company's long-term stock incentive award plan, $131.7 million for cash dividends paid and $536.1 million for distributions to shareholders of pooled companies. During 1997, one of the pooled companies completed a recapitalization. Such recapitalization resulted in the distribution of $512 million to existing shareholders and contributions from new shareholders totaling $234.1 million. Other distributions to and contributions from shareholders of pooled companies in 1997 totaled $24.1 million and $11.4 million, respectively. Capital contributions from and distributions to shareholders of pooled companies as described above occurred prior to August 31, 1999, the date of the pooling mergers. The Company believes that its present cash balance and cash flows from operations are sufficient to fund its near-term working capital and other investment needs. The Company believes that its longer-term working capital and other general corporate requirements will be satisfied through cash flows from operations and, to the extent necessary, from bank borrowings, from future financial market activities and from proceeds from asset sales. CONSOLIDATED RESULTS OF OPERATIONS Sales and Operations Net sales for 1999 were $6,307 million, representing an increase of 19 percent over 1998. Excluding results from purchase acquisitions and divestitures, net sales for 1999 increased 12 percent over 1998. Net sales for 1998 increased 17 percent to $5,280 million from $4,508 million in 1997; after adjusting for purchase acquisitions and divestitures, net sales increased 13 percent in 1998 over 1997. Cost of sales as a percentage of sales for both 1999 and 1998 was 63.4 percent as compared with 62.7 percent for 1997. Cost of sales as a percentage of sales for 1997 was lower principally due to the influence of product sales mix. Excluding amortization of acquired goodwill ($45.4 million, $29.0 million and $18.7 million in 1999, 1998 and 1997, respectively), selling, general and administrative expenses as a percent of sales were 21.5 percent in 1999 as compared with 19.6 percent in 1998 and 21.2 percent in 1997. Selling, general and 5 8 administrative expense in 1999 includes the influence of unusual expense principally related to transactions accounted for as poolings of interests. Excluding such unusual expense, selling, general and administrative expenses as a percent of sales declined slightly in 1999 as compared with 1998. The reduction in selling, general and administrative expense from the 1997 percentage reflects the continuation of cost containment initiatives and the leveraging of fixed costs over a higher sales base. Operating profit margin, before general corporate expense, was 15.9 percent in 1999 as compared with 18.0 percent in 1998 and 17.5 percent in 1997 (general corporate expense includes those expenses not specifically attributable to the Company's business segments). The decrease in 1999 from 1998 included the negative effect of unusual expense principally related to transactions accounted for as poolings of interests. Operating profit margin, after general corporate expense, was 14.5 percent in 1999, 16.4 percent in 1998 and 15.7 percent in 1997. General corporate expense was $92 million in 1999, as compared with $86 million in 1998 and $82 million in 1997. General corporate expense as a percent of sales decreased to 1.5 percent in 1999 from 1.6 percent in 1998 and 1.8 percent in 1997. Other Income (Expense), Net Included in other income (expense), net are equity earnings from MascoTech of $15.4 million for both 1999 and 1998 and $14.6 million for 1997. Included in other, net under other income (expense), net is interest income for 1999, 1998 and 1997 of $46.6 million, $41.5 million and $36.8 million, respectively, from the 12% pay-in-kind junior debt securities of Furnishings International Inc. Such interest income began to accrue in August 1996 upon the sale of the Company's home furnishings businesses. Also included in other, net in 1997 is interest income of $7.5 million from a $151 million note receivable from MascoTech, which was paid on September 30, 1997. Included in other, net under other income (expense), net for 1999 were approximately $30 million of income and gains, net, regarding certain non-operating assets and $7.6 million of dividend income from the Company's investment in Furnishings International's 13% cumulative preferred stock. Also included in other, net for 1999 were approximately $4 million of expenses related to the early retirement of debt. Included in other, net under other income (expense), net in 1998 were pre-tax gains aggregating approximately $59 million from sales of the Company's Thermador subsidiary ($30 million) and the Company's investment in TriMas Corporation ($29 million). Also included in other, net for 1998 were $7 million of dividend income from the Company's investment in Furnishings International's 13% cumulative preferred stock and an approximate $12 million pre-tax charge related to the early retirement of long-term debt. Included in other, net under other income (expense), net in 1997 were $10.8 million of dividend income from the Company's investment in Furnishings International's 13% cumulative preferred stock, net gains aggregating approximately $28 million related to the sales of certain non-operating assets and charges aggregating approximately $30 million principally for the adjustment of the Company's Payless Cashways investment to its estimated fair value. During the second quarter of 1997, MascoTech effected conversion of all of its publicly held outstanding convertible preferred stock with the issuance of approximately 10 million shares of its common stock. This conversion reduced the Company's common equity ownership in MascoTech to 17 percent from 21 percent, and increased the Company's equity in MascoTech's net book value by approximately $29.5 million. As a result, the Company recognized a pre-tax gain of $29.5 million during the second quarter of 1997. Net Income and Earnings Per Share Net income for 1999 was $569.6 million as compared with $565.1 million for 1998 and $444.1 million for 1997. Diluted earnings per share for 1999 were $1.28 compared with $1.26 for 1998 and $1.02 for 1997. Net income and earnings per share for 1999 were negatively affected by unusual expense, principally related to transactions accounted for as poolings of interests. The Company's effective tax rate decreased to 37.0 percent in 1999 from 37.6 percent in 1998 and 39.5 percent in 1997, due principally to the increased utilization of 6 9 foreign tax credits. The Company estimates that its effective tax rate should approximate 37.0 percent for 2000. BUSINESS SEGMENT AND GEOGRAPHIC AREA RESULTS The following table sets forth the Company's net sales and operating profit information by business segment and geographic area, in millions. As a result of significant mergers and acquisitions during 1999, the Company redefined its business segments; accordingly, segment information for prior years has been restated. During 2000, the Company revised its segment information note to include expanded disclosure regarding the Company's business segments.
PERCENT INCREASE (DECREASE) ----------- 1999 1998 VS. VS. 1999 1998 1997 1998 1997 ------ ------ ------ ---- ---- NET SALES: Plumbing Products............................... $1,803 $1,667 $1,551 8% 7% Cabinets and Related Products................... 2,220 1,908 1,540 16% 24% Decorative Architectural Products............... 1,165 919 737 27% 25% Insulation Installation and Other Services...... 532 250 195 113% 28% Other Specialty Products........................ 587 536 485 10% 11% ------ ------ ------ TOTAL...................................... $6,307 $5,280 $4,508 19% 17% ====== ====== ====== North America................................... $5,238 $4,441 $3,820 18% 16% International, principally Europe............... 1,069 839 688 27% 22% ------ ------ ------ TOTAL, AS ABOVE............................ $6,307 $5,280 $4,508 19% 17% ====== ====== ====== OPERATING PROFIT:* Plumbing Products............................... $ 378 $ 369 $ 334 2% 10% Cabinets and Related Products................... 320 295 226 8% 31% Decorative Architectural Products............... 122 167 123 (27%) 36% Insulation Installation and Other Services...... 79 30 27 163% 11% Other Specialty Products........................ 104 91 78 14% 17% ------ ------ ------ TOTAL...................................... $1,003 $ 952 $ 788 5% 21% ====== ====== ====== North America................................... $ 867 $ 829 $ 689 5% 20% International, principally Europe............... 136 123 99 11% 24% ------ ------ ------ TOTAL, AS ABOVE............................ $1,003 $ 952 $ 788 5% 21% ====== ====== ====== OPERATING PROFIT MARGIN:* Plumbing Products............................... 21.0% 22.1% 21.5% Cabinets and Related Products................... 14.4% 15.5% 14.7% Decorative Architectural Products............... 10.5% 18.2% 16.7% Insulation Installation and Other Services...... 14.8% 12.0% 13.8% Other Specialty Products........................ 17.7% 17.0% 16.1% North America................................... 16.6% 18.7% 18.0% International, principally Europe............... 12.7% 14.7% 14.4% TOTAL...................................... 15.9% 18.0% 17.5%
* Before general corporate expense, but including goodwill amortization. 7 10 BUSINESS SEGMENT RESULTS PLUMBING PRODUCTS Excluding purchase acquisitions, net sales of Plumbing Products increased 4 percent in 1999 compared with 1998 and increased 7 percent in 1998 compared with 1997; such increases were due largely to higher unit sales volume of whirlpools, spas and faucets and new product introductions. Net sales were negatively influenced by a stronger U.S. dollar in both 1999 and 1998, which affected the translation of European operations included in this segment. Operating profit margin for 1999 compared with 1998 was negatively influenced by product mix. CABINETS AND RELATED PRODUCTS Excluding purchase acquisitions, net sales of Cabinets and Related Products increased 14 percent in 1999 compared with 1998 and increased 17 percent in 1998 compared with 1997 due largely to higher unit sales volume of U.S. operations included in this segment and new product introductions. This segment was also negatively impacted by a stronger U.S. dollar in both 1999 and 1998, which affected the translation of European operations included in this segment. Operating profit margin for 1999 compared with 1998 was negatively influenced by unusual expense related to a transaction accounted for as a pooling of interests; excluding unusual expense, 1999 operating profit margin for this segment approximated the 1998 level. DECORATIVE ARCHITECTURAL PRODUCTS Excluding purchase acquisitions, net sales of Decorative Architectural Products increased 17 percent in 1999 compared with 1998 and increased 19 percent in 1998 compared with 1997. These increases were due largely to higher unit sales volume of these products. Operating profit margin for 1999 compared with 1998 was negatively influenced by unusual expense related to a transaction accounted for as a pooling of interests; excluding unusual expense, 1999 operating profit margin for this segment approximated the 1998 level. INSULATION INSTALLATION AND OTHER SERVICES Excluding purchase acquisitions, net sales of Insulation Installation and Other Services increased 43 percent in 1999 compared with 1998 and increased 28 percent in 1998 compared with 1997 due largely to broader geographic U.S. market penetration, increased sales volume in existing markets and selling price increases. Operating results of this segment continue to benefit from the leveraging of fixed selling, general and administrative costs over higher sales. OTHER SPECIALTY PRODUCTS Excluding purchase acquisitions and divestitures, net sales of Other Specialty Products were flat in 1999 compared with 1998 and increased 3 percent in 1998 compared with 1997; a stronger U.S. dollar in both 1999 and 1998 had a negative effect on the translation of European operations included in this segment. Operating profit margin for 1999 and 1998 includes the favorable influence of purchase acquisitions offset in part by lower results of certain existing European operations included in this segment. GEOGRAPHIC AREA RESULTS NORTH AMERICA Excluding purchase acquisitions and divestitures, North American net sales for 1999 increased 14 percent over 1998 due largely to higher unit sales volume of cabinets, paints and stains and other kitchen and bath products, higher installation sales of fiberglass insulation, and to a lesser extent, new product introductions and selling price increases. Operating profit margin for 1999 was negatively affected by unusual expense principally related to transactions accounted for as poolings of interests, which more than offset the favorable influence of purchase acquisitions. Excluding unusual 1999 expense, operating profit margin approximated the 1998 level. 8 11 Excluding purchase acquisitions and divestitures, North American net sales for 1998 increased 14 percent over 1997 due largely to higher unit sales volume of cabinets, paints and stains, and faucets, higher installation sales of fiberglass insulation and to a lesser extent, new product introductions and selling price increases. Operating profit margin for 1998 compared with 1997 was favorably influenced by higher unit sales volume, offset in part by the influence of product sales mix and stronger than anticipated demand for lower margin cabinets. Results of the Company's North American operations for 1999, 1998 and 1997 benefited from demographic and economic conditions principally in the United States, including higher consumer confidence and income, modest economic growth and relatively low unemployment. These conditions have favorably influenced the housing and home improvement markets in the United States, including housing starts, existing home sales and repair and remodeling activities. INTERNATIONAL, PRINCIPALLY EUROPE Excluding purchase acquisitions, net sales of the Company's International operations increased 1 percent in 1999 compared with 1998 and were flat for 1998 compared with 1997. Operating profit margin for 1999 and 1998 was favorably influenced by recent acquisitions. Operating results of existing European operations have been adversely influenced in recent years, in part due to softness in the Company's European markets, competitive pricing pressures on certain products and the effect of a higher percentage of lower margin sales to total sales. In addition, a stronger U.S. dollar had a negative effect on the translation of European results in 1999 compared with 1998 as well as 1998 compared with 1997, lowering European net sales in 1999 and 1998 by approximately 3 percent and 2 percent, respectively. Operating results of the Company's business segments for 1999, 1998 and 1997 benefited from the leveraging of fixed selling, general and administrative expenses over higher sales. OUTLOOK FOR THE COMPANY Assuming that the U.S. economy maintains its present rate of moderate growth and interest rates remain relatively stable, the Company expects increases in both sales and earnings for 2000. The Company believes that its results should be favorably affected in the future with its efforts to: continue to invest in new manufacturing technologies and productivity improvement initiatives in order to contain costs and increase efficiency; maintain a lower level of selling, general and administrative expenses as a percent of sales; introduce new products and marketing initiatives to attempt to increase market share; and actively pursue acquisition candidates that complement or support the Company's core competencies. RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are to be recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -- Deferral of the Effective Date of FASB Statement No. 133." SFAS No. 137 defers the effective adoption date of SFAS No. 133 to January 1, 2001. SFAS No. 133 should not have a material effect on the Company's financial statements. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company has considered the provisions of Financial Reporting Release No. 48, "Disclosure of Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative Information about Market Risk Inherent in Derivative Financial Instruments, Other Financial Instruments and Derivative Commodity Instruments." The Company had no holdings 9 12 of derivative financial or commodity-based instruments at December 31, 1999. A review of the Company's other financial instruments and risk exposures at that date revealed that the Company had exposure to interest rate and foreign currency exchange rate risks. At December 31, 1999, the Company performed sensitivity analyses to assess the potential effect of these risks and concluded that near-term changes in interest rates and foreign currency exchange rates should not materially affect the Company's financial position, results of operations or cash flows. YEAR 2000 The Company did not experience any significant disruptions to its operating systems as a result of the date change to year 2000 ("Y2K"). The Company has in place a team that has been and is continuing to address any remaining Y2K issues that encompass operating and administrative areas of the Company. Also, the Company continues to monitor the status of its remediation plans. The process includes an assessment of issues and development of remediation plans, where necessary, as they relate to internally used software, computer hardware and the use of computer applications in the Company's manufacturing processes. The approximate cost of the Y2K program, including planned upgrades, is less than $20 million. This cost, most of which has been incurred and expensed at December 31, 1999, is not material to the Company's results of operations or financial position. EURO CONVERSION A single currency called the euro was introduced in Europe on January 1, 1999. Eleven of the fifteen member countries of the European Union adopted the euro as their common legal currency as of that date. Fixed conversion rates between these participating countries' existing currencies (the "legacy currencies") and the euro were established as of that date. The legacy currencies will remain legal tender as denominations of the euro until at least January 1, 2002 (but not intended to be later than July 1, 2002). During this transition period, parties may settle non-cash transactions using either the euro or a participating country's legacy currency. Cash transactions will continue to be settled in the legacy currencies of participating countries until January 1, 2002, when euro-denominated currency will be issued. The Company is currently completing changes to existing systems to facilitate a smooth transition to the new currency and believes that conversion to the euro will not have a material effect on the Company's financial position or results of operations. 10 13 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of Masco Corporation: In our opinion, the consolidated financial statements listed in the index appearing under Item 14(a)(1) present fairly, in all material respects, the financial position of Masco Corporation and its subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 14(a)(2)(i) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in the Segment Information Note, the accompanying consolidated financial statements have been revised to include expanded disclosure regarding the Company's business segments. PricewaterhouseCoopers LLP Detroit, Michigan February 16, 2000, except as to the Segment Information Note, which is as of October 24, 2000 11 14 MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1999 AND 1998 ASSETS
1999 1998 -------------- -------------- Current Assets: Cash and cash investments................................. $ 230,780,000 $ 553,150,000 Receivables............................................... 1,002,630,000 800,280,000 Inventories............................................... 769,870,000 646,930,000 Prepaid expenses and other................................ 106,500,000 81,640,000 -------------- -------------- Total current assets.............................. 2,109,780,000 2,082,000,000 Equity investment in MascoTech, Inc. ....................... 69,930,000 59,830,000 Equity investments in other affiliates...................... 133,550,000 165,020,000 Securities of Furnishings International Inc. ............... 481,270,000 434,640,000 Property and equipment...................................... 1,624,360,000 1,357,830,000 Acquired goodwill, net...................................... 1,742,930,000 1,055,790,000 Other assets................................................ 473,100,000 463,740,000 -------------- -------------- Total Assets...................................... $6,634,920,000 $5,618,850,000 ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable............................................. $ 62,300,000 $ 309,320,000 Accounts payable.......................................... 243,810,000 196,930,000 Accrued liabilities....................................... 540,320,000 470,090,000 -------------- -------------- Total current liabilities......................... 846,430,000 976,340,000 Long-term debt.............................................. 2,431,270,000 1,638,290,000 Deferred income taxes and other............................. 220,720,000 230,180,000 -------------- -------------- Total Liabilities................................. 3,498,420,000 2,844,810,000 -------------- -------------- Shareholders' Equity: Common shares authorized: 900,000,000; issued: 1999-443,510,000; 1998-443,280,000..................... 443,510,000 443,280,000 Preferred shares authorized: 1,000,000.................... -- -- Paid-in capital........................................... 601,990,000 584,530,000 Retained earnings......................................... 2,151,520,000 1,762,800,000 Other comprehensive income (loss)......................... (60,520,000) (16,570,000) -------------- -------------- Total Shareholders' Equity........................ 3,136,500,000 2,774,040,000 -------------- -------------- Total Liabilities and Shareholders' Equity........ $6,634,920,000 $5,618,850,000 ============== ==============
See notes to consolidated financial statements. 12 15 MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997 -------------- -------------- -------------- Net sales..................................... $6,307,000,000 $5,280,000,000 $4,508,000,000 Cost of sales................................. 3,995,530,000 3,347,900,000 2,825,610,000 -------------- -------------- -------------- Gross profit........................ 2,311,470,000 1,932,100,000 1,682,390,000 Selling, general and administrative expenses.................................... 1,354,640,000 1,036,700,000 957,770,000 Amortization of acquired goodwill............. 45,430,000 29,000,000 18,720,000 -------------- -------------- -------------- Operating profit.................... 911,400,000 866,400,000 705,900,000 -------------- -------------- -------------- Other income (expense), net: Re: MascoTech, Inc.: Equity earnings.......................... 15,430,000 15,360,000 14,580,000 Gain from change in investment........... -- -- 29,500,000 Equity earnings, other affiliates........... 8,500,000 13,840,000 9,560,000 Other, net.................................. 89,190,000 124,300,000 68,540,000 Interest expense............................ (120,420,000) (114,400,000) (94,280,000) -------------- -------------- -------------- (7,300,000) 39,100,000 27,900,000 -------------- -------------- -------------- Income before income taxes.......... 904,100,000 905,500,000 733,800,000 Income taxes.................................. 334,500,000 340,400,000 289,700,000 -------------- -------------- -------------- Net income.......................... $ 569,600,000 $ 565,100,000 $ 444,100,000 ============== ============== ============== Earnings per share: Basic............................... $1.31 $1.30 $1.05 ============== ============== ============== Diluted............................. $1.28 $1.26 $1.02 ============== ============== ==============
See notes to consolidated financial statements. 13 16 MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
1999 1998 1997 --------------- ------------- ------------- Cash Flows From (For): Operating Activities: Net income..................................... $ 569,600,000 $ 565,100,000 $ 444,100,000 Depreciation and amortization.................. 181,820,000 156,670,000 131,510,000 Unremitted equity earnings of affiliates....... (18,720,000) (24,070,000) (19,470,000) Interest accrual on pay-in-kind notes receivable.................................. (46,630,000) (41,500,000) (36,800,000) Deferred income taxes.......................... 5,240,000 61,660,000 34,640,000 Gain from: Sale of subsidiary and TriMas investment.... -- (59,300,000) -- Change in MascoTech investment.............. -- -- (29,500,000) Increase in receivables........................ (116,830,000) (98,930,000) (74,940,000) Increase in inventories........................ (68,280,000) (55,870,000) (52,660,000) Increase in accounts payable and accrued liabilities, net............................ 14,300,000 20,340,000 75,360,000 Other, net..................................... (29,890,000) 13,570,000 (2,020,000) --------------- ------------- ------------- Net cash from operating activities........ 490,610,000 537,670,000 470,220,000 --------------- ------------- ------------- Investing Activities: Acquisition of companies, net of cash acquired.................................... (794,950,000) (322,880,000) (186,920,000) Capital expenditures........................... (350,850,000) (243,380,000) (215,190,000) Cash proceeds from sale of subsidiary and TriMas investment........................... -- 137,640,000 -- Other, net..................................... 13,770,000 (42,440,000) 60,100,000 --------------- ------------- ------------- Net cash (for) investing activities....... (1,132,030,000) (471,060,000) (342,010,000) --------------- ------------- ------------- Financing Activities: Issuance of 7.75% debentures................... 300,000,000 -- -- Issuance of 6.625% debentures.................. -- 250,000,000 -- Issuance of 5.75% notes........................ -- 100,000,000 -- Increase in other debt......................... 915,830,000 436,430,000 325,100,000 Retirement of 9% notes......................... -- (108,620,000) -- Retirement of 6.625% notes..................... (200,000,000) -- -- Payment of other debt.......................... (436,840,000) (362,070,000) (62,830,000) Purchase of Company common stock for: Treasury.................................... (99,600,000) (43,330,000) -- Long-term stock incentive award plan........ (6,840,000) (46,800,000) (29,110,000) Cash dividends paid............................ (164,990,000) (145,290,000) (131,680,000) Capital contributions from shareholders of pooled companies............................ 11,490,000 1,520,000 245,450,000 Distributions to shareholders of pooled companies................................... -- (45,950,000) (536,060,000) --------------- ------------- ------------- Net cash from (for) financing activities............................. 319,050,000 35,890,000 (189,130,000) --------------- ------------- ------------- Cash and Cash Investments: Increase (decrease) for the year............... (322,370,000) 102,500,000 (60,920,000) At January 1................................... 553,150,000 450,650,000 511,570,000 --------------- ------------- ------------- At December 31................................. $ 230,780,000 $ 553,150,000 $ 450,650,000 =============== ============= =============
See notes to consolidated financial statements. 14 17 MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
COMMON OTHER SHARES RETAINED COMPREHENSIVE TOTAL ($1 PAR VALUE) PAID-IN CAPITAL EARNINGS INCOME (LOSS) -------------- -------------- --------------- -------------- ------------- Balance, January 1, 1997...... $2,064,040,000 $212,840,000 $ 230,020,000 $1,618,660,000 $ 2,520,000 Net income.................. 444,100,000 444,100,000 Cumulative translation adjustments............... (28,000,000) (28,000,000) -------------- Total comprehensive income.... 416,100,000 Shares issued................. 169,250,000 4,700,000 164,550,000 Cash dividends declared....... (134,440,000) (134,440,000) Re: Shareholders of pooled companies: Capital contributions from...................... 245,450,000 245,450,000 Distribution to............. (536,060,000) (536,060,000) Compensatory stock options................... 480,000 480,000 -------------- ------------ ------------- -------------- ------------ Balance, December 31, 1997.... 2,224,820,000 217,540,000 640,500,000 1,392,260,000 (25,480,000) Net income.................. 565,100,000 565,100,000 Cumulative translation adjustments............... 8,910,000 8,910,000 -------------- Total comprehensive income.... 574,010,000 Shares issued................. 206,590,000 5,670,000 200,920,000 100 percent stock distribution................ -- 221,960,000 (221,960,000) Shares repurchased............ (43,330,000) (1,890,000) (41,440,000) Cash dividends declared....... (148,610,000) (148,610,000) Re: Shareholders of pooled companies: Capital contributions from...................... 1,520,000 1,520,000 Distribution to............. (45,950,000) (45,950,000) Compensatory stock options................... 4,990,000 4,990,000 -------------- ------------ ------------- -------------- ------------ Balance, December 31, 1998.... 2,774,040,000 443,280,000 584,530,000 1,762,800,000 (16,570,000) Net income.................. 569,600,000 569,600,000 Cumulative translation adjustments............... (43,950,000) (43,950,000) -------------- Total comprehensive income.... 525,650,000 Shares issued................. 85,550,000 3,960,000 81,590,000 Shares repurchased............ (99,600,000) (3,730,000) (95,870,000) Cash dividends declared....... (180,880,000) (180,880,000) Re: Shareholders of pooled companies: Capital contributions from...................... 11,490,000 11,490,000 Compensatory stock options................... 20,250,000 20,250,000 -------------- ------------ ------------- -------------- ------------ Balance, December 31, 1999.... $3,136,500,000 $443,510,000 $ 601,990,000 $2,151,520,000 $(60,520,000) ============== ============ ============= ============== ============
See notes to consolidated financial statements. 15 18 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ACCOUNTING POLICIES Principles of Consolidation. The consolidated financial statements include the accounts of Masco Corporation and all majority-owned subsidiaries. All significant intercompany transactions have been eliminated. The consolidated financial statements for prior years and related notes have been restated to include the accounts and operations of transactions accounted for as poolings of interests. Use of Estimates in the Preparation of Financial Statements. The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of any contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from such estimates and assumptions. Cash and Cash Investments. The Company considers all highly liquid investments with an initial maturity of three months or less to be cash and cash investments. Receivables. The Company does significant business with a number of individual customers, including certain home centers. The Company monitors its exposure for credit losses and maintains adequate allowances for doubtful accounts; the Company does not believe that significant credit risks exist. At December 31, 1999 and 1998, accounts and notes receivable are presented net of allowances for doubtful accounts of $26.1 million and $22.2 million, respectively. Property and Equipment. Property and equipment, including significant betterments to existing facilities, are recorded at cost. Upon retirement or disposal, the cost and accumulated depreciation are removed from the accounts and any gain or loss is included in the statement of income. Maintenance and repair costs are charged to expense as incurred. Depreciation and Amortization. Depreciation is computed principally using the straight-line method over the estimated useful lives of the assets. Annual depreciation rates are as follows: buildings and land improvements, 2 to 10 percent, and machinery and equipment, 5 to 33 percent. Depreciation was $114.6 million, $107.5 million and $95.8 million in 1999, 1998 and 1997, respectively. Acquired goodwill is being amortized using the straight-line method over periods not exceeding 40 years; at December 31, 1999 and 1998 such accumulated amortization totaled $153.9 million and $108.5 million, respectively. At each balance sheet date, management evaluates the recoverability of acquired goodwill by comparing the carrying value of the asset to the associated current and projected annual sales, operating profit and undiscounted annual cash flows; management also considers business prospects, market trends and other economic factors in performing this evaluation. Based on this evaluation, there was no permanent impairment related to acquired goodwill at December 31, 1999 and 1998. Purchase costs of patents are being amortized using the straight-line method over the legal lives of the patents, not to exceed 17 years. Amortization of intangible assets totaled $67.2 million, $49.2 million and $35.7 million in 1999, 1998 and 1997, respectively. Fair Value of Financial Instruments. The carrying value of financial instruments reported in the balance sheet for current assets, current liabilities and long-term variable rate debt approximates fair value. The fair value of financial instruments that are carried as long-term investments (other than those accounted for by the equity method) was based principally on quoted market prices for those or similar investments or by discounting future cash flows using a discount rate that reflects the risk of the underlying investments. The fair value of the Company's long-term fixed-rate debt instruments was based principally on quoted market prices for the same or similar issues or the current rates available to the Company for debt with similar terms and remaining maturities. The aggregate market value of the Company's long-term investments and long-term debt at December 31, 1999 was approximately $772 million and $2,370 million, as compared with the Company's aggregate carrying value of $706 million and $2,431 million, respectively, and at December 31, 16 19 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ACCOUNTING POLICIES -- (CONCLUDED) 1998 the aggregate market value was approximately $650 million and $1,663 million, as compared with the Company's aggregate carrying value of $639 million and $1,638 million, respectively. POOLING-OF-INTERESTS TRANSACTIONS During the third quarter of 1999, the Company completed mergers with Behr Process Corporation, a manufacturer of premium architectural coatings; Mill's Pride, L.L.P., a manufacturer of ready-to-assemble and assembled kitchen and bath cabinetry, bath vanities, home office workstations and entertainment centers, storage products, bookcases and kitchen utility products; and a smaller company. The Company issued approximately 104 million shares of common stock in exchange for all of the outstanding shares of these companies. The transactions have been accounted for as poolings of interests and, accordingly, the consolidated financial statements and related shares and per share data for all prior periods presented have been restated to include the accounts and operations of the pooled companies. The Company's net sales and net income prior to these poolings for the first six months of 1999 (unaudited) were $2,416 million and $262.9 million, respectively, and for the years 1998 and 1997 were $4,345 million and $476 million and $3,760 million and $382.4 million, respectively. PURCHASE ACQUISITIONS During the third quarter of 1999, the Company acquired Arrow Fastener Company, a manufacturer of manual and electric staple gun tackers and staples and other fastening tools; H&H Tube, a manufacturer of brass, copper, steel and aluminum tubes; and Superia Radiatoren N.V., a Belgian-based manufacturer of standard plate radiators. The Company also acquired INRECON, L.L.C., a company specializing in repair and restoration of residential, commercial and institutional facilities damaged by fire, wind, water and other disasters. During the second quarter of 1999, the Company acquired Avocet Hardware PLC, a U.K. supplier of locks and other builders' hardware; The Cary Group, an insulation services company; and The GMU Group, a manufacturer and distributor of kitchen cabinets and cabinet components, headquartered in Spain. In the first quarter of 1999, the Company acquired A&J Gummers, a U.K. manufacturer of shower valve products, and The Faucet Queens, Inc., a supplier of plumbing accessories and hardware products. The aggregate net purchase price of these 1999 purchase acquisitions was approximately $850 million, including 1.6 million shares of Company common stock valued at $48 million. The excess of the aggregate acquisition cost for these purchase acquisitions over the calculated fair value of net assets acquired totaled approximately $680 million and has been recorded as acquired goodwill. Purchase agreements for certain of the 1999 purchase acquisitions include provisions for additional consideration to be paid if the acquired business achieves specific operating results in future periods, ranging from one to five years. Such additional consideration, when earned, is recorded as additional purchase price. The results of operations for these 1999 purchase acquisitions are included in the consolidated financial statements from the dates of acquisition. Had these companies been acquired effective January 1, 1998, pro forma unaudited consolidated net sales and net income would have approximated $6,537 million and $579 million for 1999 and $5,889 million and $590 million for 1998, respectively, and pro forma unaudited consolidated diluted earnings per share would have increased approximately $.02 for 1999 and $.05 for 1998. 17 20 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INVENTORIES
(IN THOUSANDS) AT DECEMBER 31 ------------------- 1999 1998 -------- -------- Raw material................................................ $307,060 $262,410 Finished goods.............................................. 290,440 236,610 Work in process............................................. 172,370 147,910 -------- -------- $769,870 $646,930 ======== ========
Inventories are stated at the lower of cost or net realizable value, with cost determined principally by use of the first-in, first-out method. EQUITY INVESTMENTS IN AFFILIATES Equity investments in affiliates consist primarily of the following common equity interests:
AT DECEMBER 31 ------------------- 1999 1998 1997 ----- ---- ---- MascoTech, Inc. ........................................... 17.5% 17% 17% Emco Limited............................................... 42 % 42% 42% Hans Grohe, a German company............................... 27 % 27% 27% TriMas Corporation......................................... -- -- 4%
Excluding Hans Grohe, for which there is no quoted market value, the aggregate market value of the Company's equity investments in affiliates at December 31, 1999 (which may differ from the amounts that could then have been realized upon disposition), based upon quoted market prices at that date, was $125 million, as compared with the Company's related aggregate carrying value of $165 million. The Company's carrying value in common stock of these equity affiliates exceeded its equity in the underlying net book value by approximately $49 million at December 31, 1999. This excess is being amortized over a period not to exceed 40 years. Pursuant to a corporate services agreement, the Company provides MascoTech, Inc. with certain corporate staff and administrative services. The fees charged to MascoTech approximated $6 million in 1999, $8 million in 1998 and $10 million in 1997, and are included as a reduction of general corporate expense. MascoTech holds an option expiring in 2002 to require the Company to purchase up to $200 million aggregate amount of subordinated debt securities of MascoTech. During January 1998, MascoTech announced the completion of its acquisition of TriMas Corporation. The Company recorded a gain in the first quarter of 1998 as a result of selling its common stock investment in TriMas to MascoTech in the public tender offer. 18 21 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) EQUITY INVESTMENTS IN AFFILIATES -- (CONCLUDED) Approximate combined condensed financial data of the affiliates listed on the previous page at December 31, 1999 and 1998 and for the three years then ended, are summarized in U.S. dollars as follows, in thousands:
1999 1998 1997 ----------- ----------- ---------- Net sales.............................................. $ 2,847,000 $ 2,732,600 $2,745,600 =========== =========== ========== Gross Profit........................................... $ 727,800 $ 704,700 $ 689,300 =========== =========== ========== Income from continuing operations before income taxes................................................ $ 191,400 $ 203,800 $ 287,400 =========== =========== ========== Net income attributable to common shareholders......... $ 124,000 $ 142,900 $ 172,700 =========== =========== ========== The Company's net equity in above net income........... $ 23,900 $ 29,200 $ 24,100 =========== =========== ========== Cash dividends received by the Company from affiliates........................................... $ 5,200 $ 5,100 $ 4,600 =========== =========== ========== At December 31: Current assets....................................... $ 859,300 $ 832,300 Current liabilities.................................. (400,200) (412,700) ----------- ----------- Working capital................................... 459,100 419,600 Property and equipment............................... 886,500 839,100 Other assets......................................... 942,000 968,400 Long-term liabilities................................ (1,809,300) (1,741,500) ----------- ----------- Shareholders' equity.............................. $ 478,300 $ 485,600 =========== ===========
Equity in undistributed earnings of affiliates of $70 million at December 31, 1999, $57 million at December 31, 1998 and $43 million at December 31, 1997 are included in consolidated retained earnings. SECURITIES OF FURNISHINGS INTERNATIONAL INC. During August 1996, the Company completed the sale of its home furnishings products segment to Furnishings International Inc. Total proceeds to the Company from the sale were $1,050 million, including $708 million in cash, $285 million of junior debt securities and equity securities aggregating $57 million. Securities of Furnishings International Inc. are summarized as follows:
(IN THOUSANDS) AT DECEMBER 31 ------------------- 1999 1998 -------- -------- Junior debt securities (12% pay-in-kind)............. $423,900 $377,270 Preferred stock (13% cumulative)..................... ) Common stock (15% ownership)......................... ) 57,370 57,370 Convertible preferred stock.......................... ) -------- -------- $481,270 $434,640 ======== ========
The junior debt securities mature in 2008 and are stated at face value. The convertible preferred stock represents transferable rights for up to a 25 percent common ownership, although the Company is restricted from maintaining an ownership in excess of 20 percent of Furnishings International's common equity. As such, the Company will not acquire additional common equity, except for purposes of resale. 19 22 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) PROPERTY AND EQUIPMENT
(IN THOUSANDS) AT DECEMBER 31 ----------------------- 1999 1998 ---------- ---------- Land and improvements.................................... $ 101,000 $ 87,050 Buildings................................................ 643,190 563,910 Machinery and equipment.................................. 1,694,910 1,440,530 ---------- ---------- 2,439,100 2,091,490 Less, accumulated depreciation........................... 814,740 733,660 ---------- ---------- $1,624,360 $1,357,830 ========== ==========
ACCRUED LIABILITIES
(IN THOUSANDS) AT DECEMBER 31 ----------------------- 1999 1998 ---------- ---------- Salaries, wages and related benefits..................... $ 162,900 $ 116,130 Advertising and sales promotion.......................... 110,450 87,830 Insurance................................................ 49,860 55,360 Income taxes............................................. 33,130 49,460 Dividends payable........................................ 53,220 37,330 Interest................................................. 39,570 34,280 Property, payroll and other taxes........................ 24,260 27,900 Other.................................................... 66,930 61,800 ---------- ---------- $ 540,320 $ 470,090 ========== ==========
LONG-TERM DEBT
(IN THOUSANDS) AT DECEMBER 31 ----------------------- 1999 1998 ---------- ---------- Notes and Debentures: 6.625%, due Sept. 15, 1999............................. -- $ 200,000 9%, due Oct. 1, 2001............................. $ 77,030 77,030 6.125%, due Sept. 15, 2003............................. 200,000 200,000 5.75%, due Oct. 15, 2008............................. 100,000 100,000 7.125%, due Aug. 15, 2013............................. 200,000 200,000 6.625%, due Apr. 15, 2018............................. 250,000 250,000 7.75%, due Aug. 1, 2029............................. 300,000 -- Notes payable to banks................................... 750,000 -- Bank term loans.......................................... -- 202,750 European bank debt....................................... 470,060 505,970 Other.................................................... 146,480 211,860 ---------- ---------- 2,493,570 1,947,610 Less, current portion.................................... 62,300 309,320 ---------- ---------- $2,431,270 $1,638,290 ========== ==========
All of the notes and debentures above, other than bank notes, are nonredeemable. 20 23 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) LONG-TERM DEBT -- (CONCLUDED) During August 1999, the Company issued $300 million of 7.75% debentures due August 1, 2029. Proceeds from this issuance were largely used to retire the 6.625% notes which matured September 15, 1999. The notes payable to banks relate to a $750 million bank revolving-credit agreement, with any outstanding balance due and payable in November 2001. Interest is payable on borrowings under this agreement based upon various floating rate options as selected by the Company (approximately 6 percent at December 31, 1999). During 1999, the Company entered into a $400 million 364-day credit facility. There was no outstanding balance due under this credit facility at December 31, 1999. Subsequent to December 31, 1999, the Company amended and restated this credit facility, increasing the amount of such facility to $1 billion and extending the maturity to March 2001. Interest is payable on borrowings under this credit facility based on various floating rate options as selected by the Company. European bank debt relates to borrowings of local currency for European acquisitions and expansion. At December 31, 1999, approximately $206 million of European debt related to a term loan facility expiring in 2002. The balance of $264 million represents borrowings under lines of credit primarily expiring in 2003. Interest is payable on European borrowings based upon various floating rates as selected by the Company (approximately 4 percent at December 31, 1999). Certain debt agreements contain limitations on additional borrowings and a requirement for maintaining a certain level of net worth. At December 31, 1999, the Company was in compliance with these borrowing limitations, and the Company's net worth exceeded that requirement by approximately $806 million. At December 31, 1999, the maturities of long-term debt during each of the next five years, assuming that the bank debt is refinanced, were approximately as follows: 2000 -- $62.3 million; 2001 -- $113.9 million; 2002 -- $28.6 million; 2003 -- $222.4 million; and 2004 -- $17.4 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 $109 million of debt and equity securities. Interest paid was approximately $126 million, $114 million and $95 million in 1999, 1998 and 1997, respectively. SHAREHOLDERS' EQUITY During the first six months of 1999, pursuant to the Company's share repurchase program, as authorized by the Board of Directors, the Company repurchased approximately 3.7 million of its common shares in open-market transactions at a cost aggregating $99.6 million. As a result of pooling-of-interests transaction requirements, the Company in mid-1999 canceled its share buy-back program. During 1998, the Company acquired approximately 1.9 million of its common shares in open-market transactions at a cost aggregating $43.3 million. Included in the consolidated statements of shareholders' equity for 1999, 1998 and 1997 are distributions to and contributions from shareholders of pooled companies. Such distributions and contributions occurred prior to August 31, 1999, the date of the pooling mergers. During 1997, one of the pooled companies completed a recapitalization; such recapitalization resulted in the distribution of $512 million to existing shareholders and contributions from new shareholders totaling $234 million. Other distributions to shareholders of pooled companies in 1998 and 1997 totaled $46 million and $24 million, respectively. Other contributions from shareholders of pooled companies in 1999, 1998 and 1997 totaled $11 million, $2 million and $11 million, respectively. On the basis of amounts paid (declared) and after giving effect to the 1998 stock split, cash dividends per share were $.45 ($.46) in 1999, $.43 ($.43 1/2) in 1998 and $.40 1/2 ($.41) in 1997. 21 24 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SHAREHOLDERS' EQUITY -- (CONCLUDED) In July 1998, the Company effected a two-for-one stock split in the form of a 100 percent stock distribution to shareholders, which, after giving effect to 1999 poolings of interests, resulted in the issuance of approximately 222 million shares of common stock and reduced paid-in capital by approximately $222 million. In 1995, the Company's Board of Directors announced the approval of a Shareholder Rights Plan. The Rights were designed to enhance the Board's ability to protect the Company's shareholders against, among other things, unsolicited attempts to acquire control of the Company that do not offer an adequate price to all shareholders or are otherwise not in the best interests of the shareholders. The Rights were issued to shareholders of record in December 1995 and will expire in December 2005. Financial statements of non-U.S. operations are translated into U.S. dollars using exchange rates in effect at year-end for assets and liabilities and using weighted average exchange rates in effect during the year for results of operations. Adjustments resulting from such translation are reflected as cumulative translation adjustments in shareholders' equity, included in other comprehensive income (loss). STOCK OPTIONS AND AWARDS The Company's 1991 Long Term Stock Incentive Plan (the "Plan") provides for the issuance of stock-based incentives in various forms. At December 31, 1999, outstanding stock-based incentives were primarily in the form of restricted long-term stock awards, stock appreciation rights, phantom stock awards and stock options. Additionally, the Company's 1997 Non-Employee Directors Stock Plan (the "1997 Plan") provides for the payment of compensation to non-employee Directors in part in Company common stock. RESTRICTED LONG-TERM STOCK AWARDS The Company granted long-term stock awards, net of cancellations, for 402,000, 1,149,000 and 1,581,000 shares of Company common stock during 1999, 1998 and 1997, respectively, to key employees of the Company and to non-employee Directors of the Company. These long-term stock awards do not cause net share dilution inasmuch as the Company reacquires an equal number of shares on the open market. The weighted average grant date fair value per share of long-term stock awards granted during 1999, 1998 and 1997 was $29, $26 and $21, respectively. Early vesting of certain of these awards is contingent upon the market price of Company common stock equaling or exceeding certain price targets within specific time periods, including a $50 price target by February 2003. Compensation expense for the annual vesting of long-term stock awards was $20 million, $17 million and $14 million in 1999, 1998 and 1997, respectively. The unamortized costs of unvested stock awards, aggregating approximately $118 million at December 31, 1999, are included in other assets and are being amortized over the typical 10-year vesting periods. STOCK APPRECIATION RIGHTS AND PHANTOM STOCK AWARDS In connection with transactions accounted for as poolings of interests in 1999, the Company converted existing stock appreciation rights ("SARs") into Company SARs with annual cash compensation linked to the value of approximately 330,000 shares of Company common stock. In connection with other acquisitions in 1999, the Company generated phantom stock awards linked to the value of 664,000 shares of Company common stock. Compensation expense related to SARs and phantom stock awards for 1999 was $66.6 million, of which approximately $61 million pertained to transactions accounted for as poolings of interests; for 1998 and 1997, such expense was $8.3 million and $13.0 million, respectively. NON-COMPENSATORY STOCK OPTIONS Fixed stock options are granted to key employees of the Company and to non-employee Directors of the Company and have a maximum term of 10 years. The exercise price equals the market price of Company 22 25 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) STOCK OPTIONS AND AWARDS -- (CONTINUED) common stock on the date of grant. These options generally become exercisable in installments beginning in the third year and extending through the eighth year after grant. During 1997, the Company granted original stock options for 5,680,000 shares of Company common stock with an exercise price of $19 1/2 per share (equal to the market price on the grant date). During 1999, 1998 and 1997, the Company granted restoration stock options for 1,956,000, 692,000 and 278,000 shares of Company common stock with grant date exercise prices ranging from $25 to $33, $25 to $31 and $17 1/2 to $26, respectively (the market prices on the grant dates), and stock options for 64,000 shares in each of 1999 and 1998 and 56,000 shares in 1997 to non-employee Directors of the Company with exercise prices of $30, $29 and $19 1/2, respectively. The Compensation Committee of the Board of Directors, in acceding to the Chief Executive Officer's request that his annual salary and bonus be reduced to $1.00 per year, effective January 1, 1996, considered alternative compensation arrangements for the Chief Executive Officer and in April 1996 granted the Chief Executive Officer a 10-year option, with a $20 1/2 exercise price when the market price was $13 15/16 per share, to purchase two million shares of Company common stock. This option became exercisable in 1997 when the price of Company common stock exceeded $20 1/2 per share. In 1996, other officers and certain other key employees of the Company voluntarily accepted an effective 15 percent salary reduction, with salaries frozen through 1998 at that level. This reduction in compensation was replaced with stock options and career stock awards. The stock options were granted with an exercise price of $16 (equal to the market price on the grant date). Annual vestings of such stock options commenced in 1997 as a result of the Company common stock price exceeding $20 1/2 per share for the required period. Such options were granted for approximately 3,230,000 shares of Company common stock. In addition, in 1996 when the market price of Company common stock was $16 per share, the executive officers were granted career stock awards; annual vestings of such awards commenced in 1997 as a result of the Company common stock price exceeding $25 per share in late 1997. A summary of the status of the Company's fixed stock options for the three years ended December 31, 1999 is presented below.
(SHARES IN THOUSANDS) 1999 1998 1997 ------ ------ ------ Option shares outstanding, January 1................... 14,396 16,200 14,616 Weighted average exercise price...................... $18 $17 $14 Option shares granted, including restoration options... 2,020 756 6,014 Weighted average exercise price...................... $29 $28 $20 Option shares exercised................................ 3,780 2,486 4,276 Weighted average exercise price...................... $17 $13 $13 Option shares canceled................................. -- 74 154 Weighted average exercise price...................... -- $10 $11 Option shares outstanding, December 31................. 12,636 14,396 16,200 Weighted average exercise price...................... $20 $18 $17 Weighted average remaining option term (in years).... 5.9 6.6 7.2 Option shares exercisable, December 31................. 4,952 3,781 4,588 Weighted average exercise price...................... $21 $17 $16
23 26 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) STOCK OPTIONS AND AWARDS -- (CONCLUDED) The following table summarizes information for option shares outstanding and exercisable at December 31, 1999 (shares in thousands).
OPTION SHARES OUTSTANDING OPTION SHARES EXERCISABLE - ------------------------------------------- -------------------------- WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE RANGE OF NUMBER OF OPTION EXERCISE NUMBER OF EXERCISE PRICES SHARES TERM PRICE SHARES PRICE - -------- --------- --------- -------- --------- -------- $10-15 1,870 2 Years $11 1,552 $10 16-19 2,892 6 Years 16 519 17 20-27 5,600 7 Years 20 830 21 28-33 2,274 6 Years 29 2,051 30 ------ ------ -------- --- ----- --- $10-33 12,636 6 Years $20 4,952 $21 ====== ====== ======== === ===== ===
At December 31, 1999, a combined total of 11,239,000 shares and 765,000 shares of Company common stock was available under the 1991 Plan, and the 1997 Plan, respectively, for the granting of stock options and long-term stock awards. The Company has elected to continue to apply the provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and, accordingly, the Company's stock options do not constitute compensation expense in the determination of net income in the statement of income. Had stock option compensation expense been determined pursuant to the methodology of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," the pro forma effect would have been a reduction in the Company's diluted earnings per share of approximately $.04, $.01 and $.02 in 1999, 1998 and 1997, respectively. For SFAS No. 123 calculation purposes, the weighted average grant date fair values of option shares, including restoration options granted in 1999, 1998 and 1997 were $7.28, $6.00 and $6.27, respectively. The fair values of these options were estimated at the grant dates using a Black-Scholes option pricing model with the following assumptions for 1999, 1998 and 1997, respectively: risk-free interest rate -- 5.0%, 4.9% and 6.7%; dividend yield -- 1.6%, 2.1% and 2.5%; volatility factor -- 34%, 28% and 27%; and expected option life -- 3 years, 3 years and 7 years. COMPENSATORY STOCK OPTION In connection with transactions accounted for as poolings of interests, the Company converted an existing variable stock option into a Company stock option to acquire 1.4 million shares of Company common stock at an exercise price of $7.66 per share, expiring in 2027. Such stock option was outstanding and exercisable at December 31, 1999. Compensation expense related to such stock option was $20.3 million, $5.0 million and $.5 million in 1999, 1998 and 1997, respectively. Approximately $15.7 million of compensation expense for 1999 relates to the accelerated vesting of such option, which resulted from the consummation of transactions accounted for as poolings of interests. EMPLOYEE RETIREMENT PLANS The Company sponsors defined-benefit and defined-contribution pension plans for most of its employees. In addition, substantially all salaried employees participate in non-contributory profit-sharing plans, to which payments are determined annually by the Directors. Aggregate charges to income under the Company's pension, retirement and profit-sharing plans were $57.3 million in 1999, $35.8 million in 1998 and $26.4 million in 1997. 24 27 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) EMPLOYEE RETIREMENT PLANS -- (CONTINUED) Net periodic pension cost for the Company's qualified pension plans includes the following components, in thousands:
1999 1998 1997 -------- -------- -------- Service cost..................................... $ 9,630 $ 8,530 $ 7,090 Interest cost.................................... 12,470 11,260 10,170 Expected return on plan assets................... (10,610) (11,870) (11,140) Amortization of transition asset................. (620) (620) (620) Amortization of prior-service cost............... 380 320 330 Amortization of net loss......................... 2,250 1,530 770 -------- -------- -------- Net periodic pension cost........................ $ 13,500 $ 9,150 $ 6,600 ======== ======== ========
The following table provides a reconciliation of changes in the projected benefit obligation, fair value of plan assets and funded status of the Company's qualified pension plans at December 31, in thousands:
1999 1998 -------- -------- Changes in projected benefit obligation: Benefit obligation at January 1........................ $175,980 $152,320 Service cost........................................... 9,220 8,140 Interest cost.......................................... 12,470 11,260 Plan amendments........................................ 980 (1,720) Actuarial (gain)/loss.................................. (28,600) 11,780 Benefit payments....................................... (7,110) (5,800) -------- -------- Projected benefit obligation at December 31......... $162,940 $175,980 ======== ======== Changes in fair value of plan assets: Fair value of plan assets at January 1................. $112,860 $106,520 Actual return on plan assets........................... (8,700) 6,110 Cash contributions..................................... 10,650 6,460 Benefit payments....................................... (7,110) (5,800) Expenses/other......................................... (400) (430) -------- -------- Fair value of plan assets at December 31............ $107,300 $112,860 ======== ======== Funded status of qualified pension plans: Plan assets (less than) projected benefit obligation at December 31......................................... $(55,640) $(63,120) Unamortized net asset at transition.................... (1,560) (2,180) Unamortized prior-service cost......................... 4,880 4,150 Unamortized net loss................................... 41,250 52,930 -------- -------- Net liability recognized............................ $(11,070) $ (8,220) ======== ========
The major assumptions used in accounting for the Company's pension plans are as follows:
1999 1998 1997 ----- ------ ----- Discount rate for obligations......................... 7.75% 6.75% 7.0% Expected return on plan assets........................ 9.0 % 11.0 % 11.0% Rate of compensation increase......................... 5.0 % 5.0 % 5.0%
25 28 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) EMPLOYEE RETIREMENT PLANS -- (CONCLUDED) In addition to the Company's qualified pension and retirement plans, the Company has non-qualified unfunded supplemental pension plans covering certain employees, which provide for benefits in addition to those provided by the qualified pension plans. The actuarial present value of accumulated benefit obligations and projected benefit obligations related to these non-qualified pension plans totaled $41.4 million and $48.9 million, and $37.0 million and $46.2 million at December 31, 1999 and 1998, respectively. Net periodic pension cost for these plans was $7.9 million, $7.1 million and $4.7 million in 1999, 1998 and 1997, respectively. The Company sponsors certain post-retirement benefit plans that provide medical, dental and life insurance coverage for eligible retirees and dependents in the United States based on age and length of service. At December 31, 1999, the aggregate present value of the unfunded accumulated postretirement benefit obligation approximated $3 million. SEGMENT INFORMATION As a result of significant mergers and acquisitions during 1999, the Company redefined its business segments; accordingly, segment information for prior years has been restated. During 2000, the Company revised this Segment Information Note to include expanded disclosure regarding the Company's business segments. The Company's operations in the segments detailed below consist of the manufacture and sale, and for one segment the installation of certain, of the following home improvement and building products: PLUMBING PRODUCTS -- principally includes faucets; plumbing fittings and valves; bathtubs and shower enclosures; whirlpools; and spas. CABINETS AND RELATED PRODUCTS -- principally includes assembled and ready-to-assemble kitchen and bath cabinets; home office workstations; entertainment centers; storage products; bookcases; and kitchen utility products. DECORATIVE ARCHITECTURAL PRODUCTS -- principally includes paints and stains; mechanical and electronic lock sets; and door, window and other hardware. INSULATION INSTALLATION AND OTHER SERVICES -- principally includes the sale and installation of insulation and the restoration of facilities damaged by natural disasters. OTHER SPECIALTY PRODUCTS -- principally includes staple gun tackers, staples and other fastening tools; hydronic radiators and heat convectors; venting and ventilation systems; modular office workstations; and grilles, registers and diffusers for heating and cooling systems. The above products are sold to the home improvement and home construction markets through mass merchandisers, hardware stores, home centers, distributors, and other outlets for consumers and contractors. The Company's operations are principally located in North America and Europe. The Company's country of domicile is the United States. Corporate assets consist primarily of real property, cash and cash investments and other investments. The Company's segments are based on similarities in products and services and represent the aggregation of operating units for which financial information is regularly evaluated by the corporate operating executives in determining resource allocation and assessing performance and is periodically reviewed by the Board of Directors. Accounting policies for the segments are the same as those for the Company. The Company primarily evaluates performance based on operating profit and, other than general corporate expense, allocates specific corporate overhead to each segment. 26 29 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SEGMENT INFORMATION -- (CONCLUDED) The following table presents information about the Company by segment and geographic area:
NET SALES (1)(2)(3)(4) OPERATING PROFIT ------------------------------------ -------------------------------- 1999 1998 1997 1999 1998 1997 ---------- ---------- ---------- ---------- -------- -------- The Company's operations by segment were: Plumbing Products.......... $1,803,000 $1,667,000 $1,551,000 $ 378,000 $369,000 $334,000 Cabinets and Related Products................. 2,220,000 1,908,000 1,540,000 320,000 295,000 226,000 Decorative Architectural Products................. 1,165,000 919,000 737,000 122,000 167,000 123,000 Insulation Installation and Other Services........... 532,000 250,000 195,000 79,000 30,000 27,000 Other Specialty Products... 587,000 536,000 485,000 104,000 91,000 78,000 ---------- ---------- ---------- ---------- -------- -------- Total.................. $6,307,000 $5,280,000 $4,508,000 $1,003,000 $952,000 $788,000 ========== ========== ========== ========== ======== ======== The Company's operations by geographic area were: North America.............. $5,238,000 $4,441,000 $3,820,000 $ 867,000 $829,000 $689,000 International, principally Europe................... 1,069,000 839,000 688,000 136,000 123,000 99,000 ---------- ---------- ---------- ---------- -------- -------- Total, as above........ $6,307,000 $5,280,000 $4,508,000 1,003,000 952,000 788,000 ========== ========== ========== General corporate expense, net.......................... (92,000) (86,000) (82,000) ---------- -------- -------- Operating profit, after general corporate expense............ 911,000 866,000 706,000 Other income (expense), net.... (7,000) 39,000 28,000 ---------- -------- -------- Income before income taxes (6).......................... $ 904,000 $905,000 $734,000 ========== ======== ======== Equity investments in affiliates................... Securities of Furnishings International Inc. .......... Corporate assets............... Total assets........... (IN THOUSANDS) ASSETS AT DECEMBER 31 (5) ------------------------------------ 1999 1998 1997 ---------- ---------- ---------- The Company's operations by segment were: Plumbing Products.......... $1,217,000 $1,118,000 $ 965,000 Cabinets and Related Products................. 1,517,000 1,334,000 1,184,000 Decorative Architectural Products................. 823,000 586,000 491,000 Insulation Installation and Other Services........... 629,000 224,000 163,000 Other Specialty Products... 997,000 586,000 416,000 ---------- ---------- ---------- Total.................. $5,183,000 $3,848,000 $3,219,000 ========== ========== ========== The Company's operations by geographic area were: North America.............. $3,746,000 $2,672,000 $2,508,000 International, principally Europe................... 1,437,000 1,176,000 711,000 ---------- ---------- ---------- Total, as above........ 5,183,000 3,848,000 3,219,000 General corporate expense, net.......................... Operating profit, after general corporate expense............ Other income (expense), net.... Income before income taxes (6).......................... Equity investments in affiliates................... 203,000 225,000 228,000 Securities of Furnishings International Inc. .......... 481,000 435,000 393,000 Corporate assets............... 768,000 1,111,000 857,000 ---------- ---------- ---------- Total assets........... $6,635,000 $5,619,000 $4,697,000 ========== ========== ==========
DEPRECIATION AND PROPERTY ADDITIONS (7) AMORTIZATION ------------------------------ ------------------------------ 1999 1998 1997 1999 1998 1997 -------- -------- -------- -------- -------- -------- The Company's operations by segment were: Plumbing Products......................................... $ 87,000 $ 65,000 $ 57,000 $ 45,000 $ 39,000 $ 37,000 Cabinets and Related Products............................. 162,000 85,000 124,000 49,000 49,000 38,000 Decorative Architectural Products......................... 61,000 36,000 35,000 20,000 21,000 16,000 Insulation Installation and Other Services................ 45,000 17,000 19,000 18,000 10,000 6,000 Other Specialty Products.................................. 56,000 69,000 23,000 26,000 19,000 15,000 -------- -------- -------- -------- -------- -------- 411,000 272,000 258,000 158,000 138,000 112,000 Unallocated amounts principally related to corporate assets.................................................. 27,000 25,000 10,000 24,000 19,000 20,000 Assets of purchase acquisitions........................... (87,000) (54,000) (53,000) -- -- -- -------- -------- -------- -------- -------- -------- Total............................................... $351,000 $243,000 $215,000 $182,000 $157,000 $132,000 ======== ======== ======== ======== ======== ========
(1) Included in net sales in 1999, 1998 and 1997 are export sales from the U.S. of $127 million, $112 million and $89 million, respectively. (2) Inter-company sales between segments represented less than one percent of consolidated net sales in 1999, 1998 and 1997. (3) Includes net sales to one customer in 1999, 1998 and 1997 of $1,539 million, $1,236 million and $983 million, respectively. (4) Net sales from the Company's operations in the U.S. were $5,024 million, $4,275 million and $3,655 million in 1999, 1998 and 1997, respectively. (5) Long-lived assets of the Company's operations in the U.S. and Europe were $2,135 million and $997 million, $1,392 million and $813 million and $1,296 million and $467 million at December 31, 1999, 1998 and 1997, respectively. (6) Income before income taxes and net income pertaining to non-U.S. operations were $120 million and $69 million, $118 million and $59 million, and $93 million and $45 million for 1999, 1998 and 1997, respectively. (7) Property additions by segment include assets of purchase acquisitions. 27 30 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) OTHER INCOME (EXPENSE), NET
(IN THOUSANDS) 1999 1998 1997 --------- --------- -------- Re: MascoTech, Inc.: Equity earnings.............................. $ 15,430 $ 15,360 $ 14,580 --------- --------- -------- Gain from change in investment............... -- -- 29,500 --------- --------- -------- Equity earnings, other affiliates.............. 8,500 13,840 9,560 --------- --------- -------- Other, net: Income from cash and cash investments........ 9,330 21,540 17,280 Other interest income........................ 52,530 46,340 47,620 Other items.................................. 27,330 56,420 3,640 --------- --------- -------- 89,190 124,300 68,540 --------- --------- -------- Interest expense............................... (120,420) (114,400) (94,280) --------- --------- -------- $ (7,300) $ 39,100 $ 27,900 ========= ========= ========
Other interest income for 1999, 1998 and 1997 includes $46.6 million, $41.5 million and $36.8 million, respectively, from the 12% pay-in-kind junior debt securities of Furnishings International Inc. Such interest income began to accrue in August 1996 upon the sale of the Company's home furnishings businesses. Other interest income for 1997 includes $7.5 million of interest income from a $151 million note receivable from MascoTech, which was paid on September 30, 1997. Other items in 1999 include approximately $30 million of income and gains, net regarding certain non-operating assets and $7.6 million of dividend income from the Company's investment in Furnishings International's 13% cumulative preferred stock. Also included in other items for 1999 were approximately $4 million of expenses related to the early retirement of debt. Other items in 1998 include pre-tax gains aggregating approximately $59 million from sales of the Company's Thermador subsidiary ($30 million) and the Company's investment in TriMas Corporation ($29 million). Also included in other items for 1998 were $7 million of dividend income from the Company's investment in Furnishings International's 13% cumulative preferred stock and an approximate $12 million pre-tax charge related to the early retirement of long-term debt. Other items in 1997 include $10.8 million of dividend income from the Company's investment in Furnishings International's 13% cumulative preferred stock and net gains aggregating approximately $28 million related to the sales of certain non-operating assets as well as charges aggregating approximately $30 million principally for the adjustment of the Company's Payless Cashways investment to its estimated fair value. During the second quarter of 1997, MascoTech effected conversion of all of its publicly held outstanding convertible preferred stock with the issuance of approximately 10 million shares of its common stock. This conversion reduced the Company's common equity ownership in MascoTech to 17 percent from 21 percent, and increased the Company's equity in MascoTech's net book value by approximately $29.5 million. As a result, the Company recognized a pre-tax gain of $29.5 million during the second quarter of 1997. 28 31 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INCOME TAXES
(IN THOUSANDS) 1999 1998 1997 --------- --------- -------- Income before income taxes: U.S. ......................................... $ 783,910 $ 787,090 $640,660 Foreign....................................... 120,190 118,410 93,140 --------- --------- -------- $ 904,100 $ 905,500 $733,800 ========= ========= ======== Provision for income taxes: Currently payable: U.S. Federal............................... $ 256,420 $ 203,200 $183,430 State and local............................ 27,800 28,290 30,520 Foreign.................................... 45,040 47,250 41,110 Deferred: U.S. Federal............................... (1,270) 49,250 28,000 Foreign.................................... 6,510 12,410 6,640 --------- --------- -------- $ 334,500 $ 340,400 $289,700 ========= ========= ======== Deferred tax assets at December 31: Intangibles................................... $ 11,540 $ 18,160 Inventories................................... 5,530 12,210 Accrued liabilities........................... 59,170 51,580 Capital loss carryforward..................... 100,570 117,760 Other, principally equity investments......... 60,550 52,060 --------- --------- 237,360 251,770 Valuation allowance........................... (127,320) (156,700) --------- --------- 110,040 95,070 --------- --------- Deferred tax liabilities at December 31: Property and equipment........................ 206,110 193,340 Other......................................... 37,610 30,170 --------- --------- 243,720 223,510 --------- --------- Net deferred tax liability at December 31....... $ 133,680 $ 128,440 ========= =========
At December 31, 1999 and 1998, net deferred tax liability consists of net short-term deferred tax assets of $25.0 million and $25.9 million, respectively, and net long-term deferred tax liabilities of $158.7 million and $154.3 million, respectively. A valuation allowance of approximately $127.3 million and $156.7 million was recorded at December 31, 1999 and 1998, respectively, primarily due to the Company's inability to quantify the major portion of its capital loss carryforward which may ultimately be realized. Such capital loss benefit pertains to a $100.6 million and $117.8 million after-tax capital loss carryforward at December 31, 1999 and 1998, respectively, on the 1996 disposition of the Company's home furnishings products segment and a $26.7 million and $38.9 million benefit of a capital nature on the Company's equity and other investments at December 31, 1999 and 1998, respectively. 29 32 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INCOME TAXES -- (CONCLUDED) The following is a reconciliation of the U.S. federal statutory rate:
1999 1998 1997 ---- ---- ---- U.S. federal statutory rate................................ 35% 35% 35% State and local taxes, net of federal tax benefit.......... 2 2 2 Higher taxes on foreign earnings........................... 1 2 3 Dividends-received deduction............................... - - (1) Amortization in excess of tax.............................. 1 1 1 Change in valuation allowance.............................. (2) (2) (2) Other, net................................................. - - 1 -- -- -- Effective tax rate....................................... 37% 38% 39% == == ==
Income taxes paid were approximately $326 million, $216 million and $194 million in 1999, 1998 and 1997, respectively. Earnings of non-U.S. subsidiaries generally become subject to U.S. tax upon the remittance of dividends and under certain other circumstances. Provision has not been made at December 31, 1999 for U.S. or additional foreign withholding taxes on approximately $57.6 million of remaining undistributed net income of non-U.S. subsidiaries, as such income is intended to be permanently reinvested; it is not practical to estimate the amount of deferred tax liability on such income. EARNINGS PER SHARE The following are reconciliations of the numerators and denominators used in the computations of basic and diluted earnings per share, in thousands:
1999 1998 1997 -------- -------- -------- Numerator: Basic (Net income)............................ $569,600 $565,100 $444,100 Add convertible debenture interest, net (1)... -- 700 5,880 -------- -------- -------- Diluted (Net income).......................... $569,600 $565,800 $449,980 ======== ======== ======== Denominator: Basic shares (based on weighted average)...... 435,600 435,500 423,200 Add: Contingently issued shares................. 7,300 7,200 6,600 Stock option dilution...................... 3,300 3,800 3,200 Convertible debentures (1)................. -- 1,000 8,400 -------- -------- -------- Diluted shares................................ 446,200 447,500 441,400 ======== ======== ========
(1) The Company called these debentures for redemption on February 12, 1998. Substantially all holders exercised their right to convert these debentures into Company common stock. 30 33 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) COMBINED FINANCIAL STATEMENTS (UNAUDITED) For 1999 and 1998, the following presents, as one entity with Masco Corporation as the parent company, the combined unaudited financial statements of the Company and MascoTech, Inc., and for 1997, the combined unaudited financial statements of the Company, MascoTech and TriMas Corporation. Intercompany transactions have been eliminated. Amounts, except per share data, are in thousands. (MascoTech completed its acquisition of TriMas Corporation in early 1998.)
AT DECEMBER 31 ------------------------ 1999 1998 ---------- ---------- COMBINED BALANCE SHEETS Assets Current assets: Cash and cash investments........................... $ 235,270 $ 582,540 Receivables......................................... 1,221,590 1,023,620 Prepaid expenses and other.......................... 169,570 131,940 Inventories: Raw material..................................... 358,480 324,990 Finished goods................................... 376,680 324,420 Work in process.................................. 218,310 195,870 ---------- ---------- 953,470 845,280 ---------- ---------- Total current assets........................... 2,579,900 2,583,380 Equity investments in affiliates...................... 244,280 258,580 Securities of Furnishings International Inc. ......... 481,270 434,640 Property and equipment................................ 2,347,040 2,035,960 Acquired goodwill, net................................ 2,519,530 1,836,450 Other assets.......................................... 511,510 516,990 ---------- ---------- Total assets................................... $8,683,530 $7,666,000 ========== ========== Liabilities and Shareholders' Equity Current liabilities: Notes payable....................................... $ 62,300 $ 314,140 Accounts payable.................................... 358,300 306,940 Accrued liabilities................................. 654,230 605,320 ---------- ---------- Total current liabilities...................... 1,074,830 1,226,400 Long-term debt........................................ 3,804,160 3,026,530 Deferred income taxes and other....................... 420,320 428,540 Other interests in combined affiliates................ 247,720 210,490 ---------- ---------- Total liabilities.............................. 5,547,030 4,891,960 Equity of shareholders of Masco Corporation........... 3,136,500 2,774,040 ---------- ---------- Total liabilities and shareholders' equity..... $8,683,530 $7,666,000 ========== ==========
31 34 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) COMBINED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31 --------------------------------------- 1999 1998 1997 ----------- ----------- ----------- COMBINED STATEMENTS OF INCOME Net sales.............................................. $ 7,976,720 $ 6,902,620 $ 6,071,450 Cost of sales.......................................... (5,232,220) (4,543,950) (3,982,430) Selling, general and administrative expenses........... (1,617,670) (1,285,460) (1,167,710) ----------- ----------- ----------- Operating profit............................. 1,126,830 1,073,210 921,310 ----------- ----------- ----------- Other income (expense), net: Interest expense..................................... (201,240) (195,900) (128,730) Other, net........................................... 102,550 157,350 151,820 ----------- ----------- ----------- (98,690) (38,550) 23,090 ----------- ----------- ----------- Income before income taxes and other interests.................................. 1,028,140 1,034,660 944,400 Income taxes........................................... (382,180) (388,230) (388,310) Other interests in combined affiliates................. (76,360) (81,330) (111,990) ----------- ----------- ----------- Net income................................... $ 569,600 $ 565,100 $ 444,100 =========== =========== =========== Earnings per share: Basic................................................ $1.31 $1.30 $1.05 =========== =========== =========== Diluted.............................................. $1.28 $1.26 $1.02 =========== =========== ===========
32 35 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) COMBINED FINANCIAL STATEMENTS (UNAUDITED) -- (CONCLUDED)
FOR THE YEARS ENDED DECEMBER 31 ------------------------------------- 1999 1998 1997 ----------- ----------- --------- COMBINED STATEMENTS OF CASH FLOWS Cash Flows From (For) Operating Activities: Net income............................................ $ 569,600 $ 565,100 $ 444,100 Depreciation and amortization......................... 265,120 240,310 200,650 Interest accrual on pay-in-kind notes receivable...... (46,630) (41,500) (36,800) Unremitted equity earnings of affiliates.............. (15,730) (16,820) (9,060) Deferred income taxes................................. 14,800 61,550 56,990 Gains on disposition of businesses, net............... (14,440) (14,720) (4,980) Gain from change in investment........................ -- (7,000) (4,980) Other interests in net income of combined affiliates, net................................................ 76,360 81,330 111,990 Increase in receivables............................... (120,330) (105,630) (73,630) Increase in inventories............................... (67,880) (75,510) (55,760) Increase in accounts payable and accrued liabilities, net................................................ 9,150 14,280 76,600 Other, net............................................ (29,760) 15,860 (11,220) ----------- ----------- --------- Net cash from operating activities............ 640,260 717,250 693,900 ----------- ----------- --------- Cash Flows From (For) Investing Activities: Acquisition of other interests in TriMas Corporation........................................ -- (869,680) -- Acquisitions, net of cash acquired.................... (883,500) (377,770) (198,020) Capital expenditures.................................. (486,590) (349,680) (298,530) Cash proceeds from sale of subsidiaries............... 92,620 108,020 76,560 Proceeds from redemption of debt by affiliates........ -- 80,500 -- Other, net............................................ 13,150 (37,380) (47,500) ----------- ----------- --------- Net cash (for) investing activities........... (1,264,320) (1,445,990) (467,490) ----------- ----------- --------- Cash Flows From (For) Financing Activities: Increase in debt...................................... 1,244,370 1,894,460 355,930 Payment of debt....................................... (676,990) (826,710) (135,400) Purchase of Company common stock for: Treasury........................................... (119,130) (106,880) (14,970) Long-term stock incentive award plan............... (6,840) (46,800) (29,110) Cash dividends paid................................... (176,110) (155,500) (151,970) Capital contributions from shareholders of pooled companies.......................................... 11,490 1,520 245,450 Distributions to shareholders of pooled companies..... -- (45,950) (536,060) ----------- ----------- --------- Net cash from (for) financing activities...... 276,790 714,140 (266,130) ----------- ----------- --------- Cash and Cash Investments: Decrease for the year................................. (347,270) (14,600) (39,720) At January 1.......................................... 582,540 597,140 636,860 ----------- ----------- --------- At December 31........................................ $ 235,270 $ 582,540 $ 597,140 =========== =========== =========
33 36 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED) INTERIM FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) QUARTERS ENDED AUDITED ------------------------------------------------------- YEAR DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31 ---------- ----------- ------------ ---------- ---------- 1999: Net sales....................... $6,307,000 $1,645,000 $1,704,000 $1,567,000 $1,391,000 Gross profit.................... $2,311,470 $ 592,070 $ 622,000 $ 580,800 $ 516,600 Net income...................... $ 569,600 $ 178,700 $ 64,900 $ 174,100 $ 151,900 Earnings per share: Basic......................... $1.31 $.41 $.15 $.40 $.35 Diluted....................... $1.28 $.40 $.15 $.39 $.34 1998: Net sales....................... $5,280,000 $1,327,000 $1,380,000 $1,327,000 $1,246,000 Gross profit.................... $1,932,100 $ 463,800 $ 510,400 $ 496,300 $ 461,600 Net income...................... $ 565,100 $ 137,800 $ 152,800 $ 144,100 $ 130,400 Earnings per share: Basic......................... $1.30 $.32 $.35 $.33 $.30 Diluted....................... $1.26 $.31 $.34 $.32 $.29 Diluted earnings per share, excluding amortization of acquired goodwill: 1999.......................... $1.37 $.43 $.17 $.41 $.36 1998.......................... $1.32 $.33 $.36 $.33 $.30
Net income and earnings per share for the third quarter and year of 1999 include unusual after-tax expense, principally related to transaction costs associated with poolings of interests. 34 37 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements See Part II, Item 8 hereof. 3. Exhibits The list of Exhibits is amended by substituting Exhibit 23.a, as listed in the Exhibit Index attached hereto, for the previous Exhibit 23.a. All other information pertaining to this subsection is as set forth in the Original Filing. 35 38 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-K/A to be signed on its behalf by the undersigned, thereunto duly authorized. MASCO CORPORATION By /s/ RICHARD G. MOSTELLER ------------------------------------ RICHARD G. MOSTELLER Senior Vice President -- Finance November 1, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K/A has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. PRINCIPAL EXECUTIVE OFFICER: /s/ RICHARD A. MANOOGIAN Chairman of the Board and Chief --------------------------------- Executive Officer RICHARD A. MANOOGIAN PRINCIPAL FINANCIAL OFFICER: /s/ RICHARD G. MOSTELLER Senior Vice President -- Finance - ----------------------------------- RICHARD G. MOSTELLER PRINCIPAL ACCOUNTING OFFICER: /s/ ROBERT B. ROSOWSKI Vice President -- Controller and - ----------------------------------- Treasurer ROBERT B. ROSOWSKI /s/ THOMAS G. DENOMME Director - ----------------------------------- THOMAS G. DENOMME /s/ JOSEPH L. HUDSON, JR. Director - ----------------------------------- JOSEPH L. HUDSON, JR. /s/ VERNE G. ISTOCK Director - ----------------------------------- VERNE G. ISTOCK /s/ RAYMOND F. KENNEDY President and Chief Operating Officer - ----------------------------------- and Director RAYMOND F. KENNEDY /s/ MARY ANN KREY Director - ----------------------------------- MARY ANN KREY /s/ WAYNE B. LYON Director - ----------------------------------- WAYNE B. LYON /s/ JOHN A. MORGAN Director - ----------------------------------- JOHN A. MORGAN /s/ ARMAN SIMONE Director - ----------------------------------- ARMAN SIMONE /s/ PETER W. STROH Director - ----------------------------------- PETER W. STROH
November 1, 2000 39 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- Exhibit 23.a Consent of PricewaterhouseCoopers LLP relating to Masco Corporation's Consolidated Financial Statements and Financial Statement Schedules. (filed herewith)
EX-23.A 2 k58059ex23-a.txt CONSENT OF INDEPENDENT ACCOUNTANTS 1 EXHIBIT 23.a CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-27765 and 333-36477) and Form S-8 (Nos. 33-28142, 33-42229, 333-30867, 333-64573, 333-74815, and 333-37338) of Masco Corporation of our report dated February 16, 2000, except as to the Segment Information Note which is as of October 24, 2000, relating to the financial statements and financial statement schedule, which appears in this Form 10-K/A. We also consent to the reference to us under the heading "Experts" in such Registration Statements on Form S-3. PricewaterhouseCoopers LLP Detroit, Michigan November 1, 2000 -----END PRIVACY-ENHANCED MESSAGE-----