-----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, PbATV2rOJk9HXPZB253C9tsVKvSJmM+1H9xM2X7780d6HKov3J39EA6SZeQ+5gQF FtQDjKuZ5S3pidcAj6lbXQ== 0000950124-01-501115.txt : 20010515 0000950124-01-501115.hdr.sgml : 20010515 ACCESSION NUMBER: 0000950124-01-501115 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MASCO CORP /DE/ CENTRAL INDEX KEY: 0000062996 STANDARD INDUSTRIAL CLASSIFICATION: MILLWOOD, VENEER, PLYWOOD & STRUCTURAL WOOD MEMBERS [2430] IRS NUMBER: 381794485 STATE OF INCORPORATION: DE FISCAL YEAR END: 0405 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05794 FILM NUMBER: 1633107 BUSINESS ADDRESS: STREET 1: 21001 VAN BORN RD CITY: TAYLOR STATE: MI ZIP: 48180 BUSINESS PHONE: 3132747400 MAIL ADDRESS: STREET 1: 21001 VAN BORN ROAD CITY: TAYLOR STATE: MI ZIP: 48180 FORMER COMPANY: FORMER CONFORMED NAME: MASCO SCREW PRODUCTS CO DATE OF NAME CHANGE: 19731025 10-Q 1 k62290e10-q.txt FORM 10-Q FOR PERIOD ENDING MARCH 31, 2001 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTER ENDED MARCH 31, 2001. COMMISSION FILE NUMBER 1-5794 MASCO CORPORATION - -------------------------------------------------------------------------------- (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 38-1794485 - -------------------------------------------------------------------------------- (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 21001 VAN BORN ROAD, TAYLOR, MICHIGAN 48180 - -------------------------------------------------------------------------------- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (313) 274-7400 - -------------------------------------------------------------------------------- (TELEPHONE NUMBER) INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ----- ----- INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICAL DATE. SHARES OUTSTANDING AT CLASS MAY 1, 2001 ----- --------------------- COMMON STOCK, PAR VALUE $1 PER SHARE 459,855,000 2 MASCO CORPORATION INDEX
PAGE NO. -------- Part I. Financial Information Item 1. Financial Statements: Condensed Consolidated Balance Sheet - March 31, 2001 and December 31, 2000 1 Condensed Consolidated Statement of Income for the Three Months Ended March 31, 2001 and 2000 2 Condensed Consolidated Statement of Cash Flows for the Three Months Ended March 31, 2001 and 2000 3 Notes to Condensed Consolidated Financial Statements 4-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-11 Part II. Other Information and Signature 12-13
3 MASCO CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET March 31, 2001 and December 31, 2000 (Dollars in thousands, except share and per share data) ------------------------
MARCH 31, DECEMBER 31, ASSETS 2001 2000 ------ ---------- ------------ Current assets: Cash and cash investments $ 89,430 $ 169,430 Accounts and notes receivable, net 1,287,650 1,099,150 Prepaid expenses and other 143,030 126,620 Inventories: Raw material 382,220 348,420 Finished goods 416,570 377,270 Work in process 189,770 187,270 ---------- ---------- 988,560 912,960 ---------- ---------- Total current assets 2,508,670 2,308,160 Equity investments in affiliates 81,840 87,460 Securities of Furnishings International Inc. 557,950 533,670 Property and equipment, net 1,924,820 1,906,840 Acquired goodwill, net 2,666,120 2,190,770 Other noncurrent assets 834,180 717,100 ---------- ---------- Total assets $8,573,580 $7,744,000 ========== ========== LIABILITIES ----------- Current liabilities: Notes payable $ 216,610 $ 210,950 Accounts payable 279,330 250,460 Accrued liabilities 603,690 616,640 ---------- ---------- Total current liabilities 1,099,630 1,078,050 Long-term debt 3,604,760 3,018,240 Deferred income taxes and other 193,810 221,650 ---------- ---------- Total liabilities 4,898,200 4,317,940 ---------- ---------- SHAREHOLDERS' EQUITY -------------------- Common stock, par value $1 per share Authorized shares: 900,000,000 459,810 444,750 Preferred shares authorized: 1,000,000 --- --- Paid-in capital 868,440 631,120 Retained earnings 2,573,170 2,519,940 Other comprehensive income (loss) (226,040) (169,750) ---------- ---------- Total shareholders' equity 3,675,380 3,426,060 ---------- ---------- Total liabilities and shareholders' equity $8,573,580 $7,744,000 ========== ==========
See notes to condensed consolidated financial statements. 1 4 MASCO CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA) ------------------------
THREE MONTHS ENDED MARCH 31 --------------------------- 2001 2000 ---------- ---------- Net sales $1,911,000 $1,746,000 Cost of sales 1,337,500 1,171,200 ---------- ---------- Gross profit 573,500 574,800 Selling, general and administrative expenses 333,700 292,100 Amortization of acquired goodwill 23,000 14,200 ---------- ---------- Operating profit 216,800 268,500 ---------- ---------- Other income (expense), net: Interest expense (58,300) (38,800) Equity earnings from MascoTech, Inc. --- 4,300 Other, net 18,500 42,000 ---------- ---------- (39,800) 7,500 ---------- ---------- Income before income taxes 177,000 276,000 Income taxes 62,000 102,000 ---------- ---------- Net income $ 115,000 $ 174,000 ========== ========== Earnings per share: Basic $.25 $.40 ==== ==== Diluted $.25 $.39 ==== ==== Cash dividends declared and paid per share $.13 $.12 ==== ====
See notes to condensed consolidated financial statements. 2 5 MASCO CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2000 (DOLLARS IN THOUSANDS) ------------------------
THREE MONTHS ENDED MARCH 31 --------------------- 2001 2000 -------- --------- CASH FLOWS FROM (FOR) OPERATING ACTIVITIES: Cash provided by operations $ 138,300 $ 165,210 Increase in receivables (96,630) (133,530) Increase in inventories (45,560) (64,620) Increase (decrease) in accounts payable and accrued liabilities, net (27,810) 51,470 --------- --------- Total cash from (for) operating activities (31,700) 18,530 --------- --------- CASH FLOWS FROM (FOR) FINANCING ACTIVITIES: Issuance of 6.75% notes 800,000 - Increase in debt 284,930 287,870 Payment of debt (819,300) (24,730) Purchase of Company common stock for: Retirement (25,190) - Long-term stock incentive award plan (22,950) (840) Cash dividends paid (59,790) (53,350) --------- --------- Total cash from financing activities 157,700 208,950 --------- --------- CASH FLOWS FROM (FOR) INVESTING ACTIVITIES: Acquisition of companies, net of cash acquired (77,620) (170,360) Capital expenditures (65,260) (86,110) Investments in non-operating assets, net (80,420) (82,340) Other, net 17,300 (45,230) --------- --------- Total cash (for) investing activities (206,000) (384,040) --------- --------- CASH AND CASH INVESTMENTS: (Decrease) for the quarter (80,000) (156,560) At January 1 169,430 230,780 --------- --------- At March 31 $ 89,430 $ 74,220 ========= =========
See notes to condensed consolidated financial statements. 3 6 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS A. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary to present fairly its financial position as at March 31, 2001 and the results of operations and changes in cash flows for the three months ended March 31, 2001 and 2000. The condensed consolidated balance sheet at December 31, 2000 was derived from audited financial statements. As a result of the Financial Accounting Standards Board Emerging Issues Task Force ("EITF") Issue Number 00-10, "Accounting for Shipping and Handling Fees and Costs," in late 2000, the Company changed its policy for the classification of shipping and handling costs. The change resulted in the reclassification of shipping and handling costs from selling, general and administrative expenses to cost of sales. Prior year amounts have been reclassified for this change in policy. This reclassification did not result in a change in net income or earnings per share. On January 1, 2001, the Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" became effective. The SFAS No. 133 did not have a material effect on the Company's financial statements. B. The following are reconciliations of the numerators and denominators used in the computations of basic and diluted earnings per share, in thousands:
THREE MONTHS ENDED MARCH 31 ------------------------- 2001 2000 -------- -------- Numerator: Net income $115,000 $174,000 ======== ======== Denominator: Basic shares (based on weighted average) 451,900 439,700 Add: Contingent shares 9,000 6,900 Stock option dilution 2,800 1,400 -------- -------- Diluted shares 463,700 448,000 ======== ========
C. In January 2001, the Company completed the previously announced acquisition of BSI Holdings, Inc. BSI Holdings is headquartered in Carmel, California and is a provider of installed insulation and other products within the United States and Canada. In April 2001, the Company acquired two smaller companies. These three acquisitions have combined annualized net sales of over $800 million. The aggregate net purchase price of these acquisitions, including assumed debt of approximately $310 million, was $750 million and included 15 million shares of Company common stock valued at $265 million. Certain purchase agreements of recent acquisitions provide for the payment of additional consideration, contingent upon certain conditions being met. Such additional consideration totaled $15 million, during the quarter ended March 31, 2001, and has been recorded as additional acquired goodwill. 4 7 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) D. Other income (expense), net consists of the following, in thousands:
THREE MONTHS ENDED MARCH 31 -------------------- 2001 2000 -------- -------- Interest expense $(58,300) $(38,800) Equity earnings from MascoTech, Inc. --- 4,300 Equity earnings (loss), other (1,400) 1,000 Income from cash and cash investments 1,700 1,400 Other interest income 16,100 14,100 Other, net 2,100 25,500 -------- -------- $(39,800) $ 7,500 ======== ========
Other interest income for the three months ended March 31, 2001 and 2000 included $14.7 million and $12.8 million, respectively, of interest income from the 12% pay-in-kind junior debt securities of Furnishings International Inc. (approximately $476 million at December 31, 2000). Other, net for the first quarter of 2000 primarily represents income and gains, net regarding certain non-operating assets. Interest expense for the first quarter of 2001 increased $19.5 million to $58.3 million as compared with interest expense of $38.8 million in the first quarter of 2000. The increase in interest expense primarily pertains to borrowings related to recent acquisitions. E. The following table presents information about the Company by segment, in millions:
THREE MONTHS ENDED MARCH 31 --------------------------------------- 2001 2000 2001 2000 --------------------------------------- Net Sales (1) Operating Profit (2) ---------------- --------------------- The Company's operations by segment were: Cabinets and Related Products $ 605 $ 631 $ 67 $ 87 Plumbing Products 419 473 51 92 Decorative Architectural Products 330 307 57 64 Insulation Installation and Other Services 426 183 51 25 Other Specialty Products 131 152 15 25 ------ ------ ---- ---- Total $1,911 $1,746 $241 $293 ====== ====== ==== ==== The Company's operations by geographic area were: North America $1,608 $1,414 $209 $251 International, principally Europe 303 332 32 42 ------ ------ ---- ---- Total $1,911 $1,746 241 293 ====== ====== General corporate expense, net (24) (25) ---- ---- Operating profit, after general corporate expense 217 268 Other income (expense), net (40) 8 ---- ---- Income before income taxes $177 $276 ==== ====
(1) Intra-company sales among segments were not material. (2) Amortization of acquired goodwill is included in determining operating profit. 5 8 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) F. The Company's total comprehensive income was as follows, in thousands:
THREE MONTHS ENDED MARCH 31 -------------------- 2001 2000 -------- ------- Net income $115,000 $174,000 Other comprehensive income (loss) (56,290) (19,150) -------- -------- Total comprehensive income $ 58,710 $154,850 ======== ========
G. During March 2001, the Company issued $800 million of 6 3/4% notes due 2006. Early in the second quarter of 2001, the Company increased its shelf registration to $2 billion. In early May 2001, the Company issued $500 million of 6% notes due 2004. Proceeds from the debt issuances were used principally to retire outstanding variable-rate bank debt. The Company now 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 $1.5 billion of debt and equity securities. H. The Company is subject to lawsuits and claims pending or asserted with respect to matters arising in the ordinary course of business. In May 1998, a civil suit was filed in the Grays Harbor County, Washington Superior Court against Behr Process Corporation, a subsidiary of the Company. The case involves four exterior wood coating products, which represent a relatively small part of Behr's total sales. The plaintiffs allege, among other things, that after applying these products, the wood surfaces suffered excessive mildewing in the very humid climate of western Washington. The trial court certified the case as a class action, including all purchasers of the products who reside in nineteen counties in western Washington. Behr denies the allegations. Although Behr believes that the subject products have been purchased by thousands of consumers in western Washington, consumer complaints in the past have been relatively small compared to the total volume of products sold. In May 2000, the court entered a default against Behr as a discovery sanction. Thereafter, the jury returned a verdict awarding damages to the named plaintiffs. The damages awarded for the eight homeowner claims (excluding one award to the owners of a vacation resort) ranged individually from $14,500 to $38,000. The awards were calculated using a formula based on the product used, the nature and square footage of wood surface and certain other allowances. Under the verdict, the same formula will be used for calculating awards on claims that may be submitted by the subject purchasers of these products. In July 2000, the court awarded additional damages of $10,000 per claim to the eight homeowner claims under the Washington Consumer Protection Act. This increased the total damages awarded on the homeowner claims to approximately $263,000. The court denied the plaintiffs' request for an award of additional damages on claims that may be submitted by other class members. In addition, the court granted the plaintiffs' motion for attorneys' fees. Behr is appealing the judgment. At this time, the Company is not in a position to estimate reliably the number of class members, the number of claims that may be filed or the awards that class members may seek. Although Behr is not able to estimate the amount of any potential liability, Behr believes that there have been numerous rulings by the trial court that constitute reversible error and that there are valid defenses to the lawsuit. The Company has made no provision for any potential loss in the Company's consolidated financial statements. 6 9 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED) Note H - continued: Behr has also been served with nineteen complaints filed by consumers in the state courts in Alabama, Alaska, California, Illinois, New York, Oregon, and Washington, and in British Columbia, Canada. The complaints allege that some of Behr's exterior wood coating products fail to perform as warranted, resulting in damage to the plaintiffs' wood surfaces. Some of the complaints seek nationwide class action certification; others seek class action certification for one state or region. Discovery in the lawsuits has only recently begun. Proceedings in the eleven California actions will be coordinated in the San Joaquin, California Superior Court. In addition, Behr and the Company have recently been notified that a complaint containing similar allegations has been filed in Ontario, Canada. This complaint has not yet been served. Behr and the Company are defending the lawsuits and believe that there are substantial grounds for denial of class action certification and that there are substantial defenses to the claims. Two of Behr's liability insurers are participating in Behr's defense of the class actions subject to a reservation of rights. One insurer has filed a declaratory judgment action in the Orange County, California Superior Court seeking a declaration that the claims asserted in the class action complaints are not covered by Behr's insurance policies. The other insurer was named as a defendant in the suit and has filed cross-claims against Behr seeking a similar declaration. 7 10 MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FIRST QUARTER 2001 VERSUS FIRST QUARTER 2000 SALES AND OPERATIONS The following table sets forth the Company's net sales and operating profit margin information by segment and geographic area, dollars in millions.
PERCENT INCREASE (DECREASE) ---------------- THREE MONTHS ENDED 2001 2001 MARCH 31, VS. VS. ------------------ 2001 2000 2000 2000(A) ------------------ ---- ------- NET SALES: Cabinets and Related Products $ 605 $ 631 (4%) (4%) Plumbing Products 419 473 (11%) (13%) Decorative Architectural Products 330 307 7% (2%) Insulation Installation and Other Services 426 183 133% 21% Other Specialty Products 131 152 (14%) (8%) ------ ------ Total $1,911 $1,746 9% (4%) ====== ====== North America $1,608 $1,414 14% (2%) International, principally Europe 303 332 (9%) (12%) ------ ------ Total $1,911 $1,746 9% (4%) ====== ====== OPERATING PROFIT MARGIN: (B) Cabinets and Related Products 11.1% 13.8% Plumbing Products 12.2% 19.5% Decorative Architectural Products 17.3% 20.8% Insulation Installation and Other Services 12.0% 13.7% Other Specialty Products 11.5% 16.4% North America 13.0% 17.8% International, principally Europe 10.6% 12.7% Total 12.6% 16.8%
(A) Percentage change in sales, excluding purchase acquisitions and divestitures. (B) Before general corporate expense, but including goodwill amortization. Net sales for the three months ended March 31, 2001 increased 9 percent from the comparable period in 2000; excluding purchase acquisitions and divestitures, first quarter 2001 net sales decreased 4 percent from the comparable period of the prior year. The Company continued to experience weak economic and business conditions in its markets in the first quarter of 2001, including a softening in sales of home improvement products in North America and Europe, customer inventory reduction programs, competitive pricing pressures and the effect of a stronger U.S. dollar. Changes in net sales in the following segment and geographic area discussion exclude the influence of purchase acquisitions and divestitures. 8 11 MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The previously mentioned conditions contributed to sales declines in the first quarter of 2001 from the comparable period of the prior year of 4 percent, 13 percent, 2 percent and 8 percent in the Cabinets and Related Products, Plumbing Products, Decorative Architectural Products and Other Specialty Products segments, respectively. Net sales of the Company's Insulation Installation and Other Services segment increased 21 percent in the first quarter of 2001 principally due to broader geographic U.S. market penetration. Net sales from North American and International operations for the first quarter of 2001 declined 2 percent and 12 percent, respectively, as compared with the first quarter of 2000. A stronger U.S. dollar, principally against the Euro, had an unfavorable effect on the translation of International sales in the first quarter of 2001, lowering International sales by approximately 7 percent. OPERATING PROFIT MARGIN Cost of sales as a percentage of sales increased to 70.0 percent for the first quarter of 2001 from 67.1 percent for the comparable period in 2000. Including amortization of acquired goodwill ($23.0 million and $14.2 million for the first quarters of 2001 and 2000, respectively), selling, general and administrative expenses as a percentage of sales increased to 18.7 percent for the first quarter of 2001 from 17.5 percent for the comparable period in 2000. Excluding amortization of acquired goodwill, selling, general and administrative expenses as a percentage of sales were 17.5 percent for the first quarter of 2001 and 16.7 percent for the comparable period of the prior year. The Company's operating profit margin, before general corporate expense, was 12.6 percent for the first quarter of 2001 as compared with 16.8 percent for the first quarter of 2000. Operating profit margin, after general corporate expense, was 11.3 percent for the first quarter of 2001 as compared with 15.4 percent for the first quarter of 2000. The Company's operating profit margin decreased in the first quarter of 2001 as compared with the first quarter of 2000, due principally to higher cost of sales and selling, general and administrative expenses as a percentage of sales and higher goodwill amortization relating to recent acquisitions. The increase in cost of sales as a percentage of sales reflects the under-absorption of fixed costs, in part related to the higher level of capital expenditures in recent years, as well as sales declines in all of the Company's business segments except the Insulation Installation and Other Services segment. Gross margins of certain acquired companies, which were lower than the Company average, and higher energy costs also contributed to the increase in the cost of sales percentage, as did a less favorable product mix and competitive pricing pressures, particularly in the Plumbing Products segment. The increase in selling, general and administrative expenses as a percentage of sales results largely from the allocation of fixed costs over a lower sales base. 9 12 MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OTHER INCOME (EXPENSE), NET Included in other interest income for the three months ended March 31, 2001 and 2000 is $14.7 million and $12.8 million, respectively, of interest income from the 12% pay-in-kind junior debt securities of Furnishings International Inc. Other, net for the first quarter of 2000 primarily represents income and gains, net regarding certain non-operating assets. Interest expense for the first quarter of 2001 increased $19.5 million to $58.3 million as compared with interest expense of $38.8 million in the first quarter of 2000. The increase in interest expense primarily pertains to borrowings related to recent acquisitions. NET INCOME AND EARNINGS PER SHARE Net income and diluted earnings per share for the first quarter of 2001 decreased 34 percent and 36 percent, respectively, to $115.0 million and $.25 from $174.0 million and $.39, respectively, for the comparable period of 2000, due principally to the previously mentioned items. The Company's effective tax rate for the three months ended March 31, 2001 was 35.0 percent, as compared with 37.0 percent for the comparable period of the prior year. The Company estimates that its effective tax rate should approximate 35.0 percent for 2001. OTHER FINANCIAL INFORMATION The Company's current ratio was 2.3 to 1 at March 31, 2001, as compared with 2.1 to 1 at December 31, 2000. For the three months ended March 31, 2001, cash of $31.7 million was used by operating activities. Cash provided by financing activities was $157.7 million, including $265.6 million from a net increase in long-term debt. Cash used for financing activities included $25.2 million for the acquisition of Company common stock in open-market transactions, $22.9 million for the acquisition of Company common stock for the Company's long-term stock incentive award plan and $59.8 million for cash dividends paid. Cash used for investing activities was $206.0 million, including $77.6 million for acquisitions, $65.3 million for capital expenditures and $63.1 million for investments in noncurrent assets and other, net. The aggregate of the preceding items represents a net cash outflow of $80.0 million. Changes in working capital and debt as indicated on the statement of cash flows exclude the working capital and debt of acquired companies at the time of acquisition. First quarter 2001 cash from operations was affected by an expected and annually recurring first quarter increase in accounts receivable as compared with December 31, 2000 (although there was no significant increase in receivable days). Most of the annual increase in accounts receivable is typically experienced in the first half of the year. 10 13 MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS During the first quarter of 2001, the Company repurchased approximately 1.1 million of its shares in open-market transactions for retirement. At March 31, 2001, the Company had remaining Board of Directors authorization to repurchase up to an additional 26.3 million shares of its common stock for retirement in open-market transactions or otherwise. During March 2001, the Company issued $800 million of 6 3/4% notes due 2006. Early in the second quarter of 2001, the Company increased its shelf registration to $2 billion. In early May 2001, the Company issued $500 million of 6% notes due 2004. Proceeds from the debt issuances were used principally to retire outstanding variable-rate bank debt. The Company now 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 $1.5 billion of debt and equity securities. The Company is subject to lawsuits and claims pending or asserted with respect to matters generally arising in the ordinary course of business. Note H of the Condensed Consolidated Financial Statements discusses specific claims pending against the Company and its subsidiary, Behr Process Corporation, with respect to several of Behr's exterior wood coating products. The Company believes that its present cash balance, its cash flows from operations and, to the extent necessary, bank borrowings and future financial market activities, are sufficient to fund its working capital and other investment needs. 11 14 PART II. OTHER INFORMATION MASCO CORPORATION ITEM 1. LEGAL PROCEEDINGS Information regarding this item is set forth in Note H to the Company's Condensed Consolidated Financial Statements included in Part I, Item 1 of this Report. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On January 4, 2001, the Company completed its previously announced acquisition of BSI Holdings, Inc. The shareholders of the acquired company received 15.0 million unregistered shares of Masco common stock as part of the consideration paid for this acquisition. The Company relied on the exemption from registration under Section 3(a)(10) of the Securities Act of 1933. ITEMS 3 THROUGH 5 ARE NOT APPLICABLE. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS: 12 - Computation of Ratio of Earnings to Fixed Charges (B) REPORTS ON FORM 8-K: Report on Form 8-K dated March 28, 2001, filing the Company's press release regarding its results of operations. 12 15 PART II. OTHER INFORMATION MASCO CORPORATION SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MASCO CORPORATION (Registrant) DATE: MAY 14, 2001 BY: /s/ Richard G. Mosteller --------------------- ------------------------------------ Richard G. Mosteller Senior Vice-President - Finance (Chief Financial Officer and Authorized Signatory) 13 16 MASCO CORPORATION EXHIBIT INDEX EXHIBIT ------- Exhibit 12 Computation of Ratio of Earnings to Fixed Charges EX-12 2 k62290ex12.txt COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12 MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(THOUSANDS OF DOLLARS) ---------------------------------------------------------------- THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31 ------------------------------------------------------ 2001 2000 1999 1998 1997 1996 -------- ---------- ---------- ---------- -------- -------- EARNINGS BEFORE INCOME TAXES AND FIXED CHARGES: Income from continuing operations before income taxes $177,000 $ 893,400 $ 904,100 $ 905,500 $733,800 $575,600 Deduct/add equity in undistributed (earnings)/loss of fifty-percent-or- less-owned companies 2,770 (9,640) (18,720) (24,070) (19,470) (12,310) Add interest on indebtedness, net 59,090 193,000 121,520 115,700 94,780 78,790 Add amortization of debt expense 490 2,430 1,350 2,130 2,310 1,400 Add estimated interest factor for rentals 5,630 18,760 16,080 11,430 9,270 7,120 -------- ---------- ---------- ---------- -------- -------- Earnings before income taxes and fixed charges $244,980 $1,097,950 $1,024,330 $1,010,690 $820,690 $650,600 ======== ========== ========== ========== ======== ======== FIXED CHARGES: Interest on indebtedness $ 61,230 $ 202,630 $ 129,860 $ 119,750 $ 97,910 $ 81,250 Amortization of debt expense 490 2,430 1,350 2,130 2,310 1,400 Estimated interest factor for rentals 5,630 18,760 16,080 11,430 9,270 7,120 -------- ---------- ---------- ---------- -------- -------- $ 67,350 $ 223,820 $ 147,290 $ 133,310 $109,490 $ 89,770 ======== ========== ========== ========== ======== ======== Ratio of earnings to fixed charges 3.6 4.9 7.0 7.6 7.5 7.2 === === === === === ===
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