-----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, Wharo78pc6bi4d4wUlOPNxk3QAoYy05boeiqcIY57YLFAlogXgbxrCpj+6gRE6hE +z9ZWpPIjfgxYPJ6m8j+mw== 0000950124-04-005321.txt : 20041104 0000950124-04-005321.hdr.sgml : 20041104 20041104164830 ACCESSION NUMBER: 0000950124-04-005321 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20040930 FILED AS OF DATE: 20041104 DATE AS OF CHANGE: 20041104 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: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05794 FILM NUMBER: 041120129 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 k88683e10vq.txt QUARTERLY REPORT FOR PERIOD ENDED 09/30/2004 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTERLY PERIOD ENDED SEPTEMBER 30, 2004. 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 BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN RULE 12b-2 OF THE EXCHANGE ACT). 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 OCTOBER 31, 2004 ----- ------------------ COMMON STOCK, PAR VALUE $1 PER SHARE 448,000,000 MASCO CORPORATION INDEX
PAGE NO. -------- Part I. Financial Information Item 1. Financial Statements: Condensed Consolidated Balance Sheets - September 30, 2004 and December 31, 2003 1 Condensed Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 2004 and 2003 2 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2004 and 2003 3 Notes to Condensed Consolidated Financial Statements 4-17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 18-25 Item 4. Controls and Procedures 26 Part II. Other Information Item 1. Legal Proceedings 27 Item 2. Unregistered Sale of Equity Securities and Use of Proceeds 27 Item 6. Exhibits 28
MASCO CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) SEPTEMBER 30, 2004 AND DECEMBER 31, 2003 (DOLLARS IN MILLIONS EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31, 2004 2003 ------------- ------------ ASSETS ------ Current assets: Cash and cash investments $ 969 $ 795 Accounts and notes receivable, net 1,908 1,674 Prepaid expenses and other 276 316 Inventories: Raw material 386 405 Work in process 153 142 Finished goods 587 472 ------- ------- 1,126 1,019 ------- ------- Total current assets 4,279 3,804 Property and equipment, net 2,165 2,339 Goodwill 4,445 4,491 Other intangible assets, net 330 344 Assets held for sale 175 -- Other assets 995 1,171 ------- ------- Total assets $12,389 $12,149 ======= ======= LIABILITIES ----------- Current liabilities: Notes payable $ 44 $ 334 Accounts payable 852 715 Accrued liabilities 1,130 1,050 ------- ------- Total current liabilities 2,026 2,099 Long-term debt 4,210 3,848 Liabilities held for sale 60 -- Deferred income taxes and other 851 746 ------- ------- Total liabilities 7,147 6,693 ------- ------- Commitments and contingencies SHAREHOLDERS' EQUITY -------------------- Preferred shares, par value $1 per share Authorized shares: 1,000,000; issued: 2004 - ---; 2003 - 20,000 -- -- Common shares, par value $1 per share Authorized shares: 1,400,000,000; issued: 2004 - 449,220,000; 2003 - 458,380,000 449 458 Paid-in capital 724 1,443 Retained earnings 3,856 3,299 Accumulated other comprehensive income (loss) 409 421 Less: Restricted stock awards (196) (165) ------- ------- Total shareholders' equity 5,242 5,456 ------- ------- Total liabilities and shareholders' equity $12,389 $12,149 ======= =======
See notes to condensed consolidated financial statements. 1 MASCO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 (DOLLARS IN MILLIONS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ------------------ 2004 2003 2004 2003 ------ ------ ------ ------ Net sales $3,173 $2,823 $9,040 $7,803 Cost of sales 2,182 1,949 6,224 5,414 ------ ------ ------ ------ Gross profit 991 874 2,816 2,389 Selling, general and administrative expenses 502 459 1,491 1,312 (Income) regarding litigation settlement (2) (58) (30) (71) ------ ------ ------ ------ Operating profit 491 473 1,355 1,148 ------ ------ ------ ------ Other income (expense), net: Interest expense (55) (67) (160) (201) Other, net 24 7 117 54 ------ ------ ------ ------ (31) (60) (43) (147) ------ ------ ------ ------ Income from continuing operations before income taxes and minority interest 460 413 1,312 1,001 Income taxes 167 153 474 357 ------ ------ ------ ------ Income from continuing operations before minority interest 293 260 838 644 Minority interest 4 2 14 8 ------ ------ ------ ------ Income from continuing operations 289 258 824 636 Income (loss) from discontinued operations, after income taxes 70 61 (36) 78 ------ ------ ------ ------ Net income $ 359 $ 319 $ 788 $ 714 ====== ====== ====== ====== Earnings per common share: Basic: Income from continuing operations $ .66 $ .54 $ 1.84 $ 1.32 Income (loss) from discontinued operations, after income taxes .16 .13 (.08) .16 ------ ------ ------ ------ Net income $ .82 $ .67 $ 1.76 $ 1.48 ====== ====== ====== ====== Diluted: Income from continuing operations $ .64 $ .53 $ 1.81 $ 1.28 Income (loss) from discontinued operations, after income taxes .16 .13 (.08) .16 ------ ------ ------ ------ Net income $ .80 $ .65 $ 1.73 $ 1.44 ====== ====== ====== ====== Cash dividends per common share: Declared $ .18 $ .16 $ .50 $ .44 ====== ====== ====== ====== Paid $ .16 $ .14 $ .48 $ .42 ====== ====== ====== ======
See notes to condensed consolidated financial statements. 2 MASCO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND 2003 (DOLLARS IN MILLIONS)
NINE MONTHS ENDED SEPTEMBER 30, ------------------ 2004 2003 ------- ------- CASH FLOWS FROM (FOR) OPERATING ACTIVITIES: Cash provided by operations $1,135 $ 817 (Increase) in receivables (333) (310) (Increase) decrease in inventories (163) -- Increase in accounts payable and accrued liabilities, net 334 417 ------ ------- Total cash from operating activities 973 924 ------ ------- CASH FLOWS FROM (FOR) FINANCING ACTIVITIES: Issuance of notes, net of issuance costs 299 -- (Decrease) increase in debt (40) 11 Payment of debt (3) (84) Retirement of notes (266) (300) Proceeds from settlement of swaps 55 -- Issuance of Company common stock 35 19 Purchase of Company common stock for: Retirement (777) (555) Long-term stock incentive award plan (40) (48) Cash dividends paid (227) (209) ------ ------- Total cash (for) financing activities (964) (1,166) ------ ------- CASH FLOWS FROM (FOR) INVESTING ACTIVITIES: Capital expenditures (188) (198) Purchases of marketable securities (304) (245) Proceeds (purchases) of other investments, net 34 (12) Proceeds from disposition of: Marketable securities 477 377 Businesses, net of cash disposed 178 282 Equity investment -- 76 Acquisition of companies, net of cash acquired (14) (208) Other, net 21 (17) ------ ------- Total cash from investing activities 204 55 ------ ------- Effect of foreign exchange rates on cash and cash investments (1) 28 ------ ------- CASH AND CASH INVESTMENTS: Increase (decrease) for the period 212 (159) Cash at businesses held for sale (38) -- At January 1 795 1,067 ------ ------- At September 30 $ 969 $ 908 ====== =======
See notes to condensed consolidated financial statements. 3 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 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 at September 30, 2004 and the results of operations for the three months and nine months ended September 30, 2004 and 2003 and changes in cash flows for the nine months ended September 30, 2004 and 2003. The condensed consolidated balance sheet at December 31, 2003 was derived from audited financial statements. Certain prior-year amounts have been reclassified to conform to the 2004 presentation in the condensed consolidated financial statements. The results of operations related to discontinued operations have been reclassified and separately stated in the accompanying condensed consolidated statements of income for 2004 and 2003. In the Company's condensed consolidated balance sheet at September 30, 2004, the assets and liabilities of the businesses held for sale have been reclassified and separately stated. The assets and liabilities of the businesses held for sale have not been reclassified in the related accompanying condensed consolidated balance sheet as at December 31, 2003. In the Company's condensed consolidated statements of cash flows for the nine months ended September 30, 2004 and 2003, the cash flows of discontinued operations are not separately classified. 4 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Note A - concluded: STOCK OPTIONS AND AWARDS. The Company implemented the fair value method of accounting for stock-based compensation prescribed by Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," effective January 1, 2003. The Company is using the prospective method, as defined by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment to SFAS No. 123," for determining stock-based compensation expense. Accordingly, options granted, modified or settled subsequent to January 1, 2003 are accounted for using the fair value method, and options granted prior to January 1, 2003 continue to be accounted for using the intrinsic value method. In the first nine months of 2004, 4,941,000 option shares, including restoration option shares, were awarded. The following table illustrates the pro forma effect on net income and earnings per common share as if the fair value method were applied to all previously issued and outstanding stock options, in millions except per common share data:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ----------------- 2004 2003 2004 2003 ------ ------ ------- ----- Net income, as reported $359 $319 $ 788 $ 714 Add: Stock-based employee compensation expense included in reported net income, net of tax 13 7 33 29 Deduct: Stock-based employee compensation expense, net of tax (13) (7) (33) (29) Stock-based employee compensation expense determined under the fair value method for stock options granted prior to 2003, net of tax (3) (3) (9) (10) ---- ---- ----- ----- Pro forma net income $356 $316 $ 779 $ 704 ==== ==== ===== ===== Earnings per common share: Basic as reported $.82 $.67 $1.76 $1.48 Basic pro forma $.81 $.67 $1.74 $1.46 Diluted as reported $.80 $.65 $1.73 $1.44 Diluted pro forma $.79 $.65 $1.71 $1.42
5 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) B. In the first quarter of 2004, the Company determined that several European businesses were not core to the Company's long-term growth strategy and, accordingly, embarked on a plan to sell such businesses. The dispositions are expected to be completed by March 31, 2005. In the first quarter of 2004, the Company recognized a pre-tax charge of $64 million for those businesses that are expected to be divested at a loss. In the second and third quarters of 2004, the Company recognized additional charges of $44 million and $31 million, respectively, principally related to the remaining businesses held for sale. The Company has reduced its estimate of expected proceeds for these operations as a result of lower-than-expected operating results as well as a weaker-than-expected demand for the businesses that the Company is divesting. The Company expects aggregate net proceeds to approximate $250 million. During the third quarter of 2004, in two separate transactions, the Company completed the sale of its Jung Pumpen and The Alvic Group businesses. Jung Pumpen manufactures a wide variety of submersible and drainage pumps and The Alvic Group manufactures kitchen cabinets; both of these businesses were included in discontinued operations. Total proceeds from the sale of these companies were $191 million, including cash of $185 million and notes receivable of $6 million. In the third quarter of 2004, the Company recognized a pre-tax, net gain on the disposition of these businesses of $108 million ($93 million or $.21 per common share, after tax). In the third quarter of 2003, the Company completed the sale of its Baldwin Hardware, Weiser Lock and Marvel Group divisions. In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the Company has accounted for the 2004 planned dispositions as well as operations which were sold in 2004 and 2003 as discontinued operations. Selected financial information for discontinued operations (through the date of disposition) is as follows for the three months and nine months ended September 30, 2004 and 2003, in millions:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ------------------ 2004 2003 2004 2003 ----- ----- ----- ----- Net sales $ 99 $ 163 $ 302 $ 469 ===== ===== ===== ===== Income before income taxes $ 10 $ 12 $ 28 $ 39 Gain on disposal of discontinued operations, net 108 91 108 91 Impairment charge for assets held for sale (31) -- (139) -- Income taxes (17) (42) (33) (52) ----- ----- ----- ----- Income (loss) from discontinued operations, after income taxes $ 70 $ 61 $ (36) $ 78 ===== ===== ===== =====
6 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Note B - concluded: The charges for the impairment of assets held for sale for the three months and nine months ended September 30, 2004 are $31 million pre-tax ($31 million or $.07 per common share, after tax) and $139 million pre-tax ($151 million or $.33 per common share, after tax), respectively. The after-tax charge of $151 million for the nine months ended September 30, 2004 includes $12 million of expensed deferred tax assets. The unusual relationship between income tax expense and income before income taxes (including the loss on disposition of businesses) in 2004 results primarily from the expected loss providing no current tax benefit in the countries where the loss is anticipated to be incurred and from the expensing of deferred tax assets of the discontinued operations which are no longer expected to be realized. In the first nine months of 2004, the Company also recorded approximately $6 million of severance and termination benefit expenses related to the discontinued operations, included in income before income taxes in the above table. The Company expects such costs to approximate $7 million in aggregate, the balance of which are expected to be recognized over the next six months. The impairment charge for assets held for sale primarily includes the write-down of goodwill of $61 million and fixed assets of $54 million for the nine months ended September 30, 2004. Total assets and liabilities held for sale consist primarily of the following at September 30, 2004 (after the impairment charges recorded in the first nine months of 2004), in millions: Cash $ 38 Accounts receivable 50 Inventories 27 Property and equipment, net 56 Goodwill 4 ---- Total assets $175 ==== Accounts payable $ 22 Accrued salaries, wages and related benefits 27 Other accrued expenses 11 ---- Total liabilities $ 60 ====
The discontinued operations were previously included in each of the Company's segments, except the Installation and Other Services segment. 7 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) C. The changes in the carrying amount of goodwill for the nine-month period ended September 30, 2004, by segment, are as follows, in millions:
BALANCE HELD FOR BALANCE DEC. 31, 2003 ADDITIONS(A) SALE (B) OTHER(C) SEP. 30, 2004 ------------- ------------ -------- -------- ------------- Cabinets and Related Products $ 708 $ -- $ (63) $ (3) $ 642 Plumbing Products 498 -- -- 3 501 Installation and Other Services 1,701 8 -- (1) 1,708 Decorative Architectural Products 398 -- -- 2 400 Other Specialty Products 1,186 7 (4) 5 1,194 ------ ----- ----- ---- ------ Total $4,491 $ 15 $ (67) $ 6 $4,445 ====== ===== ===== ==== ======
(A) Additions include several relatively small acquisitions and contingent consideration for prior acquisitions in the Installation and Other Services segment and contingent consideration for a prior acquisition in the Other Specialty Products segment. (B) During the first nine months of 2004, the Company reclassified the goodwill related to businesses held for sale. The Company also recognized charges for those businesses expected to be divested at a loss; the charge included a write-down of goodwill of $63 million (including $36 million related to a business sold in the third quarter of 2004). (C) Other principally includes foreign currency translation adjustments, reclassifications and other purchase price adjustments related to the finalization of certain purchase price allocations. Other indefinite-lived intangible assets include registered trademarks of $255 million at September 30, 2004. The carrying value of the Company's definite-lived intangible assets is $75 million at September 30, 2004 (net of accumulated amortization of $60 million) and principally includes customer relationships and non-compete agreements. Amortization expense for definite-lived intangible assets is $5 million and $15 million for the three months and nine months ended September 30, 2004, respectively. D. Depreciation and amortization expense is $176 million and $165 million for the nine months ended September 30, 2004 and 2003, respectively. E. The Company maintains investments in marketable securities (including marketable equity securities and bond funds) and a number of private equity funds, principally as part of its tax planning strategies, as any gains enhance the utilization of tax capital loss carryforwards. Included in other assets are the following financial investments, in millions:
SEPTEMBER 30, DECEMBER 31, 2004 2003 ------------- ------------ Marketable equity securities $306 $392 Bond funds 40 125 Private equity funds 321 332 Metaldyne Corporation 82 76 TriMas Corporation 25 25 Other investments 9 9 ---- ---- Total $783 $959 ==== ====
8 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Note E - continued: The Company's investments in marketable equity securities and bond funds at September 30, 2004 and December 31, 2003 are as follows, in millions:
PRE-TAX ---------------------- UNREALIZED UNREALIZED RECORDED COST BASIS GAINS LOSSES BASIS ---------- ---------- ---------- -------- SEPTEMBER 30, 2004 Marketable equity securities $294 $ 34 $(22) $306 Bond funds $ 35 $ 5 $ -- $ 40 DECEMBER 31, 2003 Marketable equity securities $361 $ 35 $ (4) $392 Bond funds $115 $ 10 $ -- $125
The following table summarizes the gross unrealized losses and fair value of the Company's investments in temporarily-impaired marketable equity securities, aggregated by investment category and length of time that such securities have been in a continuous unrealized loss position at September 30, 2004, in millions:
LESS THAN 12 MONTHS 12 MONTHS OR GREATER TOTAL ----------------- ----------------- ----------------- FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED VALUE (LOSS) VALUE (LOSS) VALUE (LOSS) ----- ---------- ----- ---------- ----- ---------- Marketable equity securities $122 $(22) $ -- $ -- $122 $(22) ---- ---- ---- ---- ---- ---- Total temporarily- impaired securities $122 $(22) $ -- $ -- $122 $(22) ==== ==== ==== ==== ==== ====
The Company has investments in over 70 different marketable equity securities and bond funds at September 30, 2004. The Company reviews industry analyst reports, key ratios and statistics, market analyses and other factors for each investment to determine if an unrealized loss is other than temporary. The unrealized loss at September 30, 2004 is primarily related to one marketable equity security, Furniture Brands International (NYSE: FBN) common stock (four million shares), which was received in June 2002 from the Company's investment in Furnishings International Inc. debt. Based on its review, the Company considers the unrealized loss related to this investment to be temporary. The market price of FBN during 2004 has been above and below the Company's cost basis of $30.25 per share. If the price remains significantly below the Company's cost basis, the Company may record an other-than-temporary asset impairment charge in the fourth quarter of 2004. The remaining $1 million or six percent of the Company's total unrealized loss in marketable equity securities at September 30, 2004 relates to 11 marketable equity investments related to various industries. Based on its review, the Company believes that the cost basis of these investments is recoverable and that it has both the ability and intent to hold these investments until such time as the cost basis is recoverable. 9 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Note E - concluded: Income from financial investments is included in other, net, within other income (expense), net, and is summarized as follows, in millions:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ----------------- 2004 2003 2004 2003 ------- ------- ------- ------ Realized gains from marketable securities $ 7 $ 10 $ 42 $ 37 Realized losses from marketable securities (9) (3) (19) (13) Dividend income from marketable securities 3 3 12 12 Dividend income from other investments 5 3 10 7 Income from other investments, net 11 6 29 9 ---- ---- ---- ---- Income from financial investments, net $ 17 $ 19 $ 74 $ 52 ==== ==== ==== ==== Impairment charge: Investment in private equity funds $ -- $ (9) $ -- $ (9) ==== ==== ==== ====
F. The Company's total comprehensive income is as follows, in millions:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ----------------- 2004 2003 2004 2003 ------- ------- ------- ------ Net income $359 $319 $788 $714 Other comprehensive income (loss): Cumulative translation adjustments 28 8 3 184 Unrealized (loss) gain on marketable securities, net -- (5) (15) 17 ---- ---- ---- ---- Total comprehensive income $387 $322 $776 $915 ==== ==== ==== ====
The unrealized (loss) gain on marketable securities is net of income tax (credits) of $(9) million for the nine months ended September 30, 2004, and $(3) million and $10 million for the three months and nine months ended September 30, 2003, respectively. The components of accumulated other comprehensive income (loss) are as follows, in millions:
SEPTEMBER 30, DECEMBER 31, 2004 2003 ------------- ------------ Unrealized gain on marketable securities, net $ 11 $ 26 Minimum pension liability (61) (61) Cumulative translation adjustments 459 456 ---- ---- Accumulated other comprehensive income (loss) $409 $421 ==== ====
10 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Note F - concluded: The unrealized gain on marketable securities is reported net of income tax of $6 million and $15 million at September 30, 2004 and December 31, 2003, respectively. The minimum pension liability is reported net of income tax credit of $35 million at both September 30, 2004 and December 31, 2003. G. The Company owns 64 percent of Hansgrohe AG. The minority interest of $74 million and $70 million at September 30, 2004 and December 31, 2003, respectively, is recorded in the caption deferred income taxes and other liabilities on the Company's condensed consolidated balance sheets. H. In the first half of 2004, the Company retired the remaining $266 million of 6% notes due May 2004. On March 9, 2004, the Company issued $300 million of floating-rate notes due 2007, resulting in net proceeds of $299 million. The interest rate is calculated based on the three-month London Interbank Offered Rate ("LIBOR") plus .25%. In March 2004, the Company terminated two interest rate swaps relating to $850 million of fixed-rate debt. These swap agreements were accounted for as fair value hedges. The gain of approximately $45 million from the termination of these swaps is being amortized as a reduction of interest expense over the remaining term of the debt, through July 2012. In late March 2004, the Company entered into new interest rate swaps for the purpose of converting a portion of fixed-rate debt to variable-rate debt, which is expected to reduce interest expense, given current interest rates. The average variable interest rates are based on LIBOR plus a fixed adjustment factor. The average effective interest rate on the interest rate swaps is 2.275%. At September 30, 2004, the interest rate swap agreements covered a notional amount of $850 million of the Company's fixed-rate debt due July 15, 2012 with an interest rate of 5.875%. The interest rate swaps are considered 100 percent effective; therefore, the market valuation of $24 million at September 30, 2004 is recorded in other assets with a corresponding increase to long-term debt in the Company's condensed consolidated balance sheet at September 30, 2004. I. The net periodic pension cost for the Company's qualified defined-benefit pension plans is as follows, in millions:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ----------------- 2004 2003 2004 2003 -------- -------- -------- ------- Service cost $ 3 $ 4 $ 9 $ 11 Interest cost 7 9 23 28 Expected return on plan assets (5) (7) (18) (22) Amortization of net loss 1 1 4 5 ---- ---- ---- ---- Net periodic pension cost $ 6 $ 7 $ 18 $ 22 ==== ==== ==== ====
11 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Note I - concluded: Net periodic pension cost for the Company's non-qualified unfunded supplemental pension plans was $6 million and $15 million for the three months and nine months ended September 30, 2004, respectively, and $4 million and $9 million for the three months and nine months ended September 30, 2003, respectively. In the first nine months of 2004, the Company contributed $60 million to its domestic qualified defined-benefit pension plans. 12 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) J. The following table presents information about the Company by segment and geographic area, in millions:
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------ ------------------------------------ 2004 2003 2004 2003 2004 2003 2004 2003 ------------------------------------ ------------------------------------ NET SALES (A) OPERATING PROFIT NET SALES (A) OPERATING PROFIT ---------------- ----------------- ---------------- ----------------- The Company's operations by segment were (B): Cabinets and Related Products $ 856 $ 761 $ 150 $ 122 $2,432 $2,114 $ 396 $ 314 Plumbing Products 775 692 101 96 2,299 1,990 314 277 Installation and Other Services 737 642 103 110 2,053 1,769 272 275 Decorative Architectural Products 433 418 102 52 1,254 1,099 267 162 Other Specialty Products 372 310 86 63 1,002 831 202 150 ------ ------ ------ ------ ------ ------ ------ ------ Total $3,173 $2,823 $ 542 $ 443 $9,040 $7,803 $1,451 $1,178 ====== ====== ====== ====== ====== ====== ====== ====== The Company's operations by geographic area were: North America $2,627 $2,369 $ 478 $ 431 $7,429 $6,494 $1,249 $1,080 International, principally Europe 546 454 64 12 1,611 1,309 202 98 ------ ------ ------ ------ ------ ------ ------ ------ Total $3,173 $2,823 542 443 $9,040 $7,803 1,451 1,178 ====== ====== ====== ====== General corporate expense, net (53) (31) (134) (88) Gains on sale of corporate fixed assets, net -- 3 8 3 Income regarding litigation settlement (C) 2 58 30 71 (Expense) related to accelerated benefits, net (D) -- -- -- (16) ------ ------ ------ ------ Operating profit 491 473 1,355 1,148 Other income (expense), net (31) (60) (43) (147) ------ ------ ------ ------ Income from continuing operations before income taxes and minority interest $ 460 $ 413 $1,312 $1,001 ====== ====== ====== ======
(A) Intra-segment sales were not material. (B) In accordance with SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets," the Company has accounted for the 2004 planned disposition of certain European businesses as discontinued operations. Accordingly, the assets and liabilities of those operations have been reclassified from the segments above. The reclassified assets, prior to any 2004 impairment charges, are as follows: Cabinets and Related Products - $242 million; Plumbing Products - $16 million; Decorative Architectural Products - $35 million; and Other Specialty Products - $107 million. (C) The Company recorded income regarding the litigation discussed in Note N related to the Company's subsidiary, Behr Process Corporation. Behr is included in the Decorative Architectural Products segment. (D) Due to the unexpected passing of the Company's President and Chief Operating Officer, certain benefits were accelerated and expensed in the first quarter of 2003, with an adjustment in the second quarter of 2003. 13 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) K. Other, net, which is included in other income (expense), net, includes the following, in millions:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ------------------ 2004 2003 2004 2003 -------- -------- -------- -------- Income from cash and cash investments $ 3 $ 2 $ 6 $ 6 Other interest income 2 2 5 5 Income from financial investments, net (Note E) 17 19 74 52 Impairment charge: Investment in private equity funds -- (9) -- (9) Loss on early retirement of debt -- (3) -- (3) Gain from sale of equity investment -- -- -- 5 Other items, net 2 (4) 32 (2) ---- ---- ---- ---- $ 24 $ 7 $117 $ 54 ==== ==== ==== ====
Other items, net for the three months and nine months ended September 30, 2004 include $(1) million and $11 million, respectively, of currency transaction (losses) gains. Other items, net for the nine months ended September 30, 2004 also include a $5 million gain from the sale of non-operating assets. In the second quarter of 2003, the Company completed the sale of its 42 percent equity investment in Emco Limited for cash proceeds of approximately $75 million. The sale resulted in a pre-tax gain of $5 million. L. The following are reconciliations of the numerators and denominators used in the computations of basic and diluted earnings per common share, in millions:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ------------------ 2004 2003 2004 2003 -------- -------- -------- -------- Numerator (basic and diluted): Income from continuing operations $ 289 $ 258 $ 824 $ 636 Income (loss) from discontinued operations, after income taxes 70 61 (36) 78 ----- ----- ----- ----- Net income, as reported $ 359 $ 319 $ 788 $ 714 ===== ===== ===== ===== Denominator: Basic common shares (based on weighted average) 440 474 447 483 Add: Contingent common shares 5 12 4 11 Stock option dilution 4 3 4 2 ----- ----- ----- ----- Diluted common shares 449 489 455 496 ===== ===== ===== =====
Income per common share amounts for the first three quarters of 2004 and 2003 do not total to the per common share amounts for the nine months ended September 30, 2004 and 2003 due to the timing of stock repurchases and the effect of contingently issuable shares. 14 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Note L - concluded: During the third quarter of 2004, holders of 17,000 shares of the Company's convertible preferred stock converted all of their preferred stock to approximately 17 million shares of the Company's common stock. The convertible preferred shares carried substantially the same attributes as Company common stock and had been treated as if converted at a ratio of 1 share of preferred stock to approximately 1,000 shares of common stock for basic and diluted earnings per common share computations. For both the three months and nine months ended September 30, 2004 and 2003, approximately 24 million common shares related to the Zero Coupon Convertible Senior Notes due 2031 were not included in the computation of diluted earnings per common share since, at September 30, 2004 and 2003, they were not convertible according to their terms. Additionally, six million common shares for the nine months ended September 30, 2004, and three million and seven million common shares for the three months and nine months ended September 30, 2003, respectively, related to stock options were excluded from the computation of diluted earnings per common share due to their anti-dilutive effect, since the option exercise price was greater than the Company's average common stock price for these periods. M. In October 2004, the Emerging Issues Task Force ("EITF") Issue Summary No. 04-8, "Accounting Issues Related to Certain Features of Contingently Convertible Debt and the Effect on Diluted Earnings Per Share" was approved by the Financial Accounting Standards Board. EITF No. 04-8 will require the Company to include 24 million shares in the calculation of diluted earnings per common share related to the Company's Zero Coupon Convertible Senior Notes due 2031 ("Notes"), with the add-back of the related interest expense to net income. EITF No. 04-8 will be effective beginning in the fourth quarter of 2004 and will require the restatement of previously reported diluted earnings per common share amounts. Currently, the shares are not included in the Company's calculation of diluted earnings per common share, since the Notes are not convertible according to their terms. In early November 2004, the Company amended the terms of the Notes to remove the Company's option to satisfy the purchase price with shares of Company common stock when purchasing the Notes at the option of the holder. In the first quarter of 2004, the Company adopted Financial Accounting Standards Board ("FASB") Interpretation No. 46 - Revised ("FIN 46R"), "Consolidation of Variable Interest Entities." FIN 46R requires that a company that is the primary beneficiary of a variable interest entity consolidate the assets, liabilities and results of operations of the variable interest entity in the company's consolidated financial statements. The adoption of FIN 46R did not have a material impact on the Company's condensed consolidated financial statements. N. LITIGATION. The Company is subject to lawsuits and pending or asserted claims with respect to matters generally arising in the ordinary course of business. As the Company reported in previous filings, late in the second half of 2002, the Company and its subsidiary, Behr Process Corporation, agreed to two Settlements (the National Settlement and the Washington State Settlement) to resolve all class action lawsuits pending in the United States involving certain exterior wood coating products formerly manufactured by Behr. 15 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) Note N - continued: The following is a reconciliation of the Company's Behr Process Settlement liability, in millions:
2004 ------------------------------ WASHINGTON STATE NATIONAL SETTLEMENT SETTLEMENT ---------------- ---------- Balance at January 1 $ 53 $ 10 Payments on claims (12) (1) Insurance proceeds (9) (1) Adjustment of accrual (20) -- ---- ---- Balance at September 30 $ 12 $ 8 ==== ====
The deadlines for filing claims were September 2, 2003 for the National Settlement and January 17, 2004 for the Washington State Settlement. In the first quarter of 2004, the Company estimated the average cost per claim received related to the Washington State Settlement, and, as a result, estimated that the remaining unpaid claims and administration costs would be approximately $20 million less than estimated at December 31, 2003. Accordingly, the Company reduced the litigation accrual (recognizing income) by $20 million in the first quarter of 2004. Proceeds from insurance carriers are recognized as income when Behr and its carriers agree on such amounts. The Company expects that the evaluation, processing and payment of claims for both the Washington State Settlement and the National Settlement will be completed by March 31, 2005. Early in 2003, a suit was brought against the Company and a number of its insulation installation companies in the federal court in Atlanta, Georgia, alleging that certain practices violate provisions of federal and state antitrust laws. The plaintiff publicized the lawsuit with a press release and stated in that release that the Department of Justice was investigating the business practices of the Company's insulation installation companies. Although the Company was unaware of any investigation at that time, the Company was later advised that an investigation had been commenced but was subsequently closed without any enforcement action recommended. Two additional lawsuits were subsequently brought in Virginia making similar claims under the antitrust laws. Both of these lawsuits have since been dismissed without any payment or requirement for any change in business practices. During the second half of 2004, the same counsel who commenced the initial action in Atlanta filed six additional lawsuits on behalf of several of Masco's competitors in the insulation installation business. Recently, the plaintiffs dismissed five of these lawsuits and, represented by the same counsel, filed another action in the same federal court, seeking class representation for all independent insulation contractors against the Company, a number of its insulation installation companies and certain of their suppliers. Based upon the advice of its outside counsel, the Company believes that the conduct of the Company and its insulation installation companies, which has been the subject of any of the above-described lawsuits, has not violated any antitrust laws. 16 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONCLUDED) Note N - concluded: STOCK PRICE GUARANTEE. The stock price guarantee as of September 30, 2004 is summarized as follows, in millions except dollar per share data:
SHARES ISSUED SETTLEMENT - --------------- MINIMUM OPTIONS(A) # OF ISSUE STOCK PRICE -------------- MATURITY SHARES PRICE GUARANTEE SHARES CASH DATE - --------------- ----------- -------------- ---------------- 1 $30.00 $40.00 -- $ 9 12/31/04-4/30/05
(A) The amount is calculated based on the ten-day average of the Company common stock closing price ending September 30, 2004 of $34.17. Shares contingently issuable under this agreement are included in the calculation of diluted earnings per common share. In early August 2004, the Company recorded the issuance of approximately 160,000 shares of Company common stock related to a stock price guarantee, which matured on July 31, 2004. WARRANTY. The following is a reconciliation of the Company's warranty liability, in millions:
2004 ---- Balance at January 1 $ 90 Accruals for warranties issued during the period 40 Accruals related to pre-existing warranties 10 Settlements made (in cash or kind) during the period (36) Discontinued operations (2) Other, net (including foreign exchange impact) (3) ---- Balance at September 30 $ 99 ====
17 MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIRD QUARTER 2004 AND THE FIRST NINE MONTHS 2004 VERSUS THIRD QUARTER 2003 AND THE FIRST NINE MONTHS 2003 SALES AND OPERATING PROFIT MARGINS ---------------------------------- The following table sets forth the Company's net sales and operating profit margins by segment and geographic area, dollars in millions:
THREE MONTHS ENDED SEPTEMBER 30, PERCENT INCREASE ------------------ ---------------- 2004 2003 2004 VS. 2003 ------ ------ ---------------- NET SALES: Cabinets and Related Products $ 856 $ 761 12% Plumbing Products 775 692 12% Installation and Other Services 737 642 15% Decorative Architectural Products 433 418 4% Other Specialty Products 372 310 20% ------ ------ Total $3,173 $2,823 12% ====== ====== North America $2,627 $2,369 11% International, principally Europe 546 454 20% ------ ------ Total $3,173 $2,823 12% ====== ======
NINE MONTHS ENDED SEPTEMBER 30, ------------------ 2004 2003 ------ ------ NET SALES: Cabinets and Related Products $2,432 $2,114 15% Plumbing Products 2,299 1,990 16% Installation and Other Services 2,053 1,769 16% Decorative Architectural Products 1,254 1,099 14% Other Specialty Products 1,002 831 21% ------ ------ Total $9,040 $7,803 16% ====== ====== North America $7,429 $6,494 14% International, principally Europe 1,611 1,309 23% ------ ------ Total $9,040 $7,803 16% ====== ======
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ------------------ 2004 2003 2004 2003 ------------------ ------------------ OPERATING PROFIT MARGIN: (A) Cabinets and Related Products 17.5% 16.0% 16.3% 14.9% Plumbing Products 13.0% 13.9% 13.7% 13.9% Installation and Other Services 14.0% 17.1% 13.2% 15.5% Decorative Architectural Products 23.6% 12.4% 21.3% 14.7% Other Specialty Products 23.1% 20.3% 20.2% 18.1% North America 18.2% 18.2% 16.8% 16.6% International, principally Europe 11.7% 2.6% 12.5% 7.5% Total 17.1% 15.7% 16.1% 15.1% TOTAL OPERATING PROFIT MARGIN, AS REPORTED 15.5% 16.8% 15.0% 14.7%
(A) Before general corporate expense of $53 million and $134 million for the three-month and nine-month periods ended September 30, 2004, respectively, and before income regarding the litigation settlement related to the Decorative Architectural Products segment of $2 million and $30 million for the three-month and nine-month periods ended September 30, 2004, respectively. Before general corporate expense of $31 million and $88 million for the three-month and nine-month periods ended September 30, 2003, respectively. Before accelerated benefit expense related to the unexpected passing of the Company's President and Chief Operating Officer of $16 million for the nine-month period ended September 30, 2003, and before insurance income regarding the litigation settlement related to the Decorative Architectural Products segment of $58 million and $71 million for the three-month and nine-month periods ended September 30, 2003. 18 MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company reports its financial results in accordance with generally accepted accounting principles ("GAAP") in the United States. However, the Company believes that certain non-GAAP performance measures and ratios, used in managing the business, may provide users of this financial information with additional meaningful comparisons between current results and results in prior periods. Non-GAAP financial measures and ratios should be viewed in addition to, and not as an alternative for, the Company's reported results. NET SALES --------- Net sales increased 12 percent and 16 percent, respectively, for the three-month and nine-month periods ended September 30, 2004 from the comparable periods in 2003. The following table reconciles reported net sales to net sales, excluding acquisitions and the effect of currency translation, in millions:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------ ------------------ 2004 2003 2004 2003 ------ ------ ------ ------ Net sales, as reported $3,173 $2,823 $9,040 $7,803 Acquisitions (11) -- (39) -- ------ ------ ------ ------ Net sales, excluding acquisitions 3,162 2,823 9,001 7,803 Currency translation (49) -- (160) -- ------ ------ ------ ------ Net sales, excluding acquisitions and the effect of currency translation $3,113 $2,823 $8,841 $7,803 ====== ====== ====== ======
Net sales of Cabinets and Related Products increased 12 percent and 15 percent, respectively, in the three-month and nine-month periods ended September 30, 2004 compared with the same periods in 2003, primarily due to increased sales volume of assembled cabinets largely through North American retail distribution channels at major home centers and through the new construction market in the United States, as well as a more favorable product mix. Net sales of Plumbing Products increased 12 percent and 16 percent, respectively, in the three-month and nine-month periods ended September 30, 2004 compared with the same periods in 2003, primarily due to increased sales volume in the retail markets in North America and Europe and in the new construction markets in North America. In addition, the favorable impact of a weaker U.S. dollar increased International sales included in this segment in 2004 compared with 2003. Net sales of Installation and Other Services increased 15 percent and 16 percent, respectively, in the three-month and nine-month periods ended September 30, 2004 compared with the same periods in 2003, primarily due to increased sales volume of non-insulation products, increased selling prices for insulation products and increases in new residential construction and housing starts. 19 MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Net sales of Decorative Architectural Products increased 4 percent and 14 percent, respectively, in the three-month and nine-month periods ended September 30, 2004 compared with the same periods of 2003, primarily due to increased sales volume of paints and stains as well as increased sales of decorative hardware. Sales of paints and stains were strong for the nine months ended September 30, 2004, with increases in the mid-teens compared to the same period in 2003. Sales increases in the third quarter of 2004 were less robust reflecting unusually strong sales in the third quarter of 2003 (which increased over 2002 in excess of 20 percent) as a result of a very slow first half of 2003 due to adverse weather conditions. In addition, third quarter of 2004 sales were negatively impacted by adverse weather, which affected sales in certain parts of the country. Net sales of Other Specialty Products increased 20 percent and 21 percent, respectively, in the three-month and nine-month periods ended September 30, 2004 compared with the same periods of 2003, primarily due to increased sales of vinyl and fiberglass windows and doors in North America. In addition, the favorable impact of a weaker U.S. dollar increased International sales included in this segment in 2004 compared with 2003. Net sales from North American operations for the three-month and nine-month periods ended September 30, 2004 increased 11 percent and 14 percent, respectively, compared with the same periods of 2003, primarily due to the reasons discussed above. Net sales from International operations for the three-month and nine-month periods ended September 30, 2004 increased 20 percent and 23 percent, respectively, compared with the same periods of 2003, primarily due to increased sales of cabinets and plumbing products, benefitting from additional penetration of the retail markets, as well as a weaker U.S. dollar, principally against the Euro, which increased International sales by approximately 11 percent and 12 percent for the three-month and nine-month periods ended September 30, 2004. OPERATING MARGINS ----------------- The Company's gross profit margins increased to 31.2 percent for both the three-month and nine-month periods ended September 30, 2004 from 31.0 percent and 30.6 percent, respectively, for the comparable periods in 2003. The increase in gross profit margins reflects increased sales volume, offset in part by increased sales in segments which have somewhat lower margins as well as increased material costs. In addition, operating results for the three-month and nine-month periods ended September 30, 2003 were reduced by non-cash, pre-tax charges of $42 million and $59 million relating to two United Kingdom business units, one in the Decorative Architectural Products segment and the other in the Plumbing Products segment. Offsetting the charges related to the United Kingdom business units discussed above, operating profit for the three-month and nine-month periods ended September 30, 2003 also benefited from $58 million and $71 million, respectively, of Behr litigation income. Operating profit for the three-month and nine-month periods ended September 30, 2004 includes $2 million and $30 million, respectively, of Behr litigation income. The Company's operating profit margins, as reported, were 15.5 percent and 15.0 percent, respectively, for the three-month and nine-month periods ended September 30, 2004 compared with 16.8 percent and 14.7 percent for the same periods of 2003. The Company's operating profit margins, excluding the Behr litigation income of $2 million and $30 million for the three-month and nine-month periods ended September 30, 2004, respectively, and $58 million and $71 million for the three-month and nine-month periods ended September 30, 2003, respectively, and the accelerated benefit expense of $16 million for the nine-month period ended September 30, 2003, were 15.4 percent and 14.7 percent for the three-month and nine-month periods ended September 30, 2004, respectively, and 14.7 percent and 14.0 percent for the three-month and nine-month periods ended September 30, 2003, respectively. The Company's operating profit margins, reflecting the adjustments discussed above, increased for the three-month and nine-month periods ended September 30, 2004 compared with the same periods of 2003, principally due to the reasons discussed. Selling, general and administrative expenses as a percentage of sales were 15.8 percent and 16.5 percent, respectively, for the three-month and nine-month periods ended September 30, 2004 and 16.3 percent and 16.8 percent, respectively, for the comparable periods of the prior year. Selling, general and administrative expenses for the three-month and nine-month periods ended September 30, 2004 were positively impacted by lower promotion and advertising costs compared with the same period in 2003. This improvement was partially offset by increased costs and expenses associated with complying with the new requirements of the Sarbanes-Oxley Legislation. Selling, general and administrative expenses for the nine-month period ended September 30, 2003 include $16 million of accelerated benefit expense related to the unexpected passing of the Company's President and Chief Operating Officer. Excluding the accelerated benefit expense, selling, general and administrative expense for the nine-month period ended September 30, 2003 would have been 16.6 percent. 20 MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operating profit margins for the Cabinets and Related Products segment for the three-month and nine-month periods ended September 30, 2004 were 17.5 percent and 16.3 percent, respectively, compared with 16.0 percent and 14.9 percent for the same periods in 2003, and reflect the positive impact of higher sales volume and a more favorable product mix offset in part by increased costs related to wood and particleboard materials. Operating profit margins for the Plumbing Products segment were 13.0 percent and 13.7 percent, respectively, for the three-month and nine-month periods ended September 30, 2004 compared with 13.9 percent for both of the same periods of 2003, primarily due to an increase in sales of lower-margin products included in this segment as well as increased material costs offset in part by increased sales volume. As previously discussed, operating profit in the first nine months of 2003 for this segment was negatively affected by a non-cash, pre-tax charge of $4 million relating to a United Kingdom business unit where an employee had circumvented internal controls to misstate operating profit in 2002 and 2003. Operating profit margins for the Installation and Other Services segment were 14.0 percent and 13.2 percent, respectively, for the three-month and nine-month periods ended September 30, 2004 compared with 17.1 percent and 15.5 percent for the same periods of 2003. The operating profit margin decline in this segment is primarily attributable to increased material costs as well as an increase in sales of generally lower-margin, non-insulation products. Historically, the Company has generally been able to increase its selling prices to reflect certain material cost increases. Typically, the benefits of such selling price increases are reflected in subsequent periods, as there is a time lag as a result of existing contractual obligations. Within the Installation and Other Services segment, the availability of fiberglass insulation to support the Company's installation and distribution activities has been constrained in 2004. The high level of demand for fiberglass insulation as a result of the strength of the new residential construction market has outpaced the industry's capacity to produce additional product. The Company believes that these conditions will persist over the balance of 2004 and is working with its diverse supplier base to secure as much material as possible. At the current time, the Company does not believe that this material shortage will have a significant impact on its operations. Operating profit margins for the Decorative Architectural Products segment were 23.6 percent and 21.3 percent, respectively, for the three-month and nine-month periods ended September 30, 2004 compared with 12.4 percent and 14.7 percent for the same periods of 2003. The margin improvement includes the effect of increased sales volume of paints and stains and decorative hardware offset in part by increased material and promotion costs. As previously discussed, operating profit in this segment for the three-month and nine-month periods ended September 30, 2003 was negatively affected by non-cash, pre-tax charges of $35 million and $55 million, respectively, related to a United Kingdom business unit. The charge resulted from a business system implementation failure which allowed former management of the business to circumvent internal controls and artificially inflate the unit's operating profit in years prior to 2003. 21 MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operating profit margins for the Other Specialty Products segment were 23.1 percent and 20.2 percent, respectively, for the three-month and nine-month periods ended September 30, 2004 compared with 20.3 percent and 18.1 percent for the same periods of 2003. The margin improvement is primarily attributable to increased sales of vinyl and fiberglass windows and doors. OTHER INCOME (EXPENSE), NET --------------------------- Other, net, for the three-month and nine-month periods ended September 30, 2004 includes $(2) million and $23 million, respectively, of realized (losses) gains, net, from the sale of marketable securities, dividend income of $8 million and $22 million, respectively, and $11 million and $29 million, respectively, of income, net, regarding other investments. Other items, net for the three-month and nine-month periods ended September 30, 2004 includes $(1) million and $11 million, respectively, of currency transaction (losses) gains. Other items, net for the nine-month period ended September 30, 2004 also includes a $5 million gain from the sale of non-operating assets. Other, net, for the three-month and nine-month periods ended September 30, 2003 includes $7 million and $24 million, respectively, of realized gains, net, from the sale of marketable securities, dividend income of $6 million and $19 million, respectively, and $6 million and $9 million, respectively, of income, net, regarding other investments. Other, net for the three-month and nine-month periods ended September 30, 2003 includes a $9 million impairment charge for the write-down of an investment in a private equity fund. Other, net for the nine-month period ended September 30, 2003 also includes a $5 million gain from the sale of the Company's equity investment in Emco Limited. Interest expense for the three-month and nine-month periods ended September 30, 2004 decreased $12 million and $41 million, respectively, to $55 million and $160 million, compared with interest expense of $67 million and $201 million, respectively, for the same periods of 2003 primarily due to debt repurchases as well as the effect of the interest rate swap agreements that converted a certain amount of fixed-rate debt to lower variable-rate debt. 22 MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INCOME AND EARNINGS PER COMMON SHARE FROM CONTINUING OPERATIONS --------------------------------------------------------------- Income from continuing operations for the three-month and nine-month periods ended September 30, 2004 was $289 million and $824 million, respectively, compared with $258 million and $636 million, respectively, for the comparable periods of 2003. Diluted earnings per common share from continuing operations for the three-month and nine-month periods ended September 30, 2004 were $.64 and $1.81 per common share, respectively, compared with $.53 and $1.28 per common share, respectively, for the comparable periods of 2003. The Company's effective tax rate was 36.3 percent and 36.1 percent, respectively, for the three-month and nine-month periods ended September 30, 2004, compared with 37.0 percent and 35.7 percent, respectively, for the same periods in 2003. The Company estimates that its effective tax rate should approximate 36 percent for 2004. However, because the American Jobs Creation Act of 2004, recently signed into law in the fourth quarter of 2004, contains changes that impact the U.S. tax on the distribution of accumulated foreign earnings, the Company may consider making a significant dividend distribution from its foreign subsidiaries. This possible dividend, along with the potential effect of other new provisions, may impact the Company's effective tax rate in the fourth quarter of 2004 or in 2005. The increase in the tax rate for the nine-month period is principally due to a change in the mix of foreign earnings in countries with higher tax rates. OTHER FINANCIAL INFORMATION --------------------------- The Company's current ratio was 2.1 to 1 at September 30, 2004 compared with 1.8 to 1 at December 31, 2003. For the nine months ended September 30, 2004, cash of $973 million was provided by operating activities. Cash used for financing activities was $964 million, including $266 million for the retirement of notes, $227 million for cash dividends paid, $777 million for the acquisition and retirement of Company common stock in open-market transactions, $40 million for the acquisition of Company common stock for the Company's long-term stock incentive award plan and $43 million for a net decrease in bank debt. Cash provided by financing activities included $299 million from the issuance of notes (net of issuance costs), $55 million from interest rate swap transactions and $35 million from the issuance of Company common stock, primarily for the exercise of stock options. Cash provided by investing activities was $204 million and primarily included $207 million from the net sales of marketable securities and other investments and $178 million from the disposition of businesses (net of cash disposed). Cash used for investing activities primarily included $188 million for capital expenditures. Cash at businesses held for sale was $38 million at September 30, 2004. In the first half of 2004, the Company retired the remaining $266 million of 6% notes due May 2004. The Company is subject to lawsuits and claims pending or asserted with respect to matters generally arising in the ordinary course of business. Note N to the Condensed Consolidated Financial Statements discusses specific claims pending against the Company. 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. 23 MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OUTLOOK FOR THE COMPANY ----------------------- The Company continues to experience better than expected sales performance as sales of assembled cabinets, paints and stains, installation services and windows have continued strong in the first nine months of 2004. The Company also continues to experience increases in certain operating expenses, particularly for certain material costs, as well as costs associated with complying with the new requirements of the Sarbanes-Oxley Legislation. Based on current business trends and the record sales and earnings achieved in the first nine months of 2004, the Company expects to achieve record sales and earnings for the full year of 2004. FORWARD-LOOKING STATEMENTS -------------------------- Certain sections of this Quarterly Report 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 involve risks and uncertainties that are difficult to predict and, accordingly, the Company's actual results may differ materially from the results discussed in such forward-looking statements. Readers should consider that various factors, including changes in general economic conditions, competitive market conditions and pricing pressures, relationships with key customers, industry consolidation of retailers, wholesalers and builders, shifts in distribution, the influence of e-commerce and other factors discussed in the Company's Annual Report on Form 10-K and its other filings with the Securities and Exchange Commission, may affect the Company's performance. The Company undertakes no obligation to update publicly any forward-looking statements as a result of new information, future events or otherwise. The Company is in the process of evaluating its internal control system over financial reporting in accordance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002. Because of the Company's historical growth through acquisition and its decentralized organizational structure with over 50 reporting units and over 600 operating locations worldwide, the Company estimates that it has well in excess of 20,000 key controls over financial reporting. As part of this initiative, the Company has invested a substantial amount of time and resources in documenting and testing its system of internal control. During the course of this comprehensive process, the Company and its independent auditors have identified control deficiencies. The Company has corrected a number and is remediating others of these control deficiencies. However, there can be no assurance that one or more deficiencies will not constitute what the Company or its independent auditors conclude is a material weakness in internal control over financial reporting. Additionally, there can be no assurance in light of the Company's decentralization, the number of its operating units and magnitude of the overall initiative, that the Company will be able to complete the process in time to allow its independent auditors to finish their assessment and issue their audit report on a timely basis. The Company believes, however, based on its current knowledge, that its documentation, testing and final assessment will be completed on a timely basis. 24 MASCO CORPORATION ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company owns four million shares of Furniture Brands International common stock, which was received in June 2002 from the Company's investment in Furnishings International Inc. debt. The market price during 2004 has been above and below the Company's cost basis. If the price remains significantly below the Company's cost basis, the Company may record an other-than-temporary asset impairment charge in the fourth quarter of 2004. At September 30, 2004, the Company has a $1.25 billion, 5-year revolving credit agreement (due November 2005) and a $750 million, 364-day revolving credit agreement (due November 2004) which are currently being renegotiated. The Company expects to finalize a new 5-year, $2 billion revolving credit agreement in early November 2004, which will replace both of the existing agreements. 25 MASCO CORPORATION ITEM 4. CONTROLS AND PROCEDURES a. Evaluation of Disclosure Controls and Procedures. The Company's principal executive officer and principal financial officer have concluded, based on an evaluation of the Company's "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15, that, as of September 30, 2004, the Company's disclosure controls and procedures were effective and designed to ensure that information required to be disclosed by the Company in the reports it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. b. Changes in Internal Control Over Financial Reporting. There has been no change in the Company's internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Rules 13a-15 or 15d-15 that occurred during the Company's last fiscal quarter (the Company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 26 MASCO CORPORATION PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - ------------------------- Information regarding this item is set forth in Note N to the Company's Condensed Consolidated Financial Statements included in Part I, Item 1 of this Report. ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS - ------------------------------------------------------------------ The following table provides information regarding the repurchase of Company common stock for the three months ended September 30, 2004, in millions except average price paid per common share data:
TOTAL NUMBER OF MAXIMUM NUMBER OF SHARES PURCHASED SHARES THAT MAY TOTAL NUMBER AVERAGE PRICE AS PART OF YET BE PURCHASED OF SHARES PAID PER PUBLICLY ANNOUNCED UNDER THE PLANS PERIOD PURCHASED(A) COMMON SHARE PLANS OR PROGRAMS OR PROGRAMS ------ ------------ ------------- ------------------ ----------------- 7/1/04- 7/31/04 1 $29.81 1 23 8/1/04- 8/31/04 2 $32.30 1 22 9/1/04- 9/30/04 1 $33.40 1 21 ----- ----- Total for the quarter 4 $31.47 3
(A) Includes 1 million shares (i) acquired on the open market for the long-term stock incentive award plan, (ii) surrendered for the exercise of stock options or (iii) withheld for the payment of taxes upon vesting of stock awards. In December 2003, the Company's Board of Directors authorized the repurchase of up to 50 million shares of the Company's common stock in open-market transactions or otherwise. ITEMS 3, 4 AND 5 ARE NOT APPLICABLE. 27 MASCO CORPORATION PART II. OTHER INFORMATION - CONTINUED ITEM 6. EXHIBITS - ---------------- 4 - Amendment No. 2 to First Supplemental Indenture dated as of November 2, 2004 between Masco Corporation and J.P. Morgan Trust Company, National Association, as Trustee 10ai - Forms of awards under the Masco Corporation 1991 Long Term Stock Incentive Plan, Restricted Stock Award Agreement 10aii - Forms of awards under the Masco Corporation 1991 Long Term Stock Incentive Plan, Restoration Stock Option 10aiii - Forms of awards under the Masco Corporation 1991 Long Term Stock Incentive Plan, Stock Option Grant for officers 10aiv - Forms of awards under the Masco Corporation 1991 Long Term Stock Incentive Plan, Stock Option Grant for directors 10bi - Form of awards under the Masco Corporation 1997 Non-Employee Directors Stock Plan, Restricted Stock Award Agreement 10bii - Form of awards under the Masco Corporation 1997 Non-Employee Directors Stock Plan, Stock Option Grant 12 - Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends 31a - Certification of Chief Executive Officer required by Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934 31b - Certification of Chief Financial Officer required by Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934 32 - Certifications required by Rule 13a-14(b) or 15d-14(b) of the Securities and Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code
28 MASCO CORPORATION PART II. OTHER INFORMATION - CONCLUDED 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: NOVEMBER 4, 2004 BY: /s/ Timothy Wadhams ----------------------- -------------------------------------- Timothy Wadhams Senior Vice President and Chief Financial Officer 29 MASCO CORPORATION EXHIBIT INDEX
EXHIBIT - ------- Exhibit 4 Amendment No. 2 to First Supplemental Indenture dated as of November 2, 2004 between Masco Corporation and J.P. Morgan Trust Company, National Association, as Trustee Exhibit 10ai Forms of awards under the Masco Corporation 1991 Long Term Stock Incentive Plan, Restricted Stock Award Agreement Exhibit 10aii Forms of awards under the Masco Corporation 1991 Long Term Stock Incentive Plan, Restoration Stock Option Exhibit 10aiii Forms of awards under the Masco Corporation 1991 Long Term Stock Incentive Plan, Stock Option Grant for officers Exhibit 10aiv Forms of awards under the Masco Corporation 1991 Long Term Stock Incentive Plan, Stock Option Grant for directors Exhibit 10bi Form of awards under the Masco Corporation 1997 Non-Employee Directors Stock Plan, Restricted Stock Award Agreement Exhibit 10bii Form of awards under the Masco Corporation 1997 Non-Employee Directors Stock Plan, Stock Option Grant Exhibit 12 Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends Exhibit 31a Certification of Chief Executive Officer required by Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934 Exhibit 31b Certification of Chief Financial Officer required by Rule 13a-14(a) or 15d-14(a) of the Securities and Exchange Act of 1934 Exhibit 32 Certifications required by Rule 13a-14(b) or 15d-14(b) of the Securities and Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code
EX-4 2 k88683exv4.txt AMENDMENT NO. 2 TO FIRST SUPPLEMENTAL INDENTURE EXHIBIT 4 AMENDMENT NO. 2 TO FIRST SUPPLEMENTAL INDENTURE THIS AMENDMENT NO. 2 dated as of November 2, 2004 (the "Amendment") to the FIRST SUPPLEMENTAL INDENTURE, dated as of July 20, 2001, as amended by Amendment No. 1 to the First Supplemental Indenture dated as of July 19, 2002 (the "SUPPLEMENTAL INDENTURE"), between MASCO CORPORATION, a Delaware corporation (the "ISSUER"), and J.P. MORGAN TRUST COMPANY, NATIONAL ASSOCIATION (successor in interest to Bank One Trust Company, National Association), as trustee (the "TRUSTEE"). WITNESSETH: WHEREAS, the Issuer executed and delivered to the Trustee the Indenture dated as of February 12, 2001 (the "BASE INDENTURE"), providing for the issuance from time to time of the Issuer's senior debt securities; WHEREAS, the Issuer issued $1,901,360,000 aggregate principal amount at maturity of Zero Coupon Convertible Senior Notes Due 2031 (the "NOTES") under the Supplemental Indenture; WHEREAS, the Issuer desires to amend the terms of the Notes to remove the Issuer's right to pay the purchase price with shares of Common Stock when purchasing the notes at the option of the holder; WHEREAS, Sections 9.01(b) of the Base Indenture provides, among other things, that the Issuer, when authorized by a resolution of its Board of Directors certified to the Trustee, and the Trustee may enter into an indenture supplemental to the Base Indenture without the consent of any Holder to surrender any right or power conferred to the Company; and WHEREAS, all requirements necessary to make this Amendment a valid and binding instrument in accordance with its terms, have been duly performed and complied with, the execution and delivery of this Supplemental Indenture have been duly authorized in all respects and the Issuer has delivered to the Trustee an Officers' Certificate and Opinion of Counsel as required by Sections 1.02 and 9.03, respectively, of the Base Indenture. NOW, THEREFORE, each party hereto agrees as follows for the benefit of each other party and for the equal and ratable benefit of the Holders of the Notes: ARTICLE 1 DEFINITIONS; EFFECT OF SUPPLEMENTAL INDENTURE SECTION 1.01. Defined Terms. Capitalized terms used in this Amendment and not otherwise defined herein shall have the meaning assigned to such terms in the Supplemental Indenture, the Base Indenture and the Notes. SECTION 1.02. Effect of Supplemental Indenture. This Amendment is intended to amend and supplement the terms only of the Notes and shall not be construed to amend or supplement the terms of any Securities, other than the Notes, issued or to be issued under the Supplemental Indenture or the Base Indenture. ARTICLE 2 AMENDMENTS TO CERTAIN PROVISIONS OF THE SUPPLEMENTAL INDENTURE Section 2.01. Amendments to Certain Provisions of the Supplemental Indenture. The Supplemental Indenture is hereby amended in the following respects: (a) The definition of "Cash" in Article Two is amended and restated as follows: "Cash" means U.S. legal tender. (b) The text of Sections 4.02, 4.03, and 4.04 of the Supplemental Indenture are hereby amended and restated as set forth in Schedule A hereto. (c) Exhibit A- Form of Note of the Supplemental Indenture is hereby amended as follows: (i) Paragraph 7 shall be amended and restated as set forth in Schedule B hereto. (ii) The "FORM OF FUNDAMENTAL CHANGE PURCHASE NOTICE" shall be amended and restated as set forth in Schedule C hereto. ARTICLE 3 MISCELLANEOUS SECTION 3.01. Instruments to Be Read Together. This Amendment is an amendment to the First Supplemental Indenture, the Base Indenture and the Notes, and the Base Indenture, the First Supplemental Indenture, the Notes and this Amendment shall henceforth be read together. Section 3.02. Confirmation. The Base Indenture, the First Supplemental Indenture and the Notes, as amended and supplemented by this Amendment, are in all respects confirmed and preserved. SECTION 3.03. New York Law to Govern. This Amendment shall be deemed to be a contract under the laws of the State of New York, and for all purposes shall be construed in 2 accordance with the laws of such State, except as may otherwise be required by mandatory provisions of law. SECTION 3.04. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. Section 3.05. Effect of Headings. The Article and Section headings herein are for convenience only and shall not affect the construction hereof. Section 3.06. Effectiveness. This Amendment shall become effective when executed and delivered by the Issuer and the Trustee. Section 3.07. Successors and Assigns of Issuer Bound by Supplemental Indenture. All the covenants, stipulations, promises and agreements in this Amendment contained by or in behalf of the Issuer shall bind its successors and assigns, whether so expressed or not. Section 3.08. Severability. In case any provisions in this Amendment shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 3.09. Benefits of the Agreement. Nothing in this Amendment, express or implied, shall give to any Person, other than the parties hereto and their successors under the Base Indenture and the Holders of the Securities, any benefit or any legal or equitable right, remedy or claim hereunder or under the Base Indenture, the Supplemental Indenture or Notes. 3 SIGNATURES IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first written above. MASCO CORPORATION By: /s/ Timothy Wadhams ------------------------------------------ Timothy Wadhams Senior Vice President and Chief Financial Officer J.P. MORGAN TRUST COMPANY, NATIONAL ASSOCIATION (successor in interest to Bank One Trust Company, National Association), as Trustee By: /s/ Benita A. Pointer ------------------------------------------ Name: Benita A. Pointer Title: Assistant Vice President 4 SCHEDULE A Section 4.02. Purchase at Option of the Holder upon a Fundamental Change. (a) If a Fundamental Change shall occur at any time prior to July 20, 2002, each Holder of Notes shall have the right, at such Holder's option, to require the Company to purchase such Holder's Notes on the date (the "Fundamental Change Purchase Date") (or if such date is not a Business Day, the next succeeding Business Day) that is 95 days after the date of the Fundamental Change. The Notes shall be purchased in integral multiples of $1,000 of Principal Amount. The Company shall purchase such Notes for Cash at a price (the "Fundamental Change Purchase Price") equal to the Accreted Value on the Fundamental Change Purchase Date. No Notes may be purchased at the option of the Holders due to a Fundamental Change if there has occurred and is continuing an Event of Default other than an Event of Default that is cured by the payment of the Purchase Price of all such Notes. (b) The Company, or at its request (which must be received by the Trustee at least three Business Days (or such lesser period as agreed to by the Trustee) prior to the date the Trustee is requested to give such Notice as described below) the Trustee in the name of and at the expense of the Company, shall mail to all Holders of record of the Notes a Notice (a "Fundamental Change Purchase Notice") of the occurrence of a Fundamental Change and of the purchase right arising as a result thereof, including the information required by Section 4.03(e), on or before the 30th day after the occurrence of such Fundamental Change. The Company shall promptly furnish to the Trustee a copy of such Notice. (c) For a Note to be so purchased at the option of the Holder, the Paying Agent must receive such Note with the form entitled "Fundamental Change Purchase Notice" on the reverse thereof duly completed, together with such Note duly endorsed for transfer, on or before the 60th day after the Fundamental Change Purchase Notice is delivered; provided, however, if the Notes are in book-entry form such transfer shall be made in accordance with the customary practices of the depository. All questions as to the validity, eligibility (including time of receipt) and acceptance of any Note for redemption shall be determined by the Company, whose determination shall be final and binding. Section 4.03. Purchase of Notes at the Option of the Holder. (a) Purchase of Notes at the Option of the Holder. On each of July 20, 2002, April 20, 2004, January 20, 2005, January 20, 2007, July 20, 2011, July 20, 2016, July 20, 2021 and July 20, 2026 (each, a "Purchase Date"), at the purchase price specified in paragraph 7 of the Notes (each, a "Purchase Price"), a Holder of Notes shall have the option to require the Company to purchase any outstanding Notes, upon: (i) delivery to the Paying Agent by the Holder of a written Notice of purchase (a "Purchase Notice") at any time from the opening of business on the date that is 30 Business Days prior to a Purchase Date until the close of business on such Purchase Date, stating: (A) if certificated, the certificate numbers of the Notes which the Holder shall deliver to be purchased; A-1 (B) the portion of the Principal Amount of the Notes which the Holder shall deliver to be purchased, which portion must be $1,000 in Principal Amount or a multiple thereof; and (C) that such Notes shall be purchased as of the Purchase Date pursuant to the terms and conditions specified in paragraph 7 of the Notes and in this Supplemental Indenture. (ii) delivery or book-entry transfer of such Note to the Paying Agent prior to, on or after the Purchase Date (together with all necessary endorsements) at the offices of the Paying Agent, such delivery or transfer being a condition to receipt by the Holder of the Purchase Price therefor; provided, however, that such Purchase Price shall be so paid pursuant to this Section 4.03 only if the Note so delivered or transferred to the Paying Agent shall conform in all respects to the description thereof in the related Purchase Notice. (b) Procedures. The Company shall purchase from the Holder thereof, pursuant to this Section 4.03, a portion of a Note if the Principal Amount of such portion is $1,000 or a multiple of $1,000 if so requested by the Holder. Provisions of this Supplemental Indenture that apply to the purchase of all of a Note also apply to the purchase of such portion of such Note. Any purchase by the Company contemplated pursuant to the provisions of Section 4.02 or this Section 4.03 shall be consummated by the delivery of Cash (together with accrued and unpaid contingent interest, if any) promptly following the later of the Purchase Date and the time of delivery or book-entry transfer of the Note. Notwithstanding anything herein to the contrary, any Holder delivering to the Paying Agent the Purchase Notice or Fundamental Change Purchase Notice contemplated by Section 4.02 or Section 4.03(a) shall have the right at any time prior to the close of business on the Purchase Date or Fundamental Change Purchase Date to withdraw such Purchase Notice or Fundamental Change Purchase Notice (in whole or in part) by delivery of a written notice of withdrawal to the Paying Agent in accordance with Section 4.04(a). The Paying Agent shall promptly notify the Company of the receipt by it of any Purchase Notice or Fundamental Change Purchase Notice or written notice of withdrawal thereof. (c) Delivery of Officers' Certificate. At least five Business Days before the Company Notice Date, the Company shall deliver an Officers' Certificate to the Trustee specifying: (i) the information required by Section 4.03(e); and (ii) whether the Company desires the Trustee to give the Company Notice required by Section 4.03(e). (d) Purchase with Cash. The Purchase Price or Fundamental Change Purchase Price of Notes in respect of which a Purchase Notice or Fundamental Change Purchase Notice pursuant to Section 4.02 or Section 4.03(a) has been given, or a specified percentage thereof, shall be paid A-2 by the Company with Cash equal to the aggregate Purchase Price or Fundamental Change Repurchase Price, or such specified percentage thereof, as the case may be, of such Notes. (d) Notice. The Company shall send a notice (a "Company Notice") to the Holders (and to beneficial owners if required by applicable law) at their addresses shown in the Note register maintained by the Registrar, and delivered to the Trustee, not less than 30 Business Days prior to the Purchase Date (the "Company Notice Date") or on or before the 30th day after the occurrence of the Fundamental Change, as the case may be. Such Company Notice shall state that payments shall be made in Cash and shall include a form of Purchase Notice or Fundamental Change Repurchase Notice to be completed by a Holder and shall state: (i) the Purchase Price, the Fundamental Change Purchase Price, the Conversion Rate and, to the extent known at the time of such Notice, the amount of contingent interest, if any, that will be payable with respect to the Notes on the Purchase Date; (ii) the name and address of the Paying Agent and the Conversion Agent; (iii) that Notes as to which a Purchase Notice or Fundamental Change Purchase Notice has been given may be converted only if the applicable Purchase Notice has been withdrawn in accordance with the terms of this Supplemental Indenture; (iv) that Notes must be surrendered to the Paying Agent to collect payment of the Purchase Price or Fundamental Change Purchase Price and contingent interest, if any; (v) that the Purchase Price or Fundamental Change Purchase Price for any Note as to which a Purchase Notice has been given and not withdrawn, together with any accrued contingent interest payable with respect thereto, shall be paid promptly following the later of the Purchase Date or Fundamental Change Purchase Date and the time of surrender of such Note as described in (iv); (vi) the procedures the Holder must follow under Section 4.02 and Section 4.03; (vii) briefly, the conversion rights of the Notes; (viii) that, unless the Company defaults in making payment of such Purchase Price or Fundamental Change Purchase Price and contingent interest, if any, Accreted Value and interest (including contingent interest), if any, on Notes covered by any Purchase Notice or Fundamental Change Purchase Notice (or interest, if the Notes have been converted into Cash Pay Notes pursuant to Section 4.08 of this Supplemental Indenture, if any) will cease to accrue on and after the Purchase Date or the Fundamental Change Purchase Date, as the case may be; (ix) the CUSIP or ISIN number of the Notes; and (x) the procedures for withdrawing a Purchase Notice or Fundamental Change Purchase Notice. A-3 At the Company's request and at the Company's expense, the Trustee shall give the Company Notice in the Company's name; provided, however, that, in all cases, the text of the Company Notice shall be prepared by the Company. (e) Covenants of the Company. All shares of Common Stock delivered upon conversion of the Notes shall be newly issued shares or treasury shares, shall be fully paid and nonassessable and shall be free from preemptive rights and free of any lien or adverse claim. The Company shall cause to have listed or quoted all such shares of Common Stock on each United States national securities exchange or over-the-counter or other domestic market on which the Common Stock is then listed or quoted. (f) Procedure upon Purchase. On or before 11:00 a.m. (New York City time) on the Business Day immediately following the Purchase Date or Fundamental Change Purchase Date (or on April 26, 2004 for the April 20, 2004 Purchase Date), the Company shall deposit with the Paying Agent Cash sufficient to pay the aggregate Purchase Price or Fundamental Change Purchase Price of, and any accrued and unpaid contingent interest with respect to, the Notes to be purchased pursuant to this Section 4.03. If the Paying Agent holds, in accordance with the terms of the Indenture, money sufficient to pay the Purchase Price or Fundamental Change Purchase Price of such Note on the Business Day following the Purchase Date or Fundamental Change Purchase Date, then, on and after such date, such Note shall cease to be outstanding and Accreted Value on such Note shall cease to accrue, whether or not book-entry transfer of such Note is made or such Note is delivered to the Paying Agent, and all other rights of the Holder shall terminate (other than the right to receive the Purchase Price or Fundamental Change Purchase Price upon delivery or transfer of the Note). (g) Taxes. Nothing herein shall preclude any income tax withholding required by law or regulations. Section 4.04. Further Conditions for Purchase at the Option of Holders upon a Fundamental Change and Purchase of Notes at the Option of the Holder. (a) Effect of Purchase Notice or Fundamental Change Purchase Notice. Upon receipt by the Company of the Purchase Notice or Fundamental Change Purchase Notice specified in Section 4.03(a) or Section 4.02(c), as applicable, the Holder of the Note in respect of which such Purchase Notice or Fundamental Change Purchase Notice, as the case may be, was given shall (unless such Purchase Notice or Fundamental Change Purchase Notice is withdrawn as specified in the following two paragraphs) thereafter be entitled to receive solely the Purchase Price or Fundamental Change Purchase Price, as the case may be, and any accrued and unpaid contingent interest, if any, with respect to such Note. Such Purchase Price or Fundamental Change Purchase Price and contingent interest, if any, shall be paid to such Holder promptly following the later of (x) the Purchase Date or the Fundamental Change Purchase Date, as the case may be, with respect to such Note (provided the conditions in Section 4.03(a) or Section 4.02(c), as applicable, have been satisfied) and (y) the time of delivery or book-entry transfer of such Note to the Paying Agent by the Holder thereof in the manner required by Section 4.03(a) or Section 4.02(c), as applicable. Notes in respect of which a Purchase Notice or Fundamental Change Purchase Notice, as the case may be, has been given by the Holder thereof may not be converted A-4 for shares of Common Stock on or after the date of the delivery of such Purchase Notice (or Fundamental Change Purchase Notice, as the case may be), unless such Purchase Notice (or Fundamental Change Purchase Notice, as the case may be) has first been validly withdrawn as specified in the following two paragraphs. A Purchase Notice or Fundamental Change Purchase Notice, as the case may be, may be withdrawn by means of a written notice of withdrawal delivered to the office of the Paying Agent at any time prior to the close of business on the Purchase Date or the Fundamental Change Purchase Date, as the case may be, to which it relates specifying: (i) if certificated, the certificate number of the Notes in respect of which such notice of withdrawal is being submitted; (ii) the Principal Amount of the Notes with respect to which such notice of withdrawal is being submitted; and (iii) the Principal Amount, if any, of the Notes which remain subject to the original Purchase Notice or Company Fundamental Change Notice, as the case may be, and which has been or shall be delivered for purchase by the Company. A written notice of withdrawal of a Purchase Notice or Fundamental Change Purchase Notice may be in the form of a conditional withdrawal containing the information set forth in the preceding paragraph and contained in a written notice of withdrawal delivered to the Paying Agent as set forth in the preceding paragraph. There shall be no purchase of any Notes pursuant to Section 4.02 or Section 4.03 or redemption pursuant to Section 4.01 if there has occurred prior to, on or after, as the case may be, the giving, by the Holders of such Notes, of the required Purchase Notice or Fundamental Change Purchase Notice, as the case may be, or the giving by the Company of the required Redemption Notice, and is continuing an Event of Default (other than an Event of Default that is cured by the payment of the Purchase Price or Fundamental Change Purchase Price, as the case may be, and any accrued and unpaid contingent interest with respect to all such Notes). The Paying Agent will promptly return to the respective Holders thereof any Notes (x) with respect to which a Purchase Notice or Fundamental Change Purchase Notice, as the case may be, has been withdrawn in compliance with this Supplemental Indenture, or (y) held by it during the continuance of an Event of Default (other than an Event of Default that is cured by the payment of the Purchase Price or Fundamental Change Purchase Price, as the case may be, and any accrued and unpaid contingent interest with respect to all such Notes) in which case, upon such return, the Purchase Notice or Fundamental Change Purchase Notice with respect thereto shall be deemed to have been withdrawn. (b) Notes Purchased in Part. Any Note that is to be purchased only in part shall be surrendered at the office of the Paying Agent (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Note, without service charge, a new Note or Notes, of any authorized A-5 denomination as requested by such Holder in aggregate Principal Amount equal to, and in exchange for, the portion of the Principal Amount of the Note so surrendered which is not purchased or redeemed. (c) Covenant to Comply with Securities Laws upon Purchase of Notes. In connection with any offer to purchase Notes under Section 4.02 or 4.03, the Company shall (i) comply with Rules 13e-4 and 14e-1 (which terms, as used herein, include any successor provision thereto) under the Exchange Act, if applicable; (ii) file the related Schedule TO (or any successor schedule, form or report) under the Exchange Act, if applicable; and (iii) otherwise comply with all federal and state securities laws so as to permit the rights and obligations under Sections 4.02 and 4.03 to be exercised in the time and in the manner specified in Sections 4.02 and 4.03. (d) Repayment to the Company. The Trustee and the Paying Agent shall return to the Company any Cash remains unclaimed as provided in paragraph 14 of the Notes, together with interest that the Trustee has agreed to pay on the Cash held by them for the payment of a Purchase Price or Fundamental Change Purchase Price, as the case may be, or contingent interest, if any; provided, however, that to the extent that the aggregate amount of Cash deposited by the Company pursuant to Section 4.04(b) exceeds the aggregate Purchase Price or Fundamental Change Purchase Price, as the case may be, of, and any accrued and unpaid contingent interest with respect to, the Notes or portions thereof which the Company is obligated to purchase as of the Purchase Date or Fundamental Change Purchase Date, as the case may be, then promptly after the Business Day following the Purchase Date or Fundamental Change Purchase Date, as the case may be, the Trustee and the Paying Agent shall return any such excess to the Company together with interest that the Trustee has agreed to pay, if any, while such Cash is held by the Trustee or the Paying Agent. A-6 SCHEDULE B 7. PURCHASE BY THE COMPANY AT THE OPTION OF THE HOLDER; PURCHASE AT THE OPTION OF THE HOLDER UPON A FUNDAMENTAL CHANGE Subject to the terms and conditions of the Indenture, a Holder of Notes shall have the option to require the Company to purchase the Notes held by such Holder on the following Purchase Dates and at the following Purchase Prices per $1,000 Principal Amount, plus, in the case of purchases after July 20, 2007, accrued and unpaid contingent interest, if any, upon delivery of a Purchase Notice containing the information set forth in the Indenture, from the opening of business on the date that is 30 Business Days prior to such Purchase Date until the close of business on such Purchase Date and upon delivery of the Notes to the Paying Agent by the Holder as set forth in the Indenture. The Company will pay the Purchase Price for any purchase only in Cash. The purchase price of a Note will be: - $406.88 per Note on July 20, 2002; - $429.57 per Note on April 20, 2004 - $439.67 per Note on January 20, 2005; - $467.80 per Note on January 20, 2007; - $537.85 per Note on July 20, 2011, plus accrued and unpaid contingent interest, if any; - $628.06 per Note on July 20, 2016, plus accrued and unpaid contingent interest, if any; - $733.39 per Note on July 20, 2021, plus accrued and unpaid contingent interest, if any; and - $856.38 per Note on July 20, 2026, plus accrued and unpaid contingent interest, if any. Notes in denominations larger than $1,000 of Principal Amount may be purchased in part, but only in multiples of $1,000 of Principal Amount. If prior to a Purchase Date this Note has been converted to a Cash Pay Note, the Purchase Price will be equal to the Restated Principal Amount plus accrued and unpaid interest from the date of conversion to the Purchase Date. If, prior to a Fundamental Change Purchase Date, the Notes were converted to Cash Pay Notes, the Fundamental Change Purchase Price will be equal to the Restated Principal Amount plus accrued and unpaid interest from the date of conversion to the Fundamental Change Purchase Date, which Fundamental Change Purchase Price shall be paid in Cash. Notes in denominations larger than $1,000 of Principal Amount may be redeemed in part in connection with a Fundamental Change, but only in multiples of $1,000 of Principal Amount. B-1 In addition to the Purchase Price payable with respect to all Notes or portions thereof to be purchased as of the Purchase Date, the Holders of such Notes (or portions thereof) shall be entitled to receive accrued and unpaid contingent interest, if any, with respect thereto, which contingent interest shall be paid in Cash promptly following the later of the Purchase Date and the time of delivery of such Notes to the Paying Agent pursuant to the Indenture. Holders have the right to withdraw any Purchase Notice or Fundamental Change Purchase Notice, as the case may be, by delivery to the Paying Agent of a written notice of withdrawal in accordance with the provisions of the Indenture. If Cash sufficient to pay a Fundamental Change Purchase Price or Cash sufficient to pay a Purchase Price (together with any accrued and unpaid contingent interest), with respect to all Notes or portions thereof to be purchased as of the Purchase Date or the Fundamental Change Purchase Date, as the case may be, is deposited with the Paying Agent on the Business Day immediately following the Purchase Date or the Fundamental Change Purchase Date, as the case may be, such Notes will cease to accrete and interest (including, where applicable, contingent interest), if any, will cease to accrue on such Notes (or portions thereof) on and after such date, and the Holder thereof shall have no other rights as such (other than the right to receive the Purchase Price or Fundamental Change Purchase Price, as the case may be, and, where applicable, accrued and unpaid contingent interest, if any, upon surrender or such Note). B-2 SCHEDULE C FORM OF FUNDAMENTAL CHANGE PURCHASE NOTICE To: Masco Corporation The undersigned registered holder of this Note hereby acknowledges receipt of a Notice from Masco Corporation (the "Company") as to the occurrence of a Fundamental Change with respect to the Company and requests and instructs the Company to purchase this Note, or the portion hereof (which is $1,000 Principal Amount or a multiple thereof) designated below, in accordance with the terms of the Indenture referred to in this Note and directs that the check in payment for this Note or the portion thereof and any Notes representing any unrepurchased principal amount hereof, be issued and delivered to the registered holder hereof unless a different name has been indicated below. If any portion of this Note not repurchased is to be issued in the name of a Person other than the undersigned, the undersigned shall pay all transfer taxes payable with respect thereto. Dated: _________________________________ Signature(s) Fill in for registration of Notes if to be issued other than to and in the name of registered holder: ______________________________________ (Name) ______________________________________ (Street Address) ______________________________________ (City, state and zip code) Please print name and address Principal Amount to be purchased (if less than all): $__,000 C-1 EX-10.(A).(I) 3 k88683exv10wxaywxiy.txt RESTRICTED STOCK AWARD AGREEMENT Exhibit 10.a.i RETURN THE ENCLOSED COPY AFTER YOU HAVE SIGNED AND PROVIDED THE REQUESTED INFORMATION; PLEASE RETAIN THE ORIGINAL Restricted Stock Award Agreement [Date] Name Address1 Address2 Address3 Address4 Dear Salutation: On behalf of the Company, I am pleased to inform you that on [date] the Organization and Compensation Committee of the Board of Directors granted you an Award of Restricted Stock, pursuant to the Company's 1991 Long Term Stock Incentive Plan (the "Plan"), of In Words (Shares) shares of the Company's $1.00 par value Common Stock (the "Restricted Shares"). This letter and the attached Appendix (the "Agreement") state the terms of the Award and contain other provisions which on your acceptance commit the Company and you, so I urge you to read them carefully. You should also read the copies of the Plan and related Prospectus which are available from the Company. Enclosed are copies of these documents as well as our latest annual report to stockholders to the extent our records indicate you may not have previously received them. For purposes of this Agreement, use of the words "employment" or "employed" shall be deemed to refer to employment by the Company and its subsidiaries and unless otherwise stated shall not include employment by an "Affiliate" (as defined in the Plan) which is not a subsidiary of the Company unless the Committee so determines at the time such employment commences. Certificates for the shares of stock evidencing the Restricted Shares will not be issued but the shares will be registered in your name in book entry form promptly after your acceptance of this Award. You will be entitled to vote and receive any cash dividends (net of required tax withholding) on the Restricted Shares, but you will not be able to obtain a stock certificate or sell, encumber or otherwise transfer the shares except in accordance with the Plan. Page 2 [Date] Provided since the date of the Award you have been continuously employed by the Company, the restrictions on 10% of the shares will automatically lapse on [date] and on the same date of each year thereafter until all shares are free of restrictions, in each case based on the initial number of shares. In accordance with Section 6(c)(iv) of the Plan, if your employment should be terminated by reason of your death or permanent and total disability or if unforfeited Restricted Shares remain unvested and you should die following retirement from employment on or after you attain age 65, the restrictions on all Restricted Shares will lapse and your rights to the shares will become vested on the date of such termination or death. If you are then an employee and your employment should be terminated by reason of retirement on or after your attaining age 65, such restrictions will continue to lapse in the same manner as though your employment had not been terminated. As restrictions lapse, a certificate for the number of Restricted Shares as to which restrictions have lapsed will be forwarded to you or the person or persons entitled to the shares. If your employment is terminated for any reason, with or without cause, while restrictions remain in effect, other than for a reason referred to in the second preceding paragraph, all Restricted Shares for which restrictions have not lapsed will be automatically forfeited to the Company. Notwithstanding the foregoing, if at any time you engage in an activity following your termination of employment which in the sole judgment of the Committee is detrimental to the interests of the Company, a subsidiary or affiliated company, all Restricted Shares for which restrictions have not lapsed will be forfeited to the Company. Your acceptance of this Award of Restricted Stock will acknowledge that you have read all of the terms and conditions herein and as set forth in the attached Appendix and will evidence your agreement to all of such terms and conditions and to the incorporation of the Appendix as part of this Agreement. Page 3 [Date] Please complete your mailing address and social security number as indicated below, sign, date and return one copy of this Award Agreement to Eugene A. Gargaro, Jr., our Vice President and Secretary, as soon as possible in order that this Award may become effective. Since the Restricted Shares cannot be registered in your name until we receive the signed copy of this Agreement, and since dividend, voting and other rights will only become effective at that time, your prompt attention and acceptance will be greatly appreciated. Very truly yours, MASCO CORPORATION Richard A. Manoogian Chairman of the Board and Chief Executive Officer I accept and agree to the foregoing terms and conditions and the terms and conditions contained in the attached Appendix. _____________________________________ (Signature of Recipient) _____________________________________ _____________________________________ (Mailing Address) _____________________________________ (Social Security Number) Dated:_______________________________ APPENDIX TO AWARD AGREEMENT In consideration of the award of Restricted Shares (the "Grant") contained in the foregoing letter agreement into which this Appendix is incorporated (the "Agreement"), you agree that, with respect to all other awards of options and restricted stock or phantom stock awards or stock appreciation rights (the "Awards") which you have previously been granted under the 1991 Long Term Stock Incentive Plan (the "Plan") of Masco Corporation (the "Company") and similar Awards under all other plans of the Company and affiliated or formerly affiliated employers, the definition of "Change in Control" set forth in Section 6(g)(vi)(C) of the Plan shall constitute the exclusive definition of Change in Control for purposes of such Awards. The Company and you agree that all of the terms and conditions of the Grant are reflected in the Agreement and in the Plan, and that there are no other commitments or understandings currently outstanding with respect to any other Awards except as may be evidenced by agreements duly executed by you and the Company. By signing the Agreement you acknowledge acceptance of the Grant and receipt of the documents referred to in the Agreement and represent that you have read the Plan, are familiar with its provisions, and agree to its incorporation in the Agreement and all of the other terms and conditions of the Agreement. Such acceptance, moreover, evidences your agreement promptly to provide such information with respect to shares acquired pursuant to the Grant, as may be requested by the Company or any of its subsidiaries or affiliated companies. In addition you agree, in consideration for the Grant, and regardless of whether restrictions on shares subject to the Grant have lapsed, while you are employed or retained as a consultant by the Company or any of its subsidiaries and for a period of one year following any termination of your employment and, if applicable, any consulting relationship with the Company or any of its subsidiaries other than a termination in connection with a Change in Control, not to engage in, and not to become associated in a "Prohibited Capacity" (as hereinafter defined) with any other entity engaged in, any "Business Activities" (as hereinafter defined) and not to encourage or assist others in encouraging any employee of the Company or any of its subsidiaries to terminate employment or to become engaged in any such Prohibited Capacity with an entity engaged in any Business Activities. "Business Activities" shall mean the design, development, manufacture, sale, marketing or servicing of any product or providing of services competitive with the products or services of (x) the Company or any subsidiary if you are employed by or consulting with the Company at any time while the Grant is outstanding, or (y) the subsidiary employing or retaining you at any time while the Grant is outstanding, to the extent such competitive products or services are distributed or provided either (1) in the same geographic area as are such products or services of the Company or any of its subsidiaries, or (2) to any of the same customers as such products or services of the Company or any of its subsidiaries are distributed or provided. "Prohibited Capacity" shall mean being associated with an entity as an employee, consultant, investor or another capacity where (1) confidential business information of the Company or any of its subsidiaries could be used in fulfilling any of your duties or responsibilities with such other entity, (2) any of your duties or responsibilities are similar to or include any of those you had while employed or retained as a consultant by the Company or any of its subsidiaries, or (3) an investment by you in such other entity represents more than 1% of such other entity's capital stock, partnership or other ownership interests. Should you either breach or challenge in judicial or arbitration proceedings the validity of any of the restrictions contained in the preceding paragraph, by accepting this Grant you agree, independent of any equitable or legal remedies that the Company may have and without limiting the Company's right to any other equitable or legal remedies, to pay to the Company in cash immediately upon the demand of the Company (1) the amount of income realized for income tax purposes from this Grant, net of all federal, state and other taxes payable on the amount of such income, but only to the extent such income is realized from restrictions lapsing on shares on or after your termination of employment or, if applicable, any consulting relationship with the Company or its subsidiary or within the two year period prior to the date of such termination, plus (2) all costs and expenses of the Company in any effort to enforce its rights under this or the preceding paragraph. The Company shall have the right to set off or withhold any amount owed to you by the Company or any of its subsidiaries or affiliates for any amount owed to the Company by you hereunder. By accepting this Grant you: (a) agree to comply with the requirements of applicable federal and other laws with respect to withholding or providing for the payment of required taxes; (b) acknowledge that (1) all of your rights to the Grant are embodied in the Agreement and in the Plan, (2) the Grant and acceptance of the Grant does not imply any commitment by the Company, a subsidiary or affiliated company to your continued employment or consulting relationship and (3) your employment status is that of an employee-at-will and in particular that the Company, its subsidiary or affiliated company has a continuing right with or without cause (unless otherwise specifically agreed to in writing executed by you and the Company) to terminate your employment or other relationship at any time; and (c) agree that your acceptance represents your agreement not to terminate voluntarily your current employment (or consulting arrangement, if applicable) for at least one year from the date of grant unless you have already agreed in writing to a longer period. Section 3 of the Plan provides, in part, that the Committee appointed by the Company's Board of Directors to administer the Plan shall have the authority to interpret the Plan and Grant agreements, and decide all questions and settle all controversies and disputes relating thereto. It further provides that the determinations, interpretations and decisions of the Committee are within its sole discretion and are final, conclusive and binding on all persons. In addition, you and the Company agree that if for any reason a claim is asserted against the Company or any of its subsidiaries or affiliated companies or any officer, employee or agent of the foregoing (other than a claim involving non-competition restrictions or the Company's, a subsidiary's or an affiliated company's trade secrets, confidential information or intellectual property rights) which (1) are within the scope of the Dispute Resolution Policy (the terms of which are incorporated herein); (2) subverts the provisions of Section 3 of the Plan; or (3) involves any of the provisions of the Agreement or the Plan or the provisions of any other restricted stock awards or option or other agreements relating to Company Common Stock or the claims of yourself or any persons to the benefits thereof, in order to provide a more speedy and economical resolution, the Dispute Resolution Policy shall be the sole and exclusive remedy to resolve all disputes, claims or controversies which are set forth above, except as otherwise agreed in writing by you and the Company or a subsidiary of the Company. It is our mutual intention that any arbitration award entered under the Dispute Resolution Policy will be final and binding and that a judgment on the award may be entered in any court of competent jurisdiction. Notwithstanding the provisions of the Dispute Resolution Policy, however, the parties specifically agree that any mediation or arbitration required by this paragraph shall take place at the offices of the American Arbitration Association located in the metropolitan Detroit area or such other location in the metropolitan Detroit area as the parties might agree. The provisions of this paragraph: (a) shall survive the termination or expiration of this Agreement, (b) shall be binding upon the Company's and your respective successors, heirs, personal representatives, designated beneficiaries and any other person asserting a claim based upon the Agreement, (c) shall supersede the provisions of any prior agreement between you and the Company or its subsidiaries or affiliated companies with respect to any of the Company's option, restricted stock or other stock-based incentive plans to the extent the provisions of such other agreement requires arbitration between you and your employer, and (d) may not be modified without the consent of the Company. Subject to the exception set forth above, you and the Company acknowledge that neither of us nor any other person asserting a claim described above has the right to resort to any federal, state or local court or administrative agency concerning any such claim and the decision of the arbitrator shall be a complete defense to any action or proceeding instituted in any tribunal or agency with respect to any dispute. The Agreement shall be governed by and interpreted in accordance with Michigan law. EX-10.(A).(II) 4 k88683exv10wxaywxiiy.txt RESTORATION STOCK OPTION Exhibit 10.a.ii RESTORATION STOCK OPTION {CURRENT DATE} NAME ADDRESS ADDRESS Dear : You have exercised a non-qualified stock option previously granted to you, and you paid all or part of the option exercise price by delivery of Company stock. In accordance with the program adopted by the Organization and Compensation Committee of the Board of Directors, subject to your acceptance you are granted a non-qualified Restoration Option for shares of Company common stock, $1 par value, subject to the terms of the 1991 Long Term Stock Incentive Plan, as follows: Date of Restoration Option: Number of Shares Granted: The Option Price: $ Exercisable in Full on & after: This Option Expires after: Copies of the 1991 Plan, the Company's most recent proxy statement, Annual Report to Stockholders and a Prospectus are enclosed for your information, except to the extent our records indicate you have already received such documents. Additional copies of any of these documents are available from the Company upon your request. Except for reference to an option plan other than the 1991 Plan and the above specific terms, all of the terms and conditions of your most recent option agreement are incorporated in this Restoration Option, and both the Company and you are bound thereby. Please sign two copies of this document and return them as soon as possible to Eugene A. Gargaro, Jr. at the home office, since this Restoration Option will not be effective until we receive the signed copies. MASCO CORPORATION By_________________________________ Richard A. Manoogian Chairman of the Board and Chief Executive Officer Accepted upon the terms above stated: ___________________________________ DATED:_____________________________ EX-10.(A).(III) 5 k88683exv10wxaywxiiiy.txt STOCK OPTION GRANT FOR OFFICERS Exhibit 10.a.iii PLEASE RETURN THE ENCLOSED COPY AFTER YOU HAVE SIGNED AND PROVIDED THE REQUESTED INFORMATION; PLEASE RETAIN THE ORIGINAL [Date] Name Address1 Address2 Address3 Address4 Dear Salutation: On behalf of the Company, I am pleased to inform you that on [date] the Organization and Compensation Committee of the Board of Directors granted you a non-qualified stock option pursuant to the Company's 1991 Long Term Stock Incentive Plan (the "Plan"), subject to the conditions set forth below and in the Appendix attached hereto. This option agreement and attached Appendix (the "Agreement") state the terms of the option and contain other provisions which on your acceptance commit the Company and you, so I urge you to read them carefully. For purposes of this Agreement, use of the words "employment" or "employed" shall be deemed to refer to employment by the Company and its subsidiaries and unless otherwise stated shall not include employment by an "Affiliate" (as defined in the Plan) which is not a subsidiary of the Company unless the Committee so determines at the time such employment commences. This option, if accepted by you, grants you the right to purchase SHARES shares of the Company's $1.00 par value Common Stock at a price of [$____] per share, which the Committee has determined is the fair market value of a share of the Company's common stock on the date of grant as reflected by trades reported on the New York Stock Exchange. WHEN THE OPTION IS EXERCISABLE AND TERMINATION This option is exercisable cumulatively in installments in the following manner: Page 2 [Date] 20% of such shares 1 year after [date] 20% " " " 2 years after " " " 20% " " " 3 years after " " " 20% " " " 4 years after " " " 20% " " " 5 years after " " " but no later than [date]
provided that, subject to the last sentence of this paragraph, on each date of exercise you qualify under the provisions of the Plan, including Section 6(a), subparagraphs (ii) (D) and (F), to exercise such option. All installments of the option as above described must be exercised no later than July 29, 2014; all unexercised installments shall lapse and the right to purchase shares pursuant to this option shall be of no further effect after such date. If during the option exercise periods your employment is terminated for any reason, the option shall terminate in accordance with Section 6 of the Plan. Enclosed please find, to the extent our records indicate you may not have previously received them, (i) the Company's latest annual report and proxy statement, (ii) Prospectus dated September 25, 2003 covering the shares which are the subject of this option, and (iii) a copy of the Plan, as amended and restated February 10, 2004. Copies are also available upon request to the Company. We suggest that you review each of these documents. The federal income tax attributes of non-qualified stock options are discussed in the Prospectus. This option does not qualify for the federal tax benefits of an "incentive stock option" under the Internal Revenue Code, as described in the Prospectus. Your acceptance of this option will acknowledge that you have read all of the terms and conditions set forth herein and in the attached Appendix and will evidence your agreement to all of such terms and conditions and to the incorporation of the Appendix as part of this Agreement. Page 3 [Date] Please complete your mailing address and Social Security number as indicated below and sign, date and return one copy of this option agreement to Eugene A. Gargaro, Jr., our Secretary, as soon as possible in order that this option grant may become effective. Very truly yours, MASCO CORPORATION Richard A. Manoogian Chairman of the Board and Chief Executive Officer I accept and agree to all of the foregoing terms and conditions and the terms and conditions contained in the attached Appendix. _____________________________ (Signature of Recipient) _____________________________ _____________________________ (Mailing Address) _____________________________ (Social Security Number) Dated:______________________ APPENDIX TO OPTION AGREEMENT In consideration of the grant of the option (the "Option") contained in the foregoing letter agreement into which this Appendix is incorporated (the "Agreement"), you agree that, with respect to all other grants of options and restricted stock or phantom stock awards or stock appreciation rights (the "Awards") which you have previously been granted under the 1991 Long Term Stock Incentive Plan (the "Plan") of Masco Corporation (the "Company") and similar Awards under all other plans of the Company and affiliated or formerly affiliated employers, the definition of "Change in Control" set forth in Section 6(g)(vi)(C) of the Plan shall constitute the exclusive definition of Change in Control for purposes of such Awards. The Company and you agree that all of the terms and conditions of the Option are reflected in the Agreement and in the Plan, and that there are no other commitments or understandings currently outstanding with respect to any other Awards except as may be evidenced by agreements duly executed by you and the Company. By signing the Agreement you acknowledge acceptance of the Option and receipt of the documents referred to in the Agreement and represent that you have read the Plan, are familiar with its provisions, and agree to its incorporation in the Agreement and all of the other terms and conditions of the Agreement. Such acceptance, moreover, evidences your agreement promptly to provide such information with respect to shares acquired pursuant to the Option, as may be requested by the Company or any of its subsidiaries or affiliated companies. If your employment with the Company or any of its subsidiaries is terminated for any reason, other than death, permanent and total disability, retirement on or after normal retirement date or the sale or other disposition of the business or subsidiary employing you, and other than termination of employment in connection with a Change in Control, and if any installments of the Option or any restoration options granted upon any exercise of the Option became exercisable within the two year period prior to the date of such termination (such installments and restoration options being referred to as the "Subject Options"), by accepting the Option you agree that the following provisions will apply: (1) Upon the demand of the Company you will pay to the Company in cash within 30 days after the date of such termination the amount of income realized for income tax purposes from the exercise of any Subject Options, net of all federal, state and other taxes payable on the amount of such income, plus all costs and expenses of the Company in any effort to enforce its rights hereunder; and (2) Any right you would otherwise have, pursuant to the terms of the Plan and this Agreement, to exercise any Subject Options on or after the date of such termination, shall be extinguished as of the date of such termination. The Company shall have the right to set off or withhold any amount owed to you by the Company or any of its subsidiaries or affiliates for any amount owed to the Company by you hereunder. In addition you agree, in consideration for the grant of the Option and regardless of whether the Option becomes exercisable or is exercised, while you are employed or retained as a consultant by the Company or any of its subsidiaries and for a period of one year following any termination of your employment and, if applicable, any consulting relationship with the Company or any of its subsidiaries other than a termination in connection with a Change in Control, not to engage in, and not to become associated in a "Prohibited Capacity" (as hereinafter defined) with any other entity engaged in, any "Business Activities" (as hereinafter defined) and not to encourage or assist others in encouraging any employee of the Company or any of its subsidiaries to terminate employment or to become engaged in any such Prohibited Capacity with an entity engaged in any Business Activities. "Business Activities" shall mean the design, development, manufacture, sale, marketing or servicing of any product or providing of services competitive with the products or services of (x) the Company or any subsidiary if you are employed by or consulting with the Company at any time the Option is outstanding, or (y) the subsidiary employing or retaining you at any time while the Option is outstanding, to the extent such competitive products or services are distributed or provided either (1) in the same geographic area as are such products or services of the Company or any of its subsidiaries, or (2) to any of the same customers as such products or services of the Company or any of its subsidiaries are distributed or provided. "Prohibited Capacity" shall mean being associated with an entity as an employee, consultant, investor or another capacity where (1) confidential business information of the Company or any of its subsidiaries could be used in fulfilling any of your duties or responsibilities with such other entity, (2) any of your duties or responsibilities are similar to or include any of those you had while employed or retained as a consultant by the Company or any of its subsidiaries, or (3) an investment by you in such other entity represents more than 1% of such other entity's capital stock, partnership or other ownership interests. Should you either breach or challenge in judicial or arbitration proceedings the validity of any of the restrictions contained in the preceding paragraph, by accepting the Option you agree, independent of any equitable or legal remedies that the Company may have and without limiting the Company's right to any other equitable or legal remedies, to pay to the Company in cash immediately upon the demand of the Company (1) the amount of income realized for income tax purposes from the exercise of any portion of the Option and any restoration options granted upon any exercise of the Option, net of all federal, state and other taxes payable on the amount of such income (and reduced by any amount already paid to the Company under the second preceding paragraph), but only to the extent such exercises occurred on or after your termination of employment or, if applicable, any consulting relationship with the Company or its subsidiary or within the two year period prior to the date of such termination, plus (2) all costs and expenses of the Company in any effort to enforce its rights under this or the preceding paragraph. The Company shall have the right to set off or withhold any amount owed to you by the Company or any of its subsidiaries or affiliates for any amount owed to the Company by you hereunder. By accepting the Option you: (a) agree to comply with the requirements of applicable federal and other laws with respect to withholding or providing for the payment of required taxes; (b) acknowledge that (1) all of your rights to the Option are embodied in the Agreement and in the Plan, (2) the grant and acceptance of the Option does not imply any commitment by the Company, a subsidiary or affiliated company to your continued employment or consulting relationship and (3) your employment status is that of an employee-at-will and in particular that the Company, its subsidiary or affiliated company has a continuing right with or without cause (unless otherwise specifically agreed to in writing executed by you and the Company) to terminate your employment or other relationship at any time; and (c) agree not to terminate voluntarily your current employment (or consulting arrangement, if applicable) for at least one year from the date of grant unless you have already agreed in writing to a longer period. Section 3 of the Plan provides, in part, that the Committee appointed by the Company's Board of Directors to administer the Plan shall have the authority to interpret the Plan and Award agreements, and decide all questions and settle all controversies and disputes relating thereto. It further provides that the determinations, interpretations and decisions of the Committee are within its sole discretion and are final, conclusive and binding on all persons. In addition, you and the Company agree that if for any reason a claim is asserted against the Company or any of its subsidiaries or affiliated companies or any officer, employee or agent of the foregoing which (1) is within the scope of the Dispute Resolution Policy (the terms of which are incorporated herein); (2) subverts the provisions of Section 3 of the Plan; or (3) involves any of the provisions of the Agreement or the Plan or the provisions of any other option agreements relating to Company common stock or restricted stock awards or other Awards or the claims of yourself or any persons to the benefits thereof, in order to provide a more speedy and economical resolution, the Dispute Resolution Policy shall be the sole and exclusive remedy to resolve all disputes, claims or controversies which are set forth above, except as otherwise agreed in writing by you and the Company or a subsidiary of the Company. It is our mutual intention that any arbitration award entered under the Dispute Resolution Policy will be final and binding and that a judgment on the award may be entered in any court of competent jurisdiction. Notwithstanding the provisions of the Dispute Resolution Policy, however, the parties specifically agree that any mediation or arbitration required by this paragraph shall take place at the offices of the American Arbitration Association located in the metropolitan Detroit area or such other location in the metropolitan Detroit area as the parties might agree. The provisions of this paragraph: (a) shall survive the termination or expiration of this Agreement, (b) shall be binding upon the Company's and your respective successors, heirs, personal representatives, designated beneficiaries and any other person asserting a claim based upon the Agreement, (c) shall supersede the provisions of any prior agreement between you and the Company or its subsidiaries or affiliated companies with respect to any of the Company's option or restricted stock incentive plans or other Awards to the extent the provisions of such other agreement requires arbitration between you and the Company or one of its subsidiaries, and (d) may not be modified without the consent of the Company. Subject to the exception set forth above, you and the Company acknowledge that neither of us nor any other person asserting a claim described above has the right to resort to any federal, state or local court or administrative agency concerning any such claim and the decision of the arbitrator shall be a complete defense to any action or proceeding instituted in any tribunal or agency with respect to any dispute. The Agreement shall be governed by and interpreted in accordance with Michigan law. EX-10.(A).(IV) 6 k88683exv10wxaywxivy.txt STOCK OPTION GRANT FOR DIRECTORS Exhibit 10.a.iv [Date] Name Address1 Address2 Address3 Address4 Dear Salutation: On behalf of the Company, I am pleased to inform you that on [date], the Board of Directors granted you a non-qualified stock option pursuant to the Company's 1991 Long Term Stock Incentive Plan (the "Plan"), subject to the conditions set forth below and in the Appendix attached hereto. This letter and the attached Appendix (the "Agreement") state the terms of the option and contain other provisions which on your acceptance commit the Company and you, so I urge you to read them carefully. You should also read the copies of the Plan and Prospectus which accompany this Agreement. This option, if accepted by you, grants you the right to purchase [no. of shares] shares of the Company's $1.00 par value Common Stock at a price of [$_____] per share, which the Board has determined is the fair market value of a share of the Company's Common Stock on the date of grant as reflected by trades reported on the New York Stock Exchange. WHEN THE OPTION IS EXERCISABLE AND TERMINATION This option is exercisable cumulatively in installments of 20% commencing as of [date], 20% as of [date], 20% as of [date], 20% as of [date] and 20% as of [date]; provided that, subject to the last sentence of this paragraph, on each date of exercise you are an Eligible Director, as hereinafter defined. An Eligible Director is any Director of the Company who is not an employee of the Company and who receives a fee for services as a Director. All installments of the option as above described must be exercised no later than [date]; all unexercised installments or portions thereof shall lapse and the right to purchase shares pursuant to this option shall be of no further effect after such date. If during the option exercise periods your term as an Eligible Director is terminated for any reason, this option shall terminate in accordance with Section 6 of the Plan. Enclosed please find a Prospectus dated September 25, 2003 covering the shares which are the subject of this option, and a copy of the Plan, as amended and restated February 10, 2004. I suggest that you review the federal income tax attributes of non-qualified stock options which are discussed in the Prospectus. This option does not qualify for the federal tax benefits of an "incentive stock option" under the Internal Revenue Code, as described in the Prospectus. ACCEPTANCE We agree that all of the terms and conditions of this option are reflected in this Agreement and the Plan, and that there are no other commitments or understandings currently outstanding with respect to any other awards of stock options or restricted stock except as may be evidenced by agreements duly executed by you and the Company. Page 2 [Date] By accepting this option you: (a) represent that you are familiar with the provisions of the Plan and agree to its incorporation in this Agreement; (b) agree to provide promptly such information with respect to shares acquired pursuant to this option as may be requested by the Company and to comply with any requirements of applicable federal and other laws with respect to withholding or providing for the payment of required taxes; and (c) acknowledge that all of your rights to this option are embodied herein and in the Plan. Section 3 of the Plan provides that the Organization and Compensation Committee shall have the authority to make all determinations which may arise in connection with the Plan. It further provides that the Organization and Compensation Committee's interpretation of the terms and provisions of the Plan shall be final and conclusive. This Agreement shall be governed by and interpreted in accordance with Michigan law. Please complete your mailing address and Social Security number as indicated below and sign, date and return the copy of this Agreement to Eugene A. Gargaro, Jr., our Secretary, as soon as possible in order that this option grant may become effective. Very truly yours, MASCO CORPORATION Richard A. Manoogian Chairman of the Board and Chief Executive Officer I accept and agree to all the foregoing terms and conditions. ______________________________ (Signature of Recipient) ______________________________ ______________________________ (Mailing Address) ______________________________ (Social Security Number) Dated:________________________ APPENDIX TO OPTION AGREEMENT Masco Corporation (the "Company") and you agree that all of the terms and conditions of the option (the "Option") contained in the foregoing letter agreement into which this Appendix is incorporated (the "Agreement") are reflected in the Agreement and in the Company's 1991 Long Term Stock Incentive Plan (the "Plan"), and that there are no other commitments or understandings currently outstanding with respect to any other grants of options and restricted stock except as may be evidenced by agreements duly executed by you and the Company. By signing the Agreement you acknowledge acceptance of the Option and receipt of the documents referred to in the Agreement and represent that you have read the Plan, are familiar with its provisions, and agree to its incorporation in the Agreement and all of the other terms and conditions of the Agreement. Such acceptance, moreover, evidences your agreement promptly to provide such information with respect to shares acquired pursuant to the Option, as may be requested by the Company. If your term is terminated for any reason other than death, permanent and total disability or following a Change in Control, and if any installments of the Option granted upon any exercise of the Option became exercisable within the two year period prior to the date of such termination (such installments being referred to as the "Subject Options"), by accepting the Option you agree that the following provisions will apply: (1) Upon the demand of the Company you will pay to the Company in cash within 30 days after the date of such termination the amount of income realized for income tax purposes from the exercise of any Subject Options, net of all federal, state and other taxes payable on the amount of such income, plus all costs and expenses of the Company in any effort to enforce its rights hereunder; and (2) Any right you would otherwise have, pursuant to the terms of the Plan and this Agreement, to exercise any Subject Options on or after the date of such termination, shall be extinguished as of the date of such termination. The Company shall have the right to set off or withhold any amount owed to you by the Company or any of its subsidiaries or affiliates for any amount owed to the Company by you hereunder. In addition you agree, in consideration for the grant of the Option and regardless of whether the Option becomes exercisable or is exercised, while you are a Director of the Company and for a period of one year following the termination of your term as a Director of the Company, other than a termination following a Change in Control, not to engage in, and not to become associated in a "Prohibited Capacity" (as hereinafter defined) with any other entity engaged in, any "Business Activities" (as hereinafter defined) and not to encourage or assist others in encouraging any employee of the Company or any of its subsidiaries to terminate employment or to become engaged in any such Prohibited Capacity with an entity engaged in any Business Activities. "Business Activities" shall mean the design, development, manufacture, sale, marketing or servicing of any product or providing of services competitive with the products or services of the Company or any subsidiary at any time the Option is outstanding, to the extent such competitive products or services are distributed or provided either (1) in the same geographic area as are such products or services of the Company or any of its subsidiaries, or (2) to any of the same customers as such products or services of the Company or any of its subsidiaries are distributed or provided. "Prohibited Capacity" shall mean being associated with an entity as a director, employee, consultant, investor or another capacity where (1) confidential business information of the Company or any of its subsidiaries could be used in fulfilling any of your duties or responsibilities with such other entity, or (2) an investment by you in such other entity represents more than 1% of such other entity's capital stock, partnership or other ownership interests. Should you either breach or challenge in judicial or arbitration proceedings the validity of any of the restrictions contained in the preceding paragraph, by accepting the Option you agree, independent of any equitable or legal remedies that the Company may have and without limiting the Company's right to any other equitable or legal remedies, to pay to the Company in cash immediately upon the demand of the Company (1) the amount of income realized for income tax purposes from the exercise of any portion of the Option, net of all federal, state and other taxes payable on the amount of such income (and reduced by any amount already paid to the Company under the second preceding paragraph), but only to the extent such exercises occurred on or after the termination of your term as a Director of the Company or within the two year period prior to the date of such termination, plus (2) all costs and expenses of the Company in any effort to enforce its rights under this or the preceding paragraph. The Company shall have the right to set off or withhold any amount owed to you by the Company or any of its subsidiaries or affiliates for any amount owed to the Company by you hereunder. By accepting the Option you: (a) agree to comply with the requirements of applicable federal and other laws with respect to withholding or providing for the payment of required taxes; and (b) acknowledge that all of your rights to the Option are embodied in the Agreement and in the Plan. Section 3 of the Plan provides, in part, that the Committee appointed by the Company's Board of Directors to administer the Plan shall have the authority to interpret the Plan and award agreements, and decide all questions and settle all controversies and disputes relating thereto. It further provides that the determinations, interpretations and decisions of the Committee are within its sole discretion and are final, conclusive and binding on all persons. In addition, you and the Company agree that if for any reason a claim is asserted against the Company or any of its subsidiaries or affiliated companies or any officer, employee or agent of the foregoing which (1) is within the scope of the Dispute Resolution Policy (the terms of which are incorporated herein); (2) subverts the provisions of Section 3 of the Plan; or (3) involves any of the provisions of the Agreement or the Plan or the provisions of any other option agreements relating to Company common stock or restricted stock awards or other awards or the claims of yourself or any persons to the benefits thereof, in order to provide a more speedy and economical resolution, the Dispute Resolution Policy shall be the sole and exclusive remedy to resolve all disputes, claims or controversies which are set forth above, and you shall be deemed to be an employee within the scope of the Dispute Resolution Policy and you and the Company shall be bound as if you were an employee for all claims within the scope of the Dispute Resolution Policy, except as otherwise agreed in writing by you and the Company. It is our mutual intention that any arbitration award entered under the Dispute Resolution Policy will be final and binding and that a judgment on the award may be entered in any court of competent jurisdiction. Notwithstanding the provisions of the Dispute Resolution Policy, however, the parties specifically agree that any mediation or arbitration required by this paragraph shall take place at the offices of the American Arbitration Association located in the metropolitan Detroit area or such other location in the metropolitan Detroit area as the parties might agree. The provisions of this paragraph: (a) shall survive the termination or expiration of this Agreement, (b) shall be binding upon the Company's and your respective successors, heirs, personal representatives, designated beneficiaries and any other person asserting a claim based upon the Agreement, (c) shall supersede the provisions of any prior agreement between you and the Company with respect to any of the Company's option or restricted stock incentive plans or other awards to the extent the provisions of such other agreement requires arbitration between you and the Company, and (d) may not be modified without the consent of the Company. Subject to the exception set forth above, you and the Company acknowledge that neither of us nor any other person asserting a claim described above has the right to resort to any federal, state or local court or administrative agency concerning any such claim and the decision of the arbitrator shall be a complete defense to any action or proceeding instituted in any tribunal or agency with respect to any dispute. The Agreement shall be governed by and interpreted in accordance with Michigan law. EX-10.(B).(I) 7 k88683exv10wxbywxiy.txt RESTRICTED STOCK AWARD AGREEMENT Exhibit 10.b.i Restricted Stock Award Agreement [Date] Name Address1 Address2 Address3 Address4 Dear Salutation: On behalf of the Company, I am pleased to inform you that on [date] the Board of Directors granted you an Award of Restricted Stock, pursuant to the Company's 1997 Non-Employee Directors Stock Plan (the "Plan"), of shares of the Company's $1.00 par value Common Stock. This letter states the terms of the Award and contains other provisions which on your acceptance commit the Company and you, so I urge you to read it carefully. You should also read the copies of the Plan and Prospectus which accompany this Agreement. TERMS OF AWARD: Certificates for the shares of stock evidencing the Restricted Stock will not be issued but the shares will be registered in your name in book entry form promptly after your acceptance of this Award. You will be entitled to vote and receive any cash dividends on the Restricted Stock, but you will not be able to obtain a stock certificate or sell, encumber or otherwise transfer the shares except in accordance with the Plan. The number of shares of Restricted Stock you have been awarded is [number of shares]. Provided since the date of the Award you have continuously served as an Eligible Director, as defined in the Plan, the restrictions on 20% of the shares will automatically lapse on [date] and on the same date of each year thereafter until all shares are free of restrictions, in each case based on the initial number of shares. In accordance with Section 5(d) of the Plan, if your term as an Eligible Director should be terminated by reason of your death or permanent and total disability, or if following retirement from your term as an Eligible Director you Page 2 [Date] thereafter die, the restrictions on all Restricted Stock will lapse and your rights to the shares will become vested on the date of such termination. If your term as an Eligible Director terminates by reason of retirement on or after normal retirement date, the restrictions contained in the Award shall continue to lapse in the same manner as though your term had not terminated. If your term as an Eligible Director is terminated for any reason other than death or permanent and total disability or retirement on or after normal retirement date, while restrictions remain in effect, the Restricted Stock that has not vested shall be automatically forfeited and transferred back to the Company; provided, however, that a pro rata portion of the Restricted Stock which would have vested on January 1 of the year following the year of such termination shall vest on the date of termination, based upon the portion of the year during which you served as an Eligible Director of the Company. As restrictions lapse, a certificate for the number of shares of Restricted Stock as to which restrictions have lapsed will be forwarded to you or the person or persons entitled to the shares. OTHER TERMS AND ACCEPTANCE: We agree that all of the terms and conditions of the Award are reflected in this Agreement and in the Plan, and that there are no other commitments or understandings currently outstanding with respect to any other awards of restricted stock or stock options except as may be evidenced by agreements duly executed by you and the Company. By accepting this Award you: (a) represent that you are familiar with the provisions of the Plan and agree to its incorporation in this Agreement; (b) agree to provide promptly such information with respect to the Restricted Stock as may be requested by the Company and to comply with any requirements of applicable federal and other laws with respect to withholding or providing for the payment of required taxes; and (c) acknowledge that all of your rights to this Award are embodied herein and in the Plan. Section 2 of the Plan provides that the Board of Directors shall have the authority to make all determinations which may arise in connection with the Plan. It further provides that the Board's interpretation of the terms and provisions of the Plan shall be final and conclusive. This Agreement shall be governed by and interpreted in accordance with Michigan law. Page 3 [Date] Please complete your mailing address and social security number as indicated below, sign, date and return the copy of this Award Agreement to Eugene A. Gargaro, Jr., our Vice President and Secretary, as soon as possible in order that this Award may become effective. Since the Restricted Stock cannot be registered in your name until we receive the signed copies of this Agreement, and since dividend, voting and other rights will only become effective at that time, your prompt attention and acceptance will be greatly appreciated. Very truly yours, MASCO CORPORATION Richard A. Manoogian Chairman of the Board and Chief Executive Officer I accept and agree to the foregoing. ________________________________ (Signature of Recipient) ________________________________ ________________________________ (Mailing Address) ________________________________ (Social Security Number) Dated:__________________________ EX-10.(B).(II) 8 k88683exv10wxbywxiiy.txt STOCK OPTION GRANT Exhibit 10.b.ii [Date] Name Address1 Address2 Address3 Address4 Dear Salutation: On behalf of the Company, I am pleased to inform you that on [date], the Board of Directors granted you a non-qualified stock option pursuant to the Company's 1997 Non-Employee Directors Stock Plan (the "Plan"), subject to the conditions set forth below and in the Appendix attached hereto. This letter and the attached Appendix (the "Agreement") state the terms of the option and contain other provisions which on your acceptance commit the Company and you, so I urge you to read them carefully. You should also read the copies of the Plan and Prospectus which accompany this Agreement. This option, if accepted by you, grants you the right to purchase [no. of shares] shares of the Company's $1.00 par value Common Stock at a price of [$____] per share, which the Board has determined is the fair market value of a share of the Company's Common Stock on the date of grant as reflected by trades reported on the New York Stock Exchange. WHEN THE OPTION IS EXERCISABLE AND TERMINATION This option is exercisable cumulatively in installments of 20% commencing as of [date], 20% as of [date], 20% as of [date], 20% as of [date] and 20% as of [date]; provided that on each date of exercise you qualify under the provisions of the Plan, including Section 6, to exercise such option. All installments of the option as above described must be exercised no later than [date]; all unexercised installments or portions thereof shall lapse and the right to purchase shares pursuant to this option shall be of no further effect after such date. If during the option exercise periods your term as an Eligible Director, as defined in the Plan, is terminated for any reason, the option shall terminate, continue to vest or become immediately vested, and shall be exercisable, in accordance with Section 6 of the Plan. Enclosed please find a Prospectus dated July 1, 2004 covering the shares which are the subject of this option, and a copy of the Plan, as amended May 11, 2004. We suggest that you review the federal income tax attributes of non-qualified stock options which are discussed in the Prospectus. This option does not qualify for the federal tax benefits of an "incentive stock option" under the Internal Revenue Code, as described in the Prospectus. ACCEPTANCE We agree that all of the terms and conditions of this option are reflected in this Agreement and in the Plan, and that there are no other commitments or understandings currently outstanding with respect to any other awards of stock options or restricted stock except as may be evidenced by agreements duly executed by you and the Company. Page 2 [Date] By accepting this option you: (a) represent that you are familiar with the provisions of the Plan and agree to its incorporation in this Agreement; (b) agree to provide promptly such information with respect to shares acquired pursuant to this option as may be requested by the Company and to comply with any requirements of applicable federal and other laws with respect to withholding or providing for the payment of required taxes; and (c) acknowledge that all of your rights to this option are embodied herein and in the Plan. Section 2 of the Plan provides that the Board of Directors shall have the authority to make all determinations which may arise in connection with the Plan. It further provides that the Board's interpretation of the terms and provisions of the Plan shall be final and conclusive. This Agreement shall be governed by and interpreted in accordance with Michigan law. Please complete your mailing address and Social Security number as indicated below and sign, date and return the copy of this Agreement to Eugene A. Gargaro, Jr., our Vice President and Secretary, as soon as possible in order that this option grant may become effective. Very truly yours, MASCO CORPORATION Richard A. Manoogian Chairman of the Board and Chief Executive Officer I accept and agree to all the foregoing terms and conditions. _______________________________ (Signature of Recipient) _______________________________ _______________________________ (Mailing Address) _______________________________ (Social Security Number) Dated:_________________________ APPENDIX TO OPTION AGREEMENT Masco Corporation (the "Company") and you agree that all of the terms and conditions of the option (the "Option") contained in the foregoing letter agreement into which this Appendix is incorporated (the "Agreement") are reflected in the Agreement and in the Company's 1997 Non-Employee Directors Stock Plan (the "Plan"), and that there are no other commitments or understandings currently outstanding with respect to any other grants of options and restricted stock except as may be evidenced by agreements duly executed by you and the Company. By signing the Agreement you acknowledge acceptance of the Option and receipt of the documents referred to in the Agreement and represent that you have read the Plan, are familiar with its provisions, and agree to its incorporation in the Agreement and all of the other terms and conditions of the Agreement. Such acceptance, moreover, evidences your agreement promptly to provide such information with respect to shares acquired pursuant to the Option, as may be requested by the Company. If your term is terminated for any reason other than death, permanent and total disability or following a Change in Control, and if any installments of the Option granted upon any exercise of the Option became exercisable within the two year period prior to the date of such termination (such installments being referred to as the "Subject Options"), by accepting the Option you agree that the following provisions will apply: (1) Upon the demand of the Company you will pay to the Company in cash within 30 days after the date of such termination the amount of income realized for income tax purposes from the exercise of any Subject Options, net of all federal, state and other taxes payable on the amount of such income, plus all costs and expenses of the Company in any effort to enforce its rights hereunder; and (2) Any right you would otherwise have, pursuant to the terms of the Plan and this Agreement, to exercise any Subject Options on or after the date of such termination, shall be extinguished as of the date of such termination. The Company shall have the right to set off or withhold any amount owed to you by the Company or any of its subsidiaries or affiliates for any amount owed to the Company by you hereunder. In addition you agree, in consideration for the grant of the Option and regardless of whether the Option becomes exercisable or is exercised, while you are a Director of the Company and for a period of one year following the termination of your term as a Director of the Company, other than a termination following a Change in Control, not to engage in, and not to become associated in a "Prohibited Capacity" (as hereinafter defined) with any other entity engaged in, any "Business Activities" (as hereinafter defined) and not to encourage or assist others in encouraging any employee of the Company or any of its subsidiaries to terminate employment or to become engaged in any such Prohibited Capacity with an entity engaged in any Business Activities. "Business Activities" shall mean the design, development, manufacture, sale, marketing or servicing of any product or providing of services competitive with the products or services of the Company or any subsidiary at any time the Option is outstanding, to the extent such competitive products or services are distributed or provided either (1) in the same geographic area as are such products or services of the Company or any of its subsidiaries, or (2) to any of the same customers as such products or services of the Company or any of its subsidiaries are distributed or provided. "Prohibited Capacity" shall mean being associated with an entity as a director, employee, consultant, investor or another capacity where (1) confidential business information of the Company or any of its subsidiaries could be used in fulfilling any of your duties or responsibilities with such other entity, or (2) an investment by you in such other entity represents more than 1% of such other entity's capital stock, partnership or other ownership interests. Should you either breach or challenge in judicial or arbitration proceedings the validity of any of the restrictions contained in the preceding paragraph, by accepting the Option you agree, independent of any equitable or legal remedies that the Company may have and without limiting the Company's right to any other equitable or legal remedies, to pay to the Company in cash immediately upon the demand of the Company (1) the amount of income realized for income tax purposes from the exercise of any portion of the Option, net of all federal, state and other taxes payable on the amount of such income (and reduced by any amount already paid to the Company under the second preceding paragraph), but only to the extent such exercises occurred on or after the termination of your term as a Director of the Company or within the two year period prior to the date of such termination, plus (2) all costs and expenses of the Company in any effort to enforce its rights under this or the preceding paragraph. The Company shall have the right to set off or withhold any amount owed to you by the Company or any of its subsidiaries or affiliates for any amount owed to the Company by you hereunder. By accepting the Option you: (a) agree to comply with the requirements of applicable federal and other laws with respect to withholding or providing for the payment of required taxes; and (b) acknowledge that all of your rights to the Option are embodied in the Agreement and in the Plan. Section 2 of the Plan provides that the Board of Directors shall have the authority to make all determinations which may arise in connection with the Plan. It further provides that the Board's interpretation of the terms and provisions of the Plan shall be final and conclusive. In addition, you and the Company agree that if for any reason a claim is asserted against the Company or any of its subsidiaries or affiliated companies or any officer, employee or agent of the foregoing which (1) is within the scope of the Dispute Resolution Policy (the terms of which are incorporated herein); or (2) involves any of the provisions of the Agreement or the Plan or the provisions of any other option agreements relating to Company common stock or restricted stock awards or other awards or the claims of yourself or any persons to the benefits thereof, in order to provide a more speedy and economical resolution, the Dispute Resolution Policy shall be the sole and exclusive remedy to resolve all disputes, claims or controversies which are set forth above, and you shall be deemed to be an employee within the scope of the Dispute Resolution Policy and you and the Company shall be bound as if you were an employee for all claims within the scope of the Dispute Resolution Policy, except as otherwise agreed in writing by you and the Company. It is our mutual intention that any arbitration award entered under the Dispute Resolution Policy will be final and binding and that a judgment on the award may be entered in any court of competent jurisdiction. Notwithstanding the provisions of the Dispute Resolution Policy, however, the parties specifically agree that any mediation or arbitration required by this paragraph shall take place at the offices of the American Arbitration Association located in the metropolitan Detroit area or such other location in the metropolitan Detroit area as the parties might agree. The provisions of this paragraph: (a) shall survive the termination or expiration of this Agreement, (b) shall be binding upon the Company's and your respective successors, heirs, personal representatives, designated beneficiaries and any other person asserting a claim based upon the Agreement, (c) shall supersede the provisions of any prior agreement between you and the Company with respect to any of the Company's option or restricted stock incentive plans or other awards to the extent the provisions of such other agreement requires arbitration between you and the Company or one of its subsidiaries, and (d) may not be modified without the consent of the Company. Subject to the exception set forth above, you and the Company acknowledge that neither of us nor any other person asserting a claim described above has the right to resort to any federal, state or local court or administrative agency concerning any such claim and the decision of the arbitrator shall be a complete defense to any action or proceeding instituted in any tribunal or agency with respect to any dispute. The Agreement shall be governed by and interpreted in accordance with Michigan law. EX-12 9 k88683exv12.txt COMPUTATION OF RATIO OF EARNINGS EXHIBIT 12 MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS
(DOLLARS IN MILLIONS) --------------------------------------------------------- NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEP. 30, ---------------------------------------------- 2004 2003 2002 2001 2000 1999 ------ ------ ------ ------ ------ ------ EARNINGS BEFORE INCOME TAXES, PREFERRED STOCK DIVIDENDS AND FIXED CHARGES: Income from continuing operations before income taxes, minority interest and cumulative effect of accounting change, net $1,312 $1,280 $ 966 $ 278 $ 824 $ 805 Deduct equity in undistributed (earnings) of fifty-percent-or- less-owned companies (1) -- (10) (1) (10) (19) Add interest on indebtedness, net 160 253 228 230 190 119 Add amortization of debt expense 3 12 13 10 2 1 Add estimated interest factor for rentals 26 32 24 21 17 14 ------ ------ ------ ------ ------ ------ Earnings before income taxes, minority interest, cumulative effect of accounting change, net, fixed charges and preferred stock dividends $1,500 $1,577 $1,221 $ 538 $1,023 $ 920 ====== ====== ====== ====== ====== ====== FIXED CHARGES: Interest on indebtedness $ 159 $ 253 $ 226 $ 236 $ 198 $ 122 Amortization of debt expense 3 12 13 10 2 1 Estimated interest factor for rentals 26 32 24 21 17 14 ------ ------ ------ ------ ------ ------ Total fixed charges $ 188 $ 297 $ 263 $ 267 $ 217 $ 137 ====== ====== ====== ====== ====== ====== PREFERRED STOCK DIVIDENDS(a) $ 8 $ 16 $ 14 $ 7 -- -- ------ ------ ------ ------ ------ ------ Combined fixed charges and preferred stock dividends $ 196 $ 313 $ 277 $ 274 $ 217 $ 137 ====== ====== ====== ====== ====== ====== Ratio of earnings to fixed charges (c) 8.0 5.3 4.6 2.0 4.7 6.7 ====== ====== ====== ====== ====== ====== Ratio of earnings to combined fixed charges and preferred stock dividends(b)(c) 7.7 5.0 4.4 2.0 4.7 6.7 ====== ====== ====== ====== ====== ======
(a) Represents amount of income before provision for income taxes required to meet the preferred stock dividend requirements of the Company. (b) Excluding the 2004 pre-tax income of $30 million related to the Behr litigation accrual, the 2003 pre-tax income for litigation settlement of $72 million and the non-cash, pre-tax goodwill impairment charge of $53 million, the 2002 pre-tax charge for litigation settlement, net, of $147 million, the 2001 non-cash, pre-tax charge of $530 million and the 2000 non-cash, pre-tax charge of $145 million, the Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends would be 7.5, 5.0, 4.9, 3.9 and 5.4 for the first nine months of 2004, and the years 2003, 2002, 2001 and 2000, respectively. (c) Years prior to 2002 have not been adjusted to exclude goodwill amortization expense. EX-31.(A) 10 k88683exv31wxay.txt CERTIFICATION OF CHIEF EXECUTIVE OFFICER TO SECTION 302 EXHIBIT 31a MASCO CORPORATION CERTIFICATION REQUIRED BY RULE 13a-14(a) OR 15d-14(a) OF THE SECURITIES AND EXCHANGE ACT OF 1934 I, Richard A. Manoogian, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Masco Corporation (the Registrant); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this quarterly report based on such evaluation; and d) disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 4, 2004 By: /s/ Richard A. Manoogian ________________________________ Richard A. Manoogian Chief Executive Officer EX-31.(B) 11 k88683exv31wxby.txt CERTIFICATION OF CHIEF FINANCIAL OFFICER TO SECTION 302 EXHIBIT 31b MASCO CORPORATION CERTIFICATION REQUIRED BY RULE 13a-14(a) OR 15d-14(a) OF THE SECURITIES AND EXCHANGE ACT OF 1934 I, Timothy Wadhams, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Masco Corporation (the Registration); 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) [Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this quarterly report based on such evaluation; and d) disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: November 4, 2004 By: /s/ Timothy Wadhams ________________________________ Timothy Wadhams Senior Vice President and Chief Financial Officer EX-32 12 k88683exv32.txt CERTIFICATIONS OF CEO AND CFO TO SECTION 1350 EXHIBIT 32 MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES CERTIFICATIONS REQUIRED BY RULE 13a-14(b) OR 15d-14(b) OF THE SECURITIES AND EXCHANGE ACT OF 1934 AND SECTION 1350 OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE The certification set forth below is being submitted in connection with the Masco Corporation Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004 (the "Report") for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the "Exchange Act") and Section 1350 of Chapter 63 of Title 18 of the United States Code. Richard A. Manoogian, the Chief Executive Officer, and Timothy Wadhams, the Senior Vice President and Chief Financial Officer, of Masco Corporation, each certifies that, to the best of his knowledge: 1. The Report fully complies with the requirements of Section 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the consolidated financial condition and results of operations of Masco Corporation. /s/ Richard A. Manoogian Date: November 4, 2004 ____________________________________ Name: Richard A. Manoogian Title: Chief Executive Officer /s/ Timothy Wadhams Date: November 4, 2004 ____________________________________ Name: Timothy Wadhams Title: Senior Vice President and Chief Financial Officer A signed original of this written statement required by Section 906 has been provided to Masco Corporation and will be retained by Masco Corporation and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----