-----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, J8ZnSFnPwp2QoPR09gty0w5UA2vLOOMqBmjpufNWzzCdbNHEVvMUANuQ3CoCiVie QSA6kpMHGev7u7dDp2eT9g== 0000950124-07-000834.txt : 20070214 0000950124-07-000834.hdr.sgml : 20070214 20070214091033 ACCESSION NUMBER: 0000950124-07-000834 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20070214 ITEM INFORMATION: Results of Operations and Financial Condition ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20070214 DATE AS OF CHANGE: 20070214 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: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-05794 FILM NUMBER: 07613937 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 8-K 1 k12272e8vk.txt CURRENT REPORT, DATED FEBRUARY 14, 2007 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ---------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported) FEBRUARY 14, 2007 ---------- MASCO CORPORATION (Exact name of Registrant as Specified in Charter) DELAWARE 1-5794 38-1794485 (State or Other Jurisdiction (Commission File Number) (IRS Employer of Incorporation) Identification No.)
21001 VAN BORN ROAD, TAYLOR, MICHIGAN 48180 (Address of Principal Executive Offices) (Zip Code)
(313) 274-7400 Registrant's telephone number, including area code Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: [ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION. Attached and incorporated herein by reference as Exhibit 99 is a copy of a press release dated February 14, 2007 reporting Masco Corporation's financial results for the fourth quarter and full-year of 2006 and certain other information and supplemental information prepared for use in connection with the financial results for the fourth quarter of 2006. On February 14, 2007, Masco Corporation will hold an investor conference and web cast to discuss financial results for the fourth quarter and full-year of 2006. This information, including the Exhibits attached hereto, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liabilities of that section. ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS. (d) Exhibits. 99 Press Release of Masco Corporation dated February 14, 2007 reporting Masco Corporation's financial results for the fourth quarter of 2006 and certain other information and supplemental information prepared for use in connection with the financial results for the fourth quarter of 2006. 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 By: /s/ Timothy Wadhams ------------------------------------ Name: Timothy Wadhams Title: Senior Vice President and Chief Financial Officer February 14, 2007 EXHIBIT INDEX 99 Press Release of Masco Corporation dated February 14, 2007 reporting Masco Corporation's financial results for the fourth quarter and full-year of 2006 and certain other information and supplemental information prepared for use in connection with the financial results for the fourth quarter and full-year of 2006. EX-99 2 k12272exv99.txt PRESS RELEASE, DATED FEBRUARY 14, 2007 EXHIBIT 99 FOR IMMEDIATE RELEASE Contact: Maria Duey 313-792-5500 MASCO CORPORATION REPORTS RECORD SALES FOR 2006 MASCO CORPORATION 2006 HIGHLIGHTS: FULL-YEAR 2006 - Net sales from continuing operations increased two percent to a record $12.8 billion. - Income from continuing operations was $2.22 per common share, excluding non-cash impairment charges for goodwill and financial investments and costs and charges related to profit improvement programs. - Income from continuing operations, as reported, was $1.15 per common share, including non-cash impairment charges for goodwill and financial investments and costs and charges related to profit improvement programs. - Free cash flow before dividends exceeded $800 million. - The Company returned $1.2 billion to shareholders through share repurchases (29 million common shares) and dividends. - The quarterly dividend was increased by 10 percent, the 48th consecutive year in which dividends have been increased. Taylor, Michigan (February 14, 2007) - Masco Corporation (NYSE: MAS) today reported that net sales from continuing operations for the year ended December 31, 2006 increased two percent to a record $12.8 billion compared with $12.6 billion for 2005. Income from continuing operations was $2.22 per common share and $2.26 per common share for 2006 and 2005, respectively, excluding non-cash impairment charges for goodwill and financial investments and costs and charges related to profit improvement programs. Including these charges, income from continuing operations, as reported, was $461 million or $1.15 per common share and $866 million or $2.01 per common share for 2006 and 2005, respectively. Fourth quarter 2006 net sales from continuing operations declined six percent to $2.9 billion. Results for 2006 were adversely affected by an accelerating decline in the new home construction market in the last six months of the year, a moderation in consumer spending for certain "big ticket" home improvement items, such as cabinets, and the continuing negative impact of higher commodity costs, partially offset by profit improvement programs and selling price increases. Income from continuing operations was $.38 per common share and $.50 per common share for the fourth quarters of 2006 and 2005, respectively, excluding non-cash impairment charges for goodwill in 2006 and 2005 and financial investments and costs and charges related to profit improvement programs in 2006. Including these charges, (loss) income from continuing operations was $(186) million or $(.48) per common share, and $140 million or $.33 per common share, for the fourth quarters of 2006 and 2005, respectively. During 2006, the Company recognized non-cash, pre-tax impairment charges for goodwill aggregating $331 million ($331 million after tax). These charges, principally related to the Company's European manufacturer of ready-to-assemble cabinets (Tvilum-Scanbirk), reflect the long-term outlook for the business unit, including declining demand for certain products, as well as decreased operating profit margins. The Company also recognized non-cash, pre-tax impairment charges for financial investments aggregating $101 million ($66 million after tax). In 2005, the Company recognized non-cash, pre-tax impairment charges for goodwill aggregating $69 million ($69 million after tax), and non-cash, pre-tax impairment charges for financial investments aggregating $45 million ($29 million after tax). The Company originally estimated that 2006 costs and charges related to profit improvement programs in the Plumbing Products segment would approximate $70 million pre-tax compared with the actual costs and charges of $39 million pre-tax. The reduction in anticipated cost resulted from the sale of an operation originally scheduled for closure, and was partially offset by costs and charges aggregating $8 million pre-tax for the closure of a relatively small ready-to-assemble cabinet manufacturing facility in the Cabinets and Related Products segment. OUTLOOK 2007 New home construction has declined dramatically in the last 12 months due to previous excessive speculative buying, rapidly rising home prices in recent years reducing affordability and less attractive mortgage terms. Even with the recent decline in single-family housing starts, the inventory of unsold new homes has increased to unprecedented levels. The uncertainty that home builders may cut production even further to reduce this inventory, and given the large percentage of Masco sales that go to the new home construction market, combined with the unpredictability of commodity costs, make it very difficult for the Company to provide earnings per common share guidance for 2007. Also negatively impacting the Company's earnings outlook for 2007 are plant and system implementation start-up costs, costs and charges related to additional profit improvement programs, including severance costs from headcount reductions, higher interest expense, a moderation at retail of sales of certain "big ticket" home improvement items, such as cabinets, and as yet unrecovered commodity cost increases. Housing starts declined by approximately 13 percent in 2006 compared with 2005 to 1.8 million units. Late in 2006, the housing starts run rate was between approximately 1.5 to 1.6 million units, which is more than 20 percent below the 2005 levels. If housing starts improve from these levels, commodity costs moderate, and home improvement retail sales improve, then the Company's earnings per common share could be $1.80 or even higher for 2007. On the other hand, if housing starts decline even further than current depressed levels, as some observers predict, and commodity costs escalate, the Company's earnings per common share for 2007 could decline to $1.50 or less. Headquartered in Taylor, Michigan, Masco Corporation is one of the world's leading manufacturers of home improvement and building products as well as a leading provider of services that include the installation of insulation and other building products. A conference call regarding items contained in this release is scheduled for today, Wednesday, February 14, 2007 at 11:00 a.m. ET. Participants in the call are asked to register five to ten minutes prior to the scheduled start time by dialing (913) 981-4912 (confirmation #1786247). The conference call will be webcast simultaneously on the Company's website at www.masco.com and supplemental material, including the financial data referred to on the call and a reconciliation of non-GAAP information provided on the call, will also be available on the website. A replay of the call will be available on Masco's website or by phone by dialing (719) 457-0820 (replay access code #1786247) approximately two hours after the end of the call and will continue through February 21, 2007. Masco Corporation's press releases and other information are available through the Company's toll free number, 1-888-MAS-NEWS, or under the Investor Relations section of Masco's website at www.masco.com. Statements contained herein may include certain forward-looking statements regarding Masco's future sales, earnings growth potential and other developments. Actual results may vary materially because of external factors such as interest rate fluctuations, changes in consumer spending and other factors over which management has no control. 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 performance measures and ratios should be viewed in addition to, and not as an alternative for, the Company's reported results under accounting principles generally accepted in the United States. Additional information about the Company's products, markets and conditions, which could affect the Company's future performance, is contained in the Company's filings with the Securities and Exchange Commission and is available on Masco's website at www.masco.com. Masco undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. # # # FOR IMMEDIATE RELEASE Contact: Maria Duey 313-792-6653 MASCO CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS AND TWELVE MONTHS ENDED DECEMBER 31, 2006 AND 2005 (IN MILLIONS EXCEPT PER COMMON SHARE DATA)
Three Months Ended Twelve Months Ended December 31, December 31, ------------------ ------------------- 2006 2005 2006 2005 ------ ------ ------- ------- Net sales $2,946 $3,128 $12,778 $12,569 Cost of sales 2,203 2,267 9,259 8,985 ------ ------ ------- ------- Gross profit 743 861 3,519 3,584 Selling, general and administrative expenses 492 474 2,063 1,954 Impairment charges for goodwill 321 69 331 69 Income regarding litigation settlement (1) -- (1) (6) ------ ------ ------- ------- Operating (loss) profit (69) 318 1,126 1,567 Other income (expense), net (53) (43) (226) (165) ------ ------ ------- ------- (Loss) income from continuing operations before income taxes, minority interest and cumulative effect of accounting change, net (122) 275 900 1,402 Income taxes 58 129 412 514 ------ ------ ------- ------- (Loss) income from continuing operations before minority interest and cumulative effect of accounting change, net (180) 146 488 888 Minority interest 6 6 27 22 ------ ------ ------- ------- (Loss) income from continuing operations before cumulative effect of accounting change, net (186) 140 461 866 (Loss) income from discontinued operations, net (1) 33 30 74 Cumulative effect of accounting change, net -- -- (3) -- ------ ------ ------- ------- Net (loss) income $ (187) $ 173 $ 488 $ 940 ====== ====== ======= ======= (Loss) earnings per common share (diluted): (Loss) income from continuing operations before cumulative effect of accounting change, net $(0.48) $ 0.33 $ 1.15 $ 2.01 (Loss) income from discontinued operations, net -- 0.08 0.08 0.17 Cumulative effect of accounting change, net -- -- (0.01) -- ------ ------ ------- ------- Net (loss) income $(0.49) $ 0.41 $ 1.22 $ 2.19 ====== ====== ======= ======= Average diluted common shares outstanding 385 419 400 430 ====== ====== ======= =======
MASCO CORPORATION BUSINESS AND FINANCIAL HIGHLIGHTS FOURTH QUARTER 2006 - - Net sales from continuing operations for the quarter declined six percent to $2.9 billion, with North American sales declining 10 percent and International sales increasing 17 percent. In local currencies, International sales increased seven percent compared with the fourth quarter of 2005. - - Sales of cabinets, windows and doors and the installation of insulation were particularly weak when compared with the fourth quarter of 2005, primarily due to the accelerating decline in the new home construction market in the last six months of 2006. Sales of major faucet brands combined and architectural coatings increased in the low-single and mid-single digits, respectively. - - Key retailer sales from continuing operations declined seven percent in the 2006 fourth quarter, were flat in the third quarter, and increased one percent and seven percent in the second and first quarters of 2006, respectively. The Company believes that retail sales in the last six months of 2006 were negatively impacted by a moderation in consumer spending for certain "big ticket" home improvement items, such as cabinets. - - Sales changes by segment in the 2006 fourth quarter versus the 2005 fourth quarter were: - Cabinets and Related Products sales declined 12 percent; - Plumbing Products sales increased three percent; - Installation and Other Services sales declined nine percent; - Decorative Architectural Products sales increased four percent; and - Other Specialty Products sales declined 14 percent. 1 MASCO CORPORATION BUSINESS AND FINANCIAL HIGHLIGHTS FOURTH QUARTER 2006 (CONTINUED) - - As part of its profit improvement program, the Company announced a plant closure in the Plumbing Products segment in January 2006. The Company incurred $4 million pre-tax of costs and charges related to this plant closure and other profit improvement programs in the Plumbing Products segment in the fourth quarter of 2006. In addition, the Company incurred $1 million pre-tax of costs and charges related to the closure of a relatively small ready-to-assemble cabinet manufacturing facility in the Cabinets and Related Products segment. - - The Company recognized non-cash, pre-tax impairment charges for goodwill aggregating $321 million ($321 million after tax). These charges, principally related to the Company's European manufacturer of ready-to-assemble cabinets (Tvilum-Scanbirk), reflect the long-term outlook for the business unit, including declining demand for certain products, as well as decreased operating profit margins. In 2005, the Company recognized non-cash, pre-tax impairment charges for goodwill aggregating $69 million ($69 million after tax). - - The Company also recognized non-cash, pre-tax impairment charges for financial investments aggregating $15 million ($10 million after tax). - - Income from continuing operations was $.38 per common share and $.50 per common share in the fourth quarters of 2006 and 2005, respectively, excluding the non-cash impairment charges for goodwill in 2006 and 2005 and financial investments and costs and charges related to profit improvement programs in 2006. - - (Loss) from continuing operations for the fourth quarter of 2006 was $(186) million or $(.48) per common share, including non-cash impairment charges for goodwill and financial investments and costs and charges related to profit improvement programs. Income from continuing operations for the fourth quarter of 2005 was $.33 per common share, including non-cash impairment charges for goodwill. - - Net (loss) for the fourth quarter of 2006, including discontinued operations, was $(187) million or $(.49) per common share. Net income for the fourth quarter of 2005 was $173 million or $.41 per common share and included income from discontinued operations of $33 million or $.08 per common share. 2 MASCO CORPORATION BUSINESS AND FINANCIAL HIGHLIGHTS FOURTH QUARTER 2006 (CONTINUED) - - The following table is provided to summarize the comments related to (loss) income per common share:
Three Months Ended December 31, ------------------ 2006 2005 ----- ---- Continuing operations (loss) income per common share, as reported $(.48) $.33 Add back: Profit improvement costs and charges .01 -- Impairment charges for financial investments .03 -- Impairment charges for goodwill .82 .16 ----- ---- Continuing operations, as reconciled $ .38 $.50 ===== ==== As reconciled, 2005 rounds to $.50 per common share As reported includes: Net gains from financial investments $ .01 $.01 Net (loss) income, as reported Continuing operations $(.48) $.33 Discontinued operations -- .08 ----- ---- Net (loss) income, as reported $(.49) $.41 ===== ====
The Company's diluted common shares for purposes of calculating (loss) earnings per common share were 385 million for the fourth quarter of 2006 compared with 419 million for the fourth quarter of 2005. For the fourth quarter of 2006, four million contingent common shares and one million stock option shares were not included in the computation of diluted (loss) per common share due to their anti-dilutive effect. Dilutive common shares used for the reconciliation of income of $.38 per common share were 390 million. - - Gross margins were 25.2 percent in the fourth quarter of 2006 compared with 27.5 percent in the fourth quarter of 2005. Operating (loss) profit margins, as reported, were (2.3) percent in the fourth quarter of 2006 compared with 10.2 percent in the fourth quarter of 2005. Excluding non-cash, pre-tax impairment charges for goodwill of $321 million, costs and charges related to profit improvement programs of $5 million and income regarding litigation settlement of $1 million, operating profit margins were 8.7 percent in the fourth quarter of 2006. Excluding non-cash, pre-tax impairment charges for goodwill of $69 million, operating profit margins were 12.4 percent in the fourth quarter of 2005. 3 MASCO CORPORATION BUSINESS AND FINANCIAL HIGHLIGHTS FOURTH QUARTER 2006 (CONCLUDED) - - Results were adversely affected by an accelerating decline in the new home construction market, a moderation in consumer spending for certain "big ticket" home improvement items, such as cabinets and higher commodity costs, partially offset by profit improvement programs and selling price increases. - - SG&A expenses as a percent of sales, including general corporate expense, were 16.7 percent in the fourth quarter of 2006 and 15.2 percent in the fourth quarter of 2005. Higher SG&A expenses in 2006 reflect increased stock-based compensation expense and increased information systems implementation costs and other expenses. - - General corporate expense was 1.7 percent of sales in the fourth quarter of 2006 compared with 1.5 percent in the comparable period of 2005. - - The reported tax on loss from continuing operations in the fourth quarter of 2006 of $58 million and the reported tax rate on income from continuing operations of 47 percent for the fourth quarter of 2005, principally reflect the impact of goodwill impairment charges not being deductible for tax purposes. Excluding the goodwill impairment charges in 2006 and 2005 and adjustments of deferred taxes related to certain European operations in 2005, the Company's tax rate was 29 percent and 35 percent in the fourth quarters of 2006 and 2005, respectively. The decrease in the tax rate was the result of reinstating the research and development credit by Congress in the fourth quarter of 2006 and a change in the mix of taxable earnings to taxing jurisdictions with lower tax rates. The Company's lower effective tax rate in the fourth quarter of 2006 favorably impacted (loss) per common share by $.03. 4 MASCO CORPORATION BUSINESS AND FINANCIAL HIGHLIGHTS FULL-YEAR 2006 - - Net sales from continuing operations for 2006 increased two percent to $12.8 billion compared with $12.6 billion for 2005. North American sales increased one percent and International sales increased five percent. In local currencies, International sales increased four percent. - - For the full-year 2006, key retailer sales from continuing operations were flat compared with 2005. - - Sales changes by segment for 2006 versus 2005 were: - Cabinets and Related Products sales declined one percent; - Plumbing Products sales increased four percent; - Installation and Other Services sales increased three percent; - Decorative Architectural Products sales increased six percent; and - Other Specialty Products sales declined five percent. - - Income from continuing operations was $2.22 per common share and $2.26 per common share for 2006 and 2005, respectively, excluding non-cash impairment charges for goodwill and financial investments and costs and charges related to profit improvement programs. Including these charges, income from continuing operations, as reported, was $461 million or $1.15 per common share and $866 million or $2.01 per common share, for 2006 and 2005, respectively. 5 MASCO CORPORATION BUSINESS AND FINANCIAL HIGHLIGHTS FULL-YEAR 2006 (CONTINUED) - - As part of its profit improvement program, the Company has been focused on the rationalization of its Plumbing Products segment. As a result, in 2005, the Company incurred $12 million pre-tax of charges related to headcount reductions and the discontinuance of a product line. In addition, the Company announced a plant closure in the Plumbing Products segment in January 2006. During 2006, the Company incurred $39 million pre-tax of costs and charges (primarily accelerated depreciation and severance expense) related to this plant closure and other profit improvement programs in the Plumbing Products segment. The Company originally estimated that costs and charges for profit improvement programs related to its Plumbing Products segment would approximate $70 million compared with the actual charges of $39 million. The reduced amount reflects the fourth quarter sale of a manufacturing facility in the Plumbing Products segment which was originally planned for closure. In addition, in 2006, the Company incurred $8 million pre-tax of costs and charges (including the write-down of inventory and accelerated depreciation) related to the closure of a relatively small ready-to-assemble cabinet manufacturing facility in the Cabinets and Related Products segment. - - During 2006, the Company recognized non-cash, pre-tax impairment charges for goodwill aggregating $331 million ($331 million after tax). These charges, principally related to the Company's European manufacturer of ready-to-assemble cabinets (Tvilum-Scanbirk), reflect the long-term outlook for the business unit, including declining demand for certain products, as well as decreased operating profit margins. In 2005, the Company recognized non-cash, pre-tax impairment charges for goodwill aggregating $69 million ($69 million after tax). - - During 2006, the Company recognized non-cash, pre-tax impairment charges for financial investments aggregating $101 million ($66 million after tax), related to investments in Metaldyne, TriMas, certain private equity funds and other investments. During 2005, the Company recognized non-cash, pre-tax impairment charges for financial investments of $45 million ($29 million after tax) related to its investment in Furniture Brands International common stock and certain private equity fund investments. 6 MASCO CORPORATION BUSINESS AND FINANCIAL HIGHLIGHTS FULL-YEAR 2006 (CONTINUED) - - The following table is provided to summarize the comments related to income per common share:
Twelve Months Ended December 31, ------------------- 2006 2005 ----- ---- Continuing operations income per common share, as reported $1.15 $2.01 Add back: Profit improvement costs and charges .08 .02 Impairment charges for financial investments .16 .07 Impairment charges for goodwill .83 .16 ----- ----- Continuing operations, as reconciled $2.22 $2.26 ===== ===== As reported includes: Net gains from financial investments $ .05 $ .15 Income regarding litigation settlement $ -- $ .01 Currency transaction gains (losses) $ .02 $(.04) Net income, as reported Continuing operations $1.15 $2.01 Discontinued operations .08 .17 Cumulative effect of accounting change, net (.01) -- ----- ----- Net income, as reported $1.22 $2.19 ===== ===== Average diluted common shares outstanding 400 430
- - Gross margins were 27.5 percent in 2006 compared with 28.5 percent in 2005. Operating profit margins, as reported, were 8.8 percent in 2006 compared with 12.5 percent in 2005. Excluding non-cash, pre-tax impairment charges for goodwill aggregating $331 million, costs and charges related to profit improvement programs of $47 million and income regarding litigation settlement of $1 million, operating profit margins were 11.8 percent in 2006. Excluding non-cash, pre-tax impairment charges for goodwill aggregating $69 million, costs and charges related to profit improvement programs of $12 million and income regarding litigation settlement of $6 million, operating profit margins were 13.1 percent in 2005. 7 MASCO CORPORATION BUSINESS AND FINANCIAL HIGHLIGHTS FULL-YEAR 2006 (CONTINUED) - - Full-year 2006 gross margins and operating profit margins were adversely impacted by the slowdown in the new home construction market, a moderation in consumer spending for certain "big ticket" home improvement items, such as cabinets, the continuing negative impact of higher commodity costs, as well as a less favorable product mix. - - SG&A expenses as a percent of sales, including general corporate expense, were 16.1 percent in 2006 compared with 15.5 percent in 2005. Higher SG&A expenses in 2006 reflect increased stock-based compensation expense, in part reflecting the adoption of SFAS No. 123R, and increased information systems implementation costs and other expenses. - - General corporate expense was 1.6 percent of sales in 2006 compared with 1.5 percent in 2005. - - The Company's reported tax rate on income from continuing operations, excluding the impairment charges for goodwill was 33 percent in 2006 and 35 percent in 2005. The Company's lower-than-expected effective tax rate for 2006 favorably impacted earnings per common share by $.05, as a result of the U.S. and foreign tax effect on distributed earnings. The Company anticipates that its tax rate on income from continuing operations for 2007 will approximate 35 to 36 percent. - - Accounts receivable days at December 31, 2006 were 50 days compared with 48 days a year ago. - - Inventory days were 49 days at December 31, 2006 compared with 46 days a year ago. - - Accounts payable days were 39 days at December 31, 2006 compared with 36 days a year ago. - - Working capital at December 31, 2006 and 2005 (defined as accounts receivable and inventories less accounts payable) was 16.1 percent of sales, and 15.9 percent of sales, respectively. 8 MASCO CORPORATION BUSINESS AND FINANCIAL HIGHLIGHTS FULL-YEAR 2006 (CONTINUED) - - For the twelve months ended December 31, 2006 and 2005, return on invested capital (ROIC) (as reported) was 9.8 percent and 13.0 percent, respectively. For the twelve months ended December 31, 2006 and 2005, ROIC (as reconciled) was 12.4 percent and 13.4 percent, respectively. While the Company remains highly committed to the continued improvement in its ROIC, recent business trends resulted in a reduction in earnings for 2006, which negatively impacted ROIC in 2006. The Company, however, continues to believe that it will achieve its ROIC goal of 18 percent by 2010. - - Capital expenditures, including discontinued operations, were $388 million or 3.0 percent of sales in 2006, compared with $282 million or 2.2 percent of sales in 2005. As previously communicated, this increase is principally related to capacity expansion and facility acquisitions. Depreciation and amortization was $244 million in 2006 compared with $241 million in 2005. - - During 2006, the Company repurchased 29 million shares (2 million in the fourth quarter of 2006) of Company common stock. The Company had 36 million common shares remaining at December 31, 2006 under its repurchase authorization. - - During 2006, the Company returned $1.2 billion to shareholders through common share repurchases (29 million) and dividends. For the four-year period (2003-2006) ended December 31, 2006, the Company has returned $4.8 billion to shareholders through the repurchase of 126 million common shares and dividends. - - In 2006, the Company increased its quarterly dividend by 10 percent from $.20 to $.22 per common share. The increased quarterly dividend reflects the Company's favorable long-term outlook, strong balance sheet and cash flow and recent tax law changes, and makes 2006 the 48th consecutive year in which dividends have been increased. - - The Company's diluted common shares for purposes of calculating earnings per common share were 400 million for the year ended December 31, 2006 compared with 430 million for the year ended December 31, 2005. 9 MASCO CORPORATION BUSINESS AND FINANCIAL HIGHLIGHTS FULL-YEAR 2006 (CONCLUDED) - - The Company's free cash flow for 2006 exceeded $800 million. For the four-year period (2003-2006) ended December 31, 2006, the Company's free cash flow (defined as cash from operations less capital expenditures and before dividends) aggregated $4.2 billion. - - During 2006, the Company also generated $71 million of cash from the net disposition of financial investments and $160 million from the net disposition of certain businesses. - - On October 3, 2006, the Company issued $1 billion of fixed rate 6.125% Notes due 2016, resulting in net proceeds of $988 million. The Note offering was in anticipation of 2007 debt maturities, including the put option related to the Zero Coupon Notes. - - At the end of the year, the Company had a strong balance sheet, with over $2 billion in cash and marketable securities and $2 billion in unused bank lines. - - Debt as a percent of total capital was 53 percent at December 31, 2006 compared with 49 percent at December 31, 2005. - - In January 2007, the Company repurchased for cash of $825 million, the accreted value (94 percent of the total outstanding) of its Zero Coupon Notes which were put to the Company in accordance with the terms of the Notes. Had this payment taken place at December 31, 2006, debt as a percent of total capital would have been 48 percent. 10 MASCO CORPORATION BUSINESS AND FINANCIAL HIGHLIGHTS 2007 OUTLOOK - - New home construction has declined dramatically in the last 12 months due to previous excessive speculative buying, rapidly rising home prices in recent years reducing affordability and less attractive mortgage terms. Even with the recent decline in single-family housing starts, the inventory of unsold new homes has increased to unprecedented levels. The uncertainty that home builders may cut production even further to reduce this inventory, and given the large percentage of Masco sales that go to the new home construction market, combined with the unpredictability of commodity costs, make it very difficult for the Company to provide earnings per common share guidance for 2007. - - Also negatively impacting the Company's earnings outlook for 2007 are plant and system implementation start-up costs, costs and charges related to additional profit improvement programs, including severance costs from headcount reductions, higher interest expense, a moderation at retail of the sale of certain "big ticket" home improvement items, such as cabinets, and as yet unrecovered commodity cost increases. - - Housing starts declined by approximately 13 percent in 2006 compared with 2005 to 1.8 million units. Late in 2006, the housing starts run rate was between approximately 1.5 to 1.6 million units, which is more than 20 percent below the 2005 levels. If housing starts improve from these levels, commodity costs moderate, and home improvement retail sales improve, then the Company's earnings per common share could be $1.80 or even higher for 2007. On the other hand, if housing starts decline even further than current depressed levels, as some observers predict, and commodity costs escalate, the Company's earnings per common share for 2007 could decline to $1.50 or less. - - With housing starts currently running nearly 20 percent below year ago levels, the Company currently expects first quarter 2007 sales to decline low-double digits from last year's strong quarter and full-year sales to decline mid-single digits. - - The Company expects the low point in its earnings for the year to be in the first quarter, seasonally its lowest quarter, when earnings may decline 50 percent or more from last year's first quarter earnings of $.50 per common share when housing starts were strong. - - Based on the current market price for the Company's common stock, diluted common shares for the computation of earnings per common share at January 1, 2007 were 390 million. This excludes the impact of any 2007 repurchases of common stock. 11 MASCO CORPORATION BUSINESS AND FINANCIAL HIGHLIGHTS Statements contained herein may include certain forward-looking statements regarding Masco's future sales, earnings growth potential and other developments. Actual results may vary materially because of external factors such as interest rate fluctuations, changes in consumer spending and other factors over which management has no control. 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 performance measures and ratios should be viewed in addition to, and not as an alternative for, the Company's reported results under accounting principles generally accepted in the United States. Additional information about our products, markets and conditions, which could affect our future performance, is contained in the Company's filings with the Securities and Exchange Commission and is available on Masco's website at www.masco.com. Masco undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. ### 12 MASCO CORPORATION - 4TH QUARTER 2006
Page - ---- 1 Condensed Statements of Operations - 2006 & 2005 by quarter 2 Notes to Condensed Statements of Operations - 2006 & 2005 by quarter 3 Sales by Segment and Geographic Area - Three Months Ended December 31, 2006 & 2005 4 Sales by Segment and Geographic Area - Twelve Months Ended December 31, 2006 & 2005 5 2006 Quarterly Segment Data - Excluding Costs and Charges for Profit Improvement Programs and Impairment Charges for Goodwill 6 2006 Quarterly Segment Data - Including Costs and Charges for Profit Improvement Programs and Impairment Charges for Goodwill 7 2005 Quarterly Segment Data - Excluding Impairment Charges for Goodwill 8 2005 Quarterly Segment Data - Including Impairment Charges for Goodwill 9 Other Income (Expense), Net - 2006 & 2005 by quarter 10 Consolidated Statements of Operations - Three Months Ended December 31, 2006 & 2005 11 Consolidated Statements of Income - Twelve Months Ended December 31, 2006 & 2005 12 Consolidated Balance Sheets GAAP Reconciliations: 13 Sales Growth Excluding Effect of Acquisitions & Currency Translation 14 Operating (Loss) Profit and Margins 15 Operating Profit and Shareholders' Equity 16 Discontinued Operations
MASCO CORPORATION CONDENSED STATEMENTS OF OPERATIONS 2006 & 2005 - BY QUARTER (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
2006 2005 --------------------------------------- --------------------------------------- YEAR QTR. 4 QTR. 3 QTR. 2 QTR. 1 YEAR QTR. 4 QTR. 3 QTR. 2 QTR. 1 ------- ------ ------ ------ ------ ------- ------ ------ ------ ------ Net Sales: - North America $10,537 $2,348 $2,710 $2,829 $2,650 $10,440 $2,615 $2,748 $2,726 $2,351 - International 2,241 598 585 541 517 2,129 513 530 541 545 ------- ------ ------ ------ ------ ------- ------ ------ ------ ------ - Consolidated 12,778 2,946 3,295 3,370 3,167 12,569 3,128 3,278 3,267 2,896 Cost of Sales 9,259 2,203 2,372 2,391 2,293 8,985 2,267 2,338 2,306 2,074 ------- ------ ------ ------ ------ ------- ------ ------ ------ ------ Gross Profit 3,519 743 923 979 874 3,584 861 940 961 822 (Gross Margin) 27.5% 25.2% 28.0% 29.1% 27.6% 28.5% 27.5% 28.7% 29.4% 28.4% S,G & A Expense (before GCE & (Gain) Loss on Sale of Corporate Fixed Assets) 1,860 442 471 476 471 1,770 435 435 455 445 (S,G & A Expense as a % of Sales) 14.6% 15.0% 14.3% 14.1% 14.9% 14.1% 13.9% 13.3% 13.9% 15.4% ------- ------ ------ ------ ------ ------- ------ ------ ------ ------ Operating Profit (before GCE, (Gain) Loss on Sale of Corporate Fixed Assets, Litigation (Income) & Goodwill Impairment Charge) 1,659 301 452 503 403 1,814 426 505 506 377 (Operating Margin) 13.0% 10.2% 13.7% 14.9% 12.7% 14.4% 13.6% 15.4% 15.5% 13.0% - North America 1,427 248 392 441 346 1,567 374 438 438 317 (Margin) 13.5% 10.6% 14.5% 15.6% 13.1% 15.0% 14.3% 15.9% 16.1% 13.5% - International 232 53 60 62 57 247 52 67 68 60 (Margin) 10.4% 8.9% 10.3% 11.5% 11.0% 11.6% 10.1% 12.6% 12.6% 11.0% General Corporate Expense (GCE) 203 50 52 53 48 192 47 51 48 46 S,G & A Expense as a % of Sales (including GCE & (Gain) Loss on Sale of Corporate Fixed Assets) 16.1% 16.7% 15.9% 15.7% 16.4% 15.5% 15.2% 14.8% 15.4% 17.0% (Gain) Loss on Sale of Corporate Fixed Assets, Net -- -- -- -- -- (8) (8) -- -- -- Income Regarding Litigation Settlement (1) (1) -- -- -- (6) -- (1) (3) (2) Impairment Charges for Goodwill 331 321 -- 10 -- 69 69 -- -- -- ------- ------ ------ ------ ------ ------- ------ ------ ------ ------ Operating Profit (Loss) per F/S $ 1,126 $ (69) $ 400 $ 440 $ 355 $ 1,567 $ 318 $ 455 $ 461 $ 333 ======= ====== ====== ====== ====== ======= ====== ====== ====== ====== Earnings (Loss) per Common Share (Diluted): Income (Loss) from Continuing Operations before Cumulative Effect of Accounting Change, Net $ 1.15 $(0.48) $ 0.57 $ 0.53 $ 0.50 $ 2.01 $ 0.33 $ 0.59 $ 0.62 $ 0.47 Income from Discontinued Operations, Net 0.08 -- 0.07 0.01 -- 0.17 0.08 0.02 0.02 0.06 Cumulative Effect of Accounting Change, Net (0.01) -- -- -- (0.01) -- -- -- -- -- ------- ------ ------ ------ ------ ------- ------ ------ ------ ------ Net Income (Loss) $ 1.22 $(0.49) $ 0.64 $ 0.54 $ 0.50 $ 2.19 $ 0.41 $ 0.61 $ 0.64 $ 0.52 ======= ====== ====== ====== ====== ======= ====== ====== ====== ======
PLEASE SEE PAGE 2 FOR NOTES. Page 1 MASCO CORPORATION NOTES TO CONDENSED STATEMENTS OF OPERATIONS 2006 & 2005 - BY QUARTER NOTES: - - Operating results for the fourth quarter of 2006 include $321 million of non-cash, pre-tax impairment charges for goodwill ($.82 per common share, after tax), primarily related to the Company's European ready-to-assemble cabinet manufacturer. - - Operating results for the first, second, third and fourth quarters of 2006 include $17 million pre-tax, $26 million pre-tax, $9 million pre-tax, and $5 million pre-tax, respectively, of costs and charges recorded related to the Company's profit improvement programs. - - (Loss) income from continuing operations for the fourth quarter of 2006 includes a $15 million non-cash, pre-tax ($.03 per common share, after tax) impairment charge related to financial investments. - - Income from continuing operations for the third quarter of 2006 includes an $8 million non-cash, pre-tax ($.01 per common share, after tax) impairment charge for investments in certain private equity funds. - - Income from continuing operations for the second quarter of 2006 includes a $78 million non-cash, pre-tax ($.13 per common share, after tax) impairment charge related to investments in Metaldyne Corporation, the Heartland Industrial Partners private equity fund and TriMas Corporation. - - Income from discontinued operations for the third quarter of 2006 includes a $50 million pre-tax net gain ($.07 per common share, after tax) from the disposition of businesses. - - Operating results exclude operations which were sold in the third quarter of 2006 and during 2005, all of which were treated as discontinued operations in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." - - Operating results for the fourth quarter of 2005 reflect $69 million of non-cash, pre-tax impairment charges for goodwill ($.16 per common share, after tax) pertaining to European operations. - - Income from continuing operations in the third quarter of 2005 includes $43 million non-cash, pre-tax ($.07 per common share, after tax) impairment charges related to the Company's investments in certain marketable securities and private equity funds. - - Income from discontinued operations in the first and fourth quarters of 2005 include net pre-tax gains from the sale of businesses aggregating $10 million and $50 million, respectively. - - Per common share amounts for the four quarters of 2006 and 2005 do not total to the per common share amounts for the year-to-date primarily due to the timing of capital stock transactions. Page 2 MASCO CORPORATION SALES BY SEGMENT AND GEOGRAPHIC AREA THREE MONTHS ENDED DECEMBER 31, 2006 & 2005 (DOLLARS IN MILLIONS)
THREE MONTHS ENDED DECEMBER 31, 4TH QTR '06 ------------------ VS. 2006 2005 4TH QTR '05 ------ ------ ----------- Cabinets & Related Products $ 745 $ 842 - 12% Plumbing Products 809 786 + 3% Installation & Other Services 726 799 - 9% Decorative Architectural Products 366 351 + 4% Other Specialty Products 300 350 - 14% ------ ------ Total $2,946 $3,128 - 6% ====== ====== North America $2,348 $2,615 - 10% International, principally Europe 598 513 + 17% ------ ------ Total, as above $2,946 $3,128 - 6% ====== ======
NOTES: - - Data exclude discontinued operations. - - Excluding acquisitions, consolidated net sales declined six percent, North American net sales declined 11 percent, and International net sales increased 17 percent compared with the fourth quarter of 2005 (please see page 13 for the GAAP reconciliation). - - International net sales in local currencies increased seven percent compared with the fourth quarter of 2005 (please see page 13 for the GAAP reconciliation). Page 3 MASCO CORPORATION SALES BY SEGMENT AND GEOGRAPHIC AREA TWELVE MONTHS ENDED DECEMBER 31, 2006 & 2005 (DOLLARS IN MILLIONS)
TWELVE MONTHS ENDED DECEMBER 31, 12 MONTHS '06 ----------------- VS. 2006 2005 12 MONTHS '05 ------- ------- ------------- Cabinets & Related Products $ 3,286 $ 3,324 - 1% Plumbing Products 3,296 3,176 + 4% Installation & Other Services 3,158 3,063 + 3% Decorative Architectural Products 1,777 1,681 + 6% Other Specialty Products 1,261 1,325 - 5% ------- ------- Total $12,778 $12,569 + 2% ======= ======= North America $10,537 $10,440 + 1% International, principally Europe 2,241 2,129 + 5% ------- ------- Total, as above $12,778 $12,569 + 2% ======= =======
NOTES: - - Data exclude discontinued operations. - - Excluding acquisitions, consolidated net sales increased one percent; North American net sales increased one percent and International net sales increased five percent (please see page 13 for the GAAP reconciliation). - - International net sales in local currencies increased four percent compared with the twelve months ended December 31, 2005 (please see page 13 for the GAAP reconciliation). Page 4 MASCO CORPORATION QUARTERLY SEGMENT DATA - 2006 EXCLUDING COSTS AND CHARGES FOR PROFIT IMPROVEMENT PROGRAMS AND IMPAIRMENT CHARGES FOR GOODWILL (DOLLARS IN MILLIONS)
YEAR QTR. 4 QTR. 3 QTR. 2 QTR. 1 ------- ------ ------ ------ ------ Net Sales: - Cabinets and Related Products $ 3,286 $ 745 $ 826 $ 863 $ 852 - Plumbing Products 3,296 809 848 842 797 - Installation and Other Services 3,158 726 814 812 806 - Decorative Architectural Products 1,777 366 477 525 409 - Other Specialty Products 1,261 300 330 328 303 ------- ------ ------ ------ ------ - TOTAL 12,778 2,946 3,295 3,370 3,167 ======= ====== ====== ====== ====== - North America 10,537 2,348 2,710 2,829 2,650 - International, principally Europe 2,241 598 585 541 517 ------- ------ ------ ------ ------ - TOTAL, AS ABOVE 12,778 2,946 3,295 3,370 3,167 ======= ====== ====== ====== ====== Operating Profit: - Cabinets and Related Products 446 80 107 138 121 - Plumbing Products 320 48 88 101 83 - Installation and Other Services 344 65 89 95 95 - Decorative Architectural Products 371 66 108 120 77 - Other Specialty Products 225 47 69 65 44 ------- ------ ------ ------ ------ - TOTAL 1,706 306 461 519 420 ======= ====== ====== ====== ====== - North America 1,475 254 401 457 363 - International, principally Europe 231 52 60 62 57 ------- ------ ------ ------ ------ - TOTAL, AS ABOVE 1,706 306 461 519 420 ======= ====== ====== ====== ====== General Corporate Expense (GCE) 203 50 52 53 48 (Gain) Loss on Sale of Corporate Fixed Assets, Net -- -- -- -- -- Income Regarding Litigation Settlement (1) (1) -- -- -- ------- ------ ------ ------ ------ Operating Profit (after GCE and Adjustments) 1,504 257 409 466 372 Other Income (Expense), Net (226) (53) (44) (99) (30) ------- ------ ------ ------ ------ Income from Continuing Operations before Income Taxes, Minority Interest and Cumulative Effect of Accounting Change, Net $ 1,278 $ 204 $ 365 $ 367 $ 342 ======= ====== ====== ====== ====== Margins: - Cabinets and Related Products 13.6% 10.7% 13.0% 16.0% 14.2% - Plumbing Products 9.7% 5.9% 10.4% 12.0% 10.4% - Installation and Other Services 10.9% 9.0% 10.9% 11.7% 11.8% - Decorative Architectural Products 20.9% 18.0% 22.6% 22.9% 18.8% - Other Specialty Products 17.8% 15.7% 20.9% 19.8% 14.5% - TOTAL 13.4% 10.4% 14.0% 15.4% 13.3% - North America 14.0% 10.8% 14.8% 16.2% 13.7% - International, principally Europe 10.3% 8.7% 10.3% 11.5% 11.0% - TOTAL, AS ABOVE 13.4% 10.4% 14.0% 15.4% 13.3%
NOTES: - - Data exclude discontinued operations. - - Operating profit and margins by segment and geographic area are before general corporate expense, (gain) loss on sale of Corporate fixed assets and income regarding litigation settlement. - - Operating profit margins in the fourth quarter of 2006 exclude $321 million of impairment charges for goodwill as follows: Cabinets and Related Products ($306 million), Plumbing Products ($1 million) and Decorative Architectural Products ($14 million). - - Operating profit margins for the first, second, third and fourth quarters of 2006 for the Plumbing Products segment exclude $17 million pre-tax, $11 million pre-tax, $7 million pre-tax, and $4 million pre-tax, respectively, of costs and charges recorded related to the Company's profit improvement programs. - - Operating profit margins for the second, third and fourth quarters of 2006 for the Cabinets and Related Products segment exclude $15 million pre-tax, $2 million pre-tax and $1 million pre-tax, respectively, of costs and charges recorded related to the closure of a relatively small ready-to-assemble cabinet manufacturing facility. Page 5 MASCO CORPORATION QUARTERLY SEGMENT DATA - 2006 INCLUDING COSTS AND CHARGES FOR PROFIT IMPROVEMENT PROGRAMS AND IMPAIRMENT CHARGES FOR GOODWILL (DOLLARS IN MILLIONS)
YEAR QTR. 4 QTR. 3 QTR. 2 QTR. 1 ------- ------ ------ ------ ------ Net Sales: - Cabinets and Related Products $ 3,286 $ 745 $ 826 $ 863 $ 852 - Plumbing Products 3,296 809 848 842 797 - Installation and Other Services 3,158 726 814 812 806 - Decorative Architectural Products 1,777 366 477 525 409 - Other Specialty Products 1,261 300 330 328 303 ------- ------ ------ ------ ------ - TOTAL 12,778 2,946 3,295 3,370 3,167 ======= ====== ====== ====== ====== - North America 10,537 2,348 2,710 2,829 2,650 - International, principally Europe 2,241 598 585 541 517 ------- ------ ------ ------ ------ - TOTAL, AS ABOVE 12,778 2,946 3,295 3,370 3,167 ======= ====== ====== ====== ====== Operating Profit (Loss): - Cabinets and Related Products 122 (227) 105 123 121 - Plumbing Products 280 43 81 90 66 - Installation and Other Services 344 65 89 95 95 - Decorative Architectural Products 357 52 108 120 77 - Other Specialty Products 225 47 69 65 44 ------- ------ ------ ------ ------ - TOTAL 1,328 (20) 452 493 403 ======= ====== ====== ====== ====== - North America 1,417 248 392 431 346 - International, principally Europe (89) (268) 60 62 57 ------- ------ ------ ------ ------ - TOTAL, AS ABOVE 1,328 (20) 452 493 403 ======= ====== ====== ====== ====== General Corporate Expense (GCE) 203 50 52 53 48 (Gain) Loss on Sale of Corporate Fixed Assets, Net -- -- -- -- -- Income Regarding Litigation Settlement (1) (1) -- -- -- ------- ------ ------ ------ ------ Operating Profit (Loss) 1,126 (69) 400 440 355 Other Income (Expense), Net (226) (53) (44) (99) (30) ------- ------ ------ ------ ------ Income (Loss) from Continuing Operations before Income Taxes, Minority Interest and Cumulative Effect of Accounting Change, Net $ 900 $ (122) $ 356 $ 341 $ 325 ======= ====== ====== ====== ====== Margins: - Cabinets and Related Products 3.7% -30.5% 12.7% 14.3% 14.2% - Plumbing Products 8.5% 5.3% 9.6% 10.7% 8.3% - Installation and Other Services 10.9% 9.0% 10.9% 11.7% 11.8% - Decorative Architectural Products 20.1% 14.2% 22.6% 22.9% 18.8% - Other Specialty Products 17.8% 15.7% 20.9% 19.8% 14.5% - TOTAL 10.4% -0.7% 13.7% 14.6% 12.7% - North America 13.4% 10.6% 14.5% 15.2% 13.1% - International, principally Europe -4.0% -44.8% 10.3% 11.5% 11.0% - TOTAL, AS ABOVE 10.4% -0.7% 13.7% 14.6% 12.7%
NOTES: - - Data exclude discontinued operations. - - Operating profit and margins by segment and geographic area are before general corporate expense, (gain) loss on sale of Corporate fixed assets and income regarding litigation settlement. - - Operating profit margins in the fourth quarter of 2006 include $321 million of impairment charges for goodwill as follows: Cabinets and Related Products ($306 million), Plumbing Products ($1 million) and Decorative Architectural Products ($14 million). - - Operating profit margins for the first, second, third and fourth quarters of 2006 for the Plumbing Products segment include $17 million pre-tax, $11 million pre-tax, $7 million pre-tax, and $4 million pre-tax, respectively, of costs and charges recorded related to the Company's profit improvement programs. - - Operating profit margins for the second, third and fourth quarters of 2006 for the Cabinets and Related Products segment include $15 million pre-tax, $2 million pre-tax and $1 million pre-tax, respectively, of costs and charges recorded related to the closure of a relatively small ready-to-assemble cabinet manufacturing facility. Page 6 MASCO CORPORATION QUARTERLY SEGMENT DATA - 2005 EXCLUDING IMPAIRMENT CHARGES FOR GOODWILL (DOLLARS IN MILLIONS)
YEAR QTR. 4 QTR. 3 QTR. 2 QTR. 1 ------- ------ ------ ------ ------ Net Sales: - Cabinets and Related Products $ 3,324 $ 842 $ 861 $ 838 $ 783 - Plumbing Products 3,176 786 807 823 760 - Installation and Other Services 3,063 799 807 764 693 - Decorative Architectural Products 1,681 351 453 506 371 - Other Specialty Products 1,325 350 350 336 289 ------- ------ ------ ------ ------ - TOTAL 12,569 3,128 3,278 3,267 2,896 ======= ====== ====== ====== ====== - North America 10,440 2,615 2,748 2,726 2,351 - International, principally Europe 2,129 513 530 541 545 ------- ------ ------ ------ ------ - TOTAL, AS ABOVE 12,569 3,128 3,278 3,267 2,896 ======= ====== ====== ====== ====== Operating Profit: - Cabinets and Related Products 515 128 137 134 116 - Plumbing Products 374 84 103 108 79 - Installation and Other Services 382 90 110 102 80 - Decorative Architectural Products 278 45 78 96 59 - Other Specialty Products 265 79 77 66 43 ------- ------ ------ ------ ------ - TOTAL 1,814 426 505 506 377 ======= ====== ====== ====== ====== - North America 1,567 374 438 438 317 - International, principally Europe 247 52 67 68 60 ------- ------ ------ ------ ------ - TOTAL, AS ABOVE 1,814 426 505 506 377 ======= ====== ====== ====== ====== General Corporate Expense (GCE) 192 47 51 48 46 (Gain) Loss on Sale of Corporate Fixed Assets, Net (8) (8) -- -- -- Income Regarding Litigation Settlement (6) -- (1) (3) (2) ------- ------ ------ ------ ------ Operating Profit (after GCE and Adjustments) 1,636 387 455 461 333 Other Income (Expense), Net (165) (43) (59) (41) (22) ------- ------ ------ ------ ------ Income from Continuing Operations before Income Taxes and Minority Interest $ 1,471 $ 344 $ 396 $ 420 $ 311 ======= ====== ====== ====== ====== Margins: - Cabinets and Related Products 15.5% 15.2% 15.9% 16.0% 14.8% - Plumbing Products 11.8% 10.7% 12.8% 13.1% 10.4% - Installation and Other Services 12.5% 11.3% 13.6% 13.4% 11.5% - Decorative Architectural Products 16.5% 12.8% 17.2% 19.0% 15.9% - Other Specialty Products 20.0% 22.6% 22.0% 19.6% 14.9% - TOTAL 14.4% 13.6% 15.4% 15.5% 13.0% - North America 15.0% 14.3% 15.9% 16.1% 13.5% - International, principally Europe 11.6% 10.1% 12.6% 12.6% 11.0% - TOTAL, AS ABOVE 14.4% 13.6% 15.4% 15.5% 13.0%
NOTES: - - Data exclude discontinued operations. - - Operating profit and margins by segment and geographic area are before general corporate expense, (gain) loss on sale of Corporate fixed assets and income regarding litigation settlement. - - Operating results for the fourth quarter of 2005 exclude non-cash, pre-tax impairment charges for goodwill of $69 million. The charge related to certain of the Company's European business units and was allocated among the Plumbing Products segment ($7 million); Decorative Architectural Products segment ($26 million); and Other Specialty Products segment ($36 million). - - Operating profit margin for the third quarter of 2005 for the Plumbing Products segment includes $12 million pre-tax of costs and charges related to the Company's profit improvement programs. Excluding such costs and charges, the operating profit margin in the Plumbing Products segment was 14.3 percent. Page 7 MASCO CORPORATION QUARTERLY SEGMENT DATA - 2005 INCLUDING IMPAIRMENT CHARGES FOR GOODWILL (DOLLARS IN MILLIONS)
YEAR QTR. 4 QTR. 3 QTR. 2 QTR. 1 ------- ------ ------ ------ ------ Net Sales: - Cabinets and Related Products $ 3,324 $ 842 $ 861 $ 838 $ 783 - Plumbing Products 3,176 786 807 823 760 - Installation and Other Services 3,063 799 807 764 693 - Decorative Architectural Products 1,681 351 453 506 371 - Other Specialty Products 1,325 350 350 336 289 ------- ------ ------ ------ ------ - TOTAL 12,569 3,128 3,278 3,267 2,896 ======= ====== ====== ====== ====== - North America 10,440 2,615 2,748 2,726 2,351 - International, principally Europe 2,129 513 530 541 545 ------- ------ ------ ------ ------ - TOTAL, AS ABOVE 12,569 3,128 3,278 3,267 2,896 ======= ====== ====== ====== ====== Operating Profit: - Cabinets and Related Products 515 128 137 134 116 - Plumbing Products 367 77 103 108 79 - Installation and Other Services 382 90 110 102 80 - Decorative Architectural Products 252 19 78 96 59 - Other Specialty Products 229 43 77 66 43 ------- ------ ------ ------ ------ - TOTAL 1,745 357 505 506 377 ======= ====== ====== ====== ====== - North America 1,567 374 438 438 317 - International, principally Europe 178 (17) 67 68 60 ------- ------ ------ ------ ------ - TOTAL, AS ABOVE 1,745 357 505 506 377 ======= ====== ====== ====== ====== General Corporate Expense (GCE) 192 47 51 48 46 (Gain) Loss on Sale of Corporate Fixed Assets, Net (8) (8) -- -- -- Income Regarding Litigation Settlement (6) -- (1) (3) (2) ------- ------ ------ ------ ------ Operating Profit (after GCE and Adjustments) 1,567 318 455 461 333 Other Income (Expense), Net (165) (43) (59) (41) (22) ------- ------ ------ ------ ------ Income from Continuing Operations before Income Taxes and Minority Interest $ 1,402 $ 275 $ 396 $ 420 $ 311 ======= ====== ====== ====== ====== Margins: - Cabinets and Related Products 15.5% 15.2% 15.9% 16.0% 14.8% - Plumbing Products 11.6% 9.8% 12.8% 13.1% 10.4% - Installation and Other Services 12.5% 11.3% 13.6% 13.4% 11.5% - Decorative Architectural Products 15.0% 5.4% 17.2% 19.0% 15.9% - Other Specialty Products 17.3% 12.3% 22.0% 19.6% 14.9% - TOTAL 13.9% 11.4% 15.4% 15.5% 13.0% - North America 15.0% 14.3% 15.9% 16.1% 13.5% - International, principally Europe 8.4% -3.3% 12.6% 12.6% 11.0% - TOTAL, AS ABOVE 13.9% 11.4% 15.4% 15.5% 13.0%
NOTES: - - Data exclude discontinued operations. - - Operating profit and margins by segment and geographic area are before general corporate expense, (gain) loss on sale of Corporate fixed assets and income regarding litigation settlement. - - Operating results for the fourth quarter of 2005 include non-cash, pre-tax impairment charges for goodwill of $69 million. The charge related to certain of the Company's European business units and was allocated among the Plumbing Products segment ($7 million); Decorative Architectural Products segment ($26 million); and Other Specialty Products segment ($36 million). - - Operating profit margin for the third quarter of 2005 for the Plumbing Products segment includes $12 million pre-tax of costs and charges related to the Company's profit improvement programs. Excluding such costs and charges, the operating profit margin in the Plumbing Products segment was 14.3 percent. Page 8 MASCO CORPORATION OTHER INCOME (EXPENSE), NET 2006 & 2005 - BY QUARTER (IN MILLIONS)
2006 2005 ----------------------------------------- ------------------------------------------ YEAR QTR. 4 QTR. 3 QTR. 2 QTR. 1 YEAR QTR. 4 QTR. 3 QTR. 2 QTR. 1 ----- ------ ------ ------ ------ ------ ------ ------ ------ ------ Interest Expense $(240) $ (69) $(54) $ (53) $ (64) $(247) $(66) $(64) $(58) $ (59) Income from Cash and Cash Investments 47 22 6 5 14 36 14 11 6 5 Other Interest Income 2 -- -- 1 1 7 2 3 1 1 Realized Gains from Financial Investments, Net 31 5 9 11 6 98 6 23 28 41 Dividend Income 10 2 1 1 6 16 4 4 4 4 Impairment Charges for Financial Investments (101) (15) (8) (78) -- (45) -- (43) (2) -- Other, Net 25 2 2 14 7 (30) (3) 7 (20) (14) ----- ----- ---- ----- ----- ----- ---- ---- ---- ----- Total Other Income (Expense), Net $(226) $ (53) $(44) $ (99) $ (30) $(165) $(43) $(59) $(41) $ (22) ===== ===== ==== ===== ===== ===== ==== ==== ==== =====
NOTES: - - Data exclude discontinued operations. - - Other, net, for the years ended December 31, 2006 and 2005 include $14 million and $(25) million, respectively, of realized currency transaction gains (losses). The fourth quarters of 2006 and 2005 include $(1) million and $(2) million, respectively, of realized currency transaction (losses). Page 9 MASCO CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2006 & 2005 (DOLLARS AND SHARES IN MILLIONS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED AS A PERCENT OF SALES DECEMBER 31, 3 MONTHS ENDED DECEMBER 31, % ------------------ --------------------------- Line Change 2006 2005 2006 2005 - ---- ------ ------ ------ ----- ----- 1 Net Sales -6% $2,946 $3,128 100.0% 100.0% 2 Cost of Sales -3% 2,203 2,267 74.8% 72.5% ------ ------ ----- ----- 3 Gross Profit -14% 743 861 25.2% 27.5% ------ ------ ----- ----- Operating Profit (Loss): 4 - Before GCE, Litigation (Income), (Gain) on Sale of Corporate Fixed Assets and Impairment Charges for Goodwill (3-8) -29% 301 426 10.2% 13.6% 5 - After GCE, Litigation (Income), (Gain) on Sale of Corporate Fixed Assets and Impairment Charges for Goodwill (3-9-10-11) -122% (69) 318 -2.3% 10.2% ------ ------ ----- ----- S,G&A Expense: 6 - General Corporate Expense (GCE) 6% 50 47 1.7% 1.5% 7 - (Gain) loss on Sale of Corporate Fixed Assets, Net -- (8) -- (0.00) 8 - All Other 2% 442 435 15.0% 13.9% ------ ------ ----- ----- 9 - Total S,G&A Expense 4% 492 474 16.7% 15.2% ------ ------ ----- ----- 10 Impairment Charges for Goodwill 321 69 10.9% 2.2% 11 Income Regarding Litigation Settlement (1) -- (0.00) 0.0% 12 Other Income (Expense), Net (38) (43) -1.3% -1.4% 13 Impairment Charges for Financial Investments (15) -- -0.5% 0.0% ------ ------ ----- ----- 14 (Loss) Income from Continuing Operations before Income Taxes, Minority Interest and Cumulative Effect of Accounting Change, Net (5+12+13) -144% (122) 275 -4.1% 8.8% 15 Income Taxes -55% 58 129 2.0% 4.1% (Tax Rate) -47.5% 46.9% ------ ------ ----- ----- 16 (Loss) Income from Continuing Operations before Minority Interest and Cumulative Effect of Accounting Change, Net -223% (180) 146 -6.1% 4.7% 17 Minority Interest (6) (6) -0.2% -0.2% ------ ------ ----- ----- 18 (Loss) Income from Continuing Operations before Cumulative Effect of Accounting Change, Net -233% (186) 140 -6.3% 4.5% 19 (Loss) Income from Discontinued Operations, Net (1) 33 0.0% 1.1% 20 Cumulative Effect of Accounting Change, Net -- -- 0.0% 0.0% ------ ------ ----- ----- 21 Net (Loss) Income -208% $ (187) $ 173 -6.3% 5.5% ====== ====== ===== ===== (Loss) Earnings Per Common Share (Diluted): (Loss) Income from Continuing Operations before Cumulative Effect of Accounting Change, Net -245% $(0.48) $ 0.33 (Loss) Income from Discontinued Operations, Net (0.00) 0.08 Cumulative Effect of Accounting Change, Net -- -- ------ ------ Net (Loss) Income -218% $(0.49) $ 0.41 ====== ====== Average (Diluted) Common Shares -8% 385 419
Page 10 MASCO CORPORATION CONSOLIDATED STATEMENTS OF INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2006 & 2005 (DOLLARS AND SHARES IN MILLIONS, EXCEPT PER SHARE DATA)
TWELVE MONTHS ENDED AS A PERCENT OF SALES DECEMBER 31, 12 MONTHS ENDED DECEMBER 31, % ------------------- ---------------------------- Line Change 2006 2005 2006 2005 - ---- ------ ------- ------- ----- ------ 1 Net Sales 2% $12,778 $12,569 100.0% 100.0% 2 Cost of Sales 3% 9,259 8,985 72.5% 71.5% ------- ------- ----- ----- 3 Gross Profit -2% 3,519 3,584 27.5% 28.5% ------- ------- ----- ----- Operating Profit: 4 - Before GCE, Litigation (Income), (Gain) on Sale of Corporate Fixed Assets and Impairment Charges for Goodwill (3-8) -9% 1,659 1,830 13.0% 14.6% 5 - After GCE, Litigation (Income), (Gain) on Sale of Corporate Fixed Assets and Impairment Charges for Goodwill (3-9-10-11) -28% 1,126 1,567 8.8% 12.5% ------- ------- ----- ----- S,G&A Expense: 6 - General Corporate Expense (GCE) 6% 203 192 1.6% 1.5% 7 - (Gain) on Sale of Corporate Fixed Assets, Net -- 8 0.0% 0.1% 8 - All Other 6% 1,860 1,754 14.6% 14.0% ------- ------- ----- ----- 9 - Total S,G&A Expense 6% 2,063 1,954 16.1% 15.5% ------- ------- ----- ----- 10 Impairment Charges for Goodwill 331 69 2.6% 0.5% 11 Income Regarding Litigation Settlement (1) (6) 0.0% 0.0% 12 Other Income (Expense), Net (125) (120) -1.0% -1.0% 13 Impairment Charges for Financial Investments (101) (45) -0.8% -0.4% ------- ------- ----- ----- 14 Income from Continuing Operations before Income Taxes, Minority Interest and Cumulative Effect of Accounting Change, Net (5+12+13) -36% 900 1,402 7.0% 11.2% 15 Income Taxes -20% 412 514 3.2% 4.1% (Tax Rate) 45.8% 36.7% ------- ------- ----- ----- 16 Income from Continuing Operations before Minority Interest and Cumulative Effect of Accounting Change, Net -45% 488 888 3.8% 7.1% 17 Minority Interest (27) (22) -0.2% -0.2% ------- ------- ----- ----- 18 Income from Continuing Operations before Cumulative Effect of Accounting Change, Net -47% 461 866 3.6% 6.9% 19 Income from Discontinued Operations, Net 30 74 0.2% 0.6% 20 Cumulative Effect of Accounting Change, Net (3) -- 0.0% 0.0% ------- ------- ----- ----- 21 Net Income -48% $ 488 $ 940 3.8% 7.5% ======= ======= ===== ===== Earnings Per Common Share (Diluted): Income from Continuing Operations -43% $ 1.15 $ 2.01 Income from Discontinued Operations, Net 0.08 0.17 Cumulative Effect of Accounting Change, Net (0.01) -- ------- ------- Net Income -44% $ 1.22 $ 2.19 ======= ======= Average (Diluted) Common Shares -7% 400 430
page 11 MASCO CORPORATION CONSOLIDATED BALANCE SHEETS (IN MILLIONS)
DECEMBER 31, DECEMBER 31, 2006 2005 ------------ ------------ ASSETS Current Assets: Cash and Cash Investments $ 1,958 $ 1,964 Receivable, Net 1,613 1,716 Inventories 1,263 1,127 Prepaid Expenses and Other 281 316 ------- ------- Total Current Assets 5,115 5,123 Property and Equipment, Net 2,363 2,173 Goodwill 3,957 4,171 Other Intangible Assets, Net 306 307 Other Assets 584 785 ------- ------- Total Assets $12,325 $12,559 ======= ======= LIABILITIES Current Liabilities: Notes Payable $ 1,446 $ 832 Accounts Payable 815 837 Accrued Liabilities 1,128 1,225 ------- ------- Total Current Liabilities 3,389 2,894 Long-Term Debt 3,533 3,915 Deferred Income Taxes and Other 932 902 ------- ------- Total Liabilities 7,854 7,711 SHAREHOLDERS' EQUITY 4,471 4,848 ------- ------- Total Liabilities and Shareholders' Equity $12,325 $12,559 ======= =======
Page 12 MASCO CORPORATION GAAP RECONCILIATION OF SALES GROWTH EXCLUDING EFFECT OF ACQUISITIONS & CURRENCY TRANSLATION (IN MILLIONS)
THREE MONTHS ENDED DECEMBER 31, --------------- 2006 2005 ------ ------ Consolidated Net Sales, as reported $2,946 $3,128 - Acquisitions (10) -- ------ ------ Consolidated Net Sales (excl. acquisitions) $2,936 $3,128 ====== ====== North American Net Sales, as reported $2,348 $2,615 - Acquisitions (10) -- ------ ------ North American Net Sales (excl. acquisitions) $2,338 $2,615 ====== ====== International Net Sales, as reported $ 598 $ 513 - Acquisitions -- -- ------ ------ International Net Sales (excl. acquisitions) 598 513 - Currency Translation (49) -- ------ ------ International Net Sales (excl. acquisitions & currency) $ 549 $ 513 ====== ======
TWELVE MONTHS ENDED DECEMBER 31, ----------------- 2006 2005 ------- ------- Consolidated Net Sales, as reported $12,778 $12,569 - Acquisitions (27) -- ------- ------- Consolidated Net Sales (excl. acquisitions) $12,751 $12,569 ======= ======= North American Net Sales, as reported $10,537 $10,440 - Acquisitions (27) -- ------- ------- North American Net Sales (excl. acquisitions) $10,510 $10,440 ======= ======= International Net Sales, as reported $ 2,241 $ 2,129 - Acquisitions -- -- ------- ------- International Net Sales (excl. acquisitions) 2,241 2,129 - Currency Translation (23) -- ------- ------- International Net Sales (excl. acquisitions & currency) $ 2,218 $ 2,129 ======= =======
NOTES: The Company presents information comparing results from one period to another excluding the results of businesses acquired in order to assess the performance of the underlying businesses and to assess to what extent acquisitions are driving growth. The Company also presents information comparing results of International operations from one period to another using constant exchange rates. To present this information, current period results for foreign entities are converted into U.S. dollars using the prior period's exchange rates, rather than exchange rates for the current period. The Company presents this information in order to assess how the underlying businesses performed in local currencies before taking into account currency fluctuations. Page 13 MASCO CORPORATION GAAP RECONCILIATION OF OPERATING (LOSS) PROFIT AND MARGINS (DOLLARS IN MILLIONS)
THREE MONTHS ENDED DECEMBER 31, ------------------------------- 2006 2005 ------------- ------------- $ MARGIN $ MARGIN ---- ------ ---- ------ Operating (Loss) Profit, As Reported $(69) -2.3% $318 10.2% Profit Improvement Programs, Plumbing Products Segment 4 -- Profit Improvement Programs, Cabinets & Related Products Segment 1 -- Impairment Charges for Goodwill 321 69 Income Regarding Litigation Settlement (1) -- ---- ---- Operating Profit, As Reconciled $256 8.7% $387 12.4% ==== ====
TWELVE MONTHS ENDED DECEMBER 31, --------------------------------- 2006 2005 --------------- --------------- $ MARGIN $ MARGIN ------ ------ ------ ------ Operating Profit, As Reported $1,126 8.8% $1,567 12.5% Profit Improvement Programs, Plumbing Products Segment 39 12 Profit Improvement Programs, Cabinets & Related Products Segment 8 -- Impairment Charges for Goodwill 331 69 Income Regarding Litigation Settlement (1) (6) ------ ------ Operating Profit, As Reconciled $1,503 11.8% $1,642 13.1% ====== ======
NOTE: 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 performance measures and ratios should be viewed in addition to, and not as an alternative for, the Company's reported results under accounting principles generally accepted in the United States. Page 14 MASCO CORPORATION GAAP RECONCILIATION OF OPERATING PROFIT AND SHAREHOLDERS' EQUITY (IN MILLIONS)
TWELVE MONTHS ENDED DECEMBER 31, 2006 ------------ Operating Profit from Continuing Operations $1,126 Impairment Charges for Goodwill 331 Income Regarding Litigation Settlement (1) ------ Operating Profit, As Reconciled $1,456 ======
TWELVE MONTHS ENDED DECEMBER 31, ------------------- 2006 2005 ------ ------ Shareholders' Equity, As Reported $4,471 $4,848 Impairment Charges for Goodwill (after tax) 331 69 Income Regarding Litigation Settlement (after tax) (1) (4) ------ ------ Shareholders' Equity, As Reconciled $4,801 $4,913 ====== ======
NOTES: Data exclude discontinued operations. 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 performance measures and ratios should be viewed in addition to, and not as an alternative for, the Company's reported results under accounting principles generally accepted in the United States. This information is provided as detail for the calculation of return on invested capital ("ROIC") which is calculated as after-tax operating profit (last twelve months, as reconciled) divided by the total of average debt (net of average cash) and average shareholders' equity. Page 15 MASCO CORPORATION DISCONTINUED OPERATIONS (IN MILLIONS)
THREE MONTHS ENDED DECEMBER 31, ------------------ 2006 2005 ---- ---- Net Sales $-- $ 62 === ==== Income from Discontinued Operations $-- $ 10 (Loss) Gain on Disposal of Discontinued Operations, Net (1) 53 --- ---- Income Before Income Taxes (1) 63 Income Tax Expense -- (30) --- ---- (Loss) Income from Discontinued Operations, Net $(1) $ 33 === ====
TWELVE MONTHS ENDED DECEMBER 31, ------------------- 2006 2005 ---- ---- Net Sales $ 55 $315 ==== ==== Income from Discontinued Operations $ 8 $ 49 Gain on Disposal of Discontinued Operations, Net 50 63 ---- ---- Income Before Income Taxes 58 112 Income Tax Expense (28) (38) ---- ---- Income from Discontinued Operations, Net $ 30 $ 74 ==== ====
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