-----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, FiYdfwx1teq9E61H2VGdfFqy5cuz2ZySW5HeFS35EZFFQXGj3KayqBiakgqk9G1i KT8xsyEm7JDKD0G7iAv3pw== 0000950124-97-005944.txt : 19971115 0000950124-97-005944.hdr.sgml : 19971115 ACCESSION NUMBER: 0000950124-97-005944 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MASCO CORP /DE/ CENTRAL INDEX KEY: 0000062996 STANDARD INDUSTRIAL CLASSIFICATION: HOUSEHOLD FURNITURE [2510] IRS NUMBER: 381794485 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-05794 FILM NUMBER: 97717132 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 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended September 30, 1997. Commission File Number 1-5794 MASCO CORPORATION - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its Charter) Delaware 38-1794485 - ------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 21001 Van Born Road, Taylor, Michigan 48180 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (313) 274-7400 - ------------------------------------------------------------------------------- (Telephone Number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. Shares Outstanding at Class November 1, 1997 ----- --------------------- Common stock, par value $1 per share 165,188,000 2 MASCO CORPORATION INDEX PAGE NO. -------- Part I. Financial Information Item 1. Financial Statements: Condensed Consolidated Balance Sheet - September 30, 1997 and December 31, 1996 1 Condensed Consolidated Statement of Income for the Three Months and Nine Months Ended September 30, 1997 and 1996 2 Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 1997 and 1996 3 Notes to Condensed Consolidated Financial Statements 4-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-13 Unaudited Information Regarding Equity Investments for the Three Months and Nine Months Ended September 30, 1997 and 1996 14 Part II. Other Information and Signature 15 3 MASCO CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1997 AND DECEMBER 31, 1996 (DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, ASSETS 1997 1996 ------ ---------- ------------ Current assets: Cash and cash investments $ 379,040 $ 473,730 Accounts and notes receivable, net 584,450 466,900 Prepaid expenses and other 108,600 77,200 Inventories: Raw material 214,760 185,500 Finished goods 167,970 135,190 Work in process 114,190 91,250 ---------- ---------- 496,920 411,940 ---------- ---------- Total current assets 1,569,010 1,429,770 Receivable from MascoTech, Inc. --- 151,380 Equity investment in MascoTech, Inc. 50,260 10,150 Equity investments in other affiliates 173,970 57,680 Securities of Furnishings International Inc. 383,590 356,340 Property and equipment, net 1,004,170 940,590 Acquired goodwill, net 733,140 457,350 Other noncurrent assets 309,480 298,390 ---------- ---------- Total assets $4,223,620 $3,701,650 ========== ========== LIABILITIES ----------- Current liabilities: Notes payable $ 84,270 $ 7,590 Accounts payable 140,920 149,500 Accrued liabilities 416,400 361,350 ---------- ---------- Total current liabilities 641,590 518,440 Long-term debt 1,321,250 1,236,320 Deferred income taxes and other 116,650 107,080 ---------- ---------- Total liabilities 2,079,490 1,861,840 ---------- ---------- SHAREHOLDERS' EQUITY -------------------- Common stock, par value $1 per share Authorized shares: 400,000,000 165,170 160,870 Preferred stock, par value $1 per share Authorized shares: 1,000,000 --- --- Paid-in capital 284,250 140,010 Retained earnings 1,712,930 1,536,410 Cumulative translation adjustments (18,220) 2,520 ---------- ---------- Total shareholders' equity 2,144,130 1,839,810 ---------- ---------- Total liabilities and shareholders' equity $4,223,620 $3,701,650 ========== ==========
See notes to condensed consolidated financial statements. 1 4 MASCO CORPORATION CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 -------------------- ----------------- 1997 1996 1997 1996 ---------- --------- ---------- ------- Net sales $1,003,000 $843,000 $2,770,000 $2,394,000 Cost of sales 634,000 522,000 1,751,700 1,498,900 ---------- -------- ---------- ---------- Gross profit 369,000 321,000 1,018,300 895,100 Selling, general and administrative expenses 205,100 180,900 573,300 520,200 Amortization of acquired goodwill 5,400 3,300 12,900 8,600 ---------- -------- ---------- ---------- Operating profit 158,500 136,800 432,100 366,300 ---------- -------- ---------- ---------- Other income (expense), net: Interest expense (20,700) (20,900) (58,200) (54,900) Re: MascoTech, Inc.: Equity earnings 1,300 6,700 11,600 10,000 Interest income 2,500 --- 7,500 --- Gain from change in investment --- --- 29,500 --- Other, net 28,300 13,700 39,000 31,600 ---------- -------- ---------- ---------- 11,400 (500) 29,400 (13,300) ---------- -------- ---------- ---------- Income before income taxes 169,900 136,300 461,500 353,000 Income taxes 68,100 54,500 184,600 141,200 ---------- -------- ---------- ---------- Net income $ 101,800 $ 81,800 $ 276,900 $ 211,800 ========== ======== ========== ========== Per share data: Net income $.62 $.51 $1.71 $1.32 ==== ==== ===== ===== Cash dividends paid $.20 $.19 $ .60 $ .57 ==== ==== ===== ===== Cash dividends declared $.21 $.20 $ .61 $ .58 ==== ==== ===== ===== Average shares outstanding 164,100 160,500 162,200 160,500 ======= ======= ======= =======
See notes to condensed consolidated financial statements. 2 5 MASCO CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30,1997 AND 1996 (DOLLARS IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30 1997 1996 --------- ------ CASH FLOWS FROM (FOR) OPERATING ACTIVITIES: Cash provided by continuing operations $ 298,940 $258,500 (Increase) in receivables (66,960) (66,650) (Increase)in inventories (21,520) (7,420) (Increase) decrease in prepaid expenses and other (34,770) 1,440 Increase in current liabilities 11,400 17,460 --------- -------- Total cash from operating activities of continuing operations 187,090 203,330 --------- -------- CASH FLOWS FROM (FOR) INVESTING ACTIVITIES: Acquisition of companies, net of cash acquired (186,920) (173,110) Capital expenditures (102,950) (80,380) Collection of MascoTech note receivable 45,580 --- 0ther, net 35,960 40,330 --------- -------- Total cash (for) investing activities of continuing operations (208,330) (213,160) Discontinued operations, net --- 29,030 Cash proceeds from sale of discontinued operations --- 707,630 --------- -------- Total cash from (for) investing activities (208,330) 523,500 --------- -------- CASH FLOWS FROM (FOR) FINANCING ACTIVITIES: Increase in debt 85,720 136,350 Payment of debt (62,240) (635,720) Cash dividends paid (96,930) (91,430) --------- -------- Total cash (for) financing activities of continuing operations (73,450) (590,800) --------- -------- CASH AND CASH INVESTMENTS: Increase (decrease) for the period (94,690) 136,030 At January 1 473,730 60,470 --------- -------- At September 30 $ 379,040 $196,500 ========= ========
See notes to condensed consolidated financial statements. 3 6 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS A. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary to present fairly its financial position as at September 30, 1997 and the results of operations for the three months and nine months ended September 30, 1997 and 1996 and cash flows for the nine months ended September 30, 1997 and 1996. The condensed consolidated balance sheet at December 31, 1996 was derived from audited financial statements. Earnings per share are calculated based on the weighted average common shares outstanding. Certain amounts for the prior year periods have been reclassified to conform to the current year presentation. B. In the third quarter of 1997, the Company acquired: the Alvic Group, a Spanish manufacturer and distributor of kitchen and bath cabinetry; the SKS Group, a German manufacturer of rolling shutters and balcony railing systems; and Texwood Industries Inc., a U.S. manufacturer of kitchen and bath cabinetry. In the second quarter of 1997, the Company acquired Liberty Hardware Manufacturing Corporation, a producer of cabinet and builders' hardware; during the first quarter of 1997, the Company acquired Franklin Brass Manufacturing Company, a manufacturer of bath accessories and bath safety products, and LaGard Inc., a manufacturer of electronic locks. Combined 1996 annual net sales of companies acquired in the first nine months of 1997 were approximately $340 million. The combined purchase price for the above acquisitions aggregated approximately $430 million and included approximately 2.9 million shares of Company common stock, with the balance in cash and debt. The acquisitions were accounted for as purchase transactions. The net cash paid for companies acquired in the first nine months of 1997 is summarized as follows, in thousands: Fair value of assets received, net of cash acquired $467,670 Less liabilities assumed (including $70 million of debt) 108,390 -------- 359,280 Common stock issued 119,360 Note issued (due January 1998) 53,000 -------- Net cash paid $186,920 ======== C. The Company expects that Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share," will not have a material impact on the calculatio of earnings per share when adopted at December 31, 1997. Although earlier application of SFAS 128 is not permitted, disclosure of the pro forma earnings per share amounts computed in accordance with SFAS 128 is permitted. Accordingly, pro forma basic and diluted earnings per share under SFAS 128 were $.63 and $.61, respectively, and $1.74 and $1.67, respectively, for the third quarter and nine months ended September 30, 1997. D. On September 30, 1997, MascoTech, Inc. transferred to the Company 9.9 million shares (approximately 42 percent) of the outstanding common stock of Emco Limited and $45.6 million in cash as payment of the $151 million promissory note issued by MascoTech in October 1996 at the time of its purchase of certain of its securities held by the Company. Emco is a leading Canadian distributor and manufacturer of building materials for the home improvement and construction markets. 4 7 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) E. Other income (expense), net consists of the following, in thousands:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------------ ------------------ 1997 1996 1997 1996 ---- ---- ---- ---- Interest expense $(20,700) $(20,900) $(58,200) $(54,900) Re: MascoTech, Inc.: Equity earnings 1,300 6,700 11,600 10,000 Interest income 2,500 --- 7,500 --- Gain from change in investment --- --- 29,500 --- Equity earnings, other 1,500 2,000 5,100 5,900 Income from cash and cash investments 4,200 2,000 12,100 3,100 Other interest income 9,900 6,200 29,100 8,600 Other, net 12,700 3,500 (7,300) 14,000 -------- -------- -------- -------- $ 11,400 $ (500) $ 29,400 $(13,300) ======== ======== ======== ========
During the fourth quarter of 1996, the Company completed the sale to MascoTech, Inc. of 17 million shares of MascoTech common stock and warrants to purchase 10 million shares of MascoTech common stock. This transaction reduced the Company's common equity ownership in MascoTech from 45 percent to 21 percent. Late in the second quarter of 1997, MascoTech redeemed all of its publicly held outstanding convertible preferred stock in exchange for approximately 10 million shares of its common stock. Such redemption reduced the Company's common equity ownership in MascoTech to 17 percent from 21 percent, and increased the Company's equity in MascoTech's net book value by approximately $29.5 million. As a result, the Company recognized a pre-tax gain of approximately $29.5 million during the second quarter of 1997. Equity earnings from MascoTech for the three months and nine months ended September 30, 1997 reflect the Company's reduction in common equity ownership of MascoTech, as discussed above. Included in MascoTech's net income for the third quarter and nine months ended September 30, 1997 was a $29.3 million after-tax gain from the delivery to the Company of 9.9 million shares of Emco Limited stock; the Company's recording of equity earnings from MascoTech for the three months and nine months ended September 30, 1997 excludes the effect of such gain due to the related party nature of the transaction. Equity earnings from MascoTech for the three months and nine months ended September 30, 1997 were handicapped by the Company's equity share (approximately $1.7 million pre-tax) of losses associated with a plant closure and MascoTech's share of a special charge recorded by an equity affiliate. Equity earnings from MascoTech, Inc. for the nine months ended September 30, 1996 include the Company's equity share (approximately $11.7 million pre-tax) of losses resulting from MascoTech's disposition of its metal stamping businesses during the second quarter of 1996, and approximately $5.0 million of pre-tax income related to a MascoTech accounting change in the first quarter of 1996. Other, net for the nine months ended September 30, 1997 includes second quarter 1997 charges aggregating approximately $29.5 million, which entirely offset the above-mentioned MascoTech-related second quarter 1997 gain, primarily for the adjustment of the Company's Payless Cashways investment to its estimated fair value. 5 8 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Note E - Concluded: Other, net for the three months and nine months ended September 30, 1997 includes gains aggregating $9.6 million and $25.7 million, respectively, principally from the sale of marketable securities, as compared with $6.5 million and $13.1 million, respectively, of gains in the comparable periods of the prior year. In addition, other, net for the nine months ended September 30, 1996 included a gain of approximately $4.4 million from the sale of certain common shares of TriMas Corporation. Interest income from MascoTech for the three months and nine months ended September 30, 1997 resulted from the $151 million note receivable due from MascoTech, which was paid on September 30, 1997. Included in other interest income for the three months and nine months ended September 30, 1997 is interest income of approximately $9.0 million and $27.0 million, respectively, from the 12% pay-in-kind junior debt securities of Furnishings International Inc. (approximately $300 million at December 31, 1996). Such interest income began to accrue in August 1996 upon the sale of the Company's home furnishings businesses. 6 9 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) F. The following presents the combined unaudited financial statements of the Company, MascoTech, Inc. and TriMas Corporation as one entity, with Masco Corporation as the parent company. Intercompany transactions have been eliminated. Amounts, except per share data, are in thousands. COMBINED BALANCE SHEET
September 30, December 31, ASSETS 1997 1996 ---------- ------- Current Assets: Cash and cash investments $ 571,950 $ 599,020 Marketable securities 33,690 37,760 Accounts and notes receivable, net 805,780 674,530 Prepaid expenses and other 111,860 81,320 Deferred income taxes 42,810 53,670 Net current assets of businesses held for disposition --- 85,980 Inventories: Raw material 269,960 238,250 Finished goods 235,430 209,590 Work in process 152,230 125,950 ---------- ---------- 657,620 573,790 ---------- ---------- Total current assets 2,223,710 2,106,070 Equity investments in affiliates 277,650 221,380 Securities of Furnishings International Inc. 383,590 356,340 Property and equipment, net 1,607,760 1,523,590 Acquired goodwill, net 916,230 660,690 Net noncurrent assets of businesses held for disposition --- 22,850 0ther assets 467,210 415,280 ---------- ---------- Total assets $5,876,150 $5,306,200 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Notes payable $ 86,390 $ 16,620 Accounts payable 235,960 241,420 Accrued liabilities 583,480 501,800 ---------- ---------- Total current liabilities 905,830 759,840 Long-term debt 1,992,880 2,020,400 Deferred income taxes and other 317,210 300,170 Other interests in combined affiliates 516,100 385,980 Equity of shareholders of Masco Corporation 2,144,130 1,839,810 ---------- ---------- Total liabilities and shareholders' equity $5,876,150 $5,306,200 ========== ==========
7 10 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE F - CONTINUED:
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ---------------------- ----------------- COMBINED STATEMENT OF INCOME 1997 1996 1997 1996 ---------- ---------- ---------- ------- Net sales $1,386,760 $1,277,660 $3,954,710 $3,843,710 ---------- ---------- ---------- ---------- Costs and expenses, net: Cost of sales 929,870 853,290 2,625,200 2,624,950 ---------- ---------- ---------- ---------- Selling, general and administrative expenses 259,220 236,470 732,390 698,290 ---------- ---------- ---------- ---------- Charge on disposition of businesses, net --- --- --- 31,520 ---------- ---------- ---------- ---------- Other (income) expense, net: Interest expense 29,020 29,410 84,230 83,690 Other income, net (38,500) (20,620) (116,150) (48,720) ---------- ---------- ---------- ---------- (9,480) 8,790 (31,920) 34,970 ---------- ---------- ---------- ---------- 1,179,610 1,098,550 3,325,670 3,389,730 ---------- ---------- ---------- ---------- Income before income taxes, other interests and cumulative effect of an accounting change 207,150 179,110 629,040 453,980 Income taxes 85,840 77,350 262,900 196,600 Other interests in combined affiliates 19,510 19,960 89,240 48,660 ---------- ---------- ---------- ---------- Income before cumulative effect of an accounting change 101,800 81,800 276,900 208,720 Cumulative effect of an accounting change, net --- --- --- 3,080 ---------- ---------- ---------- ---------- Net income $ 101,800 $ 81,800 $ 276,900 $ 211,800 ========== ========== ========== ========== Earnings per share: Income before cumulative effect of an accounting change $.62 $.51 $1.71 $1.30 Cumulative effect of an accounting change, net -- -- -- .02 ---- ---- ----- ----- Earnings per share $.62 $.51 $1.71 $1.32 ==== ==== ===== ===== Cash dividends per share: Dividends paid $.20 $.19 $ .60 $ .57 ==== ==== ===== ===== Dividends declared $.21 $.20 $ .61 $ .58 ==== ==== ===== ===== Average shares outstanding 164,100 160,500 162,200 160,500 ======= ======= ======= =======
8 11 MASCO CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED) NOTE F - CONCLUDED:
NINE MONTHS ENDED SEPTEMBER 30 ----------------- COMBINED STATEMENT OF CASH FLOWS 1997 1996 ----- ----- CASH FLOWS FROM (FOR) OPERATING ACTIVITIES: Cash provided by continuing operations $ 497,770 $ 359,450 (Increase) in receivables (84,210) (70,860) (Increase) decrease in inventories (14,200) 900 (Increase) decrease in prepaid expenses (34,770) 1,440 (Increase) decrease in marketable securities, net 5,590 (14,270) Increase in current liabilities 12,330 44,750 --------- --------- Total cash from operating activities 382,510 321,410 --------- --------- CASH FLOWS FROM (FOR) INVESTING ACTIVITIES: Capital expenditures (153,460) (125,510) Acquisition of companies (205,470) (199,050) Proceeds from sale of subsidiaries 76,560 212,100 Proceeds from sale of discontinued operations --- 707,630 Proceeds from sale of investments --- 31,300 Discontinued operations, net --- 29,030 Other, net 15,650 69,620 --------- --------- Total cash from (for) investing activities (266,720) 725,120 --------- --------- CASH FLOWS FROM (FOR) FINANCING ACTIVITIES: Increase in debt 123,120 156,180 Payment of debt (152,830) (909,020) Cash dividends paid (113,150) (108,600) --------- --------- Total cash (for) financing activities (142,860) (861,440) --------- --------- CASH AND CASH INVESTMENTS: Increase (decrease) for the period (27,070) 185,090 At January 1 599,020 169,240 --------- --------- At September 30 $ 571,950 $ 354,330 ========= =========
9 12 MASCO CORPORATION Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIRD QUARTER 1997 AND THE FIRST NINE MONTHS 1997 VERSUS THIRD QUARTER 1996 AND THE FIRST NINE MONTHS 1996 SALES AND OPERATIONS Net sales increased 19 percent and 16 percent for the three months and nine months ended September 30, 1997, respectively, from the comparable periods in 1996. Excluding acquisition of companies, net sales for the three months and nine months ended September 30, 1997 increased 6 percent and 7 percent from the comparable periods in 1996. Sales of Kitchen and Bath Products for the three months and nine months ended September 30, 1997 were $767 million and $2,158 million, respectively, representing increases of 17 percent and 16 percent, respectively, from the comparable periods in 1996; excluding acquisition of companies, net sales of this segment increased 6 percent and 8 percent, respectively, for the three months and nine months ended September 30, 1997. Sales of Other Specialty Products for the three months and nine months ended September 30, 1997 were $236 million and $612 million, respectively, representing increases of 26 percent and 16 percent, respectively, from the comparable periods in 1996; excluding acquisition of companies, net sales of this segment increased 6 percent and 4 percent, respectively, for the three months and nine months ended September 30, 1997. Net sales from North American operations for the three months and nine months ended September 30, 1997 were $818 million and $2,293 million, respectively, representing increases of 18 percent and 14 percent, respectively, from the comparable periods in 1996; excluding acquisition of companies, net sales from North American operations increased 8 percent and 9 percent, respectively, from the comparable periods in 1996. Net sales from European operations for the three months and nine months ended September 30, 1997 were $185 million and $477 million, respectively, representing increases of 22 percent and 27 percent, respectively, from the comparable periods in 1996; excluding acquisition of companies, net sales from European operations decreased 6 percent and 4 percent, respectively, from the comparable periods in 1996. A stronger U.S. dollar, principally against the German Deutsche Mark, had a negative effect on the translation of European sales in the first nine months of 1997, as compared with the first nine months of 1996, lowering European net sales in both the third quarter and nine months ended September 30, 1997 by more than 10 percent. The Company's operating profit margin decreased modestly in the third quarter of 1997 as compared with the third quarter of 1996, and improved slightly for the nine months ended September 30, 1997 as compared with the comparable period in the prior year. Cost of sales as a percentage of sales increased to 63.2 percent from 61.9 percent and to 63.2 percent from 62.6 percent for the three months and nine months ended September 30, 1997, respectively, from the comparable periods in 1996; selling, general and administrative expenses as a percentage of sales decreased to 20.5 percent from 21.5 percent and to 20.7 percent from 21.7 percent for the three months and nine months ended September 30, 1997, respectively, from the comparable periods in 1996. The decreases in the selling, general and administrative expenses percentages in 1997 include the Company's cost-control initiatives and the leveraging of fixed and semi-fixed costs over a higher sales base. Amortization of acquired goodwill as a percentage of sales increased to .5 percent from .4 percent for both the three months and nine months ended September 30, 1997 as compared with the same periods in 1996, respectively. The Company's operating profit margins, before general corporate expense, were 17.8 percent for both the three months and nine months ended September 30, 1997, as compared with 18.8 percent and 18.1 percent, respectively, for the comparable 1996 periods. Operating profit margins, after 10 13 MASCO CORPORATION Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) general corporate expense, were 15.8 percent and 15.6 percent, for the three months and nine months ended September 30, 1997, respectively, as compared with 16.2 percent and 15.3 percent, respectively, for the comparable 1996 periods. Comparative percents were influenced by recent acquisitions with margins generally lower than the Company averages. OTHER INCOME (EXPENSE), NET Equity earnings from MascoTech, Inc. for the three months and nine months ended September 30, 1997 reflect the Company's reduction in common equity ownership of MascoTech, as discussed below. Included in other income (expense), net for the third quarter and nine months ended September 30, 1997 were equity earnings from MascoTech of $1.3 million and $11.6 million, respectively, as compared with equity earnings of $6.7 million and $10.0 million, respectively, for the comparable 1996 periods. Included in MascoTech's net income for the third quarter and nine months ended September 30, 1997 was a $29.3 million after-tax gain from the delivery to the Company of 9.9 million shares of Emco Limited stock; the Company's recording of equity earnings from MascoTech for the three months and nine months ended September 30, 1997 excludes the effect of such gain due to the related party nature of the transaction. Equity earnings from MascoTech for the three months and nine months ended September 30, 1997 were handicapped by the Company's equity share (approximately $1.7 million pre-tax) of losses associated with a plant closure and MascoTech's share of a special charge recorded by an equity affiliate. Excluding the Company's $11.7 million pre-tax equity share of MascoTech's second quarter 1996 disposition charge resulting from the sale of its metal stamping businesses and the Company's approximate $5.0 million pre-tax equity share of MascoTech's first quarter 1996 nonrecurring income resulting from an accounting change, equity earnings from MascoTech for the nine months ended September 30, 1996 were $16.7 million. During the fourth quarter of 1996, the Company completed the sale to MascoTech, Inc. of 17 million shares of MascoTech common stock and warrants to purchase 10 million shares of MascoTech common stock. This transaction reduced the Company's common equity ownership in MascoTech from 45 percent to 21 percent. Under the sale agreement, the Company received approximately $266 million, with $115 million paid at closing. The Company earned interest income at 6.625% on the $151 million balance of the consideration, which was paid by MascoTech to the Company on September 30, 1997; as provided for in the sale agreement, MascoTech delivered to the Company 9.9 million shares (approximately 42 percent) of the outstanding common stock of Emco Limited and $45.6 million in cash. Emco Limited is a leading Canadian distributor and manufacturer of home improvement and buildings products. The Company, at this time, intends to maintain its equity investment in Emco and will account for such investment under the equity method of accounting. Late in the second quarter of 1997, MascoTech redeemed all of its publicly held outstanding convertible preferred stock in exchange for approximately 10 million shares of its common stock. This redemption reduced the Company's common equity ownership in MascoTech to 17 percent from 21 percent, and increased the Company's equity in MascoTech's net book value by approximately $29.5 million. As a result, the Company recognized a pre-tax gain of approximately $29.5 million during the second quarter of 1997. Other, net for the nine months ended September 30, 1997 includes charges aggregating approximately $29.5 million, which entirely offset the above-mentioned MascoTech second quarter 1997 gain, primarily for the adjustment of the Company's Payless Cashways investment to its estimated fair value. 11 14 MASCO CORPORATION Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Other, net for the three months and nine months ended September 30, 1997 includes gains aggregating $9.6 million and $25.7 million, respectively, principally from the sale of marketable securities, as compared with $6.5 million and $13.1 million, respectively, of gains in the comparable periods of the prior year. In addition, other, net for the nine months ended September 30, 1996 included a gain of approximately $4.4 million from the sale of certain common shares of TriMas Corporation. Income from cash and cash investments for the three months and nine months ended September 30, 1997 increased to $4.2 million and to $12.1 million, respectively, from $2.0 million and $3.1 million, respectively for the comparable periods in 1996; these increases resulted from a higher average cash and cash investments balance during the first nine months of 1997 as compared with the first nine months of 1996. The Company's cash balance for the first nine months of 1997 included residual proceeds from transactions in the latter part of 1996, including the sale of certain MascoTech investments, the sale of the Company's home furnishings businesses and European borrowings. The Company anticipates the continued use of cash for the acquisition of companies. Other interest income for the three months and nine months ended September 30, 1997 includes interest income of approximately $9.0 million and $27.0 million, respectively, from the 12% pay-in-kind junior debt securities of Furnishings International Inc. (approximately $300 million at December 31, 1996). Such interest income began to accrue in August 1996 upon the sale of the Company's home furnishings businesses. NET INCOME AND EARNINGS PER SHARE Net income for the third quarter of 1997 increased 24 percent to $101.8 million from $81.8 million in the comparable 1996 period, and earnings per share increased 22 percent to $.62 from $.51. Net income for the nine months ended September 30, 1997 increased 31 percent to $276.9 million from $211.8 million in the comparable 1996 period and earnings per share increased 30 percent to $1.71 from $1.32. The Company estimates that its effective tax rate for 1997 will approximate 40 percent. OTHER FINANCIAL INFORMATION At September 30, 1997 current assets were 2.4 times current liabilities. The ratio of current assets to current liabilities at September 30, 1997 was affected by a $53.0 million short-term acquisition-related note payable, which is due in January 1998; excluding the effect of this note payable, current assets were 2.6 times current liabilities at September 30, 1997. For the nine months ended September 30, 1997, cash of $187.1 million was provided by operating activities. Cash used for investing activities was $208.3 million, including $186.9 million for the acquisition of companies and $103.0 million for capital expenditures; cash from investing activities included $45.6 million from the collection of the MascoTech note receivable and $36.0 million from other cash inflows. Cash used for financing activities was $73.5 million, including $96.9 million for cash dividends paid and $23.4 million received from the net increase in debt. The aggregate of the preceding items represents a net cash outflow of $94.7 million. Changes in working capital and debt as indicated on the statement of cash flows exclude the effect of acquisition of companies. 12 15 MASCO CORPORATION Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONCLUDED) The Company has on file with the Securities and Exchange Commission, an unallocated shelf registration pursuant to which the Company is able to issue up to a combined $759 million of debt and equity securities. The Company believes that its present cash balance, its cash flows from operations and, to the extent necessary, future financial market activities and bank borrowings, are sufficient to fund its working capital and other investment needs. During the third quarter of 1997, the Company increased the quarterly cash dividend to $.21 from $.20 per common share. This marks the 39th consecutive year in which dividends have been increased. The Company expects that Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share," will not have a material impact on the calculation of earnings per share when adopted at December 31, 1997. Although earlier application of SFAS 128 is not permitted, disclosure of the pro forma earnings per share amounts computed in accordance with SFAS 128 is permitted. Accordingly, pro forma basic and diluted earnings per share under SFAS 128 were $.63 and $.61, respectively, and $1.74 and $1.67, respectively, for the three months and nine months ended September 30, 1997. 13 16 UNAUDITED INFORMATION REGARDING EQUITY INVESTMENTS FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 Equity investments in affiliates consist primarily of the following approximate common stock and partnership interests at September 30: 1997 1996 ---- ---- Emco Limited, a Canadian company 42% -- Hans Grohe, a German partnership 27% 27% MascoTech, Inc. 17% 45% TriMas Corporation 4% 4% During the fourth quarter of 1996, the Company completed the sale to MascoTech, Inc. of 17 million shares of MascoTech common stock and warrants to purchase 10 million shares of MascoTech common stock. This transaction reduced the Company's common equity ownership in MascoTech from 45 percent to 21 percent. Under the sale agreement, the Company received approximately $266 million, with $115 million paid at closing. The $151 million balance of the consideration was paid by MascoTech to the Company on September 30, 1997; as provided for in the sale agreement, MascoTech, Inc. delivered to the Company 9.9 million shares (approximately 42 percent) of the outstanding common stock of Emco Limited and $45.6 million in cash. Emco Limited is a leading Canadian distributor and manufacturer of home improvement and building products. Late in the second quarter of 1997, MascoTech redeemed all of its publicly held outstanding convertible preferred stock in exchange for approximately 10 million shares of its common stock. Such redemption reduced the Company's common equity ownership in MascoTech to 17 percent from 21 percent. The following presents the condensed financial data of MascoTech, Inc. Amounts are in thousands.
Three Months Ended Nine Months Ended September 30 September 30 ------------------- ---------------------- 1997 1996 1997 1996 ---- ---- ---- ---- Net Sales $222,030 $290,790 $688,510 $1,009,770 ======== ======== ======== ========== Gross Profit $ 34,350 $ 55,580 $144,640 $ 174,950 ======== ======== ======== ========== Net Income (After Preferred Stock Dividends) $ 38,660 $ 16,150 $ 89,730 $ 25,450 ======== ======== ======== ==========
Included in MascoTech's net income for the third quarter and nine months ended September 30, 1997 was $9.9 million after-tax in charges related to a plant closure and MascoTech's share of a special charge recorded by an equity affiliate. Also included in MascoTech's net income for the third quarter and nine months ended September 30, 1997 was a $29.3 million after-tax gain from the delivery to the Company of 9.9 million shares of Emco Limited common stock, as discussed above; the Company's recording of equity earnings from MascoTech for the three months and nine months ended September 30, 1997 excludes the effect of such gain due to the related-party nature of the transaction. 14 17 PART II. OTHER INFORMATION MASCO CORPORATION ITEMS 1, 3, 4 & 5 ARE NOT APPLICABLE. ITEM 2. CHANGES IN SECURITIES (a) Not applicable. (b) Not applicable. (c) During the third quarter of 1997 the Company issued 2,695,000 shares of common stock in connection with the acquisition of Texwood Industries Inc., a U.S. manufacturer of kitchen and bath cabinetry. The shares were issued to the shareholders of Texwood Industries Inc., in a transaction that did not involve a public offering and the issuance was therefore exempt under Section 4(2) of the Securities Act. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 11 - Computation of Earnings Per Share 12 - Computation of Ratio of Earnings to Fixed Charges 27 - Financial Data Schedule (b) Reports on Form 8-K: Report on Form 8-K dated October 10, 1997 reporting under Item 5 the issuance of a press release relating to the receipt from MascoTech, Inc. of 9.9 million shares (approximately 42 percent) of the outstanding common stock of Emco Limited and cash in payment of a promissory note issued by MascoTech in October 1996. 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 12, 1997 BY: /s/ Richard G. Mosteller --------------------------- ----------------------------------- Richard G. Mosteller Senior Vice-President - Finance (Chief Financial Officer and Authorized Signatory) 15 18 MASCO CORPORATION EXHIBIT INDEX Exhibit ------- Exhibit 11 Computation of Earnings Per Share Exhibit 12 Computation of Ratio of Earnings to Fixed Charges Exhibit 27 Financial Data Schedule EX-11 2 EX-11 1 EXHIBIT 11 MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE PRIMARY AND FULLY DILUTED EARNINGS PER SHARE FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 (AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ------------------ ----------------- 1997 1996 1997 1996 ------- ------- ------- ------ Shares for computation of primary and fully diluted earnings per share: Weighted average number of shares outstanding 164,100 160,500 162,200 160,500 Common stock equivalents: Shares issuable assuming conversion of debentures 4,200 4,200 4,200 4,200 Stock options 1,800 900 1,800 900 ------- ------- -------- -------- Total shares for primary and fully diluted earnings per share computation 170,100 165,600 168,200 165,600 ======= ======= ======= ======= Net income, adjusted to basis of earnings per share: Net income $101,800 $81,800 $276,900 $211,800 Add back debenture interest, net 1,500 1,500 4,400 4,400 -------- ------- -------- -------- $103,300 $83,300 $281,300 $216,200 ======== ======= ======== ======== Primary and fully diluted earnings per share $.61 $.50 $1.67 $1.31 ==== ==== ===== ===== Earnings per share as reported $.62 $.51 $1.71 $1.32 ==== ==== ===== =====
This calculation is submitted in accordance with Regulation S-K Item 601(b)(11), although not required by APB Opinion No. 15, inasmuch as dilution for any period was less than three percent. EX-12 3 EX-12 1 EXHIBIT 12 MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(THOUSANDS OF DOLLARS) ------------------------------------------------------------ Nine Months Ended September 30, Year Ended December 31, ---------------------------------------------- 1997 1996 1995 1994 1993 1992 ------------ -------- -------- -------- -------- ------ EARNINGS BEFORE INCOME TAXES AND FIXED CHARGES: Income from continuing operations before income taxes $461,500 $502,700 $351,790 $292,830 $349,190 $296,020 Deduct/add equity in undistributed (earnings) /losses of equity affiliates (12,930) (12,310) (17,770) 106,200 (13,750) (13,210) Add interest on indebtedness, net 58,480 74,790 73,400 60,360 62,860 57,190 Add amortization of debt expense 950 1,400 1,930 2,220 2,650 2,710 Add estimated interest factor for rentals 5,590 6,150 4,970 4,220 3,190 3,290 -------- -------- -------- -------- -------- -------- Earnings from continuing operations before income taxes and fixed charges $513,590 $572,730 $414,320 $465,830 $404,140 $346,000 ======== ======== ======== ======== ======== ======== FIXED CHARGES: Interest on indebtedness regarding continuing operations $ 60,230 $ 77,250 $ 76,460 $ 63,220 $ 63,600 $ 69,890 Amortization of debt expense 950 1,400 1,930 2,220 2,650 2,710 Estimated interest factor for rentals 5,590 6,150 4,970 4,220 3,190 3,290 -------- -------- -------- -------- -------- -------- $ 66,770 $ 84,800 $ 83,360 $ 69,660 $ 69,440 $ 75,890 ======== ======== ======== ======== ======== ======== Ratio of earnings to fixed charges 7.7 6.8 5.0 6.7 5.8 4.6 === === === === === ===
EX-27 4 EX-27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MASCO CORPORATION'S SEPTEMBER 30, 1997 FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1997 JAN-1-1997 SEP-30-1997 379,040 0 584,450 0 496,920 1,569,010 1,004,170 0 4,223,620 641,590 1,321,250 0 0 165,170 1,978,960 4,223,620 2,770,000 2,770,000 1,751,700 1,751,700 0 0 58,200 461,500 184,600 276,900 0 0 0 276,900 1.71 1.67 RECEIVABLES AND PROPERTY AND EQUIPMENT ARE PRESENTED NET OF ALLOWANCES FOR DOUBTFUL ACCOUNTS AND ACCUMULATED DEPRECIATION AND AMORTIZATION, RESPECTIVELY.
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