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 June 30, 1994. 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 August 1, 1994
Common stock, par value $1 per share 160,221,000
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MASCO CORPORATION
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheet -
June 30, 1994 and December 31, 1993 1
Condensed Consolidated Statement of
Income for the Three Months and
Six Months Ended June 30, 1994
and 1993 2
Condensed Consolidated Statement of
Cash Flows for the Six Months Ended
June 30, 1994 and 1993 3
Notes to Condensed Consolidated
Financial Statements 4-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-9
Unaudited Information Regarding Equity
Affiliates for the Three Months and
Six Months Ended June 30, 1994 and 1993 10
Part II. Other Information and Signature 11
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MASCO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 1994 and December 31, 1993
(Dollars in thousands)
June 30, December 31,
ASSETS 1994 1993
Current assets:
Cash and cash investments $ 58,520 $ 119,980
Marketable securities 9,910 4,890
Accounts and notes receivable, net 706,670 610,120
Prepaid expenses 79,480 84,700
Inventories
Finished goods 365,700 312,470
Raw material 299,000 280,450
Work in process 235,320 231,210
900,020 824,130
Total current assets 1,754,600 1,643,820
Equity investments in MascoTech, Inc. 308,960 294,700
Equity investments in other affiliates 56,150 54,630
Property and equipment, net 1,158,520 1,095,170
Excess of cost over acquired net assets 609,970 605,170
Other noncurrent assets 387,530 327,570
Total assets $4,275,730 $4,021,060
LIABILITIES
Current liabilities:
Notes payable $ 31,450 $ 33,160
Accounts payable 165,400 161,220
Accrued liabilities 316,960 296,060
Total current liabilities 513,810 490,440
Long-term debt 1,477,420 1,418,290
Deferred income taxes and other 117,470 113,900
Total liabilities 2,108,700 2,022,630
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share
Authorized shares: 400,000,000 159,790 152,850
Preferred stock, par value $1 per share
Authorized shares: 1,000,000 --- ---
Paid-in capital 99,470 69,880
Retained earnings 1,929,350 1,805,170
Cumulative translation adjustments (21,580) (29,470)
Total shareholders' equity 2,167,030 1,998,430
Total liabilities and
shareholders' equity $4,275,730 $4,021,060
See notes to condensed consolidated financial statements.
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MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Three Months and Six Months Ended June 30, 1994 and 1993
(Amounts in thousands except per share data)
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
Net sales $1,120,000 $ 948,000 $2,170,000 $1,894,000
Costs and expenses, net:
Cost of sales 753,500 638,500 1,451,500 1,271,600
Selling, general and administrative
expenses 233,800 212,500 463,900 422,600
Other (income) expense, net:
Interest expense 27,700 25,000 54,200 54,000
Re: MascoTech, Inc.:
Equity earnings (10,700) (6,600) (18,100) (13,400)
Interest and dividend income
and gain from stock sale --- (4,400) (4,500) (8,700)
Other, net (600) (1,600) (2,700) (4,600)
16,400 12,400 28,900 27,300
1,003,700 863,400 1,944,300 1,721,500
Income before income taxes 116,300 84,600 225,700 172,500
Income taxes 46,200 31,300 90,300 64,700
Net income $ 70,100 $ 53,300 $ 135,400 $ 107,800
Per share data:
Net income $.44 $.35 $.86 $.71
Cash dividends declared and paid $.17 $.16 $.34 $.32
Average shares outstanding 158,100 152,600 158,100 152,600
See notes to condensed consolidated financial statements.
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MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 1994 and 1993
(Amounts in thousands except per share data)
Six Months Ended
June 30
1994 1993
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Cash provided by operations $177,340 $155,740
(Increase) in receivables, net (59,330) (68,290)
(Increase) in inventories, net (36,150) (44,380)
Decrease in prepaid expenses 7,570 6,560
Increase (decrease) in current liabilities (320) 6,080
Total cash from operating activities 89,110 55,710
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:
Sale of affiliate investments to MascoTech --- 87,500
Proceeds from sale of MascoTech common stock 7,730 ---
Capital expenditures (91,060) (64,110)
Other, net (21,280) 15,670
Total cash from (for) investing activities (104,610) 39,060
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
Increase in debt 70,010 325,920
Payment of debt (63,050) (367,400)
Cash dividends paid (52,920) (48,900)
Total cash (for) financing activities (45,960) (90,380)
CASH AND CASH INVESTMENTS:
Increase (decrease) for the period (61,460) 4,390
At January 1 119,980 45,350
At June 30 $ 58,520 $ 49,740
Supplemental Cash Flow Information:
Net cash paid during the period for:
Interest $ 53,980 $ 59,520
Income taxes $ 89,490 $ 55,090
See notes to condensed consolidated financial statements.
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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
June 30, 1994 and the results of operations for the three months and six
months ended June 30, 1994 and 1993 and cash flows for the six months ended
June 30, 1994 and 1993. The condensed consolidated balance sheet at
December 31, 1993 was derived from audited financial statements, but does
not include all disclosures required by generally accepted accounting
principles. Earnings per share are calculated based on the weighted average
common shares outstanding.
B. Other (income) expense, net consists of the following, in thousands:
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
Interest expense $27,700 $25,000 $54,200 $54,000
Re: MascoTech, Inc.:
Equity earnings (10,700) (6,600) (18,100) (13,400)
Interest and dividend
income --- (4,400) (100) (8,700)
Gain from sale of
common stock --- --- (4,400) ---
Equity earnings, other (900) (1,400) (2,100) (2,700)
Interest income and gains
from marketable
securities and
cash investments (4,100) (2,100) (7,700) (5,500)
Other, net 4,400 1,900 7,100 3,600
$16,400 $12,400 $28,900 $27,300
C. During the second quarter of 1994, the Company acquired Berkline Corporation
("Berkline") for common stock. In the first quarter of 1994, the Company
acquired Zenith Products Corporation ("Zenith") and Melard Manufacturing
Corporation ("Melard") for common stock. Under the terms of the agreements,
the Company issued approximately 6.5 million shares of its common stock and
the transactions were accounted for on a pooling of interests basis. For
the fiscal year 1993, these companies had combined net sales in excess of
$250 million. Berkline is a manufacturer of motion furniture including
sofas and recliners. Zenith is a manufacturer of bath medicine cabinets,
shower curtain rods and other bath storage products for the home. Melard is
a manufacturer of bath hardware, accessories, plumbing specialty and other
products for the home. Prior year periods are not restated due to
immateriality.
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MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
D. 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. Certain amounts for 1993 have been
restated to reflect MascoTech's formal plan to divest its energy-related
business segment. Intercompany transactions have been eliminated. Amounts,
except per share data, are in thousands.
Combined Balance Sheet
June 30, December 31,
Assets 1994 1993
Current assets:
Cash and cash investments $ 176,510 $ 272,950
Marketable securities 74,370 32,680
Accounts and notes receivable, net 1,049,650 906,500
Prepaid expenses 132,320 118,700
Deferred income taxes 40,600 41,780
Inventories:
Finished goods 438,930 393,820
Raw material 399,050 365,370
Work in process 294,580 281,680
1,132,560 1,040,870
Total current assets 2,606,010 2,413,480
Equity investments in affiliates 159,110 163,970
Property and equipment, net 1,869,630 1,747,590
Excess of cost over acquired net assets 1,142,690 1,114,740
Net assets of discontinued operations 493,700 67,510
Other noncurrent assets 40,060 428,390
Total assets $6,311,200 $5,935,680
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 35,120 $ 36,310
Accounts payable 280,270 277,070
Accrued liabilities 472,680 428,720
Total current liabilities 788,070 742,100
Long-term debt 2,553,470 2,445,540
Deferred income taxes and other 295,520 275,400
Other interests in combined affiliates 507,110 474,210
Equity of shareholders of Masco Corporation 2,167,030 1,998,430
Total liabilities and
shareholders' equity $6,311,200 $5,935,680
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MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note D - Continued:
Three Months Ended Six Months Ended
June 30 June 30
Combined Statement of Income 1994 1993 1994 1993
Net sales $1,696,450 $1,476,730 $3,289,310 $2,931,110
Costs and expenses, net:
Cost of sales 1,190,920 1,043,380 2,310,230 2,067,340
Selling, general and
administrative expenses 305,000 277,150 600,620 549,480
Other (income) expense, net:
Interest expense 42,630 45,140 83,050 94,550
Other income, net (7,280) (16,020) (28,190) (24,670)
35,350 29,120 54,860 69,880
1,531,270 1,349,650 2,965,710 2,686,700
Income before income taxes and
other interests 165,180 127,080 323,600 244,410
Income taxes 68,650 54,950 139,450 105,370
Income before other interests 96,530 72,130 184,150 139,040
Other interests in combined
affiliates 26,430 18,830 48,750 31,240
Net income $ 70,100 $ 53,300 $ 135,400 $ 107,800
Per share data:
Net income $.44 $.35 $.86 $.71
Cash dividends declared
and paid $.17 $.16 $.34 $.32
Average shares outstanding 158,100 152,600 158,100 152,600
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MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (concluded)
Note E - Concluded:
Six Months Ended
June 30
Combined Statement of Cash Flows 1994 1993
Cash Flows From (For) Operating Activities:
Cash provided by operations $ 224,860 $ 213,400
(Increase) in receivables, net (116,100) (113,050)
(Increase) in inventories, net (44,310) (49,410)
(Increase) in marketable securities, net (36,670) (15,310)
(Increase) decrease in prepaid expenses (10,410) 6,110
Increase in current liabilities 14,470 23,960
Discontinued operations, net --- 1,990
Total cash from operating activities 31,840 67,690
Cash Flows From (For) Investing Activities:
Capital expenditures (158,210) (95,760)
Proceeds from sale of Energy-related
business 20,330 ---
Other, net 33,780 36,900
Total cash (for) investing activities (104,100) (58,860)
Cash Flows From (For) Financing Activities:
Issuance of convertible debt 337,240 ---
Increase in other debt 70,010 599,060
Retirement of Notes (253,120) ---
Payment of debt (115,760) (372,430)
Cash dividends paid (62,550) (49,940)
Total cash from financing activities (24,180) 176,690
Cash and Cash Investments:
Increase for the period (96,440) 185,520
At January 1 272,950 186,120
At June 30 $ 176,510 $ 371,640
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MASCO CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER 1994 AND THE FIRST SIX MONTHS 1994 VERSUS
SECOND QUARTER 1993 AND THE FIRST SIX MONTHS 1993
Net sales increased 18 percent and 15 percent for the three months and six
months ended June 30, 1994, respectively, from the comparable periods in 1993.
For the three months and six months ended June 30, 1994, sales of Building and
Home Improvement Products increased 19 percent and 16 percent, respectively,
from the comparable periods in 1993. Excluding recent acquisitions, sales for
this group increased 13 percent and 10 percent for the three months and six
months ended June 30, 1994. Sales of Home Furnishing Products increased 17
percent and 12 percent for the three months and six months ended June 30, 1994,
respectively, from the comparable periods in 1993. Excluding a recent
acquisition, sales for this group increased 6 percent for the three months ended
June 30, 1994.
The Company's operating profit margins continued to improve in the first
half of 1994 with major product lines benefitting from increased sales and
profit improvement programs. Cost of sales as a percentage of sales decreased
modestly to 67.3 percent from 67.4 percent and 66.9 percent from 67.1 percent
for the three months and six months ended June 30, 1994, from the comparable
periods in 1993. Selling, general and administrative expenses as a percentage
of sales decreased to 20.9 percent from 22.4 percent and 21.4 percent from 22.3
percent for the three months and six months ended June 30, 1994, from the
comparable periods in 1993.
During the second quarter of 1994, the Company acquired Berkline
Corporation ("Berkline") for common stock. In the first quarter of 1994, the
Company acquired Zenith Products Corporation ("Zenith") and Melard Manufacturing
Corporation ("Melard") for common stock. Under the terms of the agreements, the
Company issued approximately 6.5 million shares of its common stock and the
transactions were accounted for on a pooling of interests basis. For the fiscal
year 1993, these companies had combined net sales in excess of $250 million.
Berkline is a leading manufacturer of popularly-priced recliners and motion
upholstered furniture for the family room/home entertainment market. Zenith and
Melard manufacture bath accessories and plumbing specialties and will complement
the Company's sales of building and home improvement products. Prior year
periods are not restated due to immateriality.
Included in other (income) expense, net for the three months and six months
ended June 30, 1994 are equity earnings from MascoTech, Inc. aggregating $10.7
million and $18.1 million, respectively, as compared with $6.6 million and $13.4
million of equity earnings in the comparable 1993 periods.
Net income for the second quarter of 1994 increased 32 percent to $70.1
million from $53.3 million in the comparable 1993 period, and earnings per share
increased 26 percent to $.44 from $.35. Net income for the first six months of
1994 increased 26 percent to $135.4 million from $107.8 million in the
comparable 1993 period, and earnings per share increased 21 percent to $.86 from
$.71.
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The Company continues to enjoy increased demand for most of its products.
The Company believes that an expanding economy and market share gains will more
than offset any negative effect of recent higher interest rates on its
businesses.
The Company has on file with the Securities and Exchange Commission, shelf
registration statements pursuant to which the Company is able to issue up to an
additional $200 million of debt securities as well as up to 9.6 million shares
of its common stock.
At June 30, 1994 current assets were 3.4 times current liabilities. First
and second quarter 1994 cash from operations was affected by an expected and
recurring increase in accounts receivable. As the annual increase in accounts
receivable is historically experienced in the first half of the year, cash flows
from operations in the remaining two quarters of 1994 should not be affected by
significant increases in accounts receivable. In May, 1994, the Company's bank
agreement was amended to extend its termination date to May, 1998. The Company
believes that 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.
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UNAUDITED INFORMATION REGARDING EQUITY AFFILIATES
FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND 1993
Equity investments in affiliates consist primarily of the following
approximate common stock and partnership interests at June 30:
1994 1993
MascoTech, Inc. 41% 35%
Hans Grohe, a German partnership 27% 27%
TriMas Corporation 5% 7%
The following presents the condensed financial data of MascoTech, Inc.
Certain amounts for 1993 have been restated to reflect MascoTech's formal plan
to divest its energy-related business segment. Amounts are in thousands.
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
Sales - Net $432,780 $412,530 $845,190 $816,600
Gross Profit $ 89,710 $ 85,610 $170,000 $170,360
Net Income
(Before Preferred
Stock Dividends) $ 29,440 $ 21,740 $ 55,740 $ 39,260
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PART II. OTHER INFORMATION
MASCO CORPORATION
Items 1 through 5 are not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
4.a- Agreement of Appointment and Acceptance of Successor
Trustee dated as of July 25, 1994 among Masco
Corporation, Morgan Guaranty Trust Company of New York
and The First National Bank of Chicago.
4.b- Supplemental Indenture dated as of July 26, 1994
between Masco Corporation and The First National
Bank of Chicago, as trustee.
11 - Computation of Earnings Per Share
12 - Computation of Ratio of Earnings to Fixed Charges
99 - $750,000,000 Amended and Restated Credit Agreement
dated as of May 18, 1994 among Masco Corporation, the
banks signatory thereto and Morgan Guaranty Trust
Company of New York, as agent.
(b) Reports on Form 8-K:
None
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: August 12, 1994 By: /s/Robert B. Rosowski
Robert B. Rosowski
Vice President - Controller
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MASCO CORPORATION
EXHIBIT INDEX
Exhibit
Exhibit 4.a Agreement of Appointment and Acceptance of Suc-
cessor Trustee dated as of July 25, 1994 among
Masco Corporation, Morgan Guaranty Trust Company
of New York and The First National Bank of Chicago.
Exhibit 4.b Supplemental Indenture dated as of July 26, 1994
between Masco Corporation and The First National
Bank of Chicago, as trustee.
Exhibit 11 Computation of Earnings Per Share -
Primary and Fully Diluted Earnings Per Share
Exhibit 12 Computation of Ratio of Earnings
to Fixed Charges
Exhibit 99 $750,000,000 Amended and Restated Credit Agreement
dated as of May 18, 1994 among Masco Corporation,
the banks signatory thereto and Morgan Guaranty
Trust Company of New York, as agent.