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, 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 October 31, 1994
Common stock, par value $1 per share 159,849,000
MASCO CORPORATION
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheet -
September 30, 1994 and December 31, 1993 1
Condensed Consolidated Statement of
Income for the Three Months and
Nine Months Ended September 30, 1994
and 1993 2
Condensed Consolidated Statement of
Cash Flows for the Nine Months Ended
September 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
Nine Months Ended September 30, 1994
and 1993 10
Part II. Other Information and Signature 11
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
MASCO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1994 and December 31, 1993
(Dollars in thousands)
September 30, December 31,
ASSETS 1994 1993
Current assets:
Cash and cash investments $ 79,470 $ 119,980
Marketable securities 9,900 4,890
Accounts and notes receivable, net 729,210 610,120
Prepaid expenses 80,190 84,700
Inventories:
Finished goods 372,610 312,470
Raw material 320,900 280,450
Work in process 235,790 231,210
929,300 824,130
Total current assets 1,828,070 1,643,820
Equity investments in MascoTech, Inc. 315,240 294,700
Equity investments in other affiliates 57,230 54,630
Property and equipment, net 1,173,080 1,095,170
Excess of cost over acquired net assets 608,410 605,170
Other noncurrent assets 382,170 327,570
Total assets $4,364,200 $4,021,060
LIABILITIES
Current liabilities:
Notes payable $ 43,360 $ 33,160
Accounts payable 172,580 161,220
Accrued liabilities 355,240 296,060
Total current liabilities 571,180 490,440
Long-term debt 1,447,470 1,418,290
Deferred income taxes and other 120,720 113,900
Total liabilities 2,139,370 2,022,630
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share
Authorized shares: 400,000,000 159,750 152,850
Preferred stock, par value $1 per share
Authorized shares: 1,000,000 --- ---
Paid-in capital 104,060 69,880
Retained earnings 1,972,190 1,805,170
Cumulative translation adjustments (11,170) (29,470)
Total shareholders' equity 2,224,830 1,998,430
Total liabilities and
shareholders' equity $4,364,200 $4,021,060
See notes to condensed consolidated financial statements.
1
MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Three Months and Nine Months Ended September 30, 1994 and 1993
(Amounts in thousands except per share data)
Three Months Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
Net sales $1,150,000 $982,000 $3,320,000 $2,876,000
Costs and expenses, net:
Cost of sales 767,300 662,100 2,218,800 1,933,700
Selling, general and administrative
expenses 241,300 215,200 705,200 637,800
Other (income) expense, net:
Interest expense 27,000 24,100 81,200 78,100
Re: MascoTech, Inc.:
Equity earnings (5,600) (4,200) (23,700) (17,600)
Interest and dividend income
and gain from stock sale --- (4,500) (4,500) (13,200)
Other, net (100) (8,800) (2,800) (13,400)
21,300 6,600 50,200 33,900
1,029,900 883,900 2,974,200 2,605,400
Income before income taxes 120,100 98,100 345,800 270,600
Income taxes 48,000 42,400 138,300 107,100
Net income $ 72,100 $ 55,700 $ 207,500 $ 163,500
Per share data:
Net income $.45 $.36 $1.31 $1.07
Cash dividends paid $.17 $.16 $.51 $.48
Cash dividends declared $.18 $.17 $.52 $.49
Average shares outstanding 158,600 152,700 158,600 152,700
See notes to condensed consolidated financial statements.
2
MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 1994 and 1993
(Dollars in thousands)
Nine Months Ended
September 30
1994 1993
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Cash provided by operations $ 278,850 $ 240,890
(Increase) in receivables (83,370) (86,340)
(Increase) in inventories (65,430) (59,620)
Decrease in prepaid expenses 6,860 8,850
Increase in current liabilities 42,060 41,820
Total cash from operating activities 178,970 145,600
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:
Sale of affiliate investment to affiliate --- 87,500
Capital expenditures (131,350) (100,790)
Other, net 3,090 17,270
Total cash from (for) investing activities (128,260) 3,980
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
Proceeds from issuance of notes --- 400,000
Increase in other debt 78,600 378,890
Payment of debt (89,680) (752,700)
Cash dividends paid (80,140) (73,040)
Total cash (for) financing activities (91,220) (46,850)
CASH AND CASH INVESTMENTS:
Increase (decrease) for the period (40,510) 102,730
At January 1 119,980 45,350
At September 30 $ 79,470 $ 148,080
Supplemental Cash Flow Information:
Net cash paid during the period for:
Interest $ 80,240 $ 75,170
Income taxes $ 126,340 $ 89,300
See notes to condensed consolidated financial statements.
3
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, 1994 and the results of operations for the three months and
nine months ended September 30, 1994 and 1993 and cash flows for the nine
months ended September 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. In October 1994, the Company amended its shelf registration statements, on
file with the Securities and Exchange Commission, for the purpose of
converting the $200 million of debt securities and 9.6 million shares of
common stock remaining under these statements to an unallocated shelf
registration, which allows for the issuance of up to a combined $800
million of debt and equity securities.
C. Other (income) expense, net consists of the following, in thousands:
Three Months Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
Interest expense $27,000 $24,100 $ 81,200 $ 78,100
Re: MascoTech, Inc.:
Equity earnings (5,600) (4,200) (23,700) (17,600)
Interest and dividend
income --- (4,500) (100) (13,200)
Gain from sale of
common stock --- --- (4,400) ---
Equity earnings, other (1,000) (1,300) (3,100) (4,000)
Interest income and
gains from marketable
securities and
cash investments (2,300) (9,600) (10,000) (15,100)
Other, net 3,200 2,100 10,300 5,700
$21,300 $ 6,600 $ 50,200 $ 33,900
D. In September 1994, MascoTech, Inc., an approximate 42 percent-owned
affiliate of the Company, announced that it is reviewing alternatives to
enhance shareholder value and is considering the possibility of major
strategic restructurings and other initiatives which, if pursued, could
result in substantial one-time, non-cash charges. Such an event would
result in the Company recording its equity share of any such charges.
MascoTech has stated that these actions, if taken, should have a favorable
long-term effect on its balance sheet and future per common share earnings.
E. 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 an aggregate of approximately 6.5
million shares of its
4
MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note E - Continued:
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, and
plumbing specialty and other products for the home. Prior-year periods are
not restated due to immateriality.
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. 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
September 30, December 31,
Assets 1994 1993
Current assets:
Cash and cash investments $ 213,020 $ 272,950
Marketable securities 80,210 32,680
Accounts and notes receivable, net 1,055,710 906,500
Prepaid expenses 146,520 118,700
Deferred income taxes 40,610 41,780
Inventories:
Finished goods 445,990 393,820
Raw material 419,320 365,370
Work in process 305,090 281,680
1,170,400 1,040,870
Total current assets 2,706,470 2,413,480
Equity investments in affiliates 170,530 163,970
Property and equipment, net 1,904,710 1,747,590
Excess of cost over acquired net assets 1,145,860 1,114,740
Net assets of discontinued operations 21,190 67,510
Other noncurrent assets 484,030 428,390
Total assets $6,432,790 $5,935,680
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 46,050 $ 36,310
Accounts payable 297,430 277,070
Accrued liabilities 503,330 428,720
Total current liabilities 846,810 742,100
Long-term debt 2,553,770 2,445,540
Deferred income taxes and other 298,670 275,400
Other interests in combined affiliates 508,710 474,210
Equity of shareholders of Masco Corporation 2,224,830 1,998,430
Total liabilities and
shareholders' equity $6,432,790 $5,935,680
5
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 1994 1993 1994 1993
Net sales $1,696,980 $1,462,740 $4,986,290 $4,393,850
Costs and expenses, net:
Cost of sales 1,197,260 1,029,220 3,507,490 3,096,560
Selling, general and
administrative expenses 311,340 277,770 911,960 827,250
Other (income) expense, net:
Interest expense 43,540 44,960 126,590 139,510
Other income, net (13,320) (20,700) (41,510) (45,370)
30,220 24,260 85,080 94,140
1,538,820 1,331,250 4,504,530 4,017,950
Income before income taxes and
other interests 158,160 131,490 481,760 375,900
Income taxes 67,250 61,490 206,700 166,860
Income before other interests 90,910 70,000 275,060 209,040
Other interests in combined
affiliates 18,810 14,300 67,560 45,540
Net income $ 72,100 $ 55,700 $ 207,500 $ 163,500
Per share data of Masco Corporation:
Net income $.45 $.36 $1.31 $1.07
Cash dividends paid $.17 $.16 $.51 $.48
Cash dividends declared $.18 $.17 $.52 $.49
Average shares outstanding 158,600 152,700 158,600 152,700
6
MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (concluded)
Note F - Concluded:
Nine Months Ended
September 30
Combined Statement of Cash Flows 1994 1993
Cash Flows From (For) Operating Activities:
Cash provided by operations $ 346,830 $ 319,780
(Increase) in receivables, net (124,250) (119,600)
(Increase) in inventories, net (82,150) (73,570)
(Increase) in marketable securities, net (42,520) (19,870)
(Increase) decrease in prepaid expenses (25,260) 6,290
Increase in current liabilities 59,020 45,820
Discontinued operations, net --- 8,830
Total cash from operating activities 131,670 167,680
Cash Flows From (For) Investing Activities:
Capital expenditures (234,360) (147,830)
Sale of energy-related business 41,220 ---
Other, net 39,780 45,620
Total cash (for) investing activities (153,360) (102,210)
Cash Flows From (For) Financing Activities:
Issuance of convertible debt 337,240 ---
Issuance of preferred stock --- 209,320
Issuance of notes --- 400,000
Retirement of notes (265,340) ---
Increase in other debt 148,360 490,940
Payment of other debt (163,790) (1,032,680)
Cash dividends paid (94,710) (75,360)
Total cash (for) financing activities (38,240) (7,780)
Cash and Cash Investments:
Increase (decrease) for the period (59,930) 57,690
At January 1 272,950 186,120
213,020 243,810
Less cash from discontinued operations --- (3,770)
At September 30 $ 213,020 $ 240,040
7
MASCO CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIRD QUARTER 1994 AND YEAR-TO-DATE NINE MONTHS 1994 VERSUS
THIRD QUARTER 1993 AND YEAR-TO-DATE NINE MONTHS 1993
Net sales increased 17 percent and 15 percent for the three months and nine
months ended September 30, 1994, respectively, from the comparable periods in
1993. For the three months and nine months ended September 30, 1994, sales of
Building and Home Improvement Products increased 17 percent and 16 percent,
respectively, from the comparable periods in 1993; excluding recent
acquisitions, sales for this group increased 10 percent for both the three
months and nine months ended September 30, 1994. Sales of Home Furnishings
Products increased 18 percent and 14 percent for the three months and nine
months ended September 30, 1994, respectively, from the comparable periods in
1993; excluding a recent acquisition, sales for this group increased 7 percent
for both the three months and nine months ended September 30, 1994.
Operating profit margins of both of the Company's business segments
improved in the third quarter of 1994, with most major product lines continuing
to benefit from increased sales, cost reductions, and profit improvement
programs. Cost of sales as a percentage of sales decreased to 66.7 percent from
67.4 percent and to 66.8 percent from 67.2 percent for the three months and nine
months ended September 30, 1994, respectively, from the comparable periods in
1993. Selling, general and administrative expenses as a percentage of sales
decreased to 21.0 percent from 21.9 percent and to 21.2 percent from 22.2
percent for the three months and nine months ended September 30, 1994,
respectively, from the comparable periods in 1993.
Included in other (income) expense, net for the three months and nine
months ended September 30, 1994 are equity earnings from MascoTech, Inc.
aggregating $5.6 million and $23.7 million, respectively, as compared with
$4.2 million and $17.6 million of equity earnings in the comparable 1993
periods.
Net income for the third quarter of 1994 increased 29 percent to $72.1
million from $55.7 million in the comparable 1993 period, and earnings per share
increased 25 percent to $.45 from $.36. Net income for the nine months ended
September 30, 1994 increased 27 percent to $207.5 million from $163.5 million in
the comparable 1993 period, and earnings per share increased 22 percent to $1.31
from $1.07. The three months and the nine months ended September 30, 1993
include a charge of approximately $.04 per share related to the federal
corporate tax rate increase.
During the third quarter of 1994, MascoTech, Inc., an approximate 42
percent-owned affiliate of the Company, announced that it is reviewing
alternatives to enhance shareholder value and is considering the possibility of
major strategic restructurings and other initiatives which, if pursued, could
result in substantial one-time, non-cash charges. Such an event would result in
the Company recording its equity share of any such charges. MascoTech has
stated that these actions, if taken, should have a favorable long-term effect on
its balance sheet and future per common share earnings.
8
MASCO CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(concluded)
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 an aggregate of 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
complement the Company's sales of building and home improvement products.
Prior-year periods are not restated due to immateriality.
The Company continues to enjoy increased demand for most of its products.
The Company believes that it will continue to experience the benefits of market
share gains and an expanding economy and that these factors will more than
offset any near-term negative effect of recent higher interest rates.
During the third quarter of 1994, the Company increased the quarterly
dividend to $.18 from $.17 per common share. This marks the 36th consecutive
year in which dividends have been increased.
At September 30, 1994 current assets were 3.2 times current liabilities. 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.
In October 1994, the Company amended its shelf registration statements, on
file with the Securities and Exchange Commission, for the purpose of converting
the $200 million of debt securities and 9.6 million shares of common stock
remaining under these statements to an unallocated shelf registration, which
allows for the issuance of up to a combined $800 million of debt and equity
securities.
9
UNAUDITED INFORMATION REGARDING EQUITY AFFILIATES
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1994 and 1993
Equity investments in affiliates consist primarily of the following
approximate common stock and partnership interests at September 30:
1994 1993
MascoTech, Inc. 42% 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 Nine Months Ended
September 30 September 30
1994 1993 1994 1993
Sales - Net $416,500 $373,680 $1,261,690 $1,190,280
Gross Profit $ 73,440 $ 78,600 $ 243,440 $ 248,960
Net Income (Before
Preferred Stock
Dividends) $ 18,380 $ 15,320 $ 74,120 $ 54,580
10
PART II. OTHER INFORMATION
MASCO CORPORATION
Items 1 through 5 are not applicable.
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:
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: November 11, 1994 By: /s/Richard G. Mosteller
Richard G. Mosteller
Senior Vice-President - Finance
(Chief Financial officer
and authorized signatory)
11
MASCO CORPORATION
EXHIBIT INDEX
Exhibit
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 27 Financial Data Schedule