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, 1995. 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, 1995
Common stock, par value $1 per share 160,273,000
MASCO CORPORATION
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheet -
June 30, 1995 and December 31, 1994 1
Condensed Consolidated Statement of
Income for the Three Months and
Six Months Ended June 30, 1995
and 1994 2
Condensed Consolidated Statement of
Cash Flows for the Six Months Ended
June 30, 1995 and 1994 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, 1995 and 1994 10
Part II. Other Information and Signature 11
MASCO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 1995 and December 31, 1994
(Dollars in thousands)
June 30, December 31,
ASSETS 1995 1994
Current assets:
Cash and cash investments $ 65,810 $ 61,160
Marketable securities 11,520 9,910
Accounts and notes receivable, net 792,610 745,170
Prepaid expenses and other 120,470 126,370
Inventories
Finished goods 423,060 388,440
Raw material 412,990 333,280
Work in process 201,760 227,110
1,037,810 948,830
Total current assets 2,028,220 1,891,440
Equity investments in MascoTech, Inc. 195,870 184,960
Equity investments in other affiliates 63,240 57,790
Property and equipment, net 1,307,880 1,231,810
Excess of cost over acquired net assets 760,930 706,160
Other noncurrent assets 342,400 317,880
Total assets $4,698,540 $4,390,040
LIABILITIES
Current liabilities:
Notes payable $ 73,150 $ 48,380
Accounts payable 190,630 201,320
Accrued liabilities 361,260 351,590
Total current liabilities 625,040 601,290
Long-term debt 1,684,290 1,592,610
Deferred income taxes and other 88,340 83,460
Total liabilities 2,397,670 2,277,360
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share
Authorized shares: 400,000,000 160,250 156,990
Preferred stock, par value $1 per share
Authorized shares: 1,000,000 --- ---
Paid-in capital 125,470 44,840
Retained earnings 2,005,970 1,924,740
Cumulative translation adjustments 9,180 (13,890)
Total shareholders' equity 2,300,870 2,112,680
Total liabilities and
shareholders' equity $4,698,540 $4,390,040
See notes to condensed consolidated financial statements.
1
MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Three Months and Six Months Ended June 30, 1995 and 1994
(Amounts in thousands except per share data)
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
Net sales $1,208,000 $1,120,000 $2,434,000 $2,170,000
Costs and expenses, net:
Cost of sales 821,900 753,500 1,637,300 1,451,500
Selling, general and
administrative expenses 261,800 233,800 522,800 463,900
Other (income) expense, net:
Interest expense 28,800 27,700 57,300 54,200
Re: MascoTech, Inc.:
Equity earnings (4,500) (10,700) (8,300) (18,100)
Interest and dividend
income and gain from
stock sale --- --- --- (4,500)
Other, net (5,600) (600) (4,800) (2,700)
18,700 16,400 44,200 28,900
1,102,400 1,003,700 2,204,300 1,944,300
Income before income taxes 105,600 116,300 229,700 225,700
Income taxes 42,200 46,200 91,900 90,300
Net income $ 63,400 $ 70,100 $ 137,800 $ 135,400
Per share data:
Net income $.40 $.44 $.87 $.86
Cash dividends declared
and paid $.18 $.17 $.36 $.34
Average shares outstanding 158,800 158,100 158,800 158,100
See notes to condensed consolidated financial statements.
2
MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six Months Ended June 30, 1995 and 1994
(Dollars in thousands)
Six Months Ended
June 30
1995 1994
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Cash provided by operations $188,450 $177,340
(Increase) in receivables, net (72,990) (59,330)
(Increase) in inventories, net (86,620) (36,150)
Decrease in prepaid expenses 6,740 7,570
(Decrease) in current liabilities (10,190) (320)
Total cash from operating activities 25,390 89,110
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:
Proceeds from sale of Formica investment 74,470 ---
Proceeds from sale of MascoTech common stock --- 7,730
Capital expenditures (114,050) (91,060)
Other, net (13,920) (21,280)
Total cash (for) investing activities (53,500) (104,610)
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
Increase in debt 398,710 70,010
Payment of debt (308,970) (63,050)
Cash dividends paid (56,980) (52,920)
Total cash from (for) financing activities 32,760 (45,960)
CASH AND CASH INVESTMENTS:
Increase (decrease) for the period 4,650 (61,460)
At January 1 61,160 119,980
At June 30 $ 65,810 $ 58,520
Supplemental Cash Flow Information:
Net cash paid during the period for:
Interest $ 56,430 $ 53,980
Income taxes $ 92,640 $ 89,490
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
June 30, 1995 and the results of operations for the three months and six
months ended June 30, 1995 and 1994 and cash flows for the six months ended
June 30, 1995 and 1994. The condensed consolidated balance sheet at
December 31, 1994 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
1995 1994 1995 1994
Interest expense $28,800 $27,700 $57,300 $54,200
Re: MascoTech, Inc.:
Equity earnings (4,500) (10,700) (8,300) (18,100)
Interest and dividend
income --- --- --- (100)
Gain from sale of
common stock --- --- --- (4,400)
Equity earnings, other (2,200) (900) (4,300) (2,100)
Interest income and gains
from marketable
securities and
cash investments (4,900) (4,100) (7,900) (7,700)
Other, net 1,500 4,400 7,400 7,100
$18,700 $16,400 $44,200 $28,900
Included in other, net for the six months ended June 30, 1995, was a $15.9
million gain from the sale of the Company's investment in Formica
Corporation; this gain was offset by charges and reserves for profit
improvement programs and asset disposals that should enhance the Company's
future performance.
C. As announced during the second quarter of 1995, the Company's Board of
Directors has determined that the divestiture of the Home Furnishings Group
appears to be in the Company's and its shareholders' long-term strategic
interest and thus has directed the Company to explore alternatives with
respect to a possible divestiture. Alternatives currently being explored
include the creation of a new independent public company through either an
initial public offering or a spin-off to Company shareholders or the sale
of the Home Furnishings Group. The Company anticipates receiving
substantial cash proceeds either from a cash payment paid by the Home
Furnishings Group to the Company prior to its becoming a public company or
from the sale of the Home Furnishings Group.
Sales of the Home Furnishings Group in 1994 approximated $1.9 billion with
operating profit of approximately $80 million. While these sales
represented 42 percent of the Company's total 1994 sales, operating profit
from this group comprised less than 14 percent of the Company's 1994
operating profit.
4
MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note C - Continued:
The Home Furnishings Group represents an investment of approximately $1.7
billion on the Company's December 31, 1994 balance sheet. While the
Company believes that the book value of its investment in the Home
Furnishings Group is realizable in the longer term in the ordinary course
of business, the Company believes that the current value of the Home
Furnishings Group is well in excess of $1 billion. Even then, depending
upon the nature and timing of a divestiture, the potential transactions,
while strengthening the Company's balance sheet, may involve a substantial
non-cash charge to the Company's financial statements.
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. Intercompany transactions have been
eliminated. Amounts, except per share data, are in thousands.
Combined Balance Sheet
June 30, December 31,
Assets 1995 1994
Current assets:
Cash and cash investments $ 195,620 $ 230,780
Marketable securities 20,400 72,020
Accounts and notes receivable, net 1,058,720 980,940
Prepaid expenses 111,030 133,490
Deferred income taxes 50,800 68,270
Net current assets of businesses
held for disposition 97,700 146,690
Inventories:
Finished goods 491,890 449,290
Raw material 477,120 404,240
Work in process 249,580 266,810
1,218,590 1,120,340
Total current assets 2,752,860 2,752,530
Equity investments in affiliates 196,760 150,310
Property and equipment, net 1,894,070 1,779,520
Excess of cost over acquired net assets 1,019,310 964,000
Net noncurrent assets of businesses held
for disposition 206,300 232,370
Other noncurrent assets 450,890 405,220
Total assets $6,520,190 $6,283,950
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 79,620 $ 52,330
Accounts payable 310,540 334,770
Accrued liabilities 476,120 457,160
Total current liabilities 866,280 844,260
Long-term debt 2,686,150 2,699,450
Deferred income taxes and other 219,960 206,630
Other interests in combined affiliates 446,930 420,930
Equity of shareholders of Masco Corporation 2,300,870 2,112,680
Total liabilities and
shareholders' equity $6,520,190 $6,283,950
5
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 1995 1994 1995 1994
Net sales $1,800,730 $1,696,450 $3,611,490 $3,289,310
Costs and expenses, net:
Cost of sales 1,295,850 1,190,920 2,572,950 2,310,230
Selling, general and
administrative expenses 329,790 305,000 660,810 600,620
Other (income) expense,
net:
Interest expense 45,610 42,630 92,540 83,050
Other income, net (16,790) (7,280) (20,790) (28,190)
28,820 35,350 71,750 54,860
1,654,460 1,531,270 3,305,510 2,965,710
Income before income taxes and
other interests 146,270 165,180 305,980 323,600
Income taxes 64,150 68,650 133,290 139,450
Income before other interests 82,120 96,530 172,690 184,150
Other interests in combined
affiliates 18,720 26,430 34,890 48,750
Net income $ 63,400 $ 70,100 $ 137,800 $ 135,400
Per share data:
Net income $.40 $.44 $.87 $.86
Cash dividends declared
and paid $.18 $.17 $.36 $.34
Average shares outstanding 158,800 158,100 158,800 158,100
6
MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (concluded)
Note D - Concluded:
Six Months Ended
June 30
Combined Statement of Cash Flows 1995 1994
Cash Flows From (For) Operating Activities:
Cash provided by operations $ 236,000 $ 224,860
(Increase) in receivables, net (102,300) (116,100)
(Increase) in inventories, net (90,720) (44,310)
(Increase) decrease in marketable
securities, net 53,230 (36,670)
(Increase) decrease in prepaid expenses 13,870 (10,410)
Increase (decrease) in current liabilities (31,910) 14,470
Total cash from operating activities 78,170 31,840
Cash Flows From (For) Investing Activities:
Capital expenditures (167,370) (158,210)
Proceeds from sale of Formica Investment 74,470 ---
Proceeds from sale of subsidiaries 37,400 20,330
Acquisitions, net of cash acquired (22,810) ---
Other, net 50,680 33,780
Total cash (for) investing activities (27,630) (104,100)
Cash Flows From (For) Financing Activities:
Increase in debt 572,460 407,250
Payment of debt (590,850) (368,880)
Cash dividends paid (67,310) (62,550)
Total cash (for) financing activities (85,700) (24,180)
Cash and Cash Investments:
(Decrease) for the period (35,160) (96,440)
At January 1 230,780 272,950
At June 30 $ 195,620 $ 176,510
7
MASCO CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER 1995 AND THE FIRST SIX MONTHS 1995 VERSUS
SECOND QUARTER 1994 AND THE FIRST SIX MONTHS 1994
Net sales increased 8 percent and 12 percent for the second quarter and
six months ended June 30, 1995, respectively, from the comparable periods in
1994. Sales of Home Improvement and Building Products including acquisitions
increased 10 percent and 13 percent, and excluding acquisitions increased 3
percent and 8 percent for the second quarter and six months ended June 30,
1995, respectively, from the comparable periods in 1994. Sales of Home
Furnishings Products increased 5 percent and 11 percent and excluding a recent
acquisition increased 5 percent and 5 percent for the second quarter and six
months ended June 30, 1995, respectively, from the comparable periods in 1994.
The Company's operating profit margins declined in the first half of 1995
from the first half of 1994. Cost of sales as a percentage of sales increased
to 68.0 percent from 67.3 percent and 67.3 percent from 66.9 percent for the
second quarter and six months ended June 30, 1995, respectively, from the
comparable periods in 1994; these increases were the result, among others, of
changing product sales mix, higher brass costs and plant start-up costs.
Selling, general and administrative expenses as a percentage of sales increased
to 21.7 percent from 20.9 percent and 21.5 percent from 21.4 percent for the
second quarter and six months ended June 30, 1995 from the comparable periods
in 1994. The increases in selling, general and administrative expenses as a
percentage of sales are primarily due to increased promotional and advertising
costs in the 1995 periods.
Included in other (income) expense, net for the second quarter and six
months ended June 30, 1995 are equity earnings from MascoTech, Inc. aggregating
$4.5 million and $8.3 million, respectively, as compared with $10.7 million and
$18.1 million of equity earnings in the comparable 1994 periods. MascoTech's
operating results for the first half of 1995 were negatively impacted by the
reduced results, including restructuring related costs, of certain businesses
MascoTech plans to divest; and by increased costs and expenses reflecting
start-up costs associated with MascoTech's expanded capital investment
programs, launch costs for new products and increased steel costs, principally
for its core transportation-related businesses.
Also included in other (income) expense, net for the six months ended June
30, 1995, was a $15.9 million gain from the sale of the Company's investment in
Formica Corporation; this gain was offset by charges and reserves for profit
improvement programs and asset disposals that should enhance the Company's
future performance. Included in other (income) expense, net for the six months
ended June 30, 1994 was a $4.4 million gain from the sale of MascoTech stock.
8
Net income for the first six months of 1995 increased modestly to $137.8
million from $135.4 million, and earnings per share increased to $.87 from
$.86. Excluding the 1994 MascoTech stock gain and year-to-date equity earnings
from MascoTech for both 1995 and 1994, net income for the first six months of
1995 would have increased 9 percent, from the comparable 1994 period. Net
income for the second quarter of 1995 decreased 10 percent to $63.4 million
from $70.1 million in the comparable 1994 period, and earnings per share
decreased 9 percent to $.40 from $.44. Excluding second quarter equity
earnings from MascoTech for both 1995 and 1994, net income for the second
quarter of 1995 would have decreased 4 percent from the comparable 1994 period.
The Company's major markets experienced a slowdown in the 1995 second
quarter as a result of lower housing activity, reduced consumer spending and
inventory reductions by certain customers. The economic decline in the
Company's major markets currently appears to have bottomed and, unless there is
a further weakening, the Company continues to anticipate improved sales and
operating profit for 1995.
As announced during the second quarter of 1995, the Company's Board of
Directors has determined that the divestiture of the Home Furnishings Group
appears to be in the Company's and its shareholders' long-term strategic
interest and thus has directed the Company to explore alternatives with respect
to a possible divestiture. Alternatives currently being explored include the
creation of a new independent public company through either an initial public
offering or a spin-off to Company shareholders or the sale of the Home
Furnishings Group. The Company anticipates receiving substantial cash proceeds
either from a cash payment paid by the Home Furnishings Group to the Company
prior to its becoming a public company or from the sale of the Home Furnishings
Group.
Sales of the Home Furnishings Group in 1994 approximated $1.9 billion with
operating profit of approximately $80 million. While these sales represented
42 percent of the Company's total 1994 sales, operating profit from this group
comprised less than 14 percent of the Company's 1994 operating profit.
The Home Furnishings Group represents an investment of approximately $1.7
billion on the Company's December 31, 1994 balance sheet. While the Company
believes that the book value of its investment in the Home Furnishings Group is
realizable in the longer term in the ordinary course of business, the Company
believes that the current value of the Home Furnishings Group is well in excess
of $1 billion. Even then, depending upon the nature and timing of a
divestiture, the potential transactions, while strengthening the Company's
balance sheet, may involve a substantial non-cash charge to the Company's
financial statements.
The Company's Home Furnishings Group includes such well-known brands as
Henredon, Drexel Heritage, Lexington, Universal, Berkline, Bench Craft,
Maitland-Smith and Robert Allen Fabrics.
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 $759.4 million of debt and equity securities.
At June 30, 1995 current assets were 3.2 times current liabilities. First
and second quarter 1995 cash from operations was affected by an expected and
recurring first-half 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 1995 should
not be affected by significant increases in accounts receivable. 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.
9
UNAUDITED INFORMATION REGARDING EQUITY AFFILIATES
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994
Equity investments in affiliates consist primarily of the following
approximate common stock and partnership interests at June 30:
1995 1994
MascoTech, Inc. 44% 41%
Hans Grohe, a German partnership 27% 27%
TriMas Corporation 5% 5%
The following presents the condensed financial data of MascoTech, Inc.
Amounts are in thousands.
Three Months Ended Six Months Ended
June 30 June 30
1995 1994 1995 1994
Sales - Net $439,290 $432,780 $884,300 $845,190
Gross Profit $ 68,250 $ 89,710 $143,710 $170,000
Net Income
(Before Preferred
Stock Dividends) $ 15,100 $ 29,440 $ 28,560 $ 55,740
10
PART II. OTHER INFORMATION
MASCO CORPORATION
Items 1, 2, 3, and 5 are not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders was held on May 17, 1995 at
which the three nominees for the Company's Board of Directors
identified in the Company's proxy statement dated April 18, 1995,
were re-elected. Following is a tabulation of shares voted:
Election of Directors
Wayne B. Lyon Arman Simone Peter W. Stroh
For 132,163,830 132,171,371 132,164,850
Withheld 355,770 348,229 354,750
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
4 - Amendment No. 1 dated as of June 1, 1995 amending the
$750,000,000 Amended and Restated Credit Agreement
dated as of May 18, 1994 among Masco Corporation,
the banks party thereto and Morgan Guaranty Trust
Company of New York, as Agent.
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 June 8, 1995 reporting under Item 5 the
issuance of a press release relating to the possible divestiture
of the Company's Home Furnishings Group.
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 10, 1995 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 4 Amendment No. 1 dated as of June 1, 1995 amending the
$750,000,000 Amended and Restated Credit Agreement dated
as of May 18, 1994 among Masco Corporation, the banks party
thereto and Morgan Guaranty Trust Company of New York, as
Agent.
Exhibit 11 Computation of Earnings Per Share
Exhibit 12 Computation of Ratio of Earnings to Fixed Charges
Exhibit 27 Financial Data Schedule