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 March 31, 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 May 6, 1994
Common stock, par value $1 per share 156,554,000
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MASCO CORPORATION
INDEX
Page No.
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheet -
March 31, 1994 and December 31, 1993 1
Condensed Consolidated Statement of
Income for the Three Months Ended
March 31, 1994 and 1993 2
Condensed Consolidated Statement of
Cash Flows for the Three Months Ended
March 31, 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
Unaudited Information Regarding Equity
Affiliates for the Three Months
Ended March 31, 1994 and 1993 9
Part II. Other Information and Signature 10
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MASCO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 1994 and December 31, 1993
(Dollars in thousands)
March 31, December 31,
ASSETS 1994 1993
Current assets:
Cash and cash investments $ 45,920 $ 119,980
Marketable securities 4,860 4,890
Accounts and notes receivable, net 695,460 610,120
Prepaid expenses 76,240 84,700
Inventories:
Finished goods 350,750 312,470
Raw material 280,200 280,450
Work in process 232,020 231,210
862,970 824,130
Total current assets 1,685,450 1,643,820
Equity investments in MascoTech, Inc. 297,190 294,700
Equity investments in other affiliates 55,980 54,630
Property and equipment, net 1,121,910 1,095,170
Excess of cost over acquired net assets 605,510 605,170
Other noncurrent assets 361,830 327,570
Total assets $4,127,870 $4,021,060
LIABILITIES
Current liabilities:
Notes payable $ 43,950 $ 33,160
Accounts payable 160,010 161,220
Accrued liabilities 305,690 296,060
Total current liabilities 509,650 490,440
Long-term debt 1,417,800 1,418,290
Deferred income taxes and other 113,980 113,900
Total liabilities 2,041,430 2,022,630
SHAREHOLDERS' EQUITY
Common stock, par value $1 per share
Authorized shares: 400,000,000 156,530 152,850
Preferred stock, par value $1 per share
Authorized shares: 1,000,000 --- ---
Paid-in capital 118,180 69,880
Retained earnings 1,843,840 1,805,170
Cumulative translation adjustments (32,110) (29,470)
Total shareholders' equity 2,086,440 1,998,430
Total liabilities and
shareholders' equity $4,127,870 $4,021,060
See notes to condensed consolidated financial statements.
1
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MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
For the Three Months Ended March 31, 1994 and 1993
(Amounts in thousands except per share data)
Three Months Ended March 31
1994 1993
Net sales $1,050,000 $946,000
Costs and expenses, net:
Cost of sales 698,000 633,100
Selling, general and administrative
expenses 230,100 210,100
Other (income) expense, net:
Interest expense 26,500 29,000
Re: MascoTech, Inc.:
Equity earnings (7,400) (6,800)
Interest and dividend income and
gain from stock sale (4,500) (4,300)
Other, net (2,100) (3,000)
12,500 14,900
940,600 858,100
Income before income taxes 109,400 87,900
Income taxes 44,100 33,400
Net income $ 65,300 $ 54,500
Per share data:
Net income $.42 $.36
Cash dividends declared and paid $.17 $.16
Average shares outstanding 156,500 152,600
See notes to condensed consolidated financial statements.
2
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MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 1994 and 1993
(Dollars in thousands)
Three Months Ended
March 31
1994 1993
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Cash provided by operations $ 85,880 $ 79,010
(Increase) in receivables, net (68,380) (74,220)
(Increase) in inventories, net (17,680) (13,640)
Decrease in prepaid expenses 8,960 7,290
Increase (decrease) in current liabilities (3,630) 15,670
Total cash from operating activities 5,150 14,110
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 (47,680) (27,060)
Other, net (9,470) 9,650
Total cash from (for) investing activities (49,420) 70,090
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
Increase in debt 27,020 311,910
Payment of debt (30,530) (367,400)
Cash dividends paid (26,280) (24,440)
Total cash (for) financing activities (29,790) (79,930)
CASH AND CASH INVESTMENTS:
Increase (decrease) for the quarter (74,060) 4,270
At January 1 119,980 45,350
At March 31 $ 45,920 $ 49,620
Supplemental Cash Flow Information:
Net cash paid during the period for:
Interest $ 25,770 $ 28,040
Income taxes $ 22,010 $ 11,260
See notes to condensed consolidated financial statements.
3
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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
March 31, 1994 and the results of operations and changes in cash flows for
the three months ended March 31, 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
March 31
1994 1993
Interest expense $26,500 $29,000
Re: MascoTech, Inc:
Equity earnings (7,400) (6,800)
Interest and dividend income (100) (4,300)
Gain from stock sale (4,400) ---
Equity earnings, other (1,200) (1,300)
Interest income and gains from
marketable securities and
cash investments (3,600) (3,400)
Other, net 2,700 1,700
$12,500 $14,900
C. During the first quarter of 1994, the Company acquired Zenith Products
Corporation ("Zenith") and Melard Manufacturing Corporation ("Melard").
Under the terms of the agreements, the Company issued approximately 3.5
million shares of its common stock and the transactions were accounted for
on a pooling of interests basis. Zenith is a leading manufacturer of bath
medicine cabinets, shower curtain rods and other bath storage products for
the home. Melard is a leading manufacturer of bath hardware, accessories,
plumbing specialty and other products for the home. For the fiscal year
1993, these companies had combined net sales of approximately $100 million.
Prior year periods are not restated due to immateriality.
4
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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
March 31, December 31,
Assets 1994 1993
Current assets:
Cash and cash investments $ 151,850 $ 272,950
Marketable securities 62,660 32,680
Accounts and notes receivable, net 1,039,570 906,500
Prepaid expenses 117,850 118,700
Deferred income taxes 41,580 41,780
Inventories:
Finished goods 431,330 393,820
Raw material 371,790 365,370
Work in process 288,700 281,680
1,091,820 1,040,870
Total current assets 2,505,330 2,413,480
Equity investments in affiliates 157,840 163,970
Property and equipment, net 1,812,390 1,747,590
Excess of cost over acquired net assets 1,119,020 1,114,740
Net assets of discontinued operations 42,470 67,510
Other noncurrent assets 480,400 428,390
Total assets $6,117,450 $5,935,680
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable $ 46,000 $ 36,310
Accounts payable 287,940 277,070
Accrued liabilities 438,550 428,720
Total current liabilities 772,490 742,100
Long-term debt 2,478,950 2,445,540
Deferred income taxes and other 286,870 275,400
Other interests in combined affiliates 492,700 474,210
Equity of shareholders of Masco Corporation 2,086,440 1,998,430
Total liabilities and
shareholders' equity $6,117,450 $5,935,680
5
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MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note D - Continued:
Three Months Ended
March 31
Combined Statement of Income 1994 1993
Net sales $1,592,860 $1,454,380
Costs and expenses, net:
Cost of sales 1,119,310 1,023,960
Selling, general and
administrative expenses 295,620 272,330
Other (income) expense, net:
Interest expense 40,420 49,410
Other income, net (20,910) (8,650)
19,510 40,760
1,434,440 1,337,050
Income before income taxes and
other interests 158,420 117,330
Income taxes 70,800 50,420
Income before other interests 87,620 66,910
Other interests in combined affiliates 22,320 12,410
Net income $ 65,300 $ 54,500
Per share data:
Net income $.42 $.36
Cash dividends declared and paid $.17 $.16
Average shares outstanding 156,500 152,600
6
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MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (concluded)
Note D - Concluded:
Three Months Ended
March 31
Combined Statement of Cash Flows 1994 1993
Cash Flows From (For) Operating Activities:
Cash provided by operations $ 107,330 $ 110,380
(Increase) in receivables (114,370) (116,910)
(Increase) in inventories (27,930) (19,040)
(Increase) in marketable securities, net (30,010) (15,650)
Decrease in prepaid expenses 1,930 9,890
Increase in current liabilities 1,580 21,740
Discontinued operations, net --- 1,530
Total cash (for) operating activities (61,470) (8,060)
Cash Flows From (For) Investing Activities:
Capital expenditures (78,940) (44,340)
Other, net 39,390 6,710
Total cash (for) investing activities (39,550) (37,630)
Cash Flows From (For) Financing Activities:
Issuance of convertible debt 337,240 ---
Increase in other debt 27,020 583,910
Retirement of notes (253,120) ---
Payment of other debt (100,330) (518,600)
Cash dividends paid (30,890) (24,440)
Total cash from (for)
financing activities (20,080) 40,870
Cash and Cash Investments:
(Decrease) for the period (121,100) (4,820)
At January 1 272,950 186,120
At March 31 $ 151,850 $ 181,300
7
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MASCO CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FIRST QUARTER 1994 VERSUS FIRST QUARTER 1993
Net sales for the three months ended March 31, 1994 increased 11 percent to
$1,050 million from $946 million in the comparable period in 1993. Building and
Home Improvement products sales, including companies acquired in 1994, increased
14 percent for the three months ended March 31, 1994 from the comparable period
in 1993. (This group's sales, absent the companies acquired in 1994, increased 8
percent.) Home Furnishings Products sales for the three months ended March 31,
1994 increased 8 percent from the comparable period in 1993.
Cost of sales as a percentage of sales decreased modestly to 66.5 percent
for the first quarter 1994 from 66.9 percent for the comparable period in 1993.
Selling, general and administrative expenses as a percentage of sales for the
three months ended March 31, 1994 decreased modestly to 21.9 percent from 22.2
percent for the comparable period in 1993.
The Company's operating profit margins continued to improve in the first
quarter with major product lines benefitting primarily from increased sales and
profit improvement programs.
Included in other (income) expense, net for the three months ended
March 31, 1994 are equity earnings from MascoTech, Inc. of $7.4 million as
compared with equity earnings of $6.8 million in the comparable period in 1993,
and interest and dividend income and gain from the sale of common stock
aggregating $4.5 million as compared with $4.3 million in the 1993 first
quarter.
Net income for the first quarter of 1994 increased 20 percent to
$65.3 million from $54.5 million in the comparable period in 1993, and earnings
per share increased 17 percent to $.42 from $.36.
The Company is continuing to experience increased demand for most of its
products. The Company believes that improved consumer confidence, a stronger
economy and market share gains will more than offset any negative effect of
recent higher interest rates on its businesses.
At March 31, 1994 current assets were 3.3 times current liabilities. First
quarter 1994 cash from operations was affected by an expected and recurring
first quarter increase in accounts receivable. As the annual increase in
accounts receivable is historically experienced in the first quarter, cash from
operations in the remaining three quarters of 1994 should not be affected by
significant increases in accounts receivable. The Company believes that its
cash from operations and, to the extent necessary, future financial market
activities, are sufficient to fund its working capital and other investment
needs.
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.
8
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UNAUDITED INFORMATION REGARDING EQUITY AFFILIATES
FOR THE THREE MONTHS ENDED MARCH 31, 1994 AND 1993
Equity investments in affiliates consist primarily of the following
approximate common stock and partnership interests at March 31:
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 March 31
1994 1993
Sales - Net $412,410 $404,070
Gross Profit $ 80,290 $ 84,750
Net Income (Before
Preferred Stock
Dividends) $ 26,300 $ 17,520
9
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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:
11 - Computation of Earnings Per Share
12 - Computation of Ratio of Earnings to Fixed Charges
(b) Reports on Form 8-K:
A Current Report on Form 8-K, dated March 2, 1994, was filed
by Masco Corporation in the calendar quarter ended March 31,
1994, reporting under Item 5, "Other Events," the Company's
recent operating results. The financial statements of Masco
Corporation and Subsidiaries as of December 31, 1993 and 1992
and for the three years ended December 31, 1993, together with
the report thereon of Coopers & Lybrand, were filed with such
reports.
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: May 12, 1994 By: /s/Richard G. Mosteller
Richard G. Mosteller
Senior Vice-President - Finance
(Chief Financial officer
and authorized signatory)
10
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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
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Exhibit 11
MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Primary and Fully Diluted Earnings Per Share
For the Three Months Ended March 31, 1994 and 1993
(Amounts in thousands except per share amounts)
Three Months Ended
March 31
1994 1993
Shares for computation of primary and
fully diluted earnings per share:
Average number of shares outstanding 156,500 152,600
Common stock equivalents:
Shares issuable assuming
conversion of debentures 4,200 4,200
Stock options 1,400 1,400
162,100 158,200
Net income, adjusted to basis of
earnings per share:
Net income $65,300 $54,500
Add interest on convertible
debentures, net of tax 1,500 1,500
$66,800 $56,000
Primary and fully diluted earnings per
share $.42 $.36
Earnings per share as reported $.42 $.36
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 either period was less than 3 percent.
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Exhibit 12
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MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
<CAPTION>
(Thousands of Dollars)
Three
Months
Ended
March 31, Year Ended December 31,
1994 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C> <C>
Earnings Before Income Taxes
And Fixed Charges:
Income before income taxes $109,400 $362,600 $304,800 $ 97,600 $235,900 $327,100
Deduct/add equity in
undistributed (earnings)
losses of fifty-percent-
or-less-owned companies (8,600) (18,740) (17,290) 12,640 8,760 (29,060)
Add dividends received from
fifty-percent-or-less-
owned companies 500 4,940 4,100 25,450 1,780 1,990
Add interest on indebtedness,
net 26,360 104,080 100,490 124,950 125,770 112,830
Add amortization of debt
expense 560 2,650 2,710 1,630 1,420 1,460
Add one-third of rentals 2,860 10,970 10,800 12,530 9,610 8,830
Earnings before income
taxes and fixed charges $131,080 $466,500 $405,610 $274,800 $383,240 $423,150
Fixed charges:
Interest on indebtedness $ 26,950 $105,420 $113,670 $128,450 $125,770 $112,830
Amortization of debt expense 560 2,650 2,710 1,630 1,420 1,460
One-third of rentals 2,860 10,970 10,800 12,530 9,610 8,830
$ 30,370 $119,040 $127,180 $142,610 $136,800 $123,120
Ratio of earnings to fixed
charges 4.3 3.9 3.2 1.9 2.8 3.4
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