<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------
FORM 10-Q/A
AMENDMENT NO. 1
TO
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JUNE 30, 2000.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
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)
Registrant's Telephone Number, Including Area Code: (313) 274-7400
---------------------------
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 (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), 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.
<TABLE>
<CAPTION>
SHARES OUTSTANDING AT
CLASS AUGUST 1, 2000
----- --------------
<S> <C>
COMMON STOCK, PAR VALUE $1 PER SHARE 457,092,100
</TABLE>
<PAGE> 2
MASCO CORPORATION
LIST OF ITEMS AMENDED
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements 1-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12-15
Unaudited Information Regarding Equity
Investments for the Three Months and
Six Months Ended June 30, 2000 and 1999 16
</TABLE>
EXPLANATORY NOTE:
Items 1 and 2 of the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000 are hereby amended by deleting the Items in their
entirety and replacing them with the Items attached hereto and filed herewith.
The purpose of this amendment is to provide expanded disclosure
regarding the Company's business segments in the segment information note to the
financial statements included in the financial statements that were included in
Item 1 of the subject Form 10-Q as originally filed (the "Original Filing") and
to make corresponding changes to Management's Discussion and Analysis of
Financial Condition and Results of Operations that was included in Item 2 of the
Original Filing. The Company recently filed a Registration Statement on Form
S-3 under the Securities Act of 1933. In the course of processing the
Registration Statement, the staff of the Securities and Exchange Commission
furnished comments to the Company. Based on the staff's comments, the Company
revised the Segment Information note to its financial statements included in its
Annual Report on Form 10-K for the year ended December 31, 1999 and filed Form
10-K/A Amendment No. 1 in order to provide this expanded disclosure in the
Segment Information note and to make corresponding changes to Management's
Discussion and Analysis of Financial Condition and Results of Operations. This
Form 10-Q/A is being filed to make corresponding changes to information
contained in the Original Filing.
The Company's Form 10-Q continues to speak as of the date of the
Original Filing and the disclosure in that report has not been updated to speak
to any later date. Any items in the Original Filing not expressly changed hereby
shall be as set forth in the Original Filing. All information continued in this
amendment and the Original Filing is subject to updating and supplementing as
provided in the Company's periodic reports filed with the SEC subsequent to the
date of such reports.
<PAGE> 3
MASCO CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2000 AND DECEMBER 31, 1999
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 2000 1999
------ ---------- ------------
<S> <C> <C>
Current assets:
Cash and cash investments $ 122,820 $ 230,780
Accounts and notes receivable, net 1,192,790 1,002,630
Prepaid expenses and other 114,810 106,500
Inventories:
Raw material 340,650 307,060
Finished goods 398,440 290,440
Work in process 199,450 172,370
---------- ----------
938,540 769,870
---------- ----------
Total current assets 2,368,960 2,109,780
Equity investment in MascoTech, Inc. 75,650 69,930
Equity investments in other affiliates 128,320 133,550
Securities of Furnishings International Inc. 527,010 481,270
Property and equipment, net 1,797,970 1,624,360
Acquired goodwill, net 2,172,580 1,742,930
Other noncurrent assets 680,040 473,100
---------- ----------
Total assets $7,750,530 $6,634,920
========== ==========
LIABILITIES
-----------
Current liabilities:
Notes payable $ 890,220 $ 62,300
Accounts payable 269,840 243,810
Accrued liabilities 621,460 540,320
---------- ----------
Total current liabilities 1,781,520 846,430
Long-term debt 2,346,730 2,431,270
Deferred income taxes and other 230,710 220,720
---------- ----------
Total liabilities 4,358,960 3,498,420
---------- ----------
SHAREHOLDERS' EQUITY
--------------------
Common stock, par value $1 per share
Authorized shares: 900,000,000 448,660 443,510
Preferred stock, par value $1 per share
Authorized shares: 1,000,000 --- ---
Paid-in capital 690,040 601,990
Retained earnings 2,403,250 2,151,520
Other comprehensive income (loss) (150,380) (60,520)
---------- ----------
Total shareholders' equity 3,391,570 3,136,500
---------- ----------
Total liabilities and
shareholders' equity $7,750,530 $6,634,920
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
1
<PAGE> 4
MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $1,871,000 $1,567,000 $3,617,000 $2,958,000
Cost of sales 1,196,700 986,200 2,322,600 1,860,600
---------- ---------- ---------- ----------
Gross profit 674,300 580,800 1,294,400 1,097,400
Selling, general and administrative
expenses 357,100 304,500 694,500 578,000
Amortization of acquired goodwill 15,900 10,300 30,100 18,600
---------- ---------- ---------- ----------
Operating profit 301,300 266,000 569,800 500,800
---------- ---------- ---------- ----------
Other income (expense), net:
Interest expense (47,700) (28,200) (86,500) (54,800)
Equity earnings from
MascoTech, Inc. 4,200 4,400 8,500 8,400
Other, net 36,600 36,700 78,600 67,800
---------- ---------- ---------- ----------
(6,900) 12,900 600 21,400
---------- ---------- ---------- ----------
Income before income taxes 294,400 278,900 570,400 522,200
Income taxes 109,000 104,800 211,000 196,200
---------- ---------- ---------- ----------
Net income $ 185,400 $ 174,100 $ 359,400 $ 326,000
========== ========== ========== ==========
Earnings per share:
Basic $ .42 $ .40 $ .82 $ .75
===== ===== ===== =====
Diluted $ .41 $ .39 $ .80 $ .73
===== ===== ===== =====
Cash dividends declared and
paid per share $ .12 $ .11 $ .24 $ .22
===== ===== ===== =====
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 5
MASCO CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-----------------------
2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Cash provided by operations $ 360,580 $ 350,850
Increase in receivables (117,640) (145,430)
Increase in inventories (110,400) (75,220)
Increase in accounts payable and
accrued liabilities, net 68,550 54,840
--------- ---------
Total cash from operating activities 201,090 185,040
--------- ---------
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
Increase in debt 841,010 168,640
Payment of debt (136,820) (43,460)
Purchase of Company common stock (20,560) (106,760)
Cash dividends paid (107,260) (74,460)
--------- ---------
Total cash from (for) financing activities 576,370 (56,040)
--------- ---------
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:
Acquisition of companies, net of cash acquired (509,950) (405,360)
Capital expenditures (169,840) (157,240)
Investments in non-operating assets, net (160,600) (49,140)
Other, net (45,030) 22,610
--------- ---------
Total cash (for) investing activities (885,420) (589,130)
--------- ---------
CASH AND CASH INVESTMENTS:
Decrease for the period (107,960) (460,130)
At January 1 230,780 553,150
--------- ---------
At June 30 $ 122,820 $ 93,020
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 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 June 30, 2000 and the results of operations for the three months and
six months ended June 30, 2000 and 1999 and changes in cash flows for
the six months ended June 30, 2000 and 1999. The condensed consolidated
balance sheet at December 31, 1999 was derived from audited financial
statements. The three month and six month periods ended June 30, 1999
have been restated to include the results of transactions accounted for
as poolings of interests during the third quarter of 1999.
The consolidated financial statements include the accounts of Masco
Corporation and all majority-owned subsidiaries. All significant
intercompany transactions have been eliminated. Corporations that are 20
to 50 percent owned are accounted for by the equity method of
accounting; ownership less than 20 percent is accounted for on the cost
basis unless the Company exercises significant influence over the
investee. Capital transactions by equity affiliates, which change the
Company's ownership interest at amounts differing from the Company's
carrying amount, are reflected in other income or expense and the
investment in affiliates account.
The Company generally recognizes revenue as products are shipped to
customers or services are rendered, net of applicable provisions for
discounts, returns and allowances. The Company provides for its estimate
of potential bad debt and warranty expense at the time of sale.
Inventories are stated at the lower of cost or net realizable value,
with cost determined principally by use of the first-in, first-out
method. Cost in inventory includes purchased parts, materials, direct
labor and applied manufacturing overhead.
The financial statements of the Company's foreign subsidiaries are
measured using the local currency as the functional currency. Assets and
liabilities of these subsidiaries are translated at exchange rates as of
the balance sheet date. Revenues and expenses are translated at average
rates of exchange in effect during the year. The resulting cumulative
translation adjustments have been recorded as a separate component of
shareholders' equity. Realized foreign currency transaction gains and
losses are included in consolidated net income.
Additional accounting policy disclosures are set forth in the Notes to
Consolidated Financial Statements included in Part II, Item 8 of the
Company's Annual Report on Form 10-K for the year ended December 31,
1999.
B. The following are reconciliations of the numerators and denominators
used in the computations of basic and diluted earnings per share, in
thousands:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
--------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Numerator:
Net income $185,400 $174,100 $359,400 $326,000
======== ======== ======== ========
Denominator:
Basic shares (based on weighted
average) 441,500 433,400 440,400 435,000
Add:
Contingently issued award shares 7,100 7,400 7,100 7,300
Stock option dilution 1,600 3,600 1,600 3,800
-------- -------- -------- --------
Diluted shares 450,200 444,400 449,100 446,100
======== ======== ======== ========
</TABLE>
4
<PAGE> 7
MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
C. During the second quarter of 2000, the Company acquired Masterchem
Industries, Inc., a manufacturer and supplier of paint primer and paint
primer-related products and several smaller companies. In the first
quarter of 2000, the Company acquired Tvilum-Scanbirk A/S, a
manufacturer of ready-to-assemble products including cabinetry,
shelving, storage units and workstations, and a smaller company.
The aggregate net purchase price of these purchase acquisitions,
excluding assumed debt of approximately $70 million, was approximately
$600 million and included approximately four million shares of Company
common stock valued at approximately $90 million. Combined 1999 annual
net sales of the above companies was approximately $400 million.
D. During the third quarter of 2000, the Company reported that it is
participating in a transaction in which an affiliate of Heartland
Industrial Partners, L.P. has agreed to acquire all of the common shares
of MascoTech, Inc., an 18 percent owned affiliate of the Company. As
part of the transaction, the Company would receive cash, preferred
stock, an approximate ten percent minority interest in the new entity
and a reduction from $200 million to $100 million in MascoTech's option
to issue subordinated debt securities to the Company. A special
committee of the Company's Board of Directors was advised by Merrill
Lynch & Company and special legal counsel in the committee's negotiation
of the Company's participation in this transaction. If the transaction
is completed in the fourth quarter of 2000, as anticipated, the Company
is expected to report a relatively modest after-tax gain from the sale.
E. Other income (expense), net consists of the following, in thousands:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest expense $(47,700) $(28,200) $(86,500) $(54,800)
Equity earnings from
MascoTech, Inc. 4,200 4,400 8,500 8,400
Equity earnings, other 700 2,300 1,700 3,900
Income from cash and
cash investments 800 1,200 2,200 6,500
Other interest income 14,900 12,800 29,000 25,600
Other, net 20,200 20,400 45,700 31,800
-------- -------- -------- --------
$ (6,900) $ 12,900 $ 600 $ 21,400
======== ======== ======== ========
</TABLE>
Included in other interest income for the three months and six months
ended June 30, 2000 and 1999 is interest income of approximately $12.8
million and $25.6 million, and approximately $11.3 million and $22.6
million, respectively, from the 12% pay-in-kind junior debt securities
of Furnishings International Inc. (approximately $424 million principal
amount at December 31, 1999).
Other, net for the three month and six month periods ended June 30, 2000
and June 30, 1999 results primarily from income and gains, net regarding
certain non-operating assets.
5
<PAGE> 8
MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
F. The following table presents information about the Company by segment
and geographic area, in millions.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
------------------------------------ ------------------------------------
2000 1999 2000 1999 2000 1999 2000 1999
------------------------------------ ------------------------------------
Net Sales (1) Operating Profit(2) Net Sales (1) Operating Profit(2)
------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
The Company's operations by
segment were:
Plumbing Products $ 489 $ 433 $ 94 $ 93 $ 962 $ 894 $ 186 $ 203
Cabinets and Related Products 655 567 101 93 1,286 1,061 188 171
Decorative Architectural Products 377 321 79 62 684 560 143 99
Insulation Installation and
Other Services 199 118 28 19 382 190 53 29
Other Specialty Products 151 128 25 21 303 253 50 43
------ ------ ------ ------ ------ ------ ------ ------
Total $1,871 $1,567 $ 327 $ 288 $3,617 $2,958 $ 620 $ 545
====== ====== ====== ====== ====== ====== ====== ======
The Company's operations by
geographic area were:
North America $1,532 $1,296 $ 282 $ 254 $2,946 $2,461 $ 533 $ 480
International, principally Europe 339 271 45 34 671 497 87 65
------ ------ ------ ------ ------ ------ ------ ------
Total, as above $1,871 $1,567 327 288 $3,617 $2,958 620 545
====== ====== ====== ======
General corporate expense, net (25) (22) (50) (44)
------ ------ ------ ------
Operating profit, after general
corporate expense 302 266 570 501
Other income (expense), net (7) 13 1 21
------ ------ ------ ------
Income before income taxes $ 295 $ 279 $ 571 $ 522
====== ====== ====== ======
</TABLE>
(1) Inter-company sales among segments were not material.
(2) Operating profit shown is after reduction for amortization of acquired
goodwill.
6
<PAGE> 9
MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
G. The Company's total comprehensive income was as follows, in thousands:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $185,400 $174,100 $359,400 $326,000
Other comprehensive (loss) (70,710) (25,460) (89,860) (49,970)
-------- -------- -------- ---------
Total comprehensive income $114,690 $148,640 $269,540 $276,030
======== ======== ======== ========
</TABLE>
H. The Company is subject to lawsuits and claims pending or asserted with
respect to matters arising in the ordinary course of business.
A civil suit is pending in Superior Court in the State of Washington
against Behr Process Corporation, a wholly owned subsidiary of the
Company. The case involves four exterior wood coating products, which
represent a relatively small part of Behr's total sales. The plaintiffs
allege, among other things, that after applying these products, the wood
surfaces suffered excessive mildewing in the unique humid climate of
western Washington. The trial court has conditionally certified the case
as a class action, including in this case all purchasers of the products
who reside in nineteen counties in western Washington. Behr denies the
allegations. Although Behr believes that the subject products have been
purchased by thousands of consumers in western Washington, consumer
complaints in the past have been relatively small compared to the total
volume of products sold. In May 2000, the court entered a default
against Behr as a discovery sanction. Thereafter, the jury returned a
verdict awarding damages to the named plaintiffs. The damages awarded
for the eight homeowner claims (excluding one award to the owners of a
vacation resort) ranged individually from $14,500 to $38,000. The awards
were calculated using a formula based on the product used, the nature
and square footage of wood surface and certain other allowances. Under
the verdict, the same formula will be used for calculating awards on
claims that may be submitted by the subject purchasers of these
products. In July 2000, the court awarded additional damages of $10,000
per claim to the eight homeowner claims, under the Washington Consumer
Protection Act. This increased the total damages awarded on the
homeowner claims to approximately $263,000. The court denied the
plaintiffs' request for an award of additional damages on claims that
may be submitted by other class members. In addition, the court granted
the plaintiffs' motion for attorneys' fees. At this time, the Company is
not in a position to estimate reliably the number of class members, the
number of claims that may be filed or the awards that class members may
seek.
Although Behr is not able to estimate the amount of any potential
liability, Behr believes that there have been numerous rulings by the
trial court that constitute reversible error and that there are valid
defenses to the lawsuit. Behr believes that there are substantial
grounds for reversal and will appeal this verdict.
7
<PAGE> 10
MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note H - Concluded:
Behr has recently received a letter from a consumer, on behalf of
himself and all others similarly situated, alleging that Behr has
violated the California Consumer Legal Remedies Act in the sale of
exterior wood coating products. The letter requested that Behr pay all
costs required to repair or replace the wood surfaces of individuals in
the United States on which the products have been applied, and that Behr
disgorge all of the profits received from the sale of the products. The
consumer subsequently filed a complaint with another consumer in the San
Joachin County, California Superior Court.
In addition, Behr and the Company were recently served with complaints
filed by two consumers in the Solano County and San Mateo County,
California Superior Courts, and by a consumer in the Mobile County,
Alabama Circuit Court. All of the complaints contain similar allegations
regarding some of Behr's exterior wood coating products. The California
complaints seek nationwide class action certification. The Alabama
complaint seeks class action certification for consumers in Alabama,
Florida, Georgia and Texas. The Company is investigating the allegations
in the complaints and believes that there are substantial grounds for
denial of class certification and that there are substantial defenses to
the claims.
I. In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin Number 101, "Revenue Recognition in Financial
Statements" (SAB 101). The guidelines in SAB 101 must be adopted during
the fourth quarter of 2000. The Company is evaluating the effect, if
any, that such an adoption may have on its financial position and
results of operations.
8
<PAGE> 11
MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
J. The following presents the combined unaudited financial statements of
the Company and MascoTech, Inc. 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
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 2000 1999
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash investments $ 125,660 $ 235,270
Receivables 1,401,780 1,221,590
Prepaid expenses and other 157,750 169,570
Inventories:
Raw material 388,640 358,480
Finished goods 477,690 376,680
Work in process 249,660 218,310
---------- ----------
1,115,990 953,470
---------- ----------
Total current assets 2,801,180 2,579,900
Equity investments in affiliates 244,510 244,280
Securities of Furnishings International Inc. 527,010 481,270
Property and equipment, net 2,535,300 2,347,040
Acquired goodwill, net 2,952,210 2,519,530
Other noncurrent assets 719,020 511,510
---------- ----------
Total assets $9,779,230 $8,683,530
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 892,610 $ 62,300
Accounts payable 389,870 358,300
Accrued liabilities 736,170 654,230
---------- ----------
Total current liabilities 2,018,650 1,074,830
Long-term debt 3,630,510 3,804,160
Deferred income taxes and other 461,490 420,320
Other interests in combined affiliates 277,010 247,720
Equity of shareholders of Masco Corporation 3,391,570 3,136,500
---------- ----------
Total liabilities and shareholders' equity $9,779,230 $8,683,530
========== ==========
</TABLE>
9
<PAGE> 12
MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note J - Continued:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
---------------------- ----------------------
COMBINED STATEMENT OF INCOME 2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $2,312,060 $2,000,700 $4,516,160 $3,837,360
---------- ---------- ---------- ----------
Costs and expenses, net:
Cost of sales 1,523,680 1,306,210 2,988,280 2,510,250
---------- ---------- ---------- ----------
Selling, general and
administrative expenses 429,990 371,020 837,760 699,960
---------- ---------- ---------- ----------
Other income (expense), net:
Interest expense (69,670) (48,520) (130,280) (96,070)
Other income, net 44,730 38,230 87,990 68,140
---------- ---------- ---------- ----------
(24,940) (10,290) (42,290) (27,930)
---------- ---------- ---------- ----------
1,978,610 1,687,520 3,868,330 3,238,140
---------- ---------- ---------- ----------
Income before income taxes and
other interests 333,450 313,180 647,830 599,220
Income taxes 126,450 117,530 245,530 231,890
---------- ---------- ---------- ---------
Income before other interests 207,000 195,650 402,300 367,330
Other interests in combined affiliates 21,600 21,550 42,900 41,330
---------- ---------- ---------- ----------
Net income $ 185,400 $ 174,100 $ 359,400 $ 326,000
========== ========== ========== ==========
Earnings per share:
Basic $ .42 $ .40 $ .82 $ .75
===== ===== ===== =====
Diluted $ .41 $ .39 $ .80 $ .73
===== ===== ===== =====
Cash dividends declared and paid
per share: $ .12 $ .11 $ .24 $ .22
===== ===== ===== =====
</TABLE>
10
<PAGE> 13
MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
Note J - Concluded:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
----------------------
COMBINED STATEMENT OF CASH FLOWS 2000 1999
--------- ---------
<S> <C> <C>
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Cash provided by operations $ 462,630 $ 452,580
Increase in receivables (154,500) (184,260)
Increase in inventories (101,270) (64,240)
Increase in accounts payable and
accrued liabilities, net 99,200 65,510
--------- ---------
Total cash from operating activities 306,060 269,590
--------- ---------
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
Increase in debt 881,470 172,900
Payment of debt (270,770) (122,460)
Purchase of Company common stock (20,560) (123,040)
Cash dividends paid (113,120) (80,210)
Other, net 10,790 (6,720)
--------- ---------
Total cash from (for) financing activities 487,810 (159,530)
--------- ---------
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:
Acquisition of companies, net of cash acquired (531,040) (405,360)
Capital expenditures (223,810) (229,570)
Investments in non-operating assets, net (160,600) (49,140)
Other, net 11,970 118,480
--------- ---------
Total cash (for) investing activities (903,480) (565,590)
--------- ---------
CASH AND CASH INVESTMENTS:
Decrease for the period (109,610) (455,530)
At January 1 235,270 582,540
--------- ---------
At June 30 $ 125,660 $ 127,010
========= =========
</TABLE>
11
<PAGE> 14
MASCO CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SECOND QUARTER 2000 AND THE FIRST SIX MONTHS 2000 VERSUS
SECOND QUARTER 1999 AND THE FIRST SIX MONTHS 1999
Management's discussion and analysis of financial condition and results
of operations pertaining to the three months and six months ended June 30, 1999
has been restated for transactions accounted for as poolings of interests during
the third quarter of 1999.
SALES AND OPERATIONS
The following tables set forth the Company's net sales information by segment
and geographic area, in millions:
<TABLE>
<CAPTION>
PERCENT INCREASE
(DECREASE)
THREE MONTHS ENDED -------------------
JUNE 30, 2000 VS. 2000 VS.
2000 1999 1999 1999(A)
------------------ ---------- --------
NET SALES:
<S> <C> <C> <C> <C>
Plumbing Products $ 489 $ 433 13% 8%
Cabinets and Related Products 655 567 16% 6%
Decorative Architectural Products 377 321 17% 13%
Insulation Installation and Other Services 199 118 69% 30%
Other Specialty Products 151 128 18% (5%)
------ ------
TOTAL $1,871 $1,567 19% 8%
====== ======
North America $1,532 $1,296 18% 10%
International, principally Europe 339 271 25% (4%)
------ ------
TOTAL, AS ABOVE $1,871 $1,567 19% 8%
====== ======
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
2000 1999
----------------
<S> <C> <C> <C> <C>
NET SALES:
Plumbing Products $ 962 $ 894 8% 5%
Cabinets and Related Products 1,286 1,061 21% 9%
Decorative Architectural Products 684 560 22% 15%
Insulation Installation and Other Services 382 190 101% 36%
Other Specialty Products 303 253 20% (5%)
------ ------
TOTAL $3,617 $2,958 22% 9%
====== ======
North America $2,946 $2,461 20% 11%
International, principally Europe 671 497 35% (3%)
------ ------
TOTAL, AS ABOVE $3,617 $2,958 22% 9%
====== ======
</TABLE>
(A) Percent change in sales excluding purchase acquisitions
Net sales for the three month and six month periods ended June 30, 2000
increased 19 percent and 22 percent, respectively, from the comparable periods
in 1999. Excluding purchase acquisitions, net sales increased 8 percent and 9
percent for the three month and six month periods ended June 30, 2000,
respectively, over the comparable periods of the prior year.
Changes in net sales in the following discussion exclude the influence
of purchase acquisitions.
Net sales of Plumbing Products for the three months and six months
ended June 30, 2000 increased 8 percent and 5 percent, respectively, and net
sales of Cabinets and Related Products increased 6 percent and 9 percent,
respectively, from the comparable periods of the prior year. These increases
include higher unit sales volume of cabinets and faucets offset in part by
the negative influence of a stronger U.S. dollar, which affected the
translation of European operations included in these segments.
Decorative Architectural Products sales for the three months and six
months ended June 30, 2000 increased 13 percent and 15 percent, respectively,
from the comparable periods of the prior year due largely to higher unit sales
volume of these products. Sales of the Company's Insulation Installation and
Other Services segment for the three months and six months ended June 30, 2000
increased 30 percent and 36 percent, respectively, from the comparable periods
of the prior year due to higher installation sales of and higher prices for
fiberglass insulation and broader geographic U.S. market penetration.
Other Specialty Products sales for both the three month and six month
periods ended June 30, 2000 decreased 5 percent from the comparable periods of
the prior year. These decreases principally include the negative influence of
a stronger U.S. dollar, which affected the translation of European operations
included in this segment.
Net sales from North American operations for the three months and six
months ended June 30, 2000 increased 10 percent and 11 percent, respectively,
from the comparable periods in 1999. Net sales from International operations for
the three months and six months ended June 30, 2000 decreased approximately 4
percent and 3 percent, respectively, when compared with the comparable periods
in 1999. A stronger U.S. dollar, principally against the German deutsche mark,
had an unfavorable effect on the translation of International sales in the three
month and six month periods ended June 30, 2000 as compared with the three month
and six month periods of 1999; the Company anticipates that unfavorable foreign
currency translation effects may continue for the balance of the year. Net sales
from International operations for both the three month and six month periods
ended June 30, 2000, in local currencies, increased by approximately 6 percent.
Cost of sales as a percentage of sales increased to 64.0 percent and
64.2 percent for the three months and six months ended June 30, 2000,
respectively, from 62.9 percent for both of the comparable periods in 1999. The
increase in cost of sales as a percentage of sales includes the under-absorption
of costs related to a slower than anticipated new product launch, plant start-up
and relocation costs and a less favorable product mix. Excluding amortization of
acquired goodwill ($15.9 million and $30.1 million for the three months and six
months ended June 30, 2000, respectively), selling, general and administrative
expenses as a percentage of sales for the three months and six months ended June
30, 2000, respectively, decreased to 19.1 percent and 19.2 percent from 19.4
percent and 19.5 percent for the comparable periods in 1999. The Company's cost-
containment initiatives including the leveraging of fixed costs over a higher
sales base contributed to the decrease in selling, general and administrative
expenses as a percentage of sales.
12
<PAGE> 15
MASCO CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's operating profit margins, before general corporate expense
and goodwill amortization, were 18.3 percent and 18.0 percent for the three
months and six months ended June 30, 2000, respectively, as compared with 19.0
percent for both of the comparable periods in 1999. Operating profit margins,
after general corporate expense and goodwill amortization, were 16.1 percent and
15.8 percent for the three months and six months ended June 30, 2000,
respectively, as compared with 17.0 percent and 16.9 percent for the comparable
periods in 1999. The Company's operating profit margin decreased in the three
months and six months ended June 30, 2000, respectively, as compared with the
comparable periods in 1999, due principally to higher cost of sales and higher
goodwill amortization as a percentage of sales.
OTHER INCOME (EXPENSE), NET
Equity earnings from MascoTech, Inc. for the three months and six months
ended June 30, 2000, respectively, were $4.2 million and $8.5 million as
compared with equity earnings from MascoTech of $4.4 million and $8.4 million
for the comparable periods of 1999.
Included in other interest income for the three months and six months
ended June 30, 2000 and 1999 is $12.8 million and $25.6 million, and $11.3
million and $22.6 million, respectively, of interest income from the 12%
pay-in-kind junior debt securities of Furnishings International Inc.
(approximately $424 million at December 31, 1999).
Other, net for the three month and six month periods ended June 30, 2000
and June 30, 1999 results primarily from income and gains, net regarding certain
nonoperating assets.
Interest expense for the three months and six months ended June 30, 2000
was $47.7 million and $86.5 million, respectively, as compared with $28.2
million and $54.8 million for the comparable periods of 1999. The year 2000
increases primarily relate to borrowings for recent acquisitions.
NET INCOME AND EARNINGS PER SHARE
Net income for the second quarter of 2000 increased 6 percent to $185.4
million from $174.1 million in the comparable 1999 period. Diluted earnings per
share for the second quarter of 2000 increased 5 percent to $.41 from $.39 for
the comparable period of 1999.
Net income for the six months ended June 30, 2000 increased 10 percent
to $359.4 million from $326.0 million in the comparable 1999 period. Diluted
earnings per share for the six months ended June 30, 2000 also increased 10
percent to $.80 from $.73 for the comparable period of 1999.
OTHER FINANCIAL INFORMATION
The Company's current ratio was 1.3 to 1 at June 30, 2000, and was
negatively influenced by recent short-term acquisition-related borrowings; such
ratio was 2.5 to 1 at December 31, 1999. The Company intends to refinance
certain short-term borrowings with long-term borrowings.
13
<PAGE> 16
MASCO CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the six months ended June 30, 2000, cash of $201.1 million was
provided by operating activities. Cash provided by financing activities was
$576.4 million, including $841.0 million from an increase in bank debt largely
for acquisitions. Cash used for financing activities included $136.8 million for
the payment of debt, $20.6 million for the purchase of Company common stock, and
$107.3 million for cash dividends paid. Cash used for investing activities was
$885.4 million, including $510.0 million for acquisitions, $169.8 million for
capital expenditures, $160.6 million for investments in non-operating assets and
$45.0 million for other cash outflows. The aggregate of the preceding items
represents a net cash outflow of $108.0 million. Changes in working capital and
debt as indicated on the statement of cash flows exclude the working capital and
debt of acquired companies at the time of acquisition.
First and second quarter 2000 cash from operations was affected by an
expected and annually recurring seasonal first-half increase in accounts
receivable (although there was no significant increase in receivable days). Most
of the annual increase in accounts receivable resulting from sales increases is
typically experienced in the first half of the year.
During April 2000, the Company's Board of Directors authorized the
repurchase of up to 40 million shares of its common stock in open-market
transactions or otherwise.
The Company has on file with the Securities and Exchange Commission
("SEC"), an unallocated shelf registration pursuant to which the Company is able
to issue up to a combined $109 million of debt and equity securities. The
Company filed a shelf registration statement with the SEC during the second
quarter of 2000 to authorize the issuance of additional debt and equity
securities; such registration statement has not yet become effective.
The Company is subject to lawsuits and claims pending or asserted with
respect to matters generally arising in the ordinary course of business. Note H
of the Consolidated Financial Statements discusses specific claims pending
against the Company and its subsidiary, Behr Process Corporation, with respect
to several of Behr's exterior wood coating products.
The Company believes that its present cash balance, its cash flows from
operations and, to the extent necessary, bank borrowings and future financial
market activities, are sufficient to fund its working capital and other
investment needs.
OUTLOOK FOR THE COMPANY
The Company experienced a modest softening of incoming orders for home
improvement products during the second quarter of 2000. This slowdown combined
with continuing new product launch and plant relocation costs resulted in a
reduction of the Company's earnings for the three month and six month periods
ended June 30, 2000.
Although the Company continues to expect increases in sales and earnings
for the calendar year 2000 compared with 1999, if present trends continue for
the balance of the year, the Company believes that its sales growth in the
calendar year 2000 may be slightly lower than the previously anticipated sales
increase of approximately 20 percent. The Company anticipates that the slightly
lower sales increase combined with the impact of higher interest rates, a
stronger U.S. dollar and the above-mentioned other costs will lower the
previously anticipated increase in the Company's earnings for the calendar year
2000 compared with 1999.
14
<PAGE> 17
MASCO CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OTHER MATTERS
MascoTech, Inc. Transaction
During the third quarter of 2000 the Company reported that it is
participating in a transaction in which an affiliate of Heartland Industrial
Partners, L.P. has agreed to acquire all of the common shares of MascoTech,
Inc., an 18 percent owned affiliate of the Company. As part of the transaction,
the Company would receive cash, preferred stock, an approximate ten percent
minority interest in the new entity and a reduction from $200 million to $100
million in MascoTech's option to issue subordinated debt securities to the
Company. A special committee of the Company's Board of Directors was advised by
both Merrill Lynch & Company and special legal counsel in the committee's
negotiation of the Company's participation in this transaction. If the
transaction is completed in the fourth quarter of 2000, as anticipated, the
Company is expected to report a relatively modest after-tax gain from the sale.
Executive Stock Program
During the third quarter of 2000, approximately 300 of the Company's key
employees purchased from the Company 8.4 million shares of Company common stock
totaling $156.0 million under a recently adopted Executive Stock Purchase
Program ("Program"). The stock was purchased for cash at $18.50 per share, the
approximate market price of the common stock at the time of purchase. The
Program was made available worldwide to the Company's senior divisional and
corporate management members.
Participants in the Program financed their purchases with five-year full
recourse personal loans, at a market interest rate, from a bank syndicate
arranged by Bank One Capital Markets and syndicated by Bank One, N.A. Each
participant is fully responsible at all times for repaying their bank loans when
they become due and is personally responsible for 100 percent of any loss in the
market value of the purchased stock. The Company has guaranteed repayment of the
loans only in the event of a default by the participant. In order to subsidize
the effective interest rate on the participants' loan and as a further
inducement for continued employment beyond the end of this five-year Program,
each participant received, as part of the Program, a restricted stock grant
vesting over a ten-year period. All of these key employees, in order to
participate in this Program, were also required to sign a one-year
non-competition agreement for the Company businesses which employ them.
The Executive Stock Purchase Program is a voluntary plan designed to
increase at-risk stock ownership on the part of senior management, and thereby
further align the Company's management team with the interests of its
shareholders.
European Currency Transition
The Company is currently completing changes to existing systems to
facilitate a smooth transition to the new single currency called the euro,
introduced in Europe on January 1, 1999. The Company believes that conversion to
the euro will not have a material effect on the Company's financial position or
results of operations.
15
<PAGE> 18
MASCO CORPORATION
UNAUDITED INFORMATION REGARDING EQUITY INVESTMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2000 AND 1999
Equity investments in affiliates consist primarily of the following
approximate common stock and partnership interests at June 30:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Emco Limited, a Canadian company 42% 42%
MascoTech, Inc. 18% 17%
Hans Grohe, a German partnership 27% 27%
</TABLE>
The following presents condensed financial data of MascoTech, Inc.
Amounts are in thousands.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Sales $442,310 $436,510 $901,710 $885,170
======== ======== ======== ========
Gross Profit $114,080 $113,690 $233,480 $229,710
======== ======== ======== ========
Net Income $ 26,180 $ 26,110 $ 52,000 $ 49,970
======== ======== ======== ========
</TABLE>
16
<PAGE> 19
MASCO CORPORATION
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
MASCO CORPORATION
(Registrant)
DATE: November 1, 2000 BY: /s/ Richard G. Mosteller
----------------------- -------------------------------------
Richard G. Mosteller
Senior Vice-President - Finance
(Chief Financial Officer
and Authorized Signatory)
17
