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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K/A
AMENDMENT NO. 1
TO
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1999
[ ] 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)
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<S> <C>
DELAWARE 38-1794485
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or Organization)
21001 VAN BORN ROAD, TAYLOR, MICHIGAN 48180
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: 313-274-7400
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Common Stock, $1.00 par value New York Stock Exchange, Inc.
Series A Participating Cumulative
Preferred Stock Purchase Rights New York Stock Exchange, Inc.
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
None
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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant on March 15, 2000 (based on the closing sale
price of $19 5/16 of the Registrant's Common Stock as reported on the New York
Stock Exchange Composite Tape on such date) was approximately $8,447,786,200.
Number of shares outstanding of the Registrant's Common Stock at March 15, 2000:
447,382,000 shares of Common Stock, par value $1.00 per share
Portions of the Registrant's definitive Proxy Statement filed for its 2000
Annual Meeting of Stockholders are incorporated by reference into Part III of
Registrant's Annual Report on Form 10-K.
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LIST OF ITEMS AMENDED
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PAGE
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PART II
Management's Discussion and Analysis of Financial Condition
7. and Results of Operations................................... 1
8. Financial Statements and Supplementary Data................. 11
PART IV
Exhibits, Financial Statement Schedules, and Reports on Form
14. 8-K......................................................... 35
</TABLE>
EXPLANATORY NOTE:
Items 7 and 8 of the Company's Annual Report on Form 10-K for the year
ended December 31, 1999 are hereby amended by deleting the Items in their
entirety and replacing them with the Items attached hereto and filed herewith.
Item 14 is hereby amended by replacing the specified portions indicated herein.
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 and Supplementary Data that were
included in Item 8 of the subject Form 10-K 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 7 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 and is
filing this 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.
The Company's Form 10-K 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 contained 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.
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PART II
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The financial and business analysis below provides information which the
Company believes is relevant to an assessment and understanding of the Company's
consolidated financial position and results of operations. This financial and
business analysis should be read in conjunction with the consolidated financial
statements and related notes. The financial and business analysis for prior
years has been restated to include the accounts and operations of transactions
accounted for as poolings of interests ("pooled companies"). See Corporate
Development section below.
The following discussion and certain other sections of this report on Form
10-K may contain statements reflecting the Company's views about its future
performance and constitute "forward-looking statements" under the Private
Securities Litigation Reform Act of 1995. These views may involve risks and
uncertainties that are difficult to predict and may cause the Company's actual
results to differ materially from the results discussed in such forward-looking
statements. Readers should consider that various factors, including changes in
general economic conditions, nature of competition, relationships with key
customers, industry consolidation, influence of e-commerce and other factors
discussed in the "Overview" and "Outlook for the Company" sections below may
affect the Company's ability to attain the projected performance. The Company
undertakes no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.
OVERVIEW
The Company is engaged principally in the manufacture and sale of home
improvement and building products. These products are sold to the home
improvement and home construction markets through mass merchandisers, hardware
stores, home centers, distributors and other outlets for consumers and
contractors. The Company also supplies and installs insulation and other
building products directly to builders and consumers and performs repair and
restoration of residential, commercial and institutional facilities damaged by
fire, wind, water and other disasters.
Factors that affect the Company's results of operations include the levels
of home improvement and residential construction activity principally in the
U.S. and Europe (including repair and remodeling and new construction), cost
management, fluctuations in European currencies (primarily the euro and British
pound), the increasing importance of home centers as distributors of home
improvement and building products and the Company's ability to maintain its
leadership positions in its markets in the face of increasing global
competition. Historically, the Company has been able to largely offset cyclical
declines in housing markets through new product introductions and acquisitions
as well as market share gains.
CORPORATE DEVELOPMENT
Mergers and acquisitions have historically contributed significantly to
Masco's long-term growth, even though generally the initial impact on earnings
is minimal after deducting transaction-related costs and expenses such as
interest and added depreciation and amortization. The important earnings benefit
to Masco arises from subsequent growth of such companies, since incremental
sales are not impacted by these expenses.
Pooling-of-Interests Transactions:
During the third quarter of 1999, the Company completed mergers with Behr
Process Corporation, a manufacturer of premium architectural coatings; Mill's
Pride, L.L.P., a manufacturer of ready-to-assemble and assembled kitchen and
bath cabinetry, bath vanities, home office workstations and entertainment
centers, storage products, bookcases and kitchen utility products; and a smaller
company. The Company issued approximately 104 million shares of common stock in
exchange for all of the outstanding shares of these companies. The transactions
have been accounted for as poolings of interests and, accordingly, the
consolidated financial statements and related shares and per share data for all
prior periods presented have been restated to include the accounts and
operations of the pooled companies. The Company's net sales and net
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income prior to these poolings for the first six months of 1999 (unaudited) were
$2,416 million and $262.9 million, respectively, and for the years 1998 and 1997
were $4,345 million and $476.0 million and $3,760 million and $382.4 million,
respectively.
Purchase Acquisitions:
During the third quarter of 1999, the Company acquired Arrow Fastener
Company, a manufacturer of manual and electric staple gun tackers and staples
and other fastening tools; H&H Tube, a manufacturer of brass, copper, steel and
aluminum tubes; and Superia Radiatoren N.V., a Belgian-based manufacturer of
standard plate radiators. The Company also acquired INRECON, L.L.C., a company
specializing in repair and restoration of residential, commercial and
institutional facilities damaged by fire, wind, water and other disasters.
During the second quarter of 1999, the Company acquired Avocet Hardware
PLC, a U.K. supplier of locks and other builders' hardware; The Cary Group, an
insulation services company; and The GMU Group, a manufacturer and distributor
of kitchen cabinets and cabinet components, headquartered in Spain. In the first
quarter of 1999, the Company acquired A&J Gummers, a U.K. manufacturer of shower
valve products, and The Faucet Queens, Inc., a supplier of plumbing accessories
and hardware products.
The aggregate net purchase price for these 1999 purchase acquisitions was
approximately $850 million, including 1.6 million shares of Company common stock
valued at $48 million. The excess of the aggregate acquisition costs for these
purchase acquisitions over the calculated fair value of net assets acquired
totaled approximately $680 million and has been recorded as acquired goodwill.
Purchase agreements for certain of the 1999 purchase acquisitions include
provisions for additional consideration to be paid if the acquired business
achieves specific operating results in future periods, ranging from one to five
years. Such additional consideration, when earned, is recorded as additional
purchase price.
The results of operations for these 1999 purchase acquisitions are included
in the consolidated financial statements from the dates of acquisition. Had
these companies been acquired effective January 1, 1998, pro forma unaudited
consolidated net sales and net income would have approximated $6,537 million and
$579 million for 1999 and $5,889 million and $590 million for 1998,
respectively, and pro forma unaudited consolidated diluted earnings per share
would have increased approximately $.02 for 1999 and $.05 for 1998.
SECURITIES OF FURNISHINGS INTERNATIONAL INC.
In late November 1995, the Company's Board of Directors approved a formal
plan to dispose of the Company's home furnishings products segment. During
August 1996, the Company completed the sale of its home furnishings products
segment to Furnishings International Inc. Total proceeds to the Company from the
sale were $1,050 million, with approximately $708 million of the purchase price
in cash. The balance consisted of $285 million of 12% pay-in-kind junior debt
securities, and equity securities totaling $57 million, consisting of 13%
cumulative preferred stock, with a stated value of $55 million, 15 percent of
the common stock of Furnishings International and convertible preferred stock.
The junior debt securities mature in 2008 and are stated at face value; the
Company is recording the 12% pay-in-kind interest income from these securities.
The Company records dividend income from the 13% cumulative preferred stock when
such dividends are declared. The convertible preferred stock represents
transferable rights for up to a 25 percent common ownership, although the
Company is restricted from maintaining an ownership in excess of 20 percent of
Furnishings International's common equity. As such, the Company will not acquire
additional common equity, except for purposes of resale.
PROFIT MARGINS
The percentage of operating profit on the Company's faucet sales is
somewhat higher than that on most other products offered by the Company. The
Company believes that the quality, styling, reliability of and available
finishes for its faucets, manufacturing efficiencies and capabilities, its
marketing and merchandising
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activities, and the development of a broad line of products have accounted for
the continued strength of its faucet sales.
Net income as a percentage of sales was 9.0 percent in 1999 as compared
with 10.7 percent and 9.9 percent in 1998 and 1997, respectively. After-tax
return on shareholders' equity as measured by net income was 20.5 percent in
1999 as compared with 25.4 percent in 1998. Net income as a percentage of sales
and after-tax profit return on shareholders' equity for 1999 were negatively
affected by unusual third quarter after-tax expense, principally related to
transactions accounted for as poolings of interests.
FINANCIAL CONDITION
Over the years, the Company has largely funded its growth through cash
provided by a combination of operations and long-term bank and other borrowings,
and by the issuance of common stock for certain acquisitions.
Bank credit lines are maintained to ensure availability of short-term
funds. At December 31, 1999, the Company had fully utilized its $750 million
bank revolving-credit facility, principally to finance recent purchase
acquisitions. Outstanding balances under this facility are due and payable in
November 2001. During 1999, the Company entered into a $400 million 364-day
credit facility. There was no outstanding balance due under this credit facility
at December 31, 1999. Subsequent to December 31, 1999, the Company amended and
restated this credit facility, increasing the amount of such facility to $1
billion and extending the maturity to March 2001. Certain debt agreements
contain limitations on additional borrowings and a requirement for maintaining a
certain level of net worth. At December 31, 1999, the Company was in compliance
with these borrowing limitations, and the Company's net worth exceeded that
requirement by approximately $806 million.
During 1999, the Company increased its quarterly dividend nine percent to
$.12 per share. This marks the 41st consecutive year in which dividends have
been increased. Although the Company is aware of the greater interest in yield
by many investors and has maintained an increased dividend payout in recent
years, the Company continues to believe that its shareholders' long-term
interests are best served by investing a significant portion of its earnings in
the future growth of the Company.
Maintaining high levels of liquidity and cash flow are among the Company's
financial strategies. The Company's total debt as a percent of total
capitalization increased to 44 percent at December 31, 1999 from approximately
41 percent at December 31, 1998 due principally to borrowings for purchase
acquisitions. The relatively high cash flow of acquired companies should help
the Company to reduce its total debt to total capitalization ratio. The
Company's working capital ratio was 2.5 to 1 at December 31, 1999 compared with
2.1 to 1 at December 31, 1998; excluding $200 million of 6.625% notes, which
matured September 15, 1999, the Company's working capital ratio was 2.4 to 1 at
December 31, 1998.
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CASH FLOWS
Significant sources and uses of cash in the past three years are summarized
as follows, in thousands:
CASH SOURCES (USES)
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<CAPTION>
1999 1998 1997
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Net cash from operating activities........... $ 490,610 $ 537,670 $ 470,220
Acquisitions of companies, net of cash
acquired................................... (794,950) (322,880) (186,920)
Cash proceeds from sale of subsidiary and
TriMas investment.......................... -- 137,640 --
Capital expenditures......................... (350,850) (243,380) (215,190)
Increases in debt, net....................... 578,990 315,740 262,270
Purchase of Company common stock for:
Treasury................................... (99,600) (43,330) --
Long-term stock incentive award plan....... (6,840) (46,800) (29,110)
Cash dividends paid.......................... (164,990) (145,290) (131,680)
Capital contributions from shareholders of
pooled companies........................... 11,490 1,520 245,450
Distributions to shareholders of pooled
companies.................................. -- (45,950) (536,060)
Other, net................................... 13,770 (42,440) 60,100
--------- --------- ---------
Cash increase (decrease)........... $(322,370) $ 102,500 $ (60,920)
========= ========= =========
</TABLE>
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES
Cash from operating activities was $490.6 million in 1999 as compared with
$537.7 million in 1998 and $470.2 million in 1997. During 1999, the Company's
accounts receivable and inventories increased in total by $202.4 million and
$122.9 million, respectively, primarily as a result of acquisitions, higher
actual sales volume and higher anticipated sales volume. As compared with the
average manufacturing company, the Company maintains a higher investment in
inventories, which relates to the Company's business strategies of providing
better customer service, establishing efficient production scheduling and
benefiting from larger, more cost-effective purchasing.
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES
Cash used for investing activities was $1,132.0 million in 1999, $471.1
million in 1998 and $342.0 million in 1997.
Cash used for investing activities in 1999 included $795.0 million for 1999
purchase acquisitions. Such purchase acquisitions are set forth in the Note to
the Company's Consolidated Financial Statements captioned "Purchase
Acquisitions." Investing activities for 1998 and 1997 included cash for purchase
acquisitions of $322.9 million and $186.9 million, respectively.
Capital expenditures totaled $350.9 million in 1999 as compared with $243.4
million in 1998 and $215.2 million in 1997. These amounts primarily pertain to
expenditures for additional facilities related to increased demand for existing
products as well as for new products. The Company also continues to invest in
automating its manufacturing operations and increasing its productivity, in
order to be a more efficient producer and to improve customer service. The
Company expects capital expenditures for 2000, excluding those of any 2000
acquisitions, to exceed $350 million. Depreciation and amortization expense for
1999 totaled $181.8 million, compared with $156.7 million for 1998 and $131.5
million for 1997; for 2000, depreciation and amortization expense, excluding any
2000 acquisitions, is expected to approximate $230 million.
Costs of environmental responsibilities and compliance with existing
environmental laws and regulations have not had, nor in the opinion of the
Company are they expected to have, a materially adverse effect on the Company's
capital expenditures, financial position or results of operations.
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CASH FLOWS FROM (FOR) FINANCING ACTIVITIES
Financing activities for 1999 provided cash of $319.1 million. Cash from
financing activities for 1999 included $300 million from the issuance of 7.75%
debentures, $479.0 million from a net increase in other debt (primarily bank
debt to finance purchase acquisitions) and $11.5 million of capital
contributions from shareholders of pooled companies. After giving effect to the
issuance of debt securities in 1999, 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 total of $109 million of
debt and equity securities. The Company intends to file a shelf registration
statement with the SEC during 2000 to authorize the issuance of additional debt
and equity securities. Cash used for financing activities for 1999 included $200
million for the retirement of 6.625% notes, which matured September 15, 1999,
$165 million for cash dividends paid, $99.6 million for the acquisition of
approximately 3.7 million shares of Company common stock in open-market
transactions and $6.8 million for the acquisition of Company common stock for
the Company's long-term stock incentive award plan. Acquisitions of Company
common stock occurred during the first six months of 1999. As a result of
pooling-of-interests requirements, the Company in mid-1999 canceled its share
buy-back program.
Financing activities for 1998 provided cash of $35.9 million. Cash from
financing activities for 1998 included $250 million from the issuance of 6.625%
debentures, $100 million from the issuance of 5.75% notes and a net increase in
other debt of $74.3 million. Cash used for financing activities for 1998
included $108.6 million for the early retirement of certain of the Company's 9%
notes and the payment of a premium associated with this early retirement, $145.3
million for cash dividends paid, $43.3 million for the acquisition of
approximately 1.9 million shares of Company common stock in open-market
transactions, $46.8 million for the acquisition of Company common stock for the
Company's long-term stock incentive award plan and $44.4 million of net
distributions to shareholders of pooled companies.
Cash used for financing activities for 1997 totaled $189.1 million. Cash
from financing activities for 1997 included a net increase in debt of $262.3
million. Cash used for financing activities included $29.1 million for the
acquisition of Company common stock for the Company's long-term stock incentive
award plan, $131.7 million for cash dividends paid and $536.1 million for
distributions to shareholders of pooled companies. During 1997, one of the
pooled companies completed a recapitalization. Such recapitalization resulted in
the distribution of $512 million to existing shareholders and contributions from
new shareholders totaling $234.1 million. Other distributions to and
contributions from shareholders of pooled companies in 1997 totaled $24.1
million and $11.4 million, respectively.
Capital contributions from and distributions to shareholders of pooled
companies as described above occurred prior to August 31, 1999, the date of the
pooling mergers.
The Company believes that its present cash balance and cash flows from
operations are sufficient to fund its near-term working capital and other
investment needs. The Company believes that its longer-term working capital and
other general corporate requirements will be satisfied through cash flows from
operations and, to the extent necessary, from bank borrowings, from future
financial market activities and from proceeds from asset sales.
CONSOLIDATED RESULTS OF OPERATIONS
Sales and Operations
Net sales for 1999 were $6,307 million, representing an increase of 19
percent over 1998. Excluding results from purchase acquisitions and
divestitures, net sales for 1999 increased 12 percent over 1998. Net sales for
1998 increased 17 percent to $5,280 million from $4,508 million in 1997; after
adjusting for purchase acquisitions and divestitures, net sales increased 13
percent in 1998 over 1997.
Cost of sales as a percentage of sales for both 1999 and 1998 was 63.4
percent as compared with 62.7 percent for 1997. Cost of sales as a percentage of
sales for 1997 was lower principally due to the influence of product sales mix.
Excluding amortization of acquired goodwill ($45.4 million, $29.0 million and
$18.7 million in 1999, 1998 and 1997, respectively), selling, general and
administrative expenses as a percent of sales were 21.5 percent in 1999 as
compared with 19.6 percent in 1998 and 21.2 percent in 1997. Selling, general
and
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administrative expense in 1999 includes the influence of unusual expense
principally related to transactions accounted for as poolings of interests.
Excluding such unusual expense, selling, general and administrative expenses as
a percent of sales declined slightly in 1999 as compared with 1998. The
reduction in selling, general and administrative expense from the 1997
percentage reflects the continuation of cost containment initiatives and the
leveraging of fixed costs over a higher sales base.
Operating profit margin, before general corporate expense, was 15.9 percent
in 1999 as compared with 18.0 percent in 1998 and 17.5 percent in 1997 (general
corporate expense includes those expenses not specifically attributable to the
Company's business segments). The decrease in 1999 from 1998 included the
negative effect of unusual expense principally related to transactions accounted
for as poolings of interests.
Operating profit margin, after general corporate expense, was 14.5 percent
in 1999, 16.4 percent in 1998 and 15.7 percent in 1997. General corporate
expense was $92 million in 1999, as compared with $86 million in 1998 and $82
million in 1997. General corporate expense as a percent of sales decreased to
1.5 percent in 1999 from 1.6 percent in 1998 and 1.8 percent in 1997.
Other Income (Expense), Net
Included in other income (expense), net are equity earnings from MascoTech
of $15.4 million for both 1999 and 1998 and $14.6 million for 1997.
Included in other, net under other income (expense), net is interest income
for 1999, 1998 and 1997 of $46.6 million, $41.5 million and $36.8 million,
respectively, from the 12% pay-in-kind junior debt securities of Furnishings
International Inc. Such interest income began to accrue in August 1996 upon the
sale of the Company's home furnishings businesses. Also included in other, net
in 1997 is interest income of $7.5 million from a $151 million note receivable
from MascoTech, which was paid on September 30, 1997.
Included in other, net under other income (expense), net for 1999 were
approximately $30 million of income and gains, net, regarding certain
non-operating assets and $7.6 million of dividend income from the Company's
investment in Furnishings International's 13% cumulative preferred stock. Also
included in other, net for 1999 were approximately $4 million of expenses
related to the early retirement of debt.
Included in other, net under other income (expense), net in 1998 were
pre-tax gains aggregating approximately $59 million from sales of the Company's
Thermador subsidiary ($30 million) and the Company's investment in TriMas
Corporation ($29 million). Also included in other, net for 1998 were $7 million
of dividend income from the Company's investment in Furnishings International's
13% cumulative preferred stock and an approximate $12 million pre-tax charge
related to the early retirement of long-term debt.
Included in other, net under other income (expense), net in 1997 were $10.8
million of dividend income from the Company's investment in Furnishings
International's 13% cumulative preferred stock, net gains aggregating
approximately $28 million related to the sales of certain non-operating assets
and charges aggregating approximately $30 million principally for the adjustment
of the Company's Payless Cashways investment to its estimated fair value.
During the second quarter of 1997, MascoTech effected conversion of all of
its publicly held outstanding convertible preferred stock with the issuance of
approximately 10 million shares of its common stock. This conversion reduced the
Company's common equity ownership in MascoTech to 17 percent from 21 percent,
and increased the Company's equity in MascoTech's net book value by
approximately $29.5 million. As a result, the Company recognized a pre-tax gain
of $29.5 million during the second quarter of 1997.
Net Income and Earnings Per Share
Net income for 1999 was $569.6 million as compared with $565.1 million for
1998 and $444.1 million for 1997. Diluted earnings per share for 1999 were $1.28
compared with $1.26 for 1998 and $1.02 for 1997. Net income and earnings per
share for 1999 were negatively affected by unusual expense, principally related
to transactions accounted for as poolings of interests. The Company's effective
tax rate decreased to 37.0 percent in 1999 from 37.6 percent in 1998 and 39.5
percent in 1997, due principally to the increased utilization of
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foreign tax credits. The Company estimates that its effective tax rate should
approximate 37.0 percent for 2000.
BUSINESS SEGMENT AND GEOGRAPHIC AREA RESULTS
The following table sets forth the Company's net sales and operating profit
information by business segment and geographic area, in millions. As a result of
significant mergers and acquisitions during 1999, the Company redefined its
business segments; accordingly, segment information for prior years has been
restated. During 2000, the Company revised its segment information note to
include expanded disclosure regarding the Company's business segments.
<TABLE>
<CAPTION>
PERCENT
INCREASE
(DECREASE)
-----------
1999 1998
VS. VS.
1999 1998 1997 1998 1997
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<S> <C> <C> <C> <C> <C>
NET SALES:
Plumbing Products............................... $1,803 $1,667 $1,551 8% 7%
Cabinets and Related Products................... 2,220 1,908 1,540 16% 24%
Decorative Architectural Products............... 1,165 919 737 27% 25%
Insulation Installation and Other Services...... 532 250 195 113% 28%
Other Specialty Products........................ 587 536 485 10% 11%
------ ------ ------
TOTAL...................................... $6,307 $5,280 $4,508 19% 17%
====== ====== ======
North America................................... $5,238 $4,441 $3,820 18% 16%
International, principally Europe............... 1,069 839 688 27% 22%
------ ------ ------
TOTAL, AS ABOVE............................ $6,307 $5,280 $4,508 19% 17%
====== ====== ======
OPERATING PROFIT:*
Plumbing Products............................... $ 378 $ 369 $ 334 2% 10%
Cabinets and Related Products................... 320 295 226 8% 31%
Decorative Architectural Products............... 122 167 123 (27%) 36%
Insulation Installation and Other Services...... 79 30 27 163% 11%
Other Specialty Products........................ 104 91 78 14% 17%
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TOTAL...................................... $1,003 $ 952 $ 788 5% 21%
====== ====== ======
North America................................... $ 867 $ 829 $ 689 5% 20%
International, principally Europe............... 136 123 99 11% 24%
------ ------ ------
TOTAL, AS ABOVE............................ $1,003 $ 952 $ 788 5% 21%
====== ====== ======
OPERATING PROFIT MARGIN:*
Plumbing Products............................... 21.0% 22.1% 21.5%
Cabinets and Related Products................... 14.4% 15.5% 14.7%
Decorative Architectural Products............... 10.5% 18.2% 16.7%
Insulation Installation and Other Services...... 14.8% 12.0% 13.8%
Other Specialty Products........................ 17.7% 17.0% 16.1%
North America................................... 16.6% 18.7% 18.0%
International, principally Europe............... 12.7% 14.7% 14.4%
TOTAL...................................... 15.9% 18.0% 17.5%
</TABLE>
* Before general corporate expense, but including goodwill amortization.
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BUSINESS SEGMENT RESULTS
PLUMBING PRODUCTS
Excluding purchase acquisitions, net sales of Plumbing Products increased 4
percent in 1999 compared with 1998 and increased 7 percent in 1998 compared with
1997; such increases were due largely to higher unit sales volume of whirlpools,
spas and faucets and new product introductions. Net sales were negatively
influenced by a stronger U.S. dollar in both 1999 and 1998, which affected the
translation of European operations included in this segment. Operating profit
margin for 1999 compared with 1998 was negatively influenced by product mix.
CABINETS AND RELATED PRODUCTS
Excluding purchase acquisitions, net sales of Cabinets and Related Products
increased 14 percent in 1999 compared with 1998 and increased 17 percent in 1998
compared with 1997 due largely to higher unit sales volume of U.S. operations
included in this segment and new product introductions. This segment was also
negatively impacted by a stronger U.S. dollar in both 1999 and 1998, which
affected the translation of European operations included in this segment.
Operating profit margin for 1999 compared with 1998 was negatively influenced by
unusual expense related to a transaction accounted for as a pooling of
interests; excluding unusual expense, 1999 operating profit margin for this
segment approximated the 1998 level.
DECORATIVE ARCHITECTURAL PRODUCTS
Excluding purchase acquisitions, net sales of Decorative Architectural
Products increased 17 percent in 1999 compared with 1998 and increased 19
percent in 1998 compared with 1997. These increases were due largely to higher
unit sales volume of these products. Operating profit margin for 1999 compared
with 1998 was negatively influenced by unusual expense related to a transaction
accounted for as a pooling of interests; excluding unusual expense, 1999
operating profit margin for this segment approximated the 1998 level.
INSULATION INSTALLATION AND OTHER SERVICES
Excluding purchase acquisitions, net sales of Insulation Installation and
Other Services increased 43 percent in 1999 compared with 1998 and increased 28
percent in 1998 compared with 1997 due largely to broader geographic U.S. market
penetration, increased sales volume in existing markets and selling price
increases. Operating results of this segment continue to benefit from the
leveraging of fixed selling, general and administrative costs over higher sales.
OTHER SPECIALTY PRODUCTS
Excluding purchase acquisitions and divestitures, net sales of Other
Specialty Products were flat in 1999 compared with 1998 and increased 3 percent
in 1998 compared with 1997; a stronger U.S. dollar in both 1999 and 1998 had a
negative effect on the translation of European operations included in this
segment. Operating profit margin for 1999 and 1998 includes the favorable
influence of purchase acquisitions offset in part by lower results of certain
existing European operations included in this segment.
GEOGRAPHIC AREA RESULTS
NORTH AMERICA
Excluding purchase acquisitions and divestitures, North American net sales
for 1999 increased 14 percent over 1998 due largely to higher unit sales volume
of cabinets, paints and stains and other kitchen and bath products, higher
installation sales of fiberglass insulation, and to a lesser extent, new product
introductions and selling price increases. Operating profit margin for 1999 was
negatively affected by unusual expense principally related to transactions
accounted for as poolings of interests, which more than offset the favorable
influence of purchase acquisitions. Excluding unusual 1999 expense, operating
profit margin approximated the 1998 level.
8
<PAGE> 11
Excluding purchase acquisitions and divestitures, North American net sales
for 1998 increased 14 percent over 1997 due largely to higher unit sales volume
of cabinets, paints and stains, and faucets, higher installation sales of
fiberglass insulation and to a lesser extent, new product introductions and
selling price increases. Operating profit margin for 1998 compared with 1997 was
favorably influenced by higher unit sales volume, offset in part by the
influence of product sales mix and stronger than anticipated demand for lower
margin cabinets.
Results of the Company's North American operations for 1999, 1998 and 1997
benefited from demographic and economic conditions principally in the United
States, including higher consumer confidence and income, modest economic growth
and relatively low unemployment. These conditions have favorably influenced the
housing and home improvement markets in the United States, including housing
starts, existing home sales and repair and remodeling activities.
INTERNATIONAL, PRINCIPALLY EUROPE
Excluding purchase acquisitions, net sales of the Company's International
operations increased 1 percent in 1999 compared with 1998 and were flat for 1998
compared with 1997. Operating profit margin for 1999 and 1998 was favorably
influenced by recent acquisitions. Operating results of existing European
operations have been adversely influenced in recent years, in part due to
softness in the Company's European markets, competitive pricing pressures on
certain products and the effect of a higher percentage of lower margin sales to
total sales. In addition, a stronger U.S. dollar had a negative effect on the
translation of European results in 1999 compared with 1998 as well as 1998
compared with 1997, lowering European net sales in 1999 and 1998 by
approximately 3 percent and 2 percent, respectively.
Operating results of the Company's business segments for 1999, 1998 and
1997 benefited from the leveraging of fixed selling, general and administrative
expenses over higher sales.
OUTLOOK FOR THE COMPANY
Assuming that the U.S. economy maintains its present rate of moderate
growth and interest rates remain relatively stable, the Company expects
increases in both sales and earnings for 2000. The Company believes that its
results should be favorably affected in the future with its efforts to: continue
to invest in new manufacturing technologies and productivity improvement
initiatives in order to contain costs and increase efficiency; maintain a lower
level of selling, general and administrative expenses as a percent of sales;
introduce new products and marketing initiatives to attempt to increase market
share; and actively pursue acquisition candidates that complement or support the
Company's core competencies.
RECENTLY ISSUED STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 requires that all
derivative instruments be recorded on the balance sheet at fair value. Changes
in the fair value of derivatives are to be recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. In June 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities -- Deferral of the Effective Date
of FASB Statement No. 133." SFAS No. 137 defers the effective adoption date of
SFAS No. 133 to January 1, 2001. SFAS No. 133 should not have a material effect
on the Company's financial statements.
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company has considered the provisions of Financial Reporting Release
No. 48, "Disclosure of Accounting Policies for Derivative Financial Instruments
and Derivative Commodity Instruments, and Disclosure of Quantitative and
Qualitative Information about Market Risk Inherent in Derivative Financial
Instruments, Other Financial Instruments and Derivative Commodity Instruments."
The Company had no holdings
9
<PAGE> 12
of derivative financial or commodity-based instruments at December 31, 1999. A
review of the Company's other financial instruments and risk exposures at that
date revealed that the Company had exposure to interest rate and foreign
currency exchange rate risks. At December 31, 1999, the Company performed
sensitivity analyses to assess the potential effect of these risks and concluded
that near-term changes in interest rates and foreign currency exchange rates
should not materially affect the Company's financial position, results of
operations or cash flows.
YEAR 2000
The Company did not experience any significant disruptions to its operating
systems as a result of the date change to year 2000 ("Y2K").
The Company has in place a team that has been and is continuing to address
any remaining Y2K issues that encompass operating and administrative areas of
the Company. Also, the Company continues to monitor the status of its
remediation plans. The process includes an assessment of issues and development
of remediation plans, where necessary, as they relate to internally used
software, computer hardware and the use of computer applications in the
Company's manufacturing processes.
The approximate cost of the Y2K program, including planned upgrades, is
less than $20 million. This cost, most of which has been incurred and expensed
at December 31, 1999, is not material to the Company's results of operations or
financial position.
EURO CONVERSION
A single currency called the euro was introduced in Europe on January 1,
1999. Eleven of the fifteen member countries of the European Union adopted the
euro as their common legal currency as of that date. Fixed conversion rates
between these participating countries' existing currencies (the "legacy
currencies") and the euro were established as of that date. The legacy
currencies will remain legal tender as denominations of the euro until at least
January 1, 2002 (but not intended to be later than July 1, 2002). During this
transition period, parties may settle non-cash transactions using either the
euro or a participating country's legacy currency. Cash transactions will
continue to be settled in the legacy currencies of participating countries until
January 1, 2002, when euro-denominated currency will be issued. The Company is
currently completing changes to existing systems to facilitate a smooth
transition to the new currency and believes that conversion to the euro will not
have a material effect on the Company's financial position or results of
operations.
10
<PAGE> 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Masco Corporation:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) present fairly, in all material respects, the
financial position of Masco Corporation and its subsidiaries at December 31,
1999 and 1998, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in the index
appearing under Item 14(a)(2)(i) presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As described in the Segment Information Note, the accompanying consolidated
financial statements have been revised to include expanded disclosure regarding
the Company's business segments.
PricewaterhouseCoopers LLP
Detroit, Michigan
February 16, 2000, except as to the Segment
Information Note, which is as of
October 24, 2000
11
<PAGE> 14
MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Current Assets:
Cash and cash investments................................. $ 230,780,000 $ 553,150,000
Receivables............................................... 1,002,630,000 800,280,000
Inventories............................................... 769,870,000 646,930,000
Prepaid expenses and other................................ 106,500,000 81,640,000
-------------- --------------
Total current assets.............................. 2,109,780,000 2,082,000,000
Equity investment in MascoTech, Inc. ....................... 69,930,000 59,830,000
Equity investments in other affiliates...................... 133,550,000 165,020,000
Securities of Furnishings International Inc. ............... 481,270,000 434,640,000
Property and equipment...................................... 1,624,360,000 1,357,830,000
Acquired goodwill, net...................................... 1,742,930,000 1,055,790,000
Other assets................................................ 473,100,000 463,740,000
-------------- --------------
Total Assets...................................... $6,634,920,000 $5,618,850,000
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable............................................. $ 62,300,000 $ 309,320,000
Accounts payable.......................................... 243,810,000 196,930,000
Accrued liabilities....................................... 540,320,000 470,090,000
-------------- --------------
Total current liabilities......................... 846,430,000 976,340,000
Long-term debt.............................................. 2,431,270,000 1,638,290,000
Deferred income taxes and other............................. 220,720,000 230,180,000
-------------- --------------
Total Liabilities................................. 3,498,420,000 2,844,810,000
-------------- --------------
Shareholders' Equity:
Common shares authorized: 900,000,000; issued:
1999-443,510,000; 1998-443,280,000..................... 443,510,000 443,280,000
Preferred shares authorized: 1,000,000.................... -- --
Paid-in capital........................................... 601,990,000 584,530,000
Retained earnings......................................... 2,151,520,000 1,762,800,000
Other comprehensive income (loss)......................... (60,520,000) (16,570,000)
-------------- --------------
Total Shareholders' Equity........................ 3,136,500,000 2,774,040,000
-------------- --------------
Total Liabilities and Shareholders' Equity........ $6,634,920,000 $5,618,850,000
============== ==============
</TABLE>
See notes to consolidated financial statements.
12
<PAGE> 15
MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales..................................... $6,307,000,000 $5,280,000,000 $4,508,000,000
Cost of sales................................. 3,995,530,000 3,347,900,000 2,825,610,000
-------------- -------------- --------------
Gross profit........................ 2,311,470,000 1,932,100,000 1,682,390,000
Selling, general and administrative
expenses.................................... 1,354,640,000 1,036,700,000 957,770,000
Amortization of acquired goodwill............. 45,430,000 29,000,000 18,720,000
-------------- -------------- --------------
Operating profit.................... 911,400,000 866,400,000 705,900,000
-------------- -------------- --------------
Other income (expense), net:
Re: MascoTech, Inc.:
Equity earnings.......................... 15,430,000 15,360,000 14,580,000
Gain from change in investment........... -- -- 29,500,000
Equity earnings, other affiliates........... 8,500,000 13,840,000 9,560,000
Other, net.................................. 89,190,000 124,300,000 68,540,000
Interest expense............................ (120,420,000) (114,400,000) (94,280,000)
-------------- -------------- --------------
(7,300,000) 39,100,000 27,900,000
-------------- -------------- --------------
Income before income taxes.......... 904,100,000 905,500,000 733,800,000
Income taxes.................................. 334,500,000 340,400,000 289,700,000
-------------- -------------- --------------
Net income.......................... $ 569,600,000 $ 565,100,000 $ 444,100,000
============== ============== ==============
Earnings per share:
Basic............................... $1.31 $1.30 $1.05
============== ============== ==============
Diluted............................. $1.28 $1.26 $1.02
============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
13
<PAGE> 16
MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
--------------- ------------- -------------
<S> <C> <C> <C>
Cash Flows From (For):
Operating Activities:
Net income..................................... $ 569,600,000 $ 565,100,000 $ 444,100,000
Depreciation and amortization.................. 181,820,000 156,670,000 131,510,000
Unremitted equity earnings of affiliates....... (18,720,000) (24,070,000) (19,470,000)
Interest accrual on pay-in-kind notes
receivable.................................. (46,630,000) (41,500,000) (36,800,000)
Deferred income taxes.......................... 5,240,000 61,660,000 34,640,000
Gain from:
Sale of subsidiary and TriMas investment.... -- (59,300,000) --
Change in MascoTech investment.............. -- -- (29,500,000)
Increase in receivables........................ (116,830,000) (98,930,000) (74,940,000)
Increase in inventories........................ (68,280,000) (55,870,000) (52,660,000)
Increase in accounts payable and accrued
liabilities, net............................ 14,300,000 20,340,000 75,360,000
Other, net..................................... (29,890,000) 13,570,000 (2,020,000)
--------------- ------------- -------------
Net cash from operating activities........ 490,610,000 537,670,000 470,220,000
--------------- ------------- -------------
Investing Activities:
Acquisition of companies, net of cash
acquired.................................... (794,950,000) (322,880,000) (186,920,000)
Capital expenditures........................... (350,850,000) (243,380,000) (215,190,000)
Cash proceeds from sale of subsidiary and
TriMas investment........................... -- 137,640,000 --
Other, net..................................... 13,770,000 (42,440,000) 60,100,000
--------------- ------------- -------------
Net cash (for) investing activities....... (1,132,030,000) (471,060,000) (342,010,000)
--------------- ------------- -------------
Financing Activities:
Issuance of 7.75% debentures................... 300,000,000 -- --
Issuance of 6.625% debentures.................. -- 250,000,000 --
Issuance of 5.75% notes........................ -- 100,000,000 --
Increase in other debt......................... 915,830,000 436,430,000 325,100,000
Retirement of 9% notes......................... -- (108,620,000) --
Retirement of 6.625% notes..................... (200,000,000) -- --
Payment of other debt.......................... (436,840,000) (362,070,000) (62,830,000)
Purchase of Company common stock for:
Treasury.................................... (99,600,000) (43,330,000) --
Long-term stock incentive award plan........ (6,840,000) (46,800,000) (29,110,000)
Cash dividends paid............................ (164,990,000) (145,290,000) (131,680,000)
Capital contributions from shareholders of
pooled companies............................ 11,490,000 1,520,000 245,450,000
Distributions to shareholders of pooled
companies................................... -- (45,950,000) (536,060,000)
--------------- ------------- -------------
Net cash from (for) financing
activities............................. 319,050,000 35,890,000 (189,130,000)
--------------- ------------- -------------
Cash and Cash Investments:
Increase (decrease) for the year............... (322,370,000) 102,500,000 (60,920,000)
At January 1................................... 553,150,000 450,650,000 511,570,000
--------------- ------------- -------------
At December 31................................. $ 230,780,000 $ 553,150,000 $ 450,650,000
=============== ============= =============
</TABLE>
See notes to consolidated financial statements.
14
<PAGE> 17
MASCO CORPORATION AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON OTHER
SHARES RETAINED COMPREHENSIVE
TOTAL ($1 PAR VALUE) PAID-IN CAPITAL EARNINGS INCOME (LOSS)
-------------- -------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997...... $2,064,040,000 $212,840,000 $ 230,020,000 $1,618,660,000 $ 2,520,000
Net income.................. 444,100,000 444,100,000
Cumulative translation
adjustments............... (28,000,000) (28,000,000)
--------------
Total comprehensive income.... 416,100,000
Shares issued................. 169,250,000 4,700,000 164,550,000
Cash dividends declared....... (134,440,000) (134,440,000)
Re: Shareholders of pooled
companies:
Capital contributions
from...................... 245,450,000 245,450,000
Distribution to............. (536,060,000) (536,060,000)
Compensatory stock
options................... 480,000 480,000
-------------- ------------ ------------- -------------- ------------
Balance, December 31, 1997.... 2,224,820,000 217,540,000 640,500,000 1,392,260,000 (25,480,000)
Net income.................. 565,100,000 565,100,000
Cumulative translation
adjustments............... 8,910,000 8,910,000
--------------
Total comprehensive income.... 574,010,000
Shares issued................. 206,590,000 5,670,000 200,920,000
100 percent stock
distribution................ -- 221,960,000 (221,960,000)
Shares repurchased............ (43,330,000) (1,890,000) (41,440,000)
Cash dividends declared....... (148,610,000) (148,610,000)
Re: Shareholders of pooled
companies:
Capital contributions
from...................... 1,520,000 1,520,000
Distribution to............. (45,950,000) (45,950,000)
Compensatory stock
options................... 4,990,000 4,990,000
-------------- ------------ ------------- -------------- ------------
Balance, December 31, 1998.... 2,774,040,000 443,280,000 584,530,000 1,762,800,000 (16,570,000)
Net income.................. 569,600,000 569,600,000
Cumulative translation
adjustments............... (43,950,000) (43,950,000)
--------------
Total comprehensive income.... 525,650,000
Shares issued................. 85,550,000 3,960,000 81,590,000
Shares repurchased............ (99,600,000) (3,730,000) (95,870,000)
Cash dividends declared....... (180,880,000) (180,880,000)
Re: Shareholders of pooled
companies:
Capital contributions
from...................... 11,490,000 11,490,000
Compensatory stock
options................... 20,250,000 20,250,000
-------------- ------------ ------------- -------------- ------------
Balance, December 31, 1999.... $3,136,500,000 $443,510,000 $ 601,990,000 $2,151,520,000 $(60,520,000)
============== ============ ============= ============== ============
</TABLE>
See notes to consolidated financial statements.
15
<PAGE> 18
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ACCOUNTING POLICIES
Principles of Consolidation. The consolidated financial statements include
the accounts of Masco Corporation and all majority-owned subsidiaries. All
significant intercompany transactions have been eliminated. The consolidated
financial statements for prior years and related notes have been restated to
include the accounts and operations of transactions accounted for as poolings of
interests.
Use of Estimates in the Preparation of Financial Statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires the Company to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of any contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from such estimates and
assumptions.
Cash and Cash Investments. The Company considers all highly liquid
investments with an initial maturity of three months or less to be cash and cash
investments.
Receivables. The Company does significant business with a number of
individual customers, including certain home centers. The Company monitors its
exposure for credit losses and maintains adequate allowances for doubtful
accounts; the Company does not believe that significant credit risks exist. At
December 31, 1999 and 1998, accounts and notes receivable are presented net of
allowances for doubtful accounts of $26.1 million and $22.2 million,
respectively.
Property and Equipment. Property and equipment, including significant
betterments to existing facilities, are recorded at cost. Upon retirement or
disposal, the cost and accumulated depreciation are removed from the accounts
and any gain or loss is included in the statement of income. Maintenance and
repair costs are charged to expense as incurred.
Depreciation and Amortization. Depreciation is computed principally using
the straight-line method over the estimated useful lives of the assets. Annual
depreciation rates are as follows: buildings and land improvements, 2 to 10
percent, and machinery and equipment, 5 to 33 percent. Depreciation was $114.6
million, $107.5 million and $95.8 million in 1999, 1998 and 1997, respectively.
Acquired goodwill is being amortized using the straight-line method over
periods not exceeding 40 years; at December 31, 1999 and 1998 such accumulated
amortization totaled $153.9 million and $108.5 million, respectively. At each
balance sheet date, management evaluates the recoverability of acquired goodwill
by comparing the carrying value of the asset to the associated current and
projected annual sales, operating profit and undiscounted annual cash flows;
management also considers business prospects, market trends and other economic
factors in performing this evaluation. Based on this evaluation, there was no
permanent impairment related to acquired goodwill at December 31, 1999 and 1998.
Purchase costs of patents are being amortized using the straight-line method
over the legal lives of the patents, not to exceed 17 years. Amortization of
intangible assets totaled $67.2 million, $49.2 million and $35.7 million in
1999, 1998 and 1997, respectively.
Fair Value of Financial Instruments. The carrying value of financial
instruments reported in the balance sheet for current assets, current
liabilities and long-term variable rate debt approximates fair value. The fair
value of financial instruments that are carried as long-term investments (other
than those accounted for by the equity method) was based principally on quoted
market prices for those or similar investments or by discounting future cash
flows using a discount rate that reflects the risk of the underlying
investments. The fair value of the Company's long-term fixed-rate debt
instruments was based principally on quoted market prices for the same or
similar issues or the current rates available to the Company for debt with
similar terms and remaining maturities. The aggregate market value of the
Company's long-term investments and long-term debt at December 31, 1999 was
approximately $772 million and $2,370 million, as compared with the Company's
aggregate carrying value of $706 million and $2,431 million, respectively, and
at December 31,
16
<PAGE> 19
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ACCOUNTING POLICIES -- (CONCLUDED)
1998 the aggregate market value was approximately $650 million and $1,663
million, as compared with the Company's aggregate carrying value of $639 million
and $1,638 million, respectively.
POOLING-OF-INTERESTS TRANSACTIONS
During the third quarter of 1999, the Company completed mergers with Behr
Process Corporation, a manufacturer of premium architectural coatings; Mill's
Pride, L.L.P., a manufacturer of ready-to-assemble and assembled kitchen and
bath cabinetry, bath vanities, home office workstations and entertainment
centers, storage products, bookcases and kitchen utility products; and a smaller
company. The Company issued approximately 104 million shares of common stock in
exchange for all of the outstanding shares of these companies. The transactions
have been accounted for as poolings of interests and, accordingly, the
consolidated financial statements and related shares and per share data for all
prior periods presented have been restated to include the accounts and
operations of the pooled companies. The Company's net sales and net income prior
to these poolings for the first six months of 1999 (unaudited) were $2,416
million and $262.9 million, respectively, and for the years 1998 and 1997 were
$4,345 million and $476 million and $3,760 million and $382.4 million,
respectively.
PURCHASE ACQUISITIONS
During the third quarter of 1999, the Company acquired Arrow Fastener
Company, a manufacturer of manual and electric staple gun tackers and staples
and other fastening tools; H&H Tube, a manufacturer of brass, copper, steel and
aluminum tubes; and Superia Radiatoren N.V., a Belgian-based manufacturer of
standard plate radiators. The Company also acquired INRECON, L.L.C., a company
specializing in repair and restoration of residential, commercial and
institutional facilities damaged by fire, wind, water and other disasters.
During the second quarter of 1999, the Company acquired Avocet Hardware
PLC, a U.K. supplier of locks and other builders' hardware; The Cary Group, an
insulation services company; and The GMU Group, a manufacturer and distributor
of kitchen cabinets and cabinet components, headquartered in Spain. In the first
quarter of 1999, the Company acquired A&J Gummers, a U.K. manufacturer of shower
valve products, and The Faucet Queens, Inc., a supplier of plumbing accessories
and hardware products.
The aggregate net purchase price of these 1999 purchase acquisitions was
approximately $850 million, including 1.6 million shares of Company common stock
valued at $48 million. The excess of the aggregate acquisition cost for these
purchase acquisitions over the calculated fair value of net assets acquired
totaled approximately $680 million and has been recorded as acquired goodwill.
Purchase agreements for certain of the 1999 purchase acquisitions include
provisions for additional consideration to be paid if the acquired business
achieves specific operating results in future periods, ranging from one to five
years. Such additional consideration, when earned, is recorded as additional
purchase price.
The results of operations for these 1999 purchase acquisitions are included
in the consolidated financial statements from the dates of acquisition. Had
these companies been acquired effective January 1, 1998, pro forma unaudited
consolidated net sales and net income would have approximated $6,537 million and
$579 million for 1999 and $5,889 million and $590 million for 1998,
respectively, and pro forma unaudited consolidated diluted earnings per share
would have increased approximately $.02 for 1999 and $.05 for 1998.
17
<PAGE> 20
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVENTORIES
<TABLE>
<CAPTION>
(IN THOUSANDS)
AT DECEMBER 31
-------------------
1999 1998
-------- --------
<S> <C> <C>
Raw material................................................ $307,060 $262,410
Finished goods.............................................. 290,440 236,610
Work in process............................................. 172,370 147,910
-------- --------
$769,870 $646,930
======== ========
</TABLE>
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.
EQUITY INVESTMENTS IN AFFILIATES
Equity investments in affiliates consist primarily of the following common
equity interests:
<TABLE>
<CAPTION>
AT DECEMBER 31
-------------------
1999 1998 1997
----- ---- ----
<S> <C> <C> <C>
MascoTech, Inc. ........................................... 17.5% 17% 17%
Emco Limited............................................... 42 % 42% 42%
Hans Grohe, a German company............................... 27 % 27% 27%
TriMas Corporation......................................... -- -- 4%
</TABLE>
Excluding Hans Grohe, for which there is no quoted market value, the
aggregate market value of the Company's equity investments in affiliates at
December 31, 1999 (which may differ from the amounts that could then have been
realized upon disposition), based upon quoted market prices at that date, was
$125 million, as compared with the Company's related aggregate carrying value of
$165 million. The Company's carrying value in common stock of these equity
affiliates exceeded its equity in the underlying net book value by approximately
$49 million at December 31, 1999. This excess is being amortized over a period
not to exceed 40 years.
Pursuant to a corporate services agreement, the Company provides MascoTech,
Inc. with certain corporate staff and administrative services. The fees charged
to MascoTech approximated $6 million in 1999, $8 million in 1998 and $10 million
in 1997, and are included as a reduction of general corporate expense. MascoTech
holds an option expiring in 2002 to require the Company to purchase up to $200
million aggregate amount of subordinated debt securities of MascoTech.
During January 1998, MascoTech announced the completion of its acquisition
of TriMas Corporation. The Company recorded a gain in the first quarter of 1998
as a result of selling its common stock investment in TriMas to MascoTech in the
public tender offer.
18
<PAGE> 21
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EQUITY INVESTMENTS IN AFFILIATES -- (CONCLUDED)
Approximate combined condensed financial data of the affiliates listed on
the previous page at December 31, 1999 and 1998 and for the three years then
ended, are summarized in U.S. dollars as follows, in thousands:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Net sales.............................................. $ 2,847,000 $ 2,732,600 $2,745,600
=========== =========== ==========
Gross Profit........................................... $ 727,800 $ 704,700 $ 689,300
=========== =========== ==========
Income from continuing operations before income
taxes................................................ $ 191,400 $ 203,800 $ 287,400
=========== =========== ==========
Net income attributable to common shareholders......... $ 124,000 $ 142,900 $ 172,700
=========== =========== ==========
The Company's net equity in above net income........... $ 23,900 $ 29,200 $ 24,100
=========== =========== ==========
Cash dividends received by the Company from
affiliates........................................... $ 5,200 $ 5,100 $ 4,600
=========== =========== ==========
At December 31:
Current assets....................................... $ 859,300 $ 832,300
Current liabilities.................................. (400,200) (412,700)
----------- -----------
Working capital................................... 459,100 419,600
Property and equipment............................... 886,500 839,100
Other assets......................................... 942,000 968,400
Long-term liabilities................................ (1,809,300) (1,741,500)
----------- -----------
Shareholders' equity.............................. $ 478,300 $ 485,600
=========== ===========
</TABLE>
Equity in undistributed earnings of affiliates of $70 million at December
31, 1999, $57 million at December 31, 1998 and $43 million at December 31, 1997
are included in consolidated retained earnings.
SECURITIES OF FURNISHINGS INTERNATIONAL INC.
During August 1996, the Company completed the sale of its home furnishings
products segment to Furnishings International Inc. Total proceeds to the Company
from the sale were $1,050 million, including $708 million in cash, $285 million
of junior debt securities and equity securities aggregating $57 million.
Securities of Furnishings International Inc. are summarized as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
AT DECEMBER 31
-------------------
1999 1998
-------- --------
<S> <C> <C> <C>
Junior debt securities (12% pay-in-kind)............. $423,900 $377,270
Preferred stock (13% cumulative)..................... )
Common stock (15% ownership)......................... ) 57,370 57,370
Convertible preferred stock.......................... )
-------- --------
$481,270 $434,640
======== ========
</TABLE>
The junior debt securities mature in 2008 and are stated at face value. The
convertible preferred stock represents transferable rights for up to a 25
percent common ownership, although the Company is restricted from maintaining an
ownership in excess of 20 percent of Furnishings International's common equity.
As such, the Company will not acquire additional common equity, except for
purposes of resale.
19
<PAGE> 22
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
(IN THOUSANDS)
AT DECEMBER 31
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Land and improvements.................................... $ 101,000 $ 87,050
Buildings................................................ 643,190 563,910
Machinery and equipment.................................. 1,694,910 1,440,530
---------- ----------
2,439,100 2,091,490
Less, accumulated depreciation........................... 814,740 733,660
---------- ----------
$1,624,360 $1,357,830
========== ==========
</TABLE>
ACCRUED LIABILITIES
<TABLE>
<CAPTION>
(IN THOUSANDS)
AT DECEMBER 31
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Salaries, wages and related benefits..................... $ 162,900 $ 116,130
Advertising and sales promotion.......................... 110,450 87,830
Insurance................................................ 49,860 55,360
Income taxes............................................. 33,130 49,460
Dividends payable........................................ 53,220 37,330
Interest................................................. 39,570 34,280
Property, payroll and other taxes........................ 24,260 27,900
Other.................................................... 66,930 61,800
---------- ----------
$ 540,320 $ 470,090
========== ==========
</TABLE>
LONG-TERM DEBT
<TABLE>
<CAPTION>
(IN THOUSANDS)
AT DECEMBER 31
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Notes and Debentures:
6.625%, due Sept. 15, 1999............................. -- $ 200,000
9%, due Oct. 1, 2001............................. $ 77,030 77,030
6.125%, due Sept. 15, 2003............................. 200,000 200,000
5.75%, due Oct. 15, 2008............................. 100,000 100,000
7.125%, due Aug. 15, 2013............................. 200,000 200,000
6.625%, due Apr. 15, 2018............................. 250,000 250,000
7.75%, due Aug. 1, 2029............................. 300,000 --
Notes payable to banks................................... 750,000 --
Bank term loans.......................................... -- 202,750
European bank debt....................................... 470,060 505,970
Other.................................................... 146,480 211,860
---------- ----------
2,493,570 1,947,610
Less, current portion.................................... 62,300 309,320
---------- ----------
$2,431,270 $1,638,290
========== ==========
</TABLE>
All of the notes and debentures above, other than bank notes, are
nonredeemable.
20
<PAGE> 23
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM DEBT -- (CONCLUDED)
During August 1999, the Company issued $300 million of 7.75% debentures due
August 1, 2029. Proceeds from this issuance were largely used to retire the
6.625% notes which matured September 15, 1999.
The notes payable to banks relate to a $750 million bank revolving-credit
agreement, with any outstanding balance due and payable in November 2001.
Interest is payable on borrowings under this agreement based upon various
floating rate options as selected by the Company (approximately 6 percent at
December 31, 1999). During 1999, the Company entered into a $400 million 364-day
credit facility. There was no outstanding balance due under this credit facility
at December 31, 1999. Subsequent to December 31, 1999, the Company amended and
restated this credit facility, increasing the amount of such facility to $1
billion and extending the maturity to March 2001. Interest is payable on
borrowings under this credit facility based on various floating rate options as
selected by the Company.
European bank debt relates to borrowings of local currency for European
acquisitions and expansion. At December 31, 1999, approximately $206 million of
European debt related to a term loan facility expiring in 2002. The balance of
$264 million represents borrowings under lines of credit primarily expiring in
2003. Interest is payable on European borrowings based upon various floating
rates as selected by the Company (approximately 4 percent at December 31, 1999).
Certain debt agreements contain limitations on additional borrowings and a
requirement for maintaining a certain level of net worth. At December 31, 1999,
the Company was in compliance with these borrowing limitations, and the
Company's net worth exceeded that requirement by approximately $806 million.
At December 31, 1999, the maturities of long-term debt during each of the
next five years, assuming that the bank debt is refinanced, were approximately
as follows: 2000 -- $62.3 million; 2001 -- $113.9 million; 2002 -- $28.6
million; 2003 -- $222.4 million; and 2004 -- $17.4 million.
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 $109 million of debt and equity securities.
Interest paid was approximately $126 million, $114 million and $95 million
in 1999, 1998 and 1997, respectively.
SHAREHOLDERS' EQUITY
During the first six months of 1999, pursuant to the Company's share
repurchase program, as authorized by the Board of Directors, the Company
repurchased approximately 3.7 million of its common shares in open-market
transactions at a cost aggregating $99.6 million. As a result of
pooling-of-interests transaction requirements, the Company in mid-1999 canceled
its share buy-back program. During 1998, the Company acquired approximately 1.9
million of its common shares in open-market transactions at a cost aggregating
$43.3 million.
Included in the consolidated statements of shareholders' equity for 1999,
1998 and 1997 are distributions to and contributions from shareholders of pooled
companies. Such distributions and contributions occurred prior to August 31,
1999, the date of the pooling mergers. During 1997, one of the pooled companies
completed a recapitalization; such recapitalization resulted in the distribution
of $512 million to existing shareholders and contributions from new shareholders
totaling $234 million. Other distributions to shareholders of pooled companies
in 1998 and 1997 totaled $46 million and $24 million, respectively. Other
contributions from shareholders of pooled companies in 1999, 1998 and 1997
totaled $11 million, $2 million and $11 million, respectively.
On the basis of amounts paid (declared) and after giving effect to the 1998
stock split, cash dividends per share were $.45 ($.46) in 1999, $.43 ($.43 1/2)
in 1998 and $.40 1/2 ($.41) in 1997.
21
<PAGE> 24
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SHAREHOLDERS' EQUITY -- (CONCLUDED)
In July 1998, the Company effected a two-for-one stock split in the form of
a 100 percent stock distribution to shareholders, which, after giving effect to
1999 poolings of interests, resulted in the issuance of approximately 222
million shares of common stock and reduced paid-in capital by approximately $222
million.
In 1995, the Company's Board of Directors announced the approval of a
Shareholder Rights Plan. The Rights were designed to enhance the Board's ability
to protect the Company's shareholders against, among other things, unsolicited
attempts to acquire control of the Company that do not offer an adequate price
to all shareholders or are otherwise not in the best interests of the
shareholders. The Rights were issued to shareholders of record in December 1995
and will expire in December 2005.
Financial statements of non-U.S. operations are translated into U.S.
dollars using exchange rates in effect at year-end for assets and liabilities
and using weighted average exchange rates in effect during the year for results
of operations. Adjustments resulting from such translation are reflected as
cumulative translation adjustments in shareholders' equity, included in other
comprehensive income (loss).
STOCK OPTIONS AND AWARDS
The Company's 1991 Long Term Stock Incentive Plan (the "Plan") provides for
the issuance of stock-based incentives in various forms. At December 31, 1999,
outstanding stock-based incentives were primarily in the form of restricted
long-term stock awards, stock appreciation rights, phantom stock awards and
stock options. Additionally, the Company's 1997 Non-Employee Directors Stock
Plan (the "1997 Plan") provides for the payment of compensation to non-employee
Directors in part in Company common stock.
RESTRICTED LONG-TERM STOCK AWARDS
The Company granted long-term stock awards, net of cancellations, for
402,000, 1,149,000 and 1,581,000 shares of Company common stock during 1999,
1998 and 1997, respectively, to key employees of the Company and to non-employee
Directors of the Company. These long-term stock awards do not cause net share
dilution inasmuch as the Company reacquires an equal number of shares on the
open market. The weighted average grant date fair value per share of long-term
stock awards granted during 1999, 1998 and 1997 was $29, $26 and $21,
respectively. Early vesting of certain of these awards is contingent upon the
market price of Company common stock equaling or exceeding certain price targets
within specific time periods, including a $50 price target by February 2003.
Compensation expense for the annual vesting of long-term stock awards was $20
million, $17 million and $14 million in 1999, 1998 and 1997, respectively. The
unamortized costs of unvested stock awards, aggregating approximately $118
million at December 31, 1999, are included in other assets and are being
amortized over the typical 10-year vesting periods.
STOCK APPRECIATION RIGHTS AND PHANTOM STOCK AWARDS
In connection with transactions accounted for as poolings of interests in
1999, the Company converted existing stock appreciation rights ("SARs") into
Company SARs with annual cash compensation linked to the value of approximately
330,000 shares of Company common stock. In connection with other acquisitions in
1999, the Company generated phantom stock awards linked to the value of 664,000
shares of Company common stock. Compensation expense related to SARs and phantom
stock awards for 1999 was $66.6 million, of which approximately $61 million
pertained to transactions accounted for as poolings of interests; for 1998 and
1997, such expense was $8.3 million and $13.0 million, respectively.
NON-COMPENSATORY STOCK OPTIONS
Fixed stock options are granted to key employees of the Company and to
non-employee Directors of the Company and have a maximum term of 10 years. The
exercise price equals the market price of Company
22
<PAGE> 25
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTIONS AND AWARDS -- (CONTINUED)
common stock on the date of grant. These options generally become exercisable in
installments beginning in the third year and extending through the eighth year
after grant.
During 1997, the Company granted original stock options for 5,680,000
shares of Company common stock with an exercise price of $19 1/2 per share
(equal to the market price on the grant date). During 1999, 1998 and 1997, the
Company granted restoration stock options for 1,956,000, 692,000 and 278,000
shares of Company common stock with grant date exercise prices ranging from $25
to $33, $25 to $31 and $17 1/2 to $26, respectively (the market prices on the
grant dates), and stock options for 64,000 shares in each of 1999 and 1998 and
56,000 shares in 1997 to non-employee Directors of the Company with exercise
prices of $30, $29 and $19 1/2, respectively.
The Compensation Committee of the Board of Directors, in acceding to the
Chief Executive Officer's request that his annual salary and bonus be reduced to
$1.00 per year, effective January 1, 1996, considered alternative compensation
arrangements for the Chief Executive Officer and in April 1996 granted the Chief
Executive Officer a 10-year option, with a $20 1/2 exercise price when the
market price was $13 15/16 per share, to purchase two million shares of Company
common stock. This option became exercisable in 1997 when the price of Company
common stock exceeded $20 1/2 per share.
In 1996, other officers and certain other key employees of the Company
voluntarily accepted an effective 15 percent salary reduction, with salaries
frozen through 1998 at that level. This reduction in compensation was replaced
with stock options and career stock awards. The stock options were granted with
an exercise price of $16 (equal to the market price on the grant date). Annual
vestings of such stock options commenced in 1997 as a result of the Company
common stock price exceeding $20 1/2 per share for the required period. Such
options were granted for approximately 3,230,000 shares of Company common stock.
In addition, in 1996 when the market price of Company common stock was $16 per
share, the executive officers were granted career stock awards; annual vestings
of such awards commenced in 1997 as a result of the Company common stock price
exceeding $25 per share in late 1997.
A summary of the status of the Company's fixed stock options for the three
years ended December 31, 1999 is presented below.
<TABLE>
<CAPTION>
(SHARES IN THOUSANDS)
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Option shares outstanding, January 1................... 14,396 16,200 14,616
Weighted average exercise price...................... $18 $17 $14
Option shares granted, including restoration options... 2,020 756 6,014
Weighted average exercise price...................... $29 $28 $20
Option shares exercised................................ 3,780 2,486 4,276
Weighted average exercise price...................... $17 $13 $13
Option shares canceled................................. -- 74 154
Weighted average exercise price...................... -- $10 $11
Option shares outstanding, December 31................. 12,636 14,396 16,200
Weighted average exercise price...................... $20 $18 $17
Weighted average remaining option term (in years).... 5.9 6.6 7.2
Option shares exercisable, December 31................. 4,952 3,781 4,588
Weighted average exercise price...................... $21 $17 $16
</TABLE>
23
<PAGE> 26
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTIONS AND AWARDS -- (CONCLUDED)
The following table summarizes information for option shares outstanding
and exercisable at December 31, 1999 (shares in thousands).
<TABLE>
<CAPTION>
OPTION SHARES OUTSTANDING OPTION SHARES EXERCISABLE
------------------------------------------- --------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER OF OPTION EXERCISE NUMBER OF EXERCISE
PRICES SHARES TERM PRICE SHARES PRICE
-------- --------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
$10-15 1,870 2 Years $11 1,552 $10
16-19 2,892 6 Years 16 519 17
20-27 5,600 7 Years 20 830 21
28-33 2,274 6 Years 29 2,051 30
------ ------ -------- --- ----- ---
$10-33 12,636 6 Years $20 4,952 $21
====== ====== ======== === ===== ===
</TABLE>
At December 31, 1999, a combined total of 11,239,000 shares and 765,000
shares of Company common stock was available under the 1991 Plan, and the 1997
Plan, respectively, for the granting of stock options and long-term stock
awards.
The Company has elected to continue to apply the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
and, accordingly, the Company's stock options do not constitute compensation
expense in the determination of net income in the statement of income. Had stock
option compensation expense been determined pursuant to the methodology of
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation," the pro forma effect would have been a reduction in
the Company's diluted earnings per share of approximately $.04, $.01 and $.02 in
1999, 1998 and 1997, respectively.
For SFAS No. 123 calculation purposes, the weighted average grant date fair
values of option shares, including restoration options granted in 1999, 1998 and
1997 were $7.28, $6.00 and $6.27, respectively. The fair values of these options
were estimated at the grant dates using a Black-Scholes option pricing model
with the following assumptions for 1999, 1998 and 1997, respectively: risk-free
interest rate -- 5.0%, 4.9% and 6.7%; dividend yield -- 1.6%, 2.1% and 2.5%;
volatility factor -- 34%, 28% and 27%; and expected option life -- 3 years, 3
years and 7 years.
COMPENSATORY STOCK OPTION
In connection with transactions accounted for as poolings of interests, the
Company converted an existing variable stock option into a Company stock option
to acquire 1.4 million shares of Company common stock at an exercise price of
$7.66 per share, expiring in 2027. Such stock option was outstanding and
exercisable at December 31, 1999. Compensation expense related to such stock
option was $20.3 million, $5.0 million and $.5 million in 1999, 1998 and 1997,
respectively. Approximately $15.7 million of compensation expense for 1999
relates to the accelerated vesting of such option, which resulted from the
consummation of transactions accounted for as poolings of interests.
EMPLOYEE RETIREMENT PLANS
The Company sponsors defined-benefit and defined-contribution pension plans
for most of its employees. In addition, substantially all salaried employees
participate in non-contributory profit-sharing plans, to which payments are
determined annually by the Directors. Aggregate charges to income under the
Company's pension, retirement and profit-sharing plans were $57.3 million in
1999, $35.8 million in 1998 and $26.4 million in 1997.
24
<PAGE> 27
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EMPLOYEE RETIREMENT PLANS -- (CONTINUED)
Net periodic pension cost for the Company's qualified pension plans
includes the following components, in thousands:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Service cost..................................... $ 9,630 $ 8,530 $ 7,090
Interest cost.................................... 12,470 11,260 10,170
Expected return on plan assets................... (10,610) (11,870) (11,140)
Amortization of transition asset................. (620) (620) (620)
Amortization of prior-service cost............... 380 320 330
Amortization of net loss......................... 2,250 1,530 770
-------- -------- --------
Net periodic pension cost........................ $ 13,500 $ 9,150 $ 6,600
======== ======== ========
</TABLE>
The following table provides a reconciliation of changes in the projected
benefit obligation, fair value of plan assets and funded status of the Company's
qualified pension plans at December 31, in thousands:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Changes in projected benefit obligation:
Benefit obligation at January 1........................ $175,980 $152,320
Service cost........................................... 9,220 8,140
Interest cost.......................................... 12,470 11,260
Plan amendments........................................ 980 (1,720)
Actuarial (gain)/loss.................................. (28,600) 11,780
Benefit payments....................................... (7,110) (5,800)
-------- --------
Projected benefit obligation at December 31......... $162,940 $175,980
======== ========
Changes in fair value of plan assets:
Fair value of plan assets at January 1................. $112,860 $106,520
Actual return on plan assets........................... (8,700) 6,110
Cash contributions..................................... 10,650 6,460
Benefit payments....................................... (7,110) (5,800)
Expenses/other......................................... (400) (430)
-------- --------
Fair value of plan assets at December 31............ $107,300 $112,860
======== ========
Funded status of qualified pension plans:
Plan assets (less than) projected benefit obligation at
December 31......................................... $(55,640) $(63,120)
Unamortized net asset at transition.................... (1,560) (2,180)
Unamortized prior-service cost......................... 4,880 4,150
Unamortized net loss................................... 41,250 52,930
-------- --------
Net liability recognized............................ $(11,070) $ (8,220)
======== ========
</TABLE>
The major assumptions used in accounting for the Company's pension plans
are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ------ -----
<S> <C> <C> <C>
Discount rate for obligations......................... 7.75% 6.75% 7.0%
Expected return on plan assets........................ 9.0 % 11.0 % 11.0%
Rate of compensation increase......................... 5.0 % 5.0 % 5.0%
</TABLE>
25
<PAGE> 28
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EMPLOYEE RETIREMENT PLANS -- (CONCLUDED)
In addition to the Company's qualified pension and retirement plans, the
Company has non-qualified unfunded supplemental pension plans covering certain
employees, which provide for benefits in addition to those provided by the
qualified pension plans. The actuarial present value of accumulated benefit
obligations and projected benefit obligations related to these non-qualified
pension plans totaled $41.4 million and $48.9 million, and $37.0 million and
$46.2 million at December 31, 1999 and 1998, respectively. Net periodic pension
cost for these plans was $7.9 million, $7.1 million and $4.7 million in 1999,
1998 and 1997, respectively.
The Company sponsors certain post-retirement benefit plans that provide
medical, dental and life insurance coverage for eligible retirees and dependents
in the United States based on age and length of service. At December 31, 1999,
the aggregate present value of the unfunded accumulated postretirement benefit
obligation approximated $3 million.
SEGMENT INFORMATION
As a result of significant mergers and acquisitions during 1999, the
Company redefined its business segments; accordingly, segment information for
prior years has been restated. During 2000, the Company revised this Segment
Information Note to include expanded disclosure regarding the Company's business
segments. The Company's operations in the segments detailed below consist of the
manufacture and sale, and for one segment the installation of certain, of the
following home improvement and building products:
PLUMBING PRODUCTS -- principally includes faucets; plumbing fittings
and valves; bathtubs and shower enclosures; whirlpools; and spas.
CABINETS AND RELATED PRODUCTS -- principally includes assembled and
ready-to-assemble kitchen and bath cabinets; home office workstations;
entertainment centers; storage products; bookcases; and kitchen utility
products.
DECORATIVE ARCHITECTURAL PRODUCTS -- principally includes paints and
stains; mechanical and electronic lock sets; and door, window and other
hardware.
INSULATION INSTALLATION AND OTHER SERVICES -- principally includes the
sale and installation of insulation and the restoration of facilities
damaged by natural disasters.
OTHER SPECIALTY PRODUCTS -- principally includes staple gun tackers,
staples and other fastening tools; hydronic radiators and heat convectors;
venting and ventilation systems; modular office workstations; and grilles,
registers and diffusers for heating and cooling systems.
The above products are sold to the home improvement and home construction
markets through mass merchandisers, hardware stores, home centers, distributors,
and other outlets for consumers and contractors.
The Company's operations are principally located in North America and
Europe. The Company's country of domicile is the United States.
Corporate assets consist primarily of real property, cash and cash
investments and other investments.
The Company's segments are based on similarities in products and services
and represent the aggregation of operating units for which financial information
is regularly evaluated by the corporate operating executives in determining
resource allocation and assessing performance and is periodically reviewed by
the Board of Directors. Accounting policies for the segments are the same as
those for the Company. The Company primarily evaluates performance based on
operating profit and, other than general corporate expense, allocates specific
corporate overhead to each segment.
26
<PAGE> 29
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SEGMENT INFORMATION -- (CONCLUDED)
The following table presents information about the Company by segment and
geographic area:
<TABLE>
<CAPTION>
NET SALES (1)(2)(3)(4) OPERATING PROFIT
------------------------------------ --------------------------------
1999 1998 1997 1999 1998 1997
---------- ---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
The Company's operations by
segment were:
Plumbing Products.......... $1,803,000 $1,667,000 $1,551,000 $ 378,000 $369,000 $334,000
Cabinets and Related
Products................. 2,220,000 1,908,000 1,540,000 320,000 295,000 226,000
Decorative Architectural
Products................. 1,165,000 919,000 737,000 122,000 167,000 123,000
Insulation Installation and
Other Services........... 532,000 250,000 195,000 79,000 30,000 27,000
Other Specialty Products... 587,000 536,000 485,000 104,000 91,000 78,000
---------- ---------- ---------- ---------- -------- --------
Total.................. $6,307,000 $5,280,000 $4,508,000 $1,003,000 $952,000 $788,000
========== ========== ========== ========== ======== ========
The Company's operations by
geographic area were:
North America.............. $5,238,000 $4,441,000 $3,820,000 $ 867,000 $829,000 $689,000
International, principally
Europe................... 1,069,000 839,000 688,000 136,000 123,000 99,000
---------- ---------- ---------- ---------- -------- --------
Total, as above........ $6,307,000 $5,280,000 $4,508,000 1,003,000 952,000 788,000
========== ========== ==========
General corporate expense,
net.......................... (92,000) (86,000) (82,000)
---------- -------- --------
Operating profit, after general
corporate expense............ 911,000 866,000 706,000
Other income (expense), net.... (7,000) 39,000 28,000
---------- -------- --------
Income before income taxes
(6).......................... $ 904,000 $905,000 $734,000
========== ======== ========
Equity investments in
affiliates...................
Securities of Furnishings
International Inc. ..........
Corporate assets...............
Total assets...........
<CAPTION>
(IN THOUSANDS)
ASSETS AT DECEMBER 31 (5)
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
The Company's operations by
segment were:
Plumbing Products.......... $1,217,000 $1,118,000 $ 965,000
Cabinets and Related
Products................. 1,517,000 1,334,000 1,184,000
Decorative Architectural
Products................. 823,000 586,000 491,000
Insulation Installation and
Other Services........... 629,000 224,000 163,000
Other Specialty Products... 997,000 586,000 416,000
---------- ---------- ----------
Total.................. $5,183,000 $3,848,000 $3,219,000
========== ========== ==========
The Company's operations by
geographic area were:
North America.............. $3,746,000 $2,672,000 $2,508,000
International, principally
Europe................... 1,437,000 1,176,000 711,000
---------- ---------- ----------
Total, as above........ 5,183,000 3,848,000 3,219,000
General corporate expense,
net..........................
Operating profit, after general
corporate expense............
Other income (expense), net....
Income before income taxes
(6)..........................
Equity investments in
affiliates................... 203,000 225,000 228,000
Securities of Furnishings
International Inc. .......... 481,000 435,000 393,000
Corporate assets............... 768,000 1,111,000 857,000
---------- ---------- ----------
Total assets........... $6,635,000 $5,619,000 $4,697,000
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
DEPRECIATION AND
PROPERTY ADDITIONS (7) AMORTIZATION
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
The Company's operations by segment were:
Plumbing Products......................................... $ 87,000 $ 65,000 $ 57,000 $ 45,000 $ 39,000 $ 37,000
Cabinets and Related Products............................. 162,000 85,000 124,000 49,000 49,000 38,000
Decorative Architectural Products......................... 61,000 36,000 35,000 20,000 21,000 16,000
Insulation Installation and Other Services................ 45,000 17,000 19,000 18,000 10,000 6,000
Other Specialty Products.................................. 56,000 69,000 23,000 26,000 19,000 15,000
-------- -------- -------- -------- -------- --------
411,000 272,000 258,000 158,000 138,000 112,000
Unallocated amounts principally related to corporate
assets.................................................. 27,000 25,000 10,000 24,000 19,000 20,000
Assets of purchase acquisitions........................... (87,000) (54,000) (53,000) -- -- --
-------- -------- -------- -------- -------- --------
Total............................................... $351,000 $243,000 $215,000 $182,000 $157,000 $132,000
======== ======== ======== ======== ======== ========
</TABLE>
(1) Included in net sales in 1999, 1998 and 1997 are export sales from the U.S.
of $127 million, $112 million and $89 million, respectively.
(2) Inter-company sales between segments represented less than one percent of
consolidated net sales in 1999, 1998 and 1997.
(3) Includes net sales to one customer in 1999, 1998 and 1997 of $1,539 million,
$1,236 million and $983 million, respectively.
(4) Net sales from the Company's operations in the U.S. were $5,024 million,
$4,275 million and $3,655 million in 1999, 1998 and 1997, respectively.
(5) Long-lived assets of the Company's operations in the U.S. and Europe were
$2,135 million and $997 million, $1,392 million and $813 million and $1,296
million and $467 million at December 31, 1999, 1998 and 1997, respectively.
(6) Income before income taxes and net income pertaining to non-U.S. operations
were $120 million and $69 million, $118 million and $59 million, and $93
million and $45 million for 1999, 1998 and 1997, respectively.
(7) Property additions by segment include assets of purchase acquisitions.
27
<PAGE> 30
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OTHER INCOME (EXPENSE), NET
<TABLE>
<CAPTION>
(IN THOUSANDS)
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Re: MascoTech, Inc.:
Equity earnings.............................. $ 15,430 $ 15,360 $ 14,580
--------- --------- --------
Gain from change in investment............... -- -- 29,500
--------- --------- --------
Equity earnings, other affiliates.............. 8,500 13,840 9,560
--------- --------- --------
Other, net:
Income from cash and cash investments........ 9,330 21,540 17,280
Other interest income........................ 52,530 46,340 47,620
Other items.................................. 27,330 56,420 3,640
--------- --------- --------
89,190 124,300 68,540
--------- --------- --------
Interest expense............................... (120,420) (114,400) (94,280)
--------- --------- --------
$ (7,300) $ 39,100 $ 27,900
========= ========= ========
</TABLE>
Other interest income for 1999, 1998 and 1997 includes $46.6 million, $41.5
million and $36.8 million, respectively, from the 12% pay-in-kind junior debt
securities of Furnishings International Inc. Such interest income began to
accrue in August 1996 upon the sale of the Company's home furnishings
businesses. Other interest income for 1997 includes $7.5 million of interest
income from a $151 million note receivable from MascoTech, which was paid on
September 30, 1997.
Other items in 1999 include approximately $30 million of income and gains,
net regarding certain non-operating assets and $7.6 million of dividend income
from the Company's investment in Furnishings International's 13% cumulative
preferred stock. Also included in other items for 1999 were approximately $4
million of expenses related to the early retirement of debt.
Other items in 1998 include pre-tax gains aggregating approximately $59
million from sales of the Company's Thermador subsidiary ($30 million) and the
Company's investment in TriMas Corporation ($29 million). Also included in other
items for 1998 were $7 million of dividend income from the Company's investment
in Furnishings International's 13% cumulative preferred stock and an approximate
$12 million pre-tax charge related to the early retirement of long-term debt.
Other items in 1997 include $10.8 million of dividend income from the
Company's investment in Furnishings International's 13% cumulative preferred
stock and net gains aggregating approximately $28 million related to the sales
of certain non-operating assets as well as charges aggregating approximately $30
million principally for the adjustment of the Company's Payless Cashways
investment to its estimated fair value.
During the second quarter of 1997, MascoTech effected conversion of all of
its publicly held outstanding convertible preferred stock with the issuance of
approximately 10 million shares of its common stock. This conversion reduced the
Company's common equity ownership in MascoTech to 17 percent from 21 percent,
and increased the Company's equity in MascoTech's net book value by
approximately $29.5 million. As a result, the Company recognized a pre-tax gain
of $29.5 million during the second quarter of 1997.
28
<PAGE> 31
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
<TABLE>
<CAPTION>
(IN THOUSANDS)
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Income before income taxes:
U.S. ......................................... $ 783,910 $ 787,090 $640,660
Foreign....................................... 120,190 118,410 93,140
--------- --------- --------
$ 904,100 $ 905,500 $733,800
========= ========= ========
Provision for income taxes:
Currently payable:
U.S. Federal............................... $ 256,420 $ 203,200 $183,430
State and local............................ 27,800 28,290 30,520
Foreign.................................... 45,040 47,250 41,110
Deferred:
U.S. Federal............................... (1,270) 49,250 28,000
Foreign.................................... 6,510 12,410 6,640
--------- --------- --------
$ 334,500 $ 340,400 $289,700
========= ========= ========
Deferred tax assets at December 31:
Intangibles................................... $ 11,540 $ 18,160
Inventories................................... 5,530 12,210
Accrued liabilities........................... 59,170 51,580
Capital loss carryforward..................... 100,570 117,760
Other, principally equity investments......... 60,550 52,060
--------- ---------
237,360 251,770
Valuation allowance........................... (127,320) (156,700)
--------- ---------
110,040 95,070
--------- ---------
Deferred tax liabilities at December 31:
Property and equipment........................ 206,110 193,340
Other......................................... 37,610 30,170
--------- ---------
243,720 223,510
--------- ---------
Net deferred tax liability at December 31....... $ 133,680 $ 128,440
========= =========
</TABLE>
At December 31, 1999 and 1998, net deferred tax liability consists of net
short-term deferred tax assets of $25.0 million and $25.9 million, respectively,
and net long-term deferred tax liabilities of $158.7 million and $154.3 million,
respectively.
A valuation allowance of approximately $127.3 million and $156.7 million
was recorded at December 31, 1999 and 1998, respectively, primarily due to the
Company's inability to quantify the major portion of its capital loss
carryforward which may ultimately be realized. Such capital loss benefit
pertains to a $100.6 million and $117.8 million after-tax capital loss
carryforward at December 31, 1999 and 1998, respectively, on the 1996
disposition of the Company's home furnishings products segment and a $26.7
million and $38.9 million benefit of a capital nature on the Company's equity
and other investments at December 31, 1999 and 1998, respectively.
29
<PAGE> 32
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES -- (CONCLUDED)
The following is a reconciliation of the U.S. federal statutory rate:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory rate................................ 35% 35% 35%
State and local taxes, net of federal tax benefit.......... 2 2 2
Higher taxes on foreign earnings........................... 1 2 3
Dividends-received deduction............................... - - (1)
Amortization in excess of tax.............................. 1 1 1
Change in valuation allowance.............................. (2) (2) (2)
Other, net................................................. - - 1
-- -- --
Effective tax rate....................................... 37% 38% 39%
== == ==
</TABLE>
Income taxes paid were approximately $326 million, $216 million and $194
million in 1999, 1998 and 1997, respectively.
Earnings of non-U.S. subsidiaries generally become subject to U.S. tax upon
the remittance of dividends and under certain other circumstances. Provision has
not been made at December 31, 1999 for U.S. or additional foreign withholding
taxes on approximately $57.6 million of remaining undistributed net income of
non-U.S. subsidiaries, as such income is intended to be permanently reinvested;
it is not practical to estimate the amount of deferred tax liability on such
income.
EARNINGS PER SHARE
The following are reconciliations of the numerators and denominators used
in the computations of basic and diluted earnings per share, in thousands:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Numerator:
Basic (Net income)............................ $569,600 $565,100 $444,100
Add convertible debenture interest, net (1)... -- 700 5,880
-------- -------- --------
Diluted (Net income).......................... $569,600 $565,800 $449,980
======== ======== ========
Denominator:
Basic shares (based on weighted average)...... 435,600 435,500 423,200
Add:
Contingently issued shares................. 7,300 7,200 6,600
Stock option dilution...................... 3,300 3,800 3,200
Convertible debentures (1)................. -- 1,000 8,400
-------- -------- --------
Diluted shares................................ 446,200 447,500 441,400
======== ======== ========
</TABLE>
(1) The Company called these debentures for redemption on February 12, 1998.
Substantially all holders exercised their right to convert these debentures
into Company common stock.
30
<PAGE> 33
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMBINED FINANCIAL STATEMENTS (UNAUDITED)
For 1999 and 1998, the following presents, as one entity with Masco
Corporation as the parent company, the combined unaudited financial statements
of the Company and MascoTech, Inc., and for 1997, the combined unaudited
financial statements of the Company, MascoTech and TriMas Corporation.
Intercompany transactions have been eliminated. Amounts, except per share data,
are in thousands. (MascoTech completed its acquisition of TriMas Corporation in
early 1998.)
<TABLE>
<CAPTION>
AT DECEMBER 31
------------------------
1999 1998
---------- ----------
<S> <C> <C>
COMBINED BALANCE SHEETS
Assets
Current assets:
Cash and cash investments........................... $ 235,270 $ 582,540
Receivables......................................... 1,221,590 1,023,620
Prepaid expenses and other.......................... 169,570 131,940
Inventories:
Raw material..................................... 358,480 324,990
Finished goods................................... 376,680 324,420
Work in process.................................. 218,310 195,870
---------- ----------
953,470 845,280
---------- ----------
Total current assets........................... 2,579,900 2,583,380
Equity investments in affiliates...................... 244,280 258,580
Securities of Furnishings International Inc. ......... 481,270 434,640
Property and equipment................................ 2,347,040 2,035,960
Acquired goodwill, net................................ 2,519,530 1,836,450
Other assets.......................................... 511,510 516,990
---------- ----------
Total assets................................... $8,683,530 $7,666,000
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable....................................... $ 62,300 $ 314,140
Accounts payable.................................... 358,300 306,940
Accrued liabilities................................. 654,230 605,320
---------- ----------
Total current liabilities...................... 1,074,830 1,226,400
Long-term debt........................................ 3,804,160 3,026,530
Deferred income taxes and other....................... 420,320 428,540
Other interests in combined affiliates................ 247,720 210,490
---------- ----------
Total liabilities.............................. 5,547,030 4,891,960
Equity of shareholders of Masco Corporation........... 3,136,500 2,774,040
---------- ----------
Total liabilities and shareholders' equity..... $8,683,530 $7,666,000
========== ==========
</TABLE>
31
<PAGE> 34
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMBINED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
COMBINED STATEMENTS OF INCOME
Net sales.............................................. $ 7,976,720 $ 6,902,620 $ 6,071,450
Cost of sales.......................................... (5,232,220) (4,543,950) (3,982,430)
Selling, general and administrative expenses........... (1,617,670) (1,285,460) (1,167,710)
----------- ----------- -----------
Operating profit............................. 1,126,830 1,073,210 921,310
----------- ----------- -----------
Other income (expense), net:
Interest expense..................................... (201,240) (195,900) (128,730)
Other, net........................................... 102,550 157,350 151,820
----------- ----------- -----------
(98,690) (38,550) 23,090
----------- ----------- -----------
Income before income taxes and other
interests.................................. 1,028,140 1,034,660 944,400
Income taxes........................................... (382,180) (388,230) (388,310)
Other interests in combined affiliates................. (76,360) (81,330) (111,990)
----------- ----------- -----------
Net income................................... $ 569,600 $ 565,100 $ 444,100
=========== =========== ===========
Earnings per share:
Basic................................................ $1.31 $1.30 $1.05
=========== =========== ===========
Diluted.............................................. $1.28 $1.26 $1.02
=========== =========== ===========
</TABLE>
32
<PAGE> 35
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
COMBINED FINANCIAL STATEMENTS (UNAUDITED) -- (CONCLUDED)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31
-------------------------------------
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
COMBINED STATEMENTS OF CASH FLOWS
Cash Flows From (For) Operating Activities:
Net income............................................ $ 569,600 $ 565,100 $ 444,100
Depreciation and amortization......................... 265,120 240,310 200,650
Interest accrual on pay-in-kind notes receivable...... (46,630) (41,500) (36,800)
Unremitted equity earnings of affiliates.............. (15,730) (16,820) (9,060)
Deferred income taxes................................. 14,800 61,550 56,990
Gains on disposition of businesses, net............... (14,440) (14,720) (4,980)
Gain from change in investment........................ -- (7,000) (4,980)
Other interests in net income of combined affiliates,
net................................................ 76,360 81,330 111,990
Increase in receivables............................... (120,330) (105,630) (73,630)
Increase in inventories............................... (67,880) (75,510) (55,760)
Increase in accounts payable and accrued liabilities,
net................................................ 9,150 14,280 76,600
Other, net............................................ (29,760) 15,860 (11,220)
----------- ----------- ---------
Net cash from operating activities............ 640,260 717,250 693,900
----------- ----------- ---------
Cash Flows From (For) Investing Activities:
Acquisition of other interests in TriMas
Corporation........................................ -- (869,680) --
Acquisitions, net of cash acquired.................... (883,500) (377,770) (198,020)
Capital expenditures.................................. (486,590) (349,680) (298,530)
Cash proceeds from sale of subsidiaries............... 92,620 108,020 76,560
Proceeds from redemption of debt by affiliates........ -- 80,500 --
Other, net............................................ 13,150 (37,380) (47,500)
----------- ----------- ---------
Net cash (for) investing activities........... (1,264,320) (1,445,990) (467,490)
----------- ----------- ---------
Cash Flows From (For) Financing Activities:
Increase in debt...................................... 1,244,370 1,894,460 355,930
Payment of debt....................................... (676,990) (826,710) (135,400)
Purchase of Company common stock for:
Treasury........................................... (119,130) (106,880) (14,970)
Long-term stock incentive award plan............... (6,840) (46,800) (29,110)
Cash dividends paid................................... (176,110) (155,500) (151,970)
Capital contributions from shareholders of pooled
companies.......................................... 11,490 1,520 245,450
Distributions to shareholders of pooled companies..... -- (45,950) (536,060)
----------- ----------- ---------
Net cash from (for) financing activities...... 276,790 714,140 (266,130)
----------- ----------- ---------
Cash and Cash Investments:
Decrease for the year................................. (347,270) (14,600) (39,720)
At January 1.......................................... 582,540 597,140 636,860
----------- ----------- ---------
At December 31........................................ $ 235,270 $ 582,540 $ 597,140
=========== =========== =========
</TABLE>
33
<PAGE> 36
MASCO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED)
INTERIM FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
QUARTERS ENDED
AUDITED -------------------------------------------------------
YEAR DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
---------- ----------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
1999:
Net sales....................... $6,307,000 $1,645,000 $1,704,000 $1,567,000 $1,391,000
Gross profit.................... $2,311,470 $ 592,070 $ 622,000 $ 580,800 $ 516,600
Net income...................... $ 569,600 $ 178,700 $ 64,900 $ 174,100 $ 151,900
Earnings per share:
Basic......................... $1.31 $.41 $.15 $.40 $.35
Diluted....................... $1.28 $.40 $.15 $.39 $.34
1998:
Net sales....................... $5,280,000 $1,327,000 $1,380,000 $1,327,000 $1,246,000
Gross profit.................... $1,932,100 $ 463,800 $ 510,400 $ 496,300 $ 461,600
Net income...................... $ 565,100 $ 137,800 $ 152,800 $ 144,100 $ 130,400
Earnings per share:
Basic......................... $1.30 $.32 $.35 $.33 $.30
Diluted....................... $1.26 $.31 $.34 $.32 $.29
Diluted earnings per share,
excluding amortization of
acquired goodwill:
1999.......................... $1.37 $.43 $.17 $.41 $.36
1998.......................... $1.32 $.33 $.36 $.33 $.30
</TABLE>
Net income and earnings per share for the third quarter and year of 1999
include unusual after-tax expense, principally related to transaction costs
associated with poolings of interests.
34
<PAGE> 37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
See Part II, Item 8 hereof.
3. Exhibits
The list of Exhibits is amended by substituting Exhibit 23.a, as listed
in the Exhibit Index attached hereto, for the previous Exhibit 23.a.
All other information pertaining to this subsection is as set forth in
the Original Filing.
35
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Form 10-K/A to be
signed on its behalf by the undersigned, thereunto duly authorized.
MASCO CORPORATION
By /s/ RICHARD G. MOSTELLER
------------------------------------
RICHARD G. MOSTELLER
Senior Vice President -- Finance
November 1, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-K/A has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:
/s/ RICHARD A. MANOOGIAN Chairman of the Board and Chief
--------------------------------- Executive Officer
RICHARD A. MANOOGIAN
PRINCIPAL FINANCIAL OFFICER:
/s/ RICHARD G. MOSTELLER Senior Vice President -- Finance
-----------------------------------
RICHARD G. MOSTELLER
PRINCIPAL ACCOUNTING OFFICER:
/s/ ROBERT B. ROSOWSKI Vice President -- Controller and
----------------------------------- Treasurer
ROBERT B. ROSOWSKI
/s/ THOMAS G. DENOMME Director
-----------------------------------
THOMAS G. DENOMME
/s/ JOSEPH L. HUDSON, JR. Director
-----------------------------------
JOSEPH L. HUDSON, JR.
/s/ VERNE G. ISTOCK Director
-----------------------------------
VERNE G. ISTOCK
/s/ RAYMOND F. KENNEDY President and Chief Operating Officer
----------------------------------- and Director
RAYMOND F. KENNEDY
/s/ MARY ANN KREY Director
-----------------------------------
MARY ANN KREY
/s/ WAYNE B. LYON Director
-----------------------------------
WAYNE B. LYON
/s/ JOHN A. MORGAN Director
-----------------------------------
JOHN A. MORGAN
/s/ ARMAN SIMONE Director
-----------------------------------
ARMAN SIMONE
/s/ PETER W. STROH Director
-----------------------------------
PETER W. STROH
</TABLE>
November 1, 2000
<PAGE> 39
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
Exhibit 23.a Consent of PricewaterhouseCoopers LLP relating to Masco
Corporation's Consolidated Financial Statements and
Financial Statement Schedules. (filed herewith)
</TABLE>
