MASCO CORP /DE/ - Quarter Report: 2014 March (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2014

 

Commission file number: 1-5794

 

Masco Corporation

(Exact name of Registrant as Specified in its Charter)

 

 

(313) 274-7400

(Registrant’s telephone number, including area code)

 

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.  x Yes  o No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x Yes  o No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o Yes x No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class		Shares Outstanding at April 21, 2014
Common stock, par value $1.00 per share		356,545,600

 

 

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MASCO CORPORATION

 

INDEX

 

			Page No.
PART I.		FINANCIAL INFORMATION
	Item  1.	Financial Statements (Unaudited)
		Condensed Consolidated Balance Sheets -
		as at March 31, 2014 and
		December 31, 2013	1
		Condensed Consolidated Statements of
		Operations for the Three Months
		Ended March 31, 2014 and 2013	2
		Condensed Consolidated Statements of Comprehensive
		Income (Loss) for the Three Months
		Ended March 31, 2014 and 2013	3
		Condensed Consolidated Statements of
		Cash Flows for the Three Months Ended
		March 31, 2014 and 2013	4
		Consolidated Statements of Shareholders’ Equity
		for the Three Months Ended
		March 31, 2014 and 2013	5
		Notes to Condensed Consolidated
		Financial Statements	6-20
	Item  2.	Management’s Discussion and Analysis of
		Financial Condition and Results of
		Operations	21-26
	Item  4.	Controls and Procedures	27
PART II.		OTHER INFORMATION	28-29
	Item  1.	Legal Proceedings
	Item  1A.	Risk Factors
	Item  6.	Exhibits
		Signature

 

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MASCO CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

 

March 31, 2014 and December 31, 2013

(In Millions, Except Share Data)

 

 

		March 31,			December 31,
		2014			2013
ASSETS
Current assets:
Cash and cash investments		$	906		$	1,223
Short-term bank deposits		305			321
Receivables		1,215			1,004
Prepaid expenses and other		154			155
Inventories:
Finished goods		455			398
Raw material		273			268
Work in process		110			99
		838			765
Total current assets		3,418			3,468
Property and equipment, net		1,232			1,252
Goodwill		1,903			1,903
Other intangible assets, net		150			149
Other assets		177			185
Total assets		$	6,880		$	6,957
LIABILITIES
Current liabilities:
Notes payable		$	6		$	6
Accounts payable		954			902
Accrued liabilities		760			874
Total current liabilities		1,720			1,782
Long-term debt		3,421			3,421
Deferred income taxes and other		938			967
Total liabilities		6,079			6,170
Commitments and contingencies
EQUITY
Masco Corporation’s shareholders’ equity:
Common shares, par value $1 per share Authorized shares: 1,400,000,000; issued and outstanding: 2014 — 349,400,000; 2013 — 349,500,000		349			349
Preferred shares authorized: 1,000,000; issued and outstanding: 2014 — None; 2013 — None		—			—
Paid-in capital		—			16
Retained earnings		98			79
Accumulated other comprehensive income		115			115
Total Masco Corporation’s shareholders’ equity		562			559
Noncontrolling interest		239			228
Total equity		801			787
Total liabilities and equity		$	6,880		$	6,957

 

See notes to condensed consolidated financial statements.

 

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MASCO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

 

For the Three Months Ended March 31, 2014 and 2013

(In Millions Except Per Common Share Data)

 

 

		Three Months Ended March 31,
		2014			2013
Net sales		$	1,965		$	1,876
Cost of sales		1,418			1,368
Gross profit		547			508
Selling, general and administrative expenses		395			376
Operating profit		152			132
Other income (expense), net:
Interest expense		(56		)	(60		)
Other, net		(3		)	13
		(59		)	(47		)
Income from continuing operations before income taxes		93			85
Income taxes		5			14
Income from continuing operations		88			71
Loss from discontinued operations		(2		)	(9		)
Net income		86			62
Less: Net income attributable to noncontrolling interest		12			9
Net income attributable to Masco Corporation		$	74		$	53
Income per common share attributable to Masco Corporation:
Basic:
Income from continuing operations		$	.21		$	.17
Loss from discontinued operations		(.01		)	(.03		)
Net income		$	.21		$	.15
Diluted:
Income from continuing operations		$	.21		$	.17
Loss from discontinued operations		(.01		)	(.03		)
Net income		$	.21		$	.15
Amounts attributable to Masco Corporation:
Income from continuing operations		$	76		$	62
Loss from discontinued operations		(2		)	(9		)
Net income		$	74		$	53

 

See notes to condensed consolidated financial statements.

 

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MASCO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

 

For the Three Months Ended March 31, 2014 and 2013

(In Millions)

 

 

		Three Months Ended March 31,
		2014			2013
Net income		$	86		$	62
Less: Net income attributable to noncontrolling interest		12			9
Net income attributable to Masco Corporation		$	74		$	53
Other comprehensive income (loss), net of tax:
Cumulative translation adjustment		(4		)	(36		)
Unrecognized pension prior service cost and net gain		3			5
Other comprehensive loss		(1		)	(31		)
Less: Other comprehensive loss attributable to noncontrolling interest		(1		)	(8		)
Other comprehensive income (loss) attributable to Masco Corporation		$	—		$	(23	)
Total comprehensive income		$	85		$	31
Less: Total comprehensive income attributable to noncontrolling interest		11			1
Total comprehensive income attributable to Masco Corporation		$	74		$	30

 

See notes to condensed consolidated financial statements.

 

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MASCO CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

 

For the Three Months Ended March 31, 2014 and 2013

(In Millions)

 

 

		Three Months Ended
		March 31,
		2014			2013
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
Cash provided by operations		$	121		$	130
Increase in receivables		(227		)	(263		)
Increase in inventories		(75		)	(43		)
Decrease in accounts payable and accrued liabilities, net		(63		)	(34		)
Net cash for operating activities		(244		)	(210		)
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
Purchase of Company common stock		(39		)	(35		)
Cash dividends paid		(27		)	(26		)
New Credit Agreement costs		—			(4		)
Net cash for financing activities		(66		)	(65		)
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:
Capital expenditures		(26		)	(31		)
Acquisition of companies, net of cash acquired		(2		)	(5		)
Proceeds from disposition of:
Other financial investments		2			5
Property and equipment		5			5
Short-term bank deposits		84			172
Purchases of:
Short-term bank deposits		(69		)	(72		)
Other, net		—			(4		)
Net cash (for) from investing activities		(6		)	70
Effect of exchange rate changes on cash and cash investments		(1		)	(7		)
CASH AND CASH INVESTMENTS:
Decrease for the period		(317		)	(212		)
At January 1		1,223			1,040
At March 31		$	906		$	828

 

See notes to condensed consolidated financial statements.

 

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MASCO CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (Unaudited)

 

For The Three Months Ended March 31, 2014 and 2013

(In Millions)

 

 

														Accumulated
					Common						Retained			Other
					Shares			Paid-In			(Deficit)			Comprehensive			Noncontrolling
		Total			($1 par value)			Capital			Earnings			Income			Interest
Balance, January 1, 2013		$	542		$	349		$	16		$	(94	)	$	59		$	212
Total comprehensive income		31									53			(23		)	1
Shares issued		(7		)	2			(9		)
Shares retired:
Repurchased		(35		)	(2		)	(11		)	(22		)
Surrendered (non-cash)		(10		)				(10		)
Cash dividends declared		(26		)							(26		)
Stock-based compensation		14						14
Balance, March 31, 2013		$	509		$	349		$	—		$	(89	)	$	36		$	213
Balance, January 1, 2014		$	787		$	349		$	16		$	79		$	115		$	228
Total comprehensive income		85									74						11
Shares issued		(3		)	2			(5		)
Shares retired:
Repurchased		(39		)	(2		)	(9		)	(28		)
Surrendered (non-cash)		(14		)				(14		)
Cash dividends declared		(27		)							(27		)
Stock-based compensation		12						12
Balance, March 31, 2014		$	801		$	349		$	—		$	98		$	115		$	239

 

See notes to consolidated financial statements.

 

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MASCO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

A.                        In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary to present fairly its financial position as at March 31, 2014 and the results of operations for the three months ended March 31, 2014 and 2013 and cash flows for the three months ended March 31, 2014 and 2013.  The condensed consolidated balance sheet at December 31, 2013 was derived from audited financial statements.

 

Certain prior-year amounts have been reclassified to conform to the 2014 presentation in the condensed consolidated financial statements.

 

Revision of Previously Issued Financial Statements.  During the first quarter ended March 31, 2014, the Company identified an error in the accounting for certain of its investments in private equity limited partnership funds.  The investments were inappropriately accounted for under the cost basis versus the equity method.  The impact of the error was to under report the investment value (included in other assets on the consolidated balance sheets) and to over (under) state equity investment earnings (loss) (included in other income (expense), net in the consolidated statements of operations).  We have revised our first quarter 2013 consolidated statement of operations and prior year consolidated balance sheet in these financial statements to reflect the investment accounted for as an equity investment.  Retained earnings and other comprehensive income were adjusted for the changes in net income.  Other historic periods will be revised, as detailed below, in our future filings. This error is not considered material to any prior period financial statement.

 

This revision has no effect on our consolidated statement of cash flows.

 

The following table presents the impact of the revisions on the Company’s previously issued full-year consolidated statement of operations (in millions):

 

		Year ended December 31,
		2013			2012			2011
Other income (expense), net
As reported		$	(239	)	$	(229	)	$	(177	)
Correction		16			—			9
As revised		$	(223	)	$	(229	)	$	(168	)
Income (loss) from continuing operations, before income taxes
As reported		$	434		$	73		$	(392	)
Correction		16			—			9
As revised		$	450		$	73		$	(383	)
Income (loss) from continuing operations
As reported		$	323		$	(18	)	$	(352	)
Correction		16			—			9
As revised		$	339		$	(18	)	$	(343	)
Net income (loss)
As reported		$	313		$	(79	)	$	(533	)
Correction		16			—			9
As revised		$	329		$	(79	)	$	(524	)

 

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MASCO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

 

Note A — continued:

 

The following table presents the impact of the revisions on the Company’s previously issued quarterly consolidated statements of operations (in millions):

 

		Three Months Ended												Three Months Ended
		Dec. 31			Sep. 30			June 30			Mar. 31			Dec. 31			Sep. 30			June 30			Mar. 31
		2013												2012
Other income (expense), net
As reported		$	(71	)	$	(58	)	$	(57	)	$	(53	)	$	(57	)	$	(57	)	$	(66	)	$	(49	)
Correction		3			6			1			6			4			7			(2		)	(9		)
As revised		$	(68	)	$	(52	)	$	(56	)	$	(47	)	$	(53	)	$	(50	)	$	(68	)	$	(58	)
Income (loss) from continuing operations, before income taxes
As reported		$	70		$	154		$	131		$	79		$	(26	)	$	51		$	(12	)	$	60
Correction		3			6			1			6			4			7			(2		)	(9		)
As revised		$	73		$	160		$	132		$	85		$	(22	)	$	58		$	(14	)	$	51
Income (loss) from continuing operations
As reported		$	50		$	116		$	92		$	65		$	(63	)	$	35		$	(43	)	$	53
Correction		3			6			1			6			4			7			(2		)	(9		)
As revised		$	53		$	122		$	93		$	71		$	(59	)	$	42		$	(45	)	$	44
Net income (loss)
As reported		$	56		$	114		$	87		$	56		$	(80	)	$	24		$	(67	)	$	44
Correction		3			6			1			6			4			7			(2		)	(9		)
As revised		$	59		$	120		$	88		$	62		$	(76	)	$	31		$	(69	)	$	35

 

The following table presents the impact of the revisions on the Company’s previously issued consolidated balance sheets (in millions):

 

		As of
		Dec. 31			Sep. 30			June 30			Mar. 31			As of
		2013												Dec. 31, 2012
Other assets
As reported		$	161		$	166		$	173		$	182		$	184
Correction		24			21			15			14			8
As revised		$	185		$	187		$	188		$	196		$	192
Total assets
As reported		$	6,933		$	7,059		$	7,062		$	6,779		$	6,875
Correction		24			21			15			14			8
As revised		$	6,957		$	7,080		$	7,077		$	6,793		$	6,883

 

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MASCO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

 

Note A — concluded:

 

Revision of Previously Issued Financial Statements.  As previously disclosed, during the third quarter ended September 30, 2013, the Company identified an error related to the classification of cash and cash investments.  Foreign short-term bank deposits with terms ranging from three months to twelve months were incorrectly classified as cash and cash investments rather than short-term bank deposits.  The statement of cash flows for the three months ended March 31, 2013 has been revised.  Other historic periods will be revised, as detailed below, in our future filings. These classification errors were not considered material to any prior period financial statements.

 

This revision had no effect on our consolidated results of operations.

 

The following table presents the impact of the revisions on the Company’s previously issued consolidated balance sheets and statements of cash flows (all cash flow figures are year-to-date, in millions).

 

		Mar. 31,			June 30,
		2013			2013
Cash and cash investments
As reported		$	1,032		$	1,223
As revised		$	828		$	1,028
Short-term bank deposits
As reported		—			—
As revised		$	204		$	195
Net cash (for) from investing activities
As reported		$	(30	)	$	(51	)
As revised		$	70		$	62

 

The revisions did not significantly impact the effect of exchange rate changes on cash and cash investments in either quarter above.  These changes will be reflected in the revised statements of cash flows, in future filings.

 

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MASCO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

 

B.                        In the first quarter of 2013, the Company determined that Tvilum, its Danish ready-to-assemble cabinet business, was no longer core to its long-term growth strategy and, accordingly, the Company embarked on a plan for disposition.  The disposition of Tvilum was completed in the fourth quarter of 2013.  The Company has accounted for this business as a discontinued operation.

 

Selected financial information for the discontinued operations, during the period owned by the Company, was as follows, in millions:

 

		Three Months Ended
		March 31, 2013
Net Sales		$	59
Operating loss from discontinued operations		$	(3	)
Impairment of assets		(10		)
Loss on disposal of discontinued operations, net		—
Loss before income tax		(13		)
Income tax benefit		(4		)
Loss from discontinued operations		$	(9	)

 

In the first quarter of 2014, the Company recognized $2 million of additional expenses related to prior discontinued operations.

 

During the first quarter of 2013, the Company estimated the fair value of the business held for sale, using unobservable inputs (Level 3).  After considering the deferred gains reported in Accumulated Other Comprehensive Income, the Company recorded an impairment of $10 million in the first quarter of 2013.

 

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MASCO CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)

 

C.                        The changes in the carrying amount of goodwill for the three months ended March 31, 2014, by segment, were as follows, in millions:

 

		Gross Goodwill			Accumulated			Net Goodwill
		At			Impairment			At
		Mar. 31, 2014			Losses			Mar. 31, 2014
Cabinets and Related Products		$	240		$	(59	)	$	181
Plumbing Products		550			(340		)	210
Installation and Other Services		1,806			(762		)	1,044
Decorative Architectural Products		294			(75		)	219
Other Specialty Products		983			(734		)	249
Total		$	3,873		$	(1,970	)	$	1,903

 

		Gross Goodwill			Accumulated			Net Goodwill						Net Goodwill
		At			Impairment			At						At
		Dec. 31, 2013			Losses			Dec. 31, 2013			Other(A)			Mar. 31, 2014
Cabinets and Related Products		$	240		$	(59	)	$	181		$	—		$	181
Plumbing Products		550			(340		)	210			—			210
Installation and Other Services		1,806			(762		)	1,044			—			1,044
Decorative Architectural Products		294			(75		)	219			—			219
Other Specialty Products		983			(734		)	249			—			249
Total		$	3,873		$	(1,970	)	$	1,903		$	—		$	1,903

 

(A)       Other principally includes the effect of foreign currency translation.

 

Other indefinite-lived intangible assets were $133 million at both March 31, 2014 and December 31, 2013, and principally included registered trademarks. The carrying value of the Company’s definite-lived intangible assets was $17 million (net of accumulated amortization of $63 million) at March 31, 2014 and $16 million (net of accumulated amortization of $62 million) at December 31, 2013, and principally included customer relationships and non-compete agreements.

 

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