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MAS > SEC Filings for MAS > Form 10-Q on 2-May-2013All Recent SEC Filings

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Form 10-Q for MASCO CORP /DE/


2-May-2013

Quarterly Report


Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FIRST QUARTER 2013 VERSUS FIRST QUARTER 2012

                              SALES AND OPERATIONS

The following table sets forth our net sales and operating profit (loss) margins
by business segment and geographic area, dollars in millions:



                                        Three Months Ended        Percent (Decrease)
                                             March 31,                 Increase
                                         2013          2012          2013 vs. 2012
  Net Sales:
  Cabinets and Related Products       $      236      $   228                       4 %
  Plumbing Products                          762          742                       3 %
  Installation and Other Services            312          278                      12 %
  Decorative Architectural Products          432          434                      -  %
  Other Specialty Products                   134          124                       8 %

  Total                               $    1,876      $ 1,806                       4 %

  North America                       $    1,510      $ 1,431                       6 %
  International, principally Europe          366          375                      (2 %)

  Total                               $    1,876      $ 1,806                       4 %

                                                    Three Months Ended
                                                         March 31,
                                                    2013            2012
          Operating Profit (Loss) Margins: (A)
          Cabinets and Related Products                (1.7 %)       (7.0 %)
          Plumbing Products                            11.3 %        13.1 %
          Installation and Other Services              (1.3 %)       (5.0 %)
          Decorative Architectural Products            20.6 %        16.8 %
          Other Specialty Products                     (0.7 %)       (4.0 %)

          North America                                 9.3 %         6.1 %
          International, principally Europe             7.1 %        12.5 %
          Total                                         8.8 %         7.5 %

          Operating profit margins, as reported         7.0 %         6.0 %

(A) Before general corporate expense, net and income from litigation settlements; see Note L to the condensed consolidated financial statements.

We report our financial results in accordance with generally accepted accounting principles ("GAAP") in the United States. However, we believe that certain non-GAAP performance measures and ratios used in managing the business may provide users of this financial information with additional meaningful comparisons between current results and results in prior periods. Non-GAAP performance measures and ratios should be viewed in addition to, and not as an alternative for, our reported results.


Table of Contents

MASCO CORPORATION

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

                                   NET SALES

Net sales increased four percent for the three-month period ended March 31, 2013
from the comparable period of 2012. There was no net impact of currency
translation in the first quarter of 2013. The following table reconciles
reported net sales to net sales, excluding acquisitions and the effect of
currency translation, in millions:



                                                                   Three Months Ended
                                                                        March 31,
                                                                  2013             2012
Net sales, as reported                                          $   1,876         $ 1,806
Acquisitions                                                           (3 )            -

Net sales, excluding acquisitions                                   1,873           1,806
Currency translation                                                   -               -

Net sales, excluding acquisitions and the effect of
currency translation                                            $   1,873         $ 1,806

North American net sales increased six percent for the three-month period ended March 31, 2013 from the comparable period of 2012 due to increased sales volume of cabinets, installation and other services, plumbing products and windows. Net sales were also positively affected by selling price increases, which increased sales by two percent for the three-month period ended March 31, 2013 from the comparable period of 2012. Such increases were partially offset by a less favorable product mix related to cabinets and plumbing products, as well as lower sales volume of paints and stains which decreased sales by one percent for the three-month period ended March 31, 2013 from the comparable period of 2012.

In local currencies and in U.S. dollars, net sales from International operations decreased two percent for the three-month period ended March 31, 2013. The decrease in local currency sales in the three-month period ended March 31, 2013 is primarily due to lower sales volume of International plumbing products, cabinets and windows, partially offset by increased selling prices.

Net sales of Cabinets and Related Products increased for the three-month period ended March 31, 2013 due to increased sales volume and selling prices of North American cabinets, which increased sales by 11 percent from the comparable period of 2012, partially offset by a less favorable product mix of North American cabinets, which decreased sales by seven percent from the comparable period of 2012.

Net sales of Plumbing Products increased due to increased sales volume of North American operations, which increased sales by four percent for the three-month period ended March 31, 2013 from the comparable period of 2012, partially offset by lower sales volume of international operations.

Net sales of Installation and Other Services increased for the three-month period ended March 31, 2013, primarily due to increased sales volume related to a higher level of activity in the new home construction market as well as increased selling prices.

Net sales of Decorative Architectural Products decreased for the three-month period ended March 31, 2013, principally due to lower sales volume of paints and stains.


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MASCO CORPORATION

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Net sales of Other Specialty Products increased for the three-month period ended March 31, 2013 compared with the same period in 2012 due to higher sales volume of North American windows. This segment was negatively affected by lower sales volume of U.K. windows and staple guns and other fastening tools in the same period of 2013 compared to 2012.

OPERATING MARGINS

Our gross profit margins were 27.1 percent for the three-month period ended March 31, 2013 compared with 26.8 percent for the comparable period of 2012. Selling, general and administrative expenses, as a percentage of sales, were 20.0 percent for the three-month period ended March 31, 2013, compared to 20.8 percent for the comparable period of 2012.

Gross profit margins for the first quarter ended March 31, 2013 were positively affected by increased sales volume and a more favorable relationship between selling prices and commodity costs. The decrease in selling, general and administrative expenses as a percent of sales, in the first quarter of 2013 is due to increased sales volume.

We have been focused on the strategic rationalization of our businesses, including business consolidations, plant closures, headcount reductions, system implementations and other initiatives. Operating profit for the three-month periods ended March 31, 2013 and 2012 includes $8 million and $11 million, respectively, of costs and charges related to our business rationalizations and other initiatives.

Operating margins in the Cabinets and Related Products segment for the three-month period ended March 31, 2013 reflect a more favorable relationship between selling prices and commodity costs and the benefits associated with our business rationalizations and cost savings initiatives, partially offset by a less favorable product mix.

Operating margins in the Plumbing Products segment for the three-month period ended March 31, 2013 were negatively impacted by lower sales volume and a less favorable product mix related to international operations and a less favorable relationship between selling prices and commodity costs (including the negative impact of $4 million loss related to the metal hedge contracts). Such declines more than offset increased North American sales volume.

Operating margins in the Installation and Other Services segment for the three-month period ended March 31, 2013 were positively impacted by increased sales volume and the related absorption of fixed costs, as well as the benefits associated with business rationalizations and other cost savings initiatives.

Operating margins in the Decorative Architectural Products segment for the three-month period ended March 31, 2013 reflect the anniversary of pricing actions and lower program costs.

Operating margins in the Other Specialty Products segment for the three-month period ended March 31, 2013 reflect increased sales volume and the benefits associated with business rationalizations and other cost savings initiatives.


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MASCO CORPORATION

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OTHER INCOME (EXPENSE), NET

Interest expense for the three-month period ended March 31, 2013 decreased $4 million from the comparable period of 2012 primarily due to the repurchase and retirement of $791 million of 5.875% Notes in 2012, partially offset by the issuance of 5.95% Notes. This activity resulted in a net debt reduction of $400 million in 2012.

Other items, net, for the three-month period ended March 31, 2013 included $3 million of currency transaction gains. Other items, net, for the three-month period ended March 31, 2012 included $(1) million of currency transaction losses.

Other, net, for the three-month period ended March 31, 2013 included gains of $3 million related to distributions from private equity funds. Other, net, for the three-month period ended March 31, 2012 included gains of $16 million related to distributions from private equity funds.

INCOME PER COMMON SHARE FROM CONTINUING OPERATIONS - Attributable to Masco
Corporation

Income for the three-month period ended March 31, 2013 was $56 million compared with $42 million for the comparable period of 2012. Diluted earnings per common share for the three-month period ended March 31, 2013 was $.16 per common share compared with $.12 per common share for the comparable period of 2012.

Our effective tax rate in the first quarter of 2013 of 18 percent was lower than our normalized tax rate of 36 percent primarily due to a decrease in the valuation allowance resulting from the partial utilization of our U.S. Federal net operating loss carryforward and from a $12 million state income tax benefit on uncertain tax positions due to the expiration of applicable statutes of limitations in various jurisdictions.

In the first quarter of 2012, we incurred income tax expense of $7 million on pre-tax income from continuing operations of $60 million. The income tax expense includes a $21 million state income tax benefit on uncertain tax positions primarily from the expiration of applicable statutes of limitations in various jurisdictions and certain tax audit closings.

OTHER FINANCIAL INFORMATION

Our current ratio was 1.7 to 1 at both March 31, 2013 and December 31, 2012.

For the three months ended March 31, 2013, cash of $210 million was used for operating activities. First quarter 2013 cash from operations was affected by an expected and annually recurring seasonal first quarter increase in accounts receivable and inventories compared with December 31, 2012.

Net cash used for financing activities was $65 million, primarily due to $26 million for the payment of cash dividends and $35 million for the acquisition of Company common stock in open-market transactions to partially offset the dilutive impact of long-term stock awards granted in 2013 and awards granted in late 2012. Net cash used for investing activities was $30 million and included $31 million for capital expenditures and $5 million for the acquisition of a U.K. door company, offset by net proceeds from the sale of fixed assets and financial investments of $10 million.


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MASCO CORPORATION

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our cash and cash investments were $1.0 billion and $1.4 billion at March 31, 2013 and December 31, 2012, respectively. Our cash and cash investments consist of overnight interest bearing money market demand and time deposit accounts, money market mutual funds and government securities.

Of the $1.0 billion and the $1.4 billion of cash and cash investments held at March 31, 2013 and December 31, 2012, respectively, $522 million and $572 million, respectively, is held in foreign subsidiaries. If these funds were needed for our operations in the U.S., their repatriation into the U.S. may result in additional U.S. income taxes or foreign withholding taxes. The amount of such taxes is dependent on the income tax laws and circumstances at the time of distribution.

On March 28, 2013, the Company entered into a credit agreement (the "New Credit Agreement") with a bank group, with an aggregate commitment of $1.25 billion and a maturity date of March 28, 2018. Upon entry into the New Credit Agreement, the Company's credit agreement dated as of June 21, 2010, as amended, with an aggregate commitment of $1.25 billion, was terminated. See Footnote H to the financial statements.

Based on the limitations of the debt to total capitalization covenant in the New Credit Agreement, at March 31, 2013, the Company had additional borrowing capacity, subject to availability, of up to $858 million. Additionally, at March 31, 2013, the Company could absorb a reduction to shareholders' equity of approximately $462 million and remain in compliance with the debt to total capitalization covenant.

We were in compliance with all covenants and had no borrowings under the New Credit Agreement at March 31, 2013.

We have $200 million of 7.125% Notes due August 15, 2013 ("Notes"). We plan to use available cash to retire the Notes.

We believe that our present cash balance, cash flows from operations and, to the extent necessary, bank borrowings and future financial market activities, are sufficient to fund our working capital and other investment needs.


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MASCO CORPORATION

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OUTLOOK FOR THE COMPANY

We continue to make progress on our strategic initiatives, which include leveraging our brands, reducing our costs, improving our Installation and Cabinets segments and strengthening our balance sheet. We are encouraged by the continued strength in new home construction activity, driven by the stabilization and improvement of home prices in many areas of the U.S., increasing affordability and demographics. These factors should continue to drive demand for new homes over the next several years. Increased new home construction activity benefits virtually all of our businesses.

We believe and are confident that the long-term fundamentals for the new home construction and home improvement markets continue to be positive. We believe that our strong financial position, together with our current strategy of investing in leadership brands, including KRAFTMAID and MERILLAT cabinets, DELTA and HANSGROHE faucets, BEHR paint and MILGARD windows, our continued focus on innovation and our commitment to lean principles, will allow us to drive long-term growth and create value for our shareholders.

FORWARD-LOOKING STATEMENTS

Statements contained in this report that reflect our views about our future performance constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as "believe," "anticipate," "appear," "may," "will," "intend," "plan," "estimate," "expect," "assume," "seek," "should," "forecast," and similar references to future periods. These views involve risks and uncertainties that are difficult to predict and, accordingly, our actual results may differ materially from the results discussed in our forward-looking statements. We caution you against relying on any of these forward-looking statements. Our future performance may be affected by our reliance on new home construction and home improvement, our reliance on key customers, the cost and availability of raw materials, the uncertainty in the international economy, shifts in consumer preferences and purchasing practices, our ability to improve our underperforming businesses and our ability to maintain our competitive positions in our industries. These and other factors are discussed in detail in Item 1A, "Risk Factors" in our most recent Annual Report on Form 10-K. Our forward-looking statements in this report speak only as of the date of this report. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. Unless required by law, we undertake no obligation to update publicly any forward-looking statements as a result of new information, future events or otherwise.


Table of Contents

MASCO CORPORATION

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