NAVIGATION

MASCO CORPORATION BUSINESS AND FINANCIAL HIGHLIGHTS

November 02, 2005

In accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the Company has accounted for the 2004 dispositions of Jung Pumpen, The Alvic Group, Alma Kuchen, E. Missel and SKS Group, and the 2005 dispositions of Gebhardt Consolidated and the GMU Group as discontinued operations.

Third Quarter 2005

  • Net sales from continuing operations increased six percent, with North American sales increasing seven percent and International sales increasing one percent. Net sales in North America benefited from strong housing starts and certain selling price increases. In local currencies, International sales increased one percent compared with the third quarter of 2004.

  • Sales of assembled cabinets, installation services and windows in North America were particularly strong in the quarter.

  • Key retailer sales from continuing operations increased two percent in the 2005 third quarter compared with a 10 percent increase in the second quarter of 2005, a decrease of two percent in the first quarter of 2005 and a six percent increase in the third quarter of 2004.

  • Sales by segment in the 2005 third quarter versus the 2004 third quarter were:

    • Cabinets and Related Products sales increased eight percent;

    • Plumbing Products sales increased four percent;

    • Installation and Other Services sales increased nine percent;

    • Decorative Architectural Products sales increased five percent; and

    • Other Specialty Products sales decreased one percent.
  • Income from continuing operations was $262 million compared with $289 million for the third quarter of 2004.

  • Earnings from continuing operations were $.61 per common share compared with the Company's guidance of $.60 to $.64 per common share and compared with $.64 per common share for the 2004 third quarter.

  • Results for the third quarter of 2005 were reduced by $43 million pre-tax ($.07 per common share) reflecting impairment charges for financial investments, Furniture Brands International common stock of $28 million and certain private equity funds of $15 million.

  • Results for the third quarter of 2005 were also negatively impacted by charges aggregating $12 million pre-tax ($.02 per common share) related to a discontinued product line and headcount reductions in the Plumbing Products segment.

  • Results for the third quarter of 2005 also include realized currency transaction gains of $4 million pre-tax ($.01 per common share).

  • Results for the third quarters of 2005 and 2004 benefited from other income aggregating $23 million pre-tax ($.04 per common share) and $9 million pre-tax ($.01 per common share), respectively, principally net gains from financial investments.

  • The third quarter of 2004 results include income from discontinued operations of $.02 per common share, a net gain of $.21 per common share for those businesses sold in the third quarter of 2004 and an impairment charge of $.07 per common share for those businesses that were expected to be divested at a loss, all of which were included in discontinued operations. Including the operating results of these discontinued operations and the charge for certain of these businesses, net income for the 2004 third quarter was $359 million or $.80 per common share. Total net proceeds from the dispositions completed in 2005 and 2004 aggregated $281 million. The third quarter of 2005 did not include any net income (loss) related to discontinued operations, since the Company completed the disposition process in the first quarter of 2005.

  • The Company's 2005 third quarter results benefited from the strong new construction market and certain selling price increases, partially offset by continued increases in commodity, energy and freight costs, as well as product mix.

  • Gross margins were 28.7 percent in the 2005 third quarter compared with 29.4 percent in the second quarter of 2005 and 31.2 percent in the third quarter of 2004. Operating profit margins, as reported, were 14.0 percent in the third quarter of 2005 compared with 14.1 percent in the second quarter of 2005 and 15.5 percent in the third quarter of 2004. Excluding the pre-tax income regarding the litigation settlement of $1 million and $2 million in 2005 and 2004, respectively, operating profit margins were 13.9 percent in the third quarter of 2005 compared with 15.4 percent in the third quarter of 2004. Margins in the third quarter of 2005 were adversely impacted by increases in certain operating expenses, including increased commodity, energy and freight costs and product mix.

  • SG&A expenses as a percent of sales, including general corporate expense, were 14.8 percent in the third quarter of 2005 compared with 15.8 percent in the 2004 third quarter.

  • General corporate expense was 1.5 percent of sales in the third quarter of 2005 compared with 1.7 percent in the comparable period of 2004.

  • Inventory days were 47 days at September 30, 2005 compared with 49 days at September 30, 2004.

  • Accounts receivable days at the end of September 30, 2005 were 49 days compared with 51 days at September 30, 2004.

  • Accounts payable days were 36 days at September 30, 2005 compared with 38 days at September 30, 2004.
  • Working capital at September 30, 2005 (defined as accounts receivable and inventories less accounts payable) improved to 17.7 percent of the last twelve months' sales from 18.5 percent a year earlier.

  • The Company's tax rate was 34.5 percent for the third quarter of 2005 compared with 36.3 percent for the comparable period of the prior year. The Company's tax rate for the second quarter of 2005 was 35.4 percent. The Company estimates that its effective tax rate for the full-year 2005 should approximate 35 percent.

  • On June 10, 2005, the Company issued $500 million of fixed-rate 4.80% notes due 2015, resulting in net proceeds of $494 million. The Company issued this debt to take advantage of favorable interest rates and in anticipation of debt maturing in early 2006.

  • At the end of the quarter, the Company had a strong balance sheet with over $1.5 billion in cash and $2 billion in unused bank lines. The Company intends to use a portion of its cash to retire $800 million of 6.75% notes due in March 2006.

  • In the third quarter of 2005, the Company generated approximately $56 million of cash from the net sale of financial investments.

  • Debt as a percent of total capitalization was 49 percent at September 30, 2005 compared with 45 percent at September 30, 2004.

  • For the twelve months ended September 30, 2005 and September 30, 2004, return on invested capital (as reported) was 11.9 percent and 12.9 percent, respectively. For the twelve months ended September 30, 2005 and September 30, 2004, return on invested capital (as reconciled) was 13.0 percent for both periods. The Company continues to believe that it will achieve its 15 percent return on invested capital goal by the end of 2006 and 18 percent by 2010.

  • During the quarter, the Company repurchased approximately five million common shares. The Company had approximately 37 million common shares remaining under its repurchase authorization at September 30, 2005.

  • The Company's diluted common shares for purposes of calculating earnings per common share were 427 million for the third quarter of 2005 compared with 449 million for the third quarter of 2004.

  • The Company remains committed to its strategy of value creation and is focused on the simplification of its business model, cash flow generation, improvement in return on invested capital and the return of cash to shareholders through share repurchases and dividends.

  • Consistent with this strategy, the Company is pursuing a variety of initiatives to offset cost increases and increase operating profit, including sourcing programs, the restructuring of certain of its businesses (including consolidations), manufacturing rationalization, headcount reductions and other profit improvement programs. As previously disclosed, the Company believes these initiatives, which began in early 2005, will reduce annual costs by $200 million by the end of 2007. While the Company may incur expenses and charges related to these programs, implementing these initiatives should improve the Company's earnings outlook for 2006 and beyond.

  • The Company believes that higher energy costs and recent trends indicating lower consumer confidence and the related slowing in sales of certain retail products will continue. Given these factors, together with recent additional commodity cost increases, most of which are not expected to be offset by selling price increases until the first half of 2006, the Company believes, based on current business trends, that fourth quarter 2005 earnings from continuing operations will be in the range of $.48 to $.52 per common share and that full-year 2005 earnings from continuing operations are expected to be in a range of $2.20 to $2.24 per common share compared with the Company's previous guidance of approximately $2.30 per common share. The Company's guidance reflects anticipated income from financial investments and excludes any additional costs associated with its profit improvement programs and any other items.

  • Fourth quarter 2004 earnings from continuing operations were $.55 per common share excluding the impact of the non-cash goodwill impairment charge of $.31 per common share. Including the charge, reported earnings were $.23 per common share. Results for the fourth quarter of 2004 benefited from gains from the sale of financial investments of $.06 per common share, partially offset by an impairment charge of $.03 per common share, related to the Company's investment in Furniture Brands International common stock. Results also benefited by $.02 per common share from a reduction in the Company's tax rate related to the utilization of foreign tax credits generated in the fourth quarter on distributions of foreign earnings.

  • The Company's guidance is based on no additional share repurchases beyond the 23 million common shares repurchased in the first nine months of 2005.

  • The Company expects to return a minimum of $1 billion annually to shareholders, on average, over the next several years through share repurchases and dividends as part of its ongoing commitment to value creation. In the first nine months of 2005, the Company has already returned over $1 billion to shareholders through share repurchases and dividends. In 2004 and 2003, the Company returned $2.3 billion, in aggregate, to shareholders through share repurchases and dividends.

  • Based on the current market price for the Company's common stock, diluted common shares for the computation of earnings per common share at October 1, 2005 are 424 million. This excludes the impact of any fourth quarter repurchases of common stock.

Statements contained herein may include certain forward-looking statements regarding Masco's future sales, earnings growth potential and other developments. Actual results may vary materially because of external factors such as interest rate fluctuations, changes in consumer spending and other factors over which management has no control. The Company believes 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, the Company's reported results under accounting principles generally accepted in the United States. Additional information about our products, markets and conditions, which could affect the Company's future performance, is contained in the Company's filings with the Securities and Exchange Commission and is available on Masco's website at www.masco.com. Masco undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.