NAVIGATION

MASCO CORPORATION BUSINESS AND FINANCIAL HIGHLIGHTS

May 02, 2006

First Quarter 2006

  • Net sales from continuing operations increased nine percent with North American sales increasing 13 percent and International sales, which were negatively affected by a stronger U.S. dollar, principally against the Euro, decreasing five percent. In local currencies, International sales increased three percent compared with the first quarter of 2005.

  • Sales of assembled cabinets, paints and stains and installation services each increased double digits in the quarter.

  • Key retailer sales from continuing operations increased seven percent in the 2006 first quarter compared with a decline of one percent in the 2005 first quarter and an increase of five percent in the 2005 fourth quarter.

  • Sales increases by segment in the 2006 first quarter versus the 2005 first quarter were:

    • Cabinets and Related Products sales increased nine percent;

    • Plumbing Products sales increased five percent;

    • Installation and Other Services sales increased 16 percent;

    • Decorative Architectural Products sales increased 10 percent; and

    • Other Specialty Products sales increased five percent.

  • Income from continuing operations before the cumulative effect of an accounting change, net, and excluding costs and charges associated with profit improvement programs in the Plumbing Products segment for the first quarter of 2006 was $219 million or $.53 per common share compared with analysts' consensus estimates of $.46 per common share. Income from continuing operations for the first quarter of 2005 was $207 million or $.47 per common share.

  • Results for the first quarters of 2006 and 2005 benefited from net gains from the sale of financial investments of $.01 and $.06 per common share, respectively.

  • The first quarters of 2006 and 2005 included currency transaction gains (losses) of $.01 and ($.02) per common share, respectively. The first quarter of 2005 also included tax benefits of $.02 per common share related to the adjustment of estimated tax accruals.

  • First quarter 2006 results continued to be adversely affected by increases in recent quarters in commodity, energy and freight costs. The Company has already implemented and continues to implement additional selling price increases for a number of its products and believes that by the end of the first half of 2006, many of these cost increases will be largely offset by such price increases.

  • Income from continuing operations before the cumulative effect of an accounting change, net, for the first quarter of 2006 was $208 million or $.51 per common share including $17 million pre-tax of costs and charges associated with profit improvement programs in the Plumbing Products segment.

  • On January 1, 2003, the Company elected to prospectively change its method of accounting for stock-based compensation; accordingly, stock options granted, modified or settled subsequent to January 1, 2003 were accounted for using the fair value method and have been expensed in the Company's financial statements. Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R, "Share-Based Payment," ("SFAS No. 123R") and began recording expense for unvested stock options awarded prior to January 1, 2003 through the remaining vesting periods. The Company currently estimates that stock-based compensation expense for full-year 2006 will approximate $100 million pre-tax as compared to $75 million pre-tax for 2005. In addition, as a result of the adoption of SFAS No. 123R, the Company also recorded $3 million (after-tax) as a cumulative effect of an accounting change, net, for stock appreciation rights for foreign operations.

  • Net income for the first quarter of 2006 was $204 million or $.50 per common share after giving recognition to the cumulative effect of an accounting change, net, of $3 million or $.01 per common share related to share-based compensation. Net income for the first quarter of 2005 was $231 million or $.52 per common share which included $24 million or $.06 per common share of income related to discontinued operations.

  • Gross margins were 27.6 percent in the 2006 first quarter compared with 28.4 percent in the 2005 first quarter. Operating profit margins, as reported, were 11.2 percent in the first quarter of 2006 compared with 11.5 percent in the first quarter of 2005. Operating profit margins in the first quarter of 2006 include the negative effect of costs and charges related to the Company's profit improvement programs in the Plumbing Products segment. Excluding these charges of $17 million pre-tax in 2006 and the income regarding litigation settlement of $2 million pre-tax in 2005, operating profit margins were 11.7 percent and 11.4 percent for the first quarters of 2006 and 2005, respectively.

  • SG&A expenses as a percent of sales, including general corporate expense, were 16.4 percent in the 2006 first quarter compared with 17.0 percent in the 2005 first quarter.

  • General corporate expense was 1.5 percent of sales in the first quarter of 2006 compared with 1.6 percent in the comparable period of 2005.

  • Accounts receivable days at the end of the first quarter were 50 days compared with 51 days a year ago.

  • Inventory days at the end of the first quarter were 49 days compared with 50 days a year ago.

  • Accounts payable days at the end of the first quarter were 34 days compared with 37 days a year ago.

  • Working capital at March 31, 2006 (defined as accounts receivable and inventories less accounts payable) improved to 17.6 percent of the last twelve months' sales from 18.0 percent a year earlier.

  • The Company's tax rate was 34.6 percent for the first quarter of 2006 compared with 32.3 percent for the comparable period of the prior year. The lower tax rate for the first quarter of 2005 compared with the first quarter of 2006 resulted primarily from certain adjustments to estimated tax accruals related to International operations recognized in the first quarter of 2005. The Company's 2005 tax rate on income from continuing operations, excluding the goodwill impairment charges and the adjustment of deferred taxes related to certain European operations, would have been 35 percent for full-year 2005. The Company currently estimates that its tax rate on income from continuing operations for 2006 will approximate 34 to 35 percent.

  • At the end of the quarter, the Company had a strong balance sheet with approximately $800 million in cash and marketable securities and $2 billion in unused bank lines.

  • In the first quarter of 2006, the Company retired $800 million of 6.75% notes due March 15, 2006. Debt as a percent of total capitalization was 46 percent at both March 31, 2006 and 2005.

  • For the twelve months ended March 31, 2006 and March 31, 2005, return on invested capital (as reported) was 12.9 percent and 11.6 percent, respectively. For the twelve months ended March 31, 2006 and March 31, 2005, return on invested capital (as reconciled) was 13.3 percent and 12.7 percent, respectively. The Company continues to believe that, excluding the Plumbing Products segment costs and charges which are expected to aggregate approximately $70 million pre-tax in 2006, it will approximate its 15 percent return on invested capital goal by the end of 2006, and its approximate 18 percent goal by 2010.

  • During the quarter, the Company repurchased and retired approximately 10 million shares of Company common stock. The Company had approximately 19 million common shares remaining under its repurchase authorization at March 31, 2006.

  • The Company's diluted common shares for purposes of calculating earnings per common share were 411 million for the first quarter of 2006 compared with 443 million for the first quarter of 2005.

  • During the quarter, the Board of Directors increased the quarterly dividend 10 percent, from $.20 to $.22 per common share, making 2006 the 48th consecutive year in which dividends have been increased.

    Full-Year Outlook

  • In April 2006, the Company completed the sale of two relatively small businesses for gross proceeds of approximately $49 million; aggregate net sales for these businesses were $46 million for the year ended December 31, 2005 and $11 million for the first quarter of 2006.

  • The Company has already implemented and continues to implement additional price increases for a number of its products and believes that by the end of the first half of 2006, many of the commodity cost increases incurred in recent quarters by the Company should be largely offset by such price increases.

  • The Company believes that it will achieve mid-to-high single digit organic sales growth in 2006, and, based on current business trends, believes that it will now achieve full-year earnings from continuing operations in a range of $2.40 to $2.50 per common share.

  • In January 2006, the Company announced a plant closure in the Plumbing Products segment. The Company incurred $17 million pre-tax ($.03 per common share) of costs and charges associated with this plant closure in the Plumbing Products segment in the first quarter of 2006 and, as previously announced, expects to incur additional costs throughout 2006. These costs and other costs and charges related to the Company's profit improvement programs are anticipated to aggregate approximately $70 million pre-tax in 2006. Including this $70 million of anticipated costs (approximately $.11 per common share), earnings from continuing operations are expected to be in a range of $2.29 to $2.39 per common share in 2006.

  • The Company's full-year guidance is based on housing starts declining five percent from 2005 levels, share repurchases of a minimum 20 million common shares, modest margin improvement reflecting selling price increases offsetting rising commodity costs and anticipated modest income from financial investments. The guidance also assumes no further significant commodity cost increases.

  • The Company's previously announced guidance was for 2006 earnings from continuing operations to be in a range of $2.35 to $2.45 per common share and $2.24 to $2.34 per common share including planned costs and charges related to plant closures and other profit improvement programs.

  • As previously announced, the Company will provide annual earnings guidance, but will no longer provide quarterly earnings guidance.

  • The Company expects to continue to return a minimum of $1 billion annually to shareholders, on average, through share repurchases and dividends as part of its ongoing commitment to value creation. The Company has returned $3.6 billion to shareholders over the last three calendar years including 97 million of share repurchases and dividends. In the first quarter of 2006, the Company returned $408 million to shareholders through share repurchases and dividends.

  • Diluted common shares for the computation of earnings per common share at April 1, 2006 are 406 million. This excludes the impact of any second quarter repurchases of common stock.

MASCO CORPORATION
BUSINESS AND FINANCIAL HIGHLIGHTS

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 housing starts, commodity costs, 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 our 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.