MASCO CORPORATION
BUSINESS AND FINANCIAL HIGHLIGHTS
In accordance with SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets," the Company has accounted for the 2004 planned dispositions of
Jung Pumpen, The Alvic Group, Alma Kuchen, E. Missel and SKS Group, the
first quarter 2005 planned dispositions of Gebhardt Consolidated and GMU
Group and the fourth quarter 2005 additional dispositions of Zenith
Products and Aran Group as discontinued operations.
Fourth Quarter 2005
-
Net sales from continuing operations for the quarter increased six
percent to $3.1 billion, primarily from organic growth, with North
American sales increasing nine percent and International sales
decreasing eight percent. In local currencies, International sales were
flat compared with the fourth quarter of 2004.
- Sales of assembled cabinets, plumbing products and windows
in North America were particularly strong in the quarter increasing in
the aggregate over 13 percent compared with the fourth quarter of 2004.
Installation and Other Services sales were also strong and increased 11
percent compared with the fourth quarter of 2004.
- Sales at
retail continued the relatively slower growth exhibited in the third
quarter. Key retailer sales from continuing operations increased five
percent in the 2005 fourth quarter compared with the fourth quarter of
2004 and a two percent increase in the third quarter of 2005. The
Company believes retail sales were negatively impacted by higher energy
costs adversely affecting lower-income consumers and inventory
adjustments by certain retail customers.
- Income from continuing operations for the quarter was $211
million (excluding a non-cash, after-tax charge of $69 million for
goodwill impairment related to certain European businesses) compared
with $243 million (excluding a non-cash, after-tax charge of $104
million for goodwill impairment related to certain European businesses)
for the fourth quarter of 2004. Reported income from continuing
operations, including the goodwill impairment charges, was $142 million
and $139 million for the fourth quarters of 2005 and 2004, respectively.
-
Excluding the charges for goodwill impairment in both periods,
reported earnings from continuing operations were $.50 per common share
for the fourth quarter of 2005, compared with the Company's most recent
guidance of $.48 to $.52 per common share, and $.54 per common share for
the fourth quarter of 2004.
MASCO CORPORATION
BUSINESS AND FINANCIAL HIGHLIGHTS
Fourth Quarter 2005 (continued)
-
Including the charges for goodwill impairment in both periods,
reported earnings from continuing operations were $.34 per common share
for the fourth quarter of 2005 and $.31 per common share for the fourth
quarter of 2004.
- Results for the fourth quarter of 2005
benefited from net gains from the sale of financial investments and
other assets of $.02 per common share offset by $.02 per common share
from an adjustment of deferred taxes related to certain European
operations. Results for the fourth quarter of 2004 benefited from net
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 for the 2004 fourth quarter also benefited from a
reduction in the Company's tax rate related to the utilization of
foreign tax credits generated in the 2004 fourth quarter on
distributions of foreign earnings which benefited earnings by $.02 per
common share.
- Sales changes by segment, which were
substantially all organic growth, in the 2005 fourth quarter versus the
2004 fourth quarter were:
- Cabinets and Related Products sales increased six percent;
- Plumbing Products sales increased four percent;
- Installation and Other Services sales increased 11 percent;
- Decorative Architectural Products sales declined one percent; and
- Other Specialty Products sales increased seven percent.
-
Sales in certain segments were negatively impacted by weaker foreign
currencies and in addition, inventory adjustments by certain retail
customers (principally in the Decorative Architectural Products
segment).
MASCO CORPORATION
BUSINESS AND FINANCIAL HIGHLIGHTS
Fourth Quarter 2005 (concluded)
-
Gross margins were 27.6 percent in the fourth quarter of 2005
compared with 29.8 percent in the fourth quarter of 2004. Operating
profit margins as reported were 10.2 percent in the fourth quarter of
2005 compared with 8.8 percent in the fourth quarter of 2004. Excluding
non-cash, pre-tax charges for goodwill impairment of $69 million in the
fourth quarter of 2005 and $112 million in the fourth quarter of 2004,
operating profit margins were 12.4 percent in the fourth quarter of 2005
compared with 12.5 percent in the fourth quarter of 2004.
-
Results for the fourth quarter of 2005 include the positive impact of
higher sales volume, which was offset by the negative effect of
previously communicated increases in a number of operating expenses,
including such items as commodity, freight, energy and other
petroleum-based product costs.
- SG&A expenses as a percent
of sales, including general corporate expense, were 15.2 percent in the
fourth quarter of 2005 and 17.3 percent in the fourth quarter of 2004.
- General corporate expense was 1.5 percent of sales in the
fourth quarter of 2005 compared with 2.0 percent in the comparable
period of 2004.
- The reported tax rates on income from
continuing operations of 46.8 percent and 43.3 percent for the fourth
quarters of 2005 and 2004, respectively, principally reflect the impact
of a lower tax benefit on the goodwill impairment charges. Excluding
the goodwill impairment charges in 2005 and 2004 and the adjustment of
deferred taxes related to certain European operations in 2005 and the
impact of the distribution of foreign earnings in 2004 the Company's tax
rate was 35 percent in the fourth quarters of both 2005 and 2004.
-
The Company's diluted common shares for purposes of calculating
earnings per common share were 419 million for the fourth quarter of
2005 compared with 451 million for the fourth quarter of 2004.
MASCO CORPORATION
BUSINESS AND FINANCIAL HIGHLIGHTS
Full-Year 2005
-
Net sales from continuing operations for 2005 increased seven percent
to $12.6 billion compared with $11.9 billion for 2004. North American
sales increased eight percent and International sales increased one
percent. In local currencies, International sales also increased one
percent.
- Sales of assembled cabinets, installation services and windows in North America were particularly strong in 2005.
-
For the full-year 2005, key retailer sales were $3.8 billion, an
increase of approximately four percent over $3.7 billion for 2004.
- Sales increases by segment, which were substantially all organic growth, for 2005 versus 2004 were:
- Cabinets and Related Products sales increased eight percent;
- Plumbing Products sales increased four percent;
- Installation and Other Services sales increased 11 percent;
- Decorative Architectural Products sales increased four percent; and
- Other Specialty Products sales increased four percent.
-
Excluding the charges for goodwill impairment in 2005 and 2004,
earnings from continuing operations for 2005 were $2.19 per common
share, compared with the Company's most recent guidance, as adjusted for
discontinued operations, of $2.16 to $2.20 per common share, and $2.31
per common share for 2004.
- The Company sold Zenith Products
in North America and Aran Group in Europe in the fourth quarter of 2005
with combined annual sales of approximately $200 million for aggregate
proceeds of approximately $200 million. Under Generally Accepted
Accounting Principles, the net gain on these transactions, along with
2005 full-year and prior period operating results of these companies, is
reflected in discontinued operations. The impact of including these
businesses in discontinued operations is to reduce full-year results of
continuing operations by $.05 per common share.
MASCO CORPORATION
BUSINESS AND FINANCIAL HIGHLIGHTS
Full-Year 2005 (continued)
-
For the full-year 2005, reported income from continuing operations
was $872 million compared with $949 million in 2004, including non-cash,
after-tax charges for goodwill impairment of $69 million and $104
million in 2005 and 2004, respectively. Reported earnings from
continuing operations were $2.03 per common share compared with $2.08
per common share in 2004, including the non-cash, after-tax charges for
goodwill impairment.
- Gross margins were 28.5 percent in 2005
compared with 30.9 percent in 2004. Operating profit margins as
reported were 12.5 percent in 2005 compared with 13.4 percent in 2004.
Excluding non-cash, pre-tax goodwill impairment charges of $69 million
in 2005 and $112 million in 2004 and income related to the Behr
litigation of $6 million in 2005 and $30 million in 2004, operating
profit margins were 13.0 percent in 2005 compared with 14.1 percent in
2004.
- Full-year 2005 gross margins and operating margins
were adversely impacted by increased commodity, freight, energy and
other petroleum-based product costs, as well as a less favorable product
mix.
- SG&A expenses as a percent of sales, including
general corporate expense, were 15.6 percent in 2005 compared with 16.8
percent in 2004.
- General corporate expense was 1.5 percent of sales in 2005 compared with 1.6 percent in 2004.
-
The Company's reported tax rate on income from continuing
operations, excluding the goodwill impairment charges in 2005 and 2004,
the adjustment of deferred taxes related to certain European operations
in 2005 and the impact of the distributions of foreign earnings in 2004
was 35 percent for both full year 2005 and 2004. The Company
anticipates that its tax rate on income from continuing operations for
2006 will approximate 36 percent.
MASCO CORPORATION
BUSINESS AND FINANCIAL HIGHLIGHTS
Full-Year 2005 (continued)
- Accounts receivable days at December 31, 2005 were 48 days compared with 49 days a year ago.
- Inventory days were 46 days at December 31, 2005 compared with 49 days a year ago.
- Accounts payable days were 36 days at both December 31, 2005 and 2004.
-
Working capital at December 31, 2005 (defined as accounts receivable
and inventories less accounts payable) improved to 15.9 percent of sales
from 16.8 percent a year earlier.
- For the twelve months
ended December 31, 2005 and December 31, 2004, return on invested
capital was 13.0 percent and 12.0 percent, respectively. For the twelve
months ended December 31, 2005 and December 31, 2004, return on
invested capital (as reconciled) was 13.4 percent and 12.9 percent,
respectively. The Company continues to believe that it will approximate
its 15 percent return on invested capital goal by the end of 2006 and
18 percent goal by 2010.
- Capital expenditures including
discontinued operations were $282 million or 2.2 percent of sales in
2005, compared with $310 million or 2.5 percent of sales in 2004.
Certain capital expenditures principally related to capacity expansion
and facility acquisitions that were originally expected to occur in 2005
will occur in 2006 and capital expenditures are expected to aggregate
$420 million in 2006. Depreciation and amortization was $241 million in
2005 compared with $237 million in 2004.
- The Company
repurchased 31 million shares of its common stock during 2005, of which
eight million shares were repurchased in the fourth quarter. The
Company had 29 million common shares remaining at December 31, 2005
under the March 2005 Board of Directors repurchase authorization of 50
million shares.
MASCO CORPORATION
BUSINESS AND FINANCIAL HIGHLIGHTS
Full-Year 2005 (concluded)
-
In 2005 the Company returned $1.3 billion to shareholders through
share repurchases (31 million) and dividends. For the three-year period
(2003-2005) ended December 31, 2005, the Company has returned $3.6
billion to shareholders through the repurchase of 97 million shares and
dividends.
- The Company increased its quarterly dividend in
2005 by 11 percent from $.18 to $.20 per common share. The increased
quarterly dividend reflects the Company's favorable long-term outlook,
strong balance sheet and cash flow and recent tax law changes, and makes
2005 the 47th consecutive year in which dividends have been increased.
-
The Company's diluted common shares for purposes of calculating
earnings per common share were 430 million for the year ended December
31, 2005 compared with 456 million for the year ended December 31, 2004.
-
On June 10, 2005, the Company issued $500 million of fixed-rate 4.8%
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 $800 million of debt maturing in March 2006.
-
At the end of the year, the Company had a strong balance sheet, with
over $2 billion in cash and marketable securities and $2 billion in
unused bank lines. The Company will utilize $800 million of its cash to
redeem debt maturing in March 2006.
- The Company's marketable
securities had an aggregate cost basis of $94 million, with an
aggregate market value of $115 million, including unrealized gains of
$21 million at December 31, 2005.
- In 2005 free cash flow was
over $1 billion. For the three-year period (2003-2005) ended December
31, 2005, the Company's free cash flow (defined as cash from operations
less capital expenditures and before dividends) aggregated $3.4 billion.
- In 2005, the Company generated $193 million of cash from
the net disposition of financial investments and $278 million from the
net disposition of certain businesses.
- Debt as a percent of total capital was 49 percent at December 31, 2005 compared with 44 percent at December 31, 2004.
MASCO CORPORATION
BUSINESS AND FINANCIAL HIGHLIGHTS
2006 Outlook
-
Based on the current market price for the Company's common stock,
diluted common shares for the computation of earnings per common share
at January 1, 2006 are 418 million. This excludes the impact of any
2006 repurchases of common stock.
- The Company believes that
it will achieve further organic sales growth in 2006, and, based on
current business trends, believes that it will achieve full-year
earnings from continuing operations in a range of $2.35 to $2.45 per
common share, including approximately $60 million of increased benefits
to be realized in 2006 from our cost reduction programs.
- 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 income from
financial investments. The guidance also assumes no further significant
commodity cost increases.
- The Company in January 2006
announced a planned plant closure in the Plumbing Products segment. The
costs associated with the closure are expected to be incurred over the
remainder of 2006. These costs and other costs and charges related to
the Company's cost reduction initiatives are anticipated to aggregate
approximately $70 million in 2006. Including this $70 million of
anticipated costs (approximately $.11 per common share) guidance for
earnings from continuing operations would be in a range of $2.24 to
$2.34 per common share.
- While the Company will continue to provide annual guidance, it will no longer provide quarterly earnings guidance.
PROFIT IMPROVEMENT PROGRAMS
-
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.
- Major Program Components:
-
Asian sourcing has grown from $200 million in 2003, $450 million in
2004 to in excess of our $550 million goal in 2005. We have previously
indicated that we save 25-30% on items we outsource to Asia.
-
Consolidations, together with divestitures, have reduced our business
units from 67 in early 2003 to less than 40 at December 31, 2005.
- Program Costs
We estimate that direct costs associated with our cost
reductioninitiatives approximated $30 million in 2005, and anticipate
that direct costs will approximate $70 million (primarily related to
manufacturing plant closures) or $.11 per common share in 2006. The
quarterly timing of recording costs in 2006 will be driven by events
over the course of the year.
- Program BenefitsWe
believe that we realized additional cost reduction benefits in 2005 of
approximately $40 million. Additional cost reduction benefits in 2006
are expected to approximate $60 million. The Company expects to realize
the full extent of the benefits from these initiatives in 2007 and
beyond. Minimal additional costs related to implementing these programs
are presently expected for 2007.
- We expect to provide further detail related to our cost reduction programs during our March 30, 2006 Investor Conference.
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 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.