01—Abstract
Summary
Summary of the 10-K filed February 27, 2004. Cited figures are marked; the original filing is the authoritative source.
Masco Corporation manufactures, sells and installs home improvement and building products, with five business segments: Cabinets and Related Products ($3.06 billiona net sales in 2003), Plumbing Products ($2.65 billion), Installation and Other Services ($2.41 billion), Decorative Architectural Products ($1.52 billion) and Other Specialty Products ($1.30 billion).
Total 2003 net sales were $10.94 billionb, up from $9.15 billion in 2002, and the filing states that acquisitions and currency translation contributed to the increase. Reported operating profit was $1.42 billion in 2003 versus $1.30 billion in 2002, after a $142 million pre-tax goodwill impairment charge (mainly European businesses) and a $72 million litigation settlement income item. Income from continuing operations was $740 million, or $1.51 per diluted share, compared with $664 million, or $1.29 per diluted share, in 2002.
Net income was $806 millionc, or $1.64 per diluted share. The Home Depot was the largest customer, accounting for approximately 22 percent of 2003 total sales, and the filing states that losing a substantial portion of those sales would have a material adverse impact. Cash and cash investments were $795 million at year-end, and net cash from operating activities was $1.42 billion.
The company repurchased $779 milliond of common stock during 2003 and increased its quarterly dividend 14 percent to $.16 per share. In the first quarter of 2004 management decided several European businesses with combined 2003 net sales above $350 million are not core, and began a disposition plan expected to produce net proceeds exceeding $300 million over the next twelve months, with a modest net loss expected. Management also states it believes the company will achieve record sales and earnings for full-year 2004 from continuing operations, excluding any disposition charge.
02—Key points
Key Highlights
- Net sales rose to $10.94 billion in 2003 from $9.15 billion in 2002; the filing attributes the increase partly to acquisitions and partly to currency translation.
- Income from continuing operations was $740 million ($1.51 diluted EPS) in 2003, versus $664 million ($1.29) in 2002, including a $142 million pre-tax goodwill impairment charge.
- Net income was $806 million ($1.64 diluted EPS), including $66 million from discontinued operations and gain.
- The Home Depot accounted for approximately 22 percent of 2003 sales ($2.5 billion), a significant customer concentration the company flags as a material risk.
- Cash and cash investments were $795 million at December 31, 2003, and net cash from operations was $1.42 billion.
- The company repurchased $779 million of its common stock in 2003 and raised its quarterly dividend 14 percent to $.16 per share.
- In Q1 2004 the company began disposing of several European businesses with 2003 net sales above $350 million, expecting net proceeds above $300 million and a modest net loss.
03—Questions
Frequently Asked Questions
How did Masco's core business segments perform in 2003?
Net sales grew in all five segments in 2003. Plumbing Products rose 30 percent to $2.65 billion, Installation and Other Services rose 31 percent to $2.41 billion, and Cabinets and Related Products rose 9 percent to $3.06 billion. Decorative Architectural Products increased 12 percent to $1.52 billion and Other Specialty Products increased 16 percent to $1.30 billion. Operating profit for Decorative Architectural Products fell to $195 million from $311 million, reflecting the UK-related charges and higher advertising costs.
What were the main charges affecting 2003 results?
The company recorded a non-cash pre-tax goodwill impairment charge of $142 million, mainly related to certain European businesses. It also recorded a non-cash pre-tax charge of approximately $35 million plus $5 million of goodwill impairment and about $15 million of operating strategy charges tied to a United Kingdom business unit, after former management had circumvented internal controls. Offsetting these, the Behr litigation settlement resulted in $72 million of pre-tax income for 2003.
What is the company's plan for its European businesses?
In the first quarter of 2004, management determined that several European businesses are not core to its long-term growth strategy and began a disposition plan. These businesses had combined 2003 net sales above $350 million and an approximate net book value of $330 million. The company expects net proceeds above $300 million, completion within the next twelve months, and a modest net loss, with a charge in first-quarter 2004 results for businesses expected to be sold at a loss.
How is Masco returning capital to shareholders and funding itself?
In 2003 Masco paid $286 million in cash dividends and repurchased $779 million of common stock, and it increased its quarterly dividend 14 percent to $.16 per share, marking the 45th consecutive year of dividend increases. Bank credit lines include a $1.25 billion 5-year revolving credit agreement due November 2005 and a $750 million 364-day agreement expiring November 2004, with no borrowings under either in 2003. The company stated it had additional borrowing capacity of up to $2.5 billion, and the total debt to total capitalization ratio fell to 43 percent from 47 percent.
What outlook does management give for 2004?
Management said favorable sales performance continued in early 2004 and that, based on current business trends, it believes it will achieve record sales and earnings for full-year 2004 from continuing operations, excluding any disposition charge. It expects certain operating expenses, including energy, insurance, and certain material and freight costs, to continue increasing in 2004. It also estimates an effective tax rate of approximately 36 percent for 2004 and capital expenditures of approximately $350 million.
04—Continue