01—Abstract
Summary
Summary of the 10-K filed March 2, 2006. Cited figures are marked; the original filing is the authoritative source.
Masco Corporation manufactures, sells and installs home improvement and building products, with emphasis on brand-name products holding leadership positions in their markets.
For 2005, net sales were $12.64 billiona, up from $11.85 billion in 2004, and income from continuing operations was $872 million ($2.03 diluted EPS), down from $949 million ($2.08) in 2004. Operating profit was $1.58 billion versus $1.59 billion in 2004. The decline reflected a $69 million non-cash goodwill impairment charge on certain European businesses, higher commodity, energy and freight costs, and a less favorable product mix.
Gross profit margin fell to 28.5 percent from 30.9 percent. Net income rose to $940 millionb from $893 million, helped by $68 million of income from discontinued operations, which reflects the company's continued divestiture of non-core businesses. The company's largest customer, The Home Depot, accounted for $2.7 billion of 2005 sales, approximately 21 percent of the total.
Cash and cash investments rose to $1.96 billionc at December 31, 2005, supported by $1.37 billion of operating cash flow. Masco repurchased $986 million of common stock during 2005 and raised its quarterly dividend 11 percent to $.20 per share. Total debt as a percent of total capitalization increased to 49 percent from 44 percent, and $800 million of 6.75% notes due March 2006 were reclassified to current liabilities, which management intends to repay partly from cash.
Management expects higher commodity costs from late 2005 to weigh on near-term operating performance, with selling price increases expected to largely offset those costs by the end of the first half of 2006. The company plans a plant closure in its Plumbing Products segment, with associated costs of approximately $70 milliond expected in 2006, and is constructing significant North American cabinet capacity expected to be completed in early 2007.
02—Key points
Key Highlights
- Net sales rose 7 percent to $12.64 billion in 2005; Cabinets and Related Products ($3.32 billion) and Plumbing Products ($3.18 billion) were the largest segments.
- Income from continuing operations fell to $872 million ($2.03 diluted EPS) from $949 million ($2.08) in 2004, after a $69 million goodwill impairment charge tied to European businesses.
- Gross profit margin declined to 28.5 percent from 30.9 percent, reflecting higher commodity, energy and freight costs and a less favorable product mix.
- Net income was $940 million, including $68 million from discontinued operations following the sale of several European and North American businesses.
- The Home Depot was the largest customer at $2.7 billion, or approximately 21 percent of 2005 total sales.
- Cash and cash investments increased to $1.96 billion; the company repurchased $986 million of its common stock and raised its quarterly dividend 11 percent to $.20.
- Total debt to total capitalization rose to 49 percent from 44 percent, with $800 million of 6.75% notes due March 2006 reclassified to current liabilities.
03—Questions
Frequently Asked Questions
How did Masco perform financially in 2005?
Net sales grew 7 percent to $12.64 billion, but income from continuing operations declined to $872 million ($2.03 diluted EPS) from $949 million ($2.08) in 2004. The decline was driven by a $69 million non-cash goodwill impairment charge on certain European businesses, higher commodity and energy costs, and a less favorable product mix. Net income was $940 million.
How concentrated is Masco's customer base?
The Home Depot is the largest customer, with 2005 sales of $2.7 billion, or approximately 21 percent of total sales. The filing states that losing a substantial portion of these sales would have a material adverse impact on the company.
What is Masco's outlook for 2006?
Management expects higher commodity costs from late 2005 to continue adversely affecting near-term operating performance, with selling price increases expected to largely offset them by the end of the first half of 2006. A plant closure in the Plumbing Products segment is expected to cost approximately $70 million in 2006. The company expects its effective tax rate to be about 36 percent and capital expenditures of approximately $420 million, excluding any 2006 acquisitions.
How is Masco managing its balance sheet and capital returns?
Cash and cash investments reached $1.96 billion at year-end 2005. The company repurchased $986 million of common stock in 2005 and expects to continue its repurchase program through 2006. Total debt to total capitalization rose to 49 percent from 44 percent. The company intends to use a portion of its cash to retire $800 million of 6.75% notes due March 15, 2006.
What legal matters could affect Masco?
The filing describes several pending matters, including antitrust class action lawsuits concerning insulation installation, a putative class action in California involving Milgard aluminum windows, and European government investigations into plumbing and heating industry practices with related U.S. class actions. The company believes it will not incur material liability from these matters, but states that outcomes cannot be assured and that it cannot reliably estimate potential liability from an adverse judgment in certain cases.
04—Continue