01—Abstract
Summary
Summary of the 10-K filed February 17, 2009. Cited figures are marked; the original filing is the authoritative source.
Masco Corporation manufactures, distributes and installs home improvement and building products, with about 78 percent of its 2008 sales generated by North American operations.
Net sales fell 17 percent to $9.6 billiona in 2008 from $11.5 billion in 2007, as new home construction declined over 30 percent and consumer spending on home improvement fell. The company reported a net loss of $391 million for 2008, driven by $467 million of pre-tax impairment charges for goodwill and other intangible assets. Operating profit dropped to $74 million from $1.05 billion, and shareholders' equity declined to $2.85 billion from $4.03 billion.
Liquidity was supported by cash and cash investments of $1.03 billionb at December 31, 2008, and no amounts outstanding under its $2.0 billion Five-Year Revolving Credit Agreement, which expires in February 2011. However, one rating agency lowered the company's senior debt rating to below investment grade in December 2008, which increases borrowing costs and makes refinancing more difficult. The company's total debt as a percent of total capitalization rose to 58 percent from 50 percent.
Management is recommending a reduction in the quarterly dividend from $.235 to $.075 per share and expects to focus on liquidity preservation. Management's outlook is extremely challenging.
The company estimates 2009 housing starts will decline about 35 percent to 550,000 to 600,000 units, and it expects consumer home improvement spending to keep declining in the near term. The Home Depot, the largest customer, accounted for approximately 21 percent of 2008 net sales, which the filing identifies as a key concentration risk.
02—Key points
Key Highlights
- Net sales declined 17 percent to $9.6 billion in 2008 from $11.5 billion in 2007, with North America down 19 percent and International down 6 percent.
- Net loss of $391 million in 2008 versus net income of $386 million in 2007, including $467 million of pre-tax goodwill and intangible asset impairment charges.
- Operating profit fell to $74 million from $1.05 billion; the operating profit margin was .8 percent as reported.
- Quarterly dividend recommended to be cut from $.235 to $.075 per share ($.30 annually) to preserve liquidity.
- One rating agency lowered the company's senior debt rating to below investment grade in December 2008; the Zero Coupon Convertible Senior Notes ($54 million) are convertible on demand and classified as short-term debt.
- Cash and cash investments were $1.03 billion at December 31, 2008, and the $2.0 billion revolving credit facility was undrawn.
- Management estimates 2009 housing starts will decline about 35 percent to 550,000 to 600,000 units.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2008, Masco lost $0.04.
- Revenue$9.48B100.0%
- Cost of revenue−$7.13B75.1%
- Gross profit$2.36B24.9%
- Operating costs−$2.27B23.9%
- Operating income$90.0M0.9%
- Interest, other & tax−$481.0M5.1%
- Net income−$391.0M4.1%
Where FY2008 revenue went
$9.48B- Cost of revenue: $7.13B, 75% of revenue
- SG&A: $1.80B, 19% of revenue
- Operating income: $90.0M, 0.9% of revenue
- Other operating costs: $467.0M, 4.9% of revenue
Kept 0.9% as operating incomeOperating income $90.0M · 0.9%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2008filed February 17, 2009Financial Statements
FY2008 against FY2007
| Line item | FY2008FY2007 | Change |
|---|---|---|
| Revenue | $9.48B$11.41B | −16.9% |
| Cost of Revenue | $7.13B$8.28B | −13.9% |
| Gross Profit | $2.36B$3.13B | −24.7% |
| SG&A Expenses | $1.80B$1.95B | −7.7% |
| Operating Income | $90.00M$1.06B | −91.5% |
| Interest Expense | $228.00M$258.00M | −11.6% |
| Net Income | -$391.00M$386.00M | −201.3% |
| EPS (Basic) | $-1.13$1.02 | −210.8% |
| EPS (Diluted) | $-1.13$1.02 | −210.8% |
| Shares Outstanding (Basic) | 353.00M— | — |
| Shares Outstanding (Diluted) | 353.00M— | — |
05—Questions
Frequently Asked Questions
Why did Masco report a net loss in 2008?
The company reported a net loss of $391 million, or $(1.11) per share, in 2008. The loss was driven by $467 million in pre-tax non-cash impairment charges for goodwill and other intangible assets, along with a sharp decline in sales volume from the new home construction and home improvement markets. The effective tax rate was 63 percent for the continuing operations loss, partly reflecting the impairment charges that provided no tax benefit.
How exposed is Masco to The Home Depot?
Sales to The Home Depot were $2.1 billion in 2008, approximately 21 percent of consolidated net sales. The filing states that the loss of a substantial portion of these sales would have a material adverse effect on the business. Lowe's is the second-largest customer, at less than 10 percent of net sales.
Is Masco's liquidity position adequate?
At December 31, 2008, the company had $1.03 billion of cash and cash investments and no borrowings under its $2.0 billion Five-Year Revolving Credit Agreement, which expires in February 2011. The company stated it was in compliance with all debt covenants and believes its present cash balance and cash flows are sufficient for near-term needs. However, the December 2008 credit rating downgrade is expected to raise financing costs, and the company acknowledged it may become difficult to refinance existing debt.
Will Masco continue paying dividends?
The company paid quarterly dividends of $.235 per share in the fourth quarter of 2008. Management is recommending to the Board a reduction to $.075 per share quarterly ($.30 annually), citing the need to focus on liquidity preservation. Future dividends remain at the discretion of the Board and depend on earnings, capital requirements and financial condition.
What does Masco expect for 2009?
Management expects market conditions to be extremely challenging over the next several quarters. It estimates 2009 housing starts will decline approximately 35 percent to 550,000 to 600,000 units, and expects consumer spending on home improvement and demand for certain International products to continue declining in the near term. The company also expects 2009 capital expenditures of approximately $175 million and pension expense of $49 million for qualified plans.
06—Continue