01—Abstract
Summary
Summary of the 10-K filed February 18, 2011. Cited figures are marked; the original filing is the authoritative source.
Masco Corporation manufactures, distributes and installs home improvement and building products, with brand-name leadership positions in faucets, cabinets, architectural coatings and windows, and is one of the largest installers of insulation for new home construction.
Approximately 78 percent of 2010 sales were generated by North American operations. The company describes a prolonged and substantial downturn in home improvement and new home construction markets, and it continued business consolidations, plant closures, headcount reductions and other cost initiatives during 2010. Net sales were $7.59 billiona in 2010, down from $7.79 billion in 2009, and the company reported an operating loss of $499 million, driven mainly by $721 million of goodwill and other intangible asset impairment charges.
Net loss attributable to Masco Corporation was $1.04 billionb, or $3.00 per diluted share, including a $371 million non-cash valuation allowance against U.S. Federal deferred tax assets recorded in the fourth quarter. Balance sheet and liquidity are central to the investor picture. Cash and cash investments were $1.72 billion at December 31, 2010, and total debt as a percent of total capitalization rose to 72 percent from 58 percent.
Shareholders' equity fell to $1.58 billionc total equity from $2.82 billion. Cash from operations was $465 million. The company entered a $1.25 billion Credit Agreement in June 2010, and on February 11, 2011 amended it to allow add-back to shareholders' equity of $986 million of 2010 non-cash charges plus up to $350 million of future non-cash charges, leaving borrowing capacity of approximately $1 billion.
Management expects a challenging first half of 2011 and a stronger second half. The Home Depot, the largest customer, accounted for approximately 26 percent of 2010 consolidated net sales ($1.99 billiond), and the filing identifies the loss of that business as a material adverse risk. Management expects 2011 business rationalization costs of approximately $65 million and capital expenditures of approximately $230 million.
02—Key points
Key Highlights
- Net sales declined to $7.59 billion in 2010 from $7.79 billion in 2009, a decrease of three percent as stated in the filing.
- Operating loss of $499 million in 2010 included $721 million of goodwill and other intangible asset impairment charges, with $371 million of U.S. Federal deferred tax asset valuation allowance recorded in Q4 2010.
- Net loss attributable to Masco Corporation was $1.04 billion, or $3.00 per diluted share, versus $0.41 per diluted share from continuing operations in 2009.
- Total debt as a percent of total capitalization was 72 percent at December 31, 2010, up from 58 percent a year earlier; the Credit Agreement was amended on February 11, 2011 to add back $986 million of 2010 non-cash charges.
- Cash and cash investments totaled $1.72 billion at December 31, 2010, and the company issued $500 million of 7.125% notes due 2020 during 2010.
- The Home Depot represented approximately 26 percent of 2010 consolidated net sales, and the filing states loss of that business would have a material adverse effect.
- Management expects a challenging business environment in the first half of 2011 and a stronger second half, with 2011 rationalization costs of approximately $65 million.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2010, Masco lost $0.14.
- Revenue$7.49B100.0%
- Cost of revenue−$5.65B75.5%
- Gross profit$1.83B24.5%
- Operating costs−$2.30B30.7%
- Operating income−$463.0M6.2%
- Interest, other & tax−$580.0M7.7%
- Net income−$1.04B13.9%
04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 18, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $7.49B$7.66B | −2.2% |
| Cost of Revenue | $5.65B$5.65B | +0.1% |
| Gross Profit | $1.83B$2.01B | −8.8% |
| SG&A Expenses | $1.60B$1.68B | −4.8% |
| Operating Income | -$463.00M$70.00M | −761.4% |
| Interest Expense | $251.00M$225.00M | +11.6% |
| Net Income | -$1.04B-$183.00M | −469.9% |
| EPS (Basic) | $-3.00$-0.53 | −466.0% |
| EPS (Diluted) | $-3.00$-0.53 | −466.0% |
| Shares Outstanding (Basic) | 349.00M351.00M | −0.6% |
| Shares Outstanding (Diluted) | 349.00M351.00M | −0.6% |
05—Questions
Frequently Asked Questions
How much did Masco lose in 2010 and what drove it?
Net loss attributable to Masco Corporation was $1.04 billion, or $3.00 per diluted share. The main drivers were $721 million of pre-tax goodwill and other intangible asset impairment charges, mostly in the Installation and Other Services segment ($720 million), and a $371 million non-cash valuation allowance against U.S. Federal deferred tax assets recorded in the fourth quarter.
How strong is Masco's liquidity and borrowing capacity?
The company reported cash and cash investments of $1.72 billion at December 31, 2010, and had no borrowings under its $1.25 billion Credit Agreement. After the February 11, 2011 amendment, the company stated it had borrowing capacity of approximately $1 billion. Its only scheduled maturity before 2012 is none; $791 million of 5.875% notes become due in July 2012.
How concentrated is Masco's customer base?
The Home Depot accounted for approximately 26 percent of 2010 consolidated net sales, or $2.0 billion, and is the segment's and the company's largest customer. Lowe's is the second largest customer, at less than ten percent of consolidated net sales.
What is management doing to address the downturn?
Management continued business consolidations, plant closures, headcount reductions and system implementations, incurring $208 million of pre-tax costs and charges in 2010. It also formed Masco Cabinetry by combining the builder and retail cabinet groups, closed 23 manufacturing facilities since 2006, and is implementing the Masco Business System.
What does the filing say about the outlook?
Management said the negative trends affecting the business in the second half of 2010 continued into 2011 and expects a challenging business environment, particularly in the first half of 2011, with the second half expected to be stronger. It also expects 2011 capital expenditures of approximately $230 million and depreciation and amortization of approximately $260 million.
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