Delaware | 38-1794485 | |
(State or Other Jurisdiction of Incorporation) |
(IRS Employer Identification No.) |
21001 Van Born Road, Taylor, Michigan | 48180 | |
(Address of Principal Executive Offices) | (Zip Code) |
Class | Shares Outstanding at October 28, 2008 | |
Common stock, par value $1.00 per share | 359,900,000 |
Page No. | ||||||||
PART I. FINANCIAL INFORMATION |
||||||||
Item 1. Financial Statements: |
||||||||
1 | ||||||||
2 | ||||||||
3 | ||||||||
4-20 | ||||||||
21-27 | ||||||||
28 | ||||||||
29-30 | ||||||||
EX-12 | ||||||||
EX-31.A | ||||||||
EX-31.B | ||||||||
EX-32 |
September 30, | December 31, | |||||||
2008 | 2007 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash investments |
$ | 1,030 | $ | 922 | ||||
Receivables |
1,442 | 1,405 | ||||||
Prepaid expenses and other |
284 | 355 | ||||||
Inventories: |
||||||||
Finished goods |
556 | 552 | ||||||
Raw material |
390 | 418 | ||||||
Work in process |
134 | 156 | ||||||
1,080 | 1,126 | |||||||
Total current assets |
3,836 | 3,808 | ||||||
Property and equipment, net |
2,194 | 2,367 | ||||||
Goodwill |
3,888 | 3,938 | ||||||
Other intangible assets, net |
316 | 323 | ||||||
Other assets |
403 | 471 | ||||||
Total assets |
$ | 10,637 | $ | 10,907 | ||||
LIABILITIES |
||||||||
Current liabilities: |
||||||||
Notes payable |
$ | 115 | $ | 122 | ||||
Accounts payable |
717 | 714 | ||||||
Accrued liabilities |
1,068 | 1,072 | ||||||
Total current liabilities |
1,900 | 1,908 | ||||||
Long-term debt |
3,961 | 3,966 | ||||||
Deferred income taxes and other |
1,026 | 1,008 | ||||||
Total liabilities |
6,887 | 6,882 | ||||||
Commitments and contingencies |
||||||||
SHAREHOLDERS EQUITY |
||||||||
Common shares, par value $1 per share
Authorized shares: 1,400,000,000; issued and outstanding: 2008 - 351,400,000; 2007 - 358,900,000 |
351 | 359 | ||||||
Preferred shares authorized: 1,000,000; issued
and outstanding: 2008 - None; 2007 - None |
| | ||||||
Retained earnings |
2,737 | 2,969 | ||||||
Accumulated other comprehensive income |
662 | 697 | ||||||
Total shareholders equity |
3,750 | 4,025 | ||||||
Total liabilities and
shareholders equity |
$ | 10,637 | $ | 10,907 | ||||
1
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Net sales |
$ | 2,528 | $ | 3,005 | $ | 7,621 | $ | 8,897 | ||||||||
Cost of sales |
1,880 | 2,155 | 5,643 | 6,420 | ||||||||||||
Gross profit |
648 | 850 | 1,978 | 2,477 | ||||||||||||
Selling, general and administrative expenses |
452 | 479 | 1,413 | 1,493 | ||||||||||||
Operating profit |
196 | 371 | 565 | 984 | ||||||||||||
Other income (expense), net: |
||||||||||||||||
Interest expense |
(59 | ) | (65 | ) | (172 | ) | (197 | ) | ||||||||
Impairment charges for financial
investments |
(1 | ) | (12 | ) | (30 | ) | (22 | ) | ||||||||
Other, net |
3 | 32 | 5 | 89 | ||||||||||||
(57 | ) | (45 | ) | (197 | ) | (130 | ) | |||||||||
Income from continuing operations before
income taxes and minority interest |
139 | 326 | 368 | 854 | ||||||||||||
Income taxes |
92 | 109 | 207 | 302 | ||||||||||||
Income from continuing operations before
minority interest |
47 | 217 | 161 | 552 | ||||||||||||
Minority interest |
11 | 11 | 35 | 27 | ||||||||||||
Income from continuing operations |
36 | 206 | 126 | 525 | ||||||||||||
(Loss) income from discontinued operations, net |
(3 | ) | (1 | ) | (9 | ) | 12 | |||||||||
Net income |
$ | 33 | $ | 205 | $ | 117 | $ | 537 | ||||||||
Earnings per common share: |
||||||||||||||||
Basic: |
||||||||||||||||
Income from continuing operations |
$ | .10 | $ | .56 | $ | .36 | $ | 1.41 | ||||||||
(Loss) income from discontinued
operations, net |
(.01 | ) | | (.03 | ) | .03 | ||||||||||
Net income |
$ | .09 | $ | .56 | $ | .33 | $ | 1.44 | ||||||||
Diluted: |
||||||||||||||||
Income from continuing operations |
$ | .10 | $ | .56 | $ | .36 | $ | 1.40 | ||||||||
(Loss) income from discontinued
operations, net |
(.01 | ) | | (.03 | ) | .03 | ||||||||||
Net income |
$ | .09 | $ | .56 | $ | .33 | $ | 1.43 | ||||||||
Cash dividends per common share: |
||||||||||||||||
Declared |
$ | .235 | $ | .23 | $ | .695 | $ | .69 | ||||||||
Paid |
$ | .23 | $ | .23 | $ | .69 | $ | .68 | ||||||||
2
Nine Months Ended | ||||||||
September 30, | ||||||||
2008 | 2007 | |||||||
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES: |
||||||||
Cash provided by operations |
$ | 528 | $ | 850 | ||||
(Increase) in receivables |
(104 | ) | (137 | ) | ||||
(Increase) decrease in inventories |
(5 | ) | 67 | |||||
Increase in accounts payable and accrued
liabilities, net |
98 | 35 | ||||||
Net cash from operating activities |
517 | 815 | ||||||
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES: |
||||||||
Increase in debt |
| 2 | ||||||
Payment of debt |
(22 | ) | (34 | ) | ||||
Retirement of notes |
| (1,425 | ) | |||||
Issuance of notes, net of issuance costs |
| 596 | ||||||
Purchase of Company common stock |
(160 | ) | (804 | ) | ||||
Issuance of Company common stock |
| 60 | ||||||
Dividends paid to minority interest |
(22 | ) | (13 | ) | ||||
Cash dividends paid |
(251 | ) | (262 | ) | ||||
Net cash (for) financing activities |
(455 | ) | (1,880 | ) | ||||
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES: |
||||||||
Capital expenditures |
(142 | ) | (174 | ) | ||||
Purchases of auction rate securities |
| (1,047 | ) | |||||
Proceeds from disposition of auction rate
securities |
| 1,025 | ||||||
Proceeds from disposition of: |
||||||||
Marketable securities |
10 | 53 | ||||||
Other financial investments, net |
42 | 63 | ||||||
Businesses, net of cash disposed |
179 | 11 | ||||||
Property and equipment |
5 | 41 | ||||||
Acquisition of businesses, net of cash acquired |
(19 | ) | (190 | ) | ||||
Other, net |
(19 | ) | (12 | ) | ||||
Net cash from (for) investing activities |
56 | (230 | ) | |||||
Effect of exchange rate changes on cash and cash
investments |
(10 | ) | 31 | |||||
CASH AND CASH INVESTMENTS: |
||||||||
Increase (decrease) for the period |
108 | (1,264 | ) | |||||
Cash at businesses held for sale |
| (4 | ) | |||||
At January 1 |
922 | 1,958 | ||||||
At September 30 |
$ | 1,030 | $ | 690 | ||||
3
A. | In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary to present fairly its financial position at September 30, 2008 and the results of operations for the three months and nine months ended September 30, 2008 and 2007 and cash flows for the nine months ended September 30, 2008 and 2007. The condensed consolidated balance sheet at December 31, 2007 was derived from audited financial statements. | |
Certain prior-year amounts have been reclassified to conform to the 2008 presentation in the condensed consolidated financial statements. The results of operations related to 2008 and 2007 discontinued operations have been separately stated in the accompanying condensed consolidated statements of income for the three months and nine months ended September 30, 2008 and 2007. In the Companys condensed consolidated statements of cash flows for the nine months ended September 30, 2008 and 2007, cash flows of discontinued operations are not separately classified. | ||
Recently Issued Accounting Pronouncements. In March 2008, the Financial Accounting Standards Board (FASB) issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities, (SFAS No. 161). SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. The adoption of SFAS No. 161 is effective January 1, 2009 and the Company does not anticipate that this pronouncement will have a significant effect on its consolidated financial statements. | ||
In May 2008, the FASB issued FASB Staff Position No. APB 14-1, Accounting for Convertible Debt Instruments That May Be Settled in Cash Upon Conversion (Including Partial Cash Settlement), (FSP APB 14-1). FSP APB 14-1 requires that issuers of convertible debt instruments that permit or require the issuer to pay cash upon conversion to separately account for the liability and equity components. The adoption of FSP APB 14-1 is effective January 1, 2009 and retrospective application is required. The Company has not determined what impact, if any, the adoption of FSP APB 14-1 will have on its consolidated financial statements. | ||
In June 2008, the FASB issued FSP No. EITF 03-6-1, Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities, (FSP EITF 03-6-1). FSP EITF 03-6-1 requires that unvested share-based payment awards containing non-forfeited rights to dividends be included in the computation of earnings per common share. The adoption of FSP EITF 03-6-1 is effective January 1, 2009 and retrospective application is required. The Company has not determined what impact, if any, the adoption of FSP EITF 03-6-1 will have on its consolidated financial statements. | ||
In October 2008, the FASB issued FASB staff position No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active, (FSP No. 157-3). FSP No. 157-3 clarifies the application of SFAS No. 157 to financial assets in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. The adoption of FSP No. 157-3 is effective and did not have a significant impact on the condensed consolidated financial statements. |
4
B. | The Companys 2005 Long Term Stock Incentive Plan (the 2005 Plan) replaced the 1991 Long Term Stock Incentive Plan (the 1991 Plan) in May 2005 and provides for the issuance of stock-based incentives in various forms. At September 30, 2008, outstanding stock-based incentives were in the form of long-term stock awards, stock options, phantom stock awards and stock appreciation rights. Additionally, the Companys 1997 Non-Employee Directors Stock Plan (the 1997 Plan) provides for the payment of part of the compensation to non-employee Directors in Company common stock. The 1997 Plan expired in May 2007; subsequently, compensation to non-employee Directors in Company common stock will be made from the 2005 Plan. Pre-tax compensation expense (income) and the related income tax benefit, for these stock-based incentives, were as follows, in millions: |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Long-term stock awards |
$ | 10 | $ | 12 | $ | 33 | $ | 41 | ||||||||
Stock options |
10 | 11 | 28 | 36 | ||||||||||||
Phantom stock awards and stock
appreciation rights |
1 | (5 | ) | (2 | ) | (7 | ) | |||||||||
Total |
$ | 21 | $ | 18 | $ | 59 | $ | 70 | ||||||||
Income tax benefit |
$ | 8 | $ | 7 | $ | 22 | $ | 26 | ||||||||
Long-Term Stock Awards | ||
Long-term stock awards are granted to key employees and non-employee Directors of the Company and do not cause net share dilution inasmuch as the Company continues the practice of repurchasing and retiring an equal number of shares on the open market. | ||
The Companys long-term stock award activity was as follows, shares in millions: |
Nine Months Ended | ||||||||
September 30, | ||||||||
2008 | 2007 | |||||||
Unvested stock award shares at January 1 |
9 | 9 | ||||||
Weighted average grant date fair value |
$ | 28 | $ | 27 | ||||
Stock award shares granted |
2 | 2 | ||||||
Weighted average grant date fair value |
$ | 21 | $ | 31 | ||||
Stock award shares vested |
2 | 2 | ||||||
Weighted average grant date fair value |
$ | 26 | $ | 25 | ||||
Stock award shares forfeited |
| | ||||||
Weighted average grant date fair value |
$ | 28 | $ | 28 | ||||
Unvested stock award shares at September 30 |
9 | 9 | ||||||
Weighted average grant date fair value |
$ | 26 | $ | 28 |
At September 30, 2008 and 2007, there was $172 million and $189 million, respectively, of total unrecognized compensation expense related to unvested stock awards; such awards had a weighted average remaining vesting period of seven years in both years. |
5
The total market value (at the vesting date) of stock award shares which vested during the nine months ended September 30, 2008 and 2007 was $29 million and $47 million, respectively. | ||
Stock Options | ||
Stock options are granted to key employees and non-employee Directors of the Company. The exercise price equals the market price of the Companys common stock at the grant date. These options generally become exercisable (vest ratably) over five years beginning on the first anniversary from the date of grant and expire no later than 10 years after the grant date. The 2005 Plan does not permit the granting of restoration stock options, except for restoration options resulting from options previously granted under the 1991 Plan. Restoration stock options become exercisable six months from the date of grant. | ||
The Company granted 6,491,900 of stock option shares, including restoration stock option shares, in the nine months ended September 30, 2008 with a grant date exercise price approximating $19 per share. In the first nine months of 2008 813,530 stock option shares were forfeited (including options that expired unexercised). |
6
The Companys stock option activity was as follows, shares in millions: |
Nine Months Ended | ||||||||
September 30, | ||||||||
2008 | 2007 | |||||||
Option shares outstanding, January 1 |
26 | 26 | ||||||
Weighted average exercise price |
$ | 27 | $ | 26 | ||||
Option shares granted, including restoration
options |
6 | 5 | ||||||
Weighted average exercise price |
$ | 19 | $ | 30 | ||||
Option shares exercised |
| 3 | ||||||
Aggregate intrinsic value on date of
exercise (A) |
$ | | million | $ | 26 | million | ||
Weighted average exercise price |
$ | 20 | $ | 23 | ||||
Option shares forfeited |
1 | 2 | ||||||
Weighted average exercise price |
$ | 27 | $ | 30 | ||||
Option shares outstanding, September 30 |
31 | 26 | ||||||
Weighted average exercise price |
$ | 25 | $ | 27 | ||||
Weighted average remaining option term
(in years) |
7 | 7 | ||||||
Option shares vested and expected to vest,
September 30 |
31 | 26 | ||||||
Weighted average exercise price |
$ | 25 | $ | 27 | ||||
Aggregate intrinsic value (A) |
$ | | million | $ | 16 | million | ||
Weighted average remaining option term
(in years) |
7 | 7 | ||||||
Option shares exercisable (vested),
September 30 |
17 | 13 | ||||||
Weighted average exercise price |
$ | 26 | $ | 26 | ||||
Aggregate intrinsic value (A) |
$ | | million | $ | 14 | million | ||
Weighted average remaining option term
(in years) |
5 | 5 |
(A) | Aggregate intrinsic value is calculated using the Companys stock price at each respective date, less the exercise price (grant date price) multiplied by the number of shares. |
At September 30, 2008 and 2007, there was $68 million and $87 million, respectively, of unrecognized compensation expense (using the Black-Scholes option pricing model) related to unvested stock options; such options had a weighted average vesting period of three years in 2008 and three years in 2007. |
7
The weighted average grant date fair value of option shares granted and the assumptions used to estimate those values using a Black-Scholes option pricing model, were as follows: |
Nine Months Ended | ||||||||
September 30, | ||||||||
2008 | 2007 | |||||||
Weighted average grant date fair value |
$ | 3.72 | $ | 9.11 | ||||
Risk-free interest rate |
3.25 | % | 4.79 | % | ||||
Dividend yield |
4.96 | % | 2.93 | % | ||||
Volatility factor |
32.00 | % | 31.85 | % | ||||
Expected option life |
6 | years | 7 | years |
C. | During the second quarter of 2008, the Company acquired a relatively small countertop business (Cabinet and Related Products segment). This business, which allows the Company to expand the products and services it offers to its customers, had annual sales of over $40 million. The results of this acquisition are included in the condensed consolidated financial statements from the date of acquisition. The aggregate net purchase price for this acquisition was $20 million and included cash of $18 million and future cash payments of $2 million. | |
D. | During the first quarter of 2008, the Company determined that several European business units were not core to the Companys long-term growth strategy and, accordingly, embarked on a plan of disposition; the dispositions were completed in August 2008. In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, (SFAS No. 144), the Company has accounted for a 2007 disposition and the 2008 dispositions as discontinued operations. | |
In the first quarter of 2008, the Company recognized a charge for those business units that were expected to be divested at a loss, which included estimated expenses for fees expected to be incurred. In the second quarter of 2008, the Company completed the sale of its European-based The Heating Group business unit for net proceeds of $146 million. Also, in the second quarter of 2008, the Company reduced its estimate of expenses for transaction fees associated with the discontinued operations by $5 million, which is included in the (loss) gain on disposal of discontinued operations, since the reduction in fees related to the sale of The Heating Group. In the third quarter of 2008, in separate transactions, the Company completed the sale of its European-based Glass Idromassaggio and Alfred Reinecke business units for combined net proceeds of $28 million. The impairment of assets related to the discontinued operations primarily includes the write-down of goodwill of $24 million and other assets of $21 million. |
8
In the third quarter of 2008, the Company determined that one of its business units previously included in its plan for disposition would not be sold. Accordingly, the Company has reclassified the results of operations and the previously recorded impairment charge to continuing operations in the condensed consolidated statement of income. The related assets and liabilities were also reclassified out of assets and liabilities held for sale. In addition, the Company recognized pre-tax income of $6 million for the three months ended September 30, 2008 related to the reversal of the previously recorded impairment charge. The income resulted from an adjustment of the assets to the lower of the carrying value, prior to inclusion in assets held for sale, adjusted for depreciation expense, or current market value. | ||
Selected financial information for these discontinued operations was as follows, in millions: |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Net sales |
$ | 7 | $ | 73 | $ | 100 | $ | 229 | ||||||||
Income from discontinued
operations |
$ | 1 | $ | 3 | $ | 13 | $ | 14 | ||||||||
(Loss) gain on disposal of
discontinued operations |
(4 | ) | (4 | ) | 3 | (1 | ) | |||||||||
Impairment of assets held for sale |
| | (45 | ) | | |||||||||||
(Loss)income before income tax |
(3 | ) | (1 | ) | (29 | ) | 13 | |||||||||
Income tax benefit (expense) |
| | 20 | (1 | ) | |||||||||||
(Loss) income from discontinued
operations, net |
$ | (3 | ) | $ | (1 | ) | $ | (9 | ) | $ | 12 | |||||
The after-tax charge for the impairment of assets held for sale was $24 million or $.07 per common share for the nine months ended September 30, 2008. The unusual relationship between income taxes and income (loss) before income taxes (excluding the impairment charge for assets held for sale) resulted primarily from certain losses providing no current tax benefit and from certain gains and income not being subject to income taxes. During the third quarter of 2008, the Company recorded other net expenses of $5 million included in (loss) gain on disposal of discontinued operations, reflecting the adjustment of certain liabilities related to businesses disposed in 2004. | ||
The 2008 discontinued operations were previously included in the Plumbing Products segment and the Other Specialty Products segment. |
9
E. | The changes in the carrying amount of goodwill for the nine months ended September 30, 2008, by segment, were as follows, in millions: |
Deductions (B) | ||||||||||||||||||||
At | Discontinued | At | ||||||||||||||||||
Dec. 31, 2007 | Additions (A) | Operations | Other(C) | Sept. 30, 2008 | ||||||||||||||||
Cabinets and Related
Products |
$ | 293 | $ | 4 | $ | | $ | (5 | ) | $ | 292 | |||||||||
Plumbing Products |
499 | | | (11 | ) | 488 | ||||||||||||||
Installation and Other
Services |
1,816 | 1 | | 1 | 1,818 | |||||||||||||||
Decorative Architectural
Products |
300 | | | (6 | ) | 294 | ||||||||||||||
Other Specialty Products |
1,030 | | (24 | ) | (10 | ) | 996 | |||||||||||||
Total |
$ | 3,938 | $ | 5 | $ | (24 | ) | $ | (31 | ) | $ | 3,888 | ||||||||
(A) | Additions include acquisitions. | |
(B) | During the first quarter of 2008, the Company reclassified the goodwill related to business units held for sale. Subsequent to the reclassification, the Company recognized a charge for those business units expected to be divested at a loss; the charge included a write-down of goodwill of $24 million. | |
(C) | Other principally includes the effect of foreign currency translation, reclassifications and purchase price adjustments related to prior-year acquisitions. |
Other indefinite-lived intangible assets were $208 million at both September 30, 2008 and December 31, 2007, and principally included registered trademarks. The carrying value of the Companys definite-lived intangible assets was $108 million (net of accumulated amortization of $68 million) at September 30, 2008 and $115 million (net of accumulated amortization of $67 million) at December 31, 2007, and principally included customer relationships and non-compete agreements. | ||
F. | Depreciation and amortization expense was $179 million and $185 million for the nine months ended September 30, 2008 and 2007, respectively. | |
G. | The Company has maintained investments in available-for-sale securities and a number of private equity funds, principally as part of its tax planning strategies, as any gains enhance the utilization of any current and future tax capital losses. Financial investments included in other assets were as follows, in millions: |
September 30, | December 31, | |||||||
2008 | 2007 | |||||||
Asahi Tec Corporation common
and preferred stock |
$ | 61 | $ | 57 | ||||
TriMas Corporation |
16 | 26 | ||||||
Auction rate securities |
22 | 22 | ||||||
Marketable securities |
| 9 | ||||||
Private equity funds |
153 | 173 | ||||||
Other investments |
13 | 28 | ||||||
Total |
$ | 265 | $ | 315 | ||||
10
The Companys investments in available-for-sale securities at September 30, 2008 and December 31, 2007 (including marketable securities, auction rate securities, Asahi Tec Corporation common and preferred stock and TriMas Corporation) were as follows, in millions: |
Pre-tax | ||||||||||||||||
Unrealized | Unrealized | Recorded | ||||||||||||||
Cost Basis | Gains | Losses | Basis | |||||||||||||
September 30, 2008 |
$ | 81 | $ | 18 | $ | | $ | 99 | ||||||||
December 31, 2007 |
$ | 117 | $ | 9 | $ | (12 | ) | $ | 114 |
Income from financial investments, net, included in other, net, within other income (expense), net, and impairment charges for financial investments were as follows, in millions: |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Realized gains from
marketable securities |
$ | | $ | 2 | $ | | $ | 9 | ||||||||
Realized losses from
marketable securities |
| (2 | ) | (3 | ) | (4 | ) | |||||||||
Dividend income from
marketable securities |
| | | 1 | ||||||||||||
Income from other
investments, net |
| 11 | 3 | 35 | ||||||||||||
Dividend income from
other investments |
| | 5 | |||||||||||||
Income from financial
investments, net |
$ | | $ | 11 | $ | | $ | 46 | ||||||||
Impairment charges: |
||||||||||||||||
Marketable securities |
$ | (1 | ) | $ | (3 | ) | $ | (1 | ) | $ | (9 | ) | ||||
Private equity funds |
| (6 | ) | (7 | ) | (10 | ) | |||||||||
Auction rate securities |
| (3 | ) | | (3 | ) | ||||||||||
TriMas Corporation |
| | (22 | ) | | |||||||||||
Impairment charges |
$ | (1 | ) | $ | (12 | ) | $ | (30 | ) | $ | (22 | ) | ||||
For its investments in available-for-sale securities, the Company reviews industry analyst reports, key ratios and statistics, market analyses and other factors for each investment to determine if an unrealized loss is other-than-temporary. Based upon this review, during the first quarter of 2008, the Company determined that the decline in the value of its investment in TriMas Corporation common stock was other-than-temporary and, accordingly, recognized a non-cash, pre-tax impairment charge of $22 million. Based upon its review, during the third quarter of 2008, the Company determined that the decline in the value of its investment in Asahi Tec common stock was other-than-temporary and, accordingly, recognized a non-cash, pre-tax impairment charge of $1 million. |
11
The Companys investments in private equity funds and other private investments are carried at cost and are evaluated for potential impairment when impairment indicators are present, or when an event or change in circumstances has occurred, that may have a significant adverse effect on the fair value of the investment. Impairment indicators the Company considers include the following: a significant deterioration in earnings performance, asset quality or business prospects; a significant adverse change in the regulatory, economic or technological environment; a significant adverse change in the general market condition or geographic area in which the investment operates; and any bona fide offers to purchase the investment for less than the carrying value. Since there is no active trading market for these investments, they are for the most part illiquid. The Company determined that the decline in the estimated value of a private equity fund investment (with a carrying value of $15 million prior to the impairment) that also holds an investment in TriMas Corporation common stock was other-than-temporary and, accordingly, recognized a non-cash, pre-tax impairment charge of $4 million for the first quarter of 2008. During the second quarter of 2008, the Company also determined that the decline in the estimated value of a private equity fund investment (with a carrying value of $8 million prior to the impairment) was other-than-temporary and, accordingly, recognized a non-cash, pre-tax impairment charge of $3 million. | ||
The remaining private equity investments at September 30, 2008 and December 31, 2007, with an aggregate carrying value of $137 million and $119 million, respectively, were not evaluated for impairment, as there were no indicators of impairment or identified events or changes in circumstances that would have a significant adverse effect on the fair value of the investments. | ||
H. | At September 30, 2008 and December 31, 2007, the Company did not have a balance in paid-in capital due to the repurchases of Company common stock. The Companys activity in retained earnings and paid-in capital was as follows, in millions: |
Nine Months Ended | Twelve Months Ended | |||||||
September 30, 2008 | December 31, 2007 | |||||||
Balance at January 1 |
$ | 2,969 | $ | 3,575 | ||||
Net income |
117 | 386 | ||||||
Shares issued |
| 109 | ||||||
Shares retired: |
||||||||
Repurchased |
(151 | ) | (826 | ) | ||||
Surrendered (non-cash) |
(7 | ) | (14 | ) | ||||
Cash dividends declared |
(252 | ) | (346 | ) | ||||
Stock-based compensation |
61 | 118 | ||||||
Cumulative effect of
accounting change
regarding income tax
uncertainties |
| (26 | ) | |||||
Other |
| (7 | ) | |||||
Balance at end of period |
$ | 2,737 | $ | 2,969 | ||||
12
The Companys total comprehensive income was as follows, in millions: |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Net income |
$ | 33 | $ | 205 | $ | 117 | $ | 537 | ||||||||
Other comprehensive (loss) income: |
||||||||||||||||
Cumulative translation
adjustments |
(158 | ) | 71 | (47 | ) | 115 | ||||||||||
Unrealized gain (loss) on
marketable securities, net |
2 | | 10 | (5 | ) | |||||||||||
Prior service cost and net loss,
net |
| 2 | 2 | 4 | ||||||||||||
Total comprehensive (loss)
income |
$ | (123 | ) | $ | 278 | $ | 82 | $ | 651 | |||||||
The unrealized gain (loss) on marketable securities, net, is net of income tax (benefit) of $1 million and $6 million for the three months and nine months ended September 30, 2008, respectively, and $(4) million for the nine months ended September 30, 2007. The prior service cost and net loss, net, is net of income tax of $1 million and $2 million, respectively, for the nine months ended September 30, 2008 and 2007. | ||
The components of accumulated other comprehensive income were as follows, in millions: |
September 30, | December 31, | |||||||
2008 | 2007 | |||||||
Cumulative translation adjustments |
$ | 723 | $ | 770 | ||||
Unrealized gain (loss) on marketable
securities, net |
6 | (4 | ) | |||||
Unrecognized prior service cost and
net loss, net |
(67 | ) | (69 | ) | ||||
Accumulated other comprehensive income |
$ | 662 | $ | 697 | ||||
The unrealized gain (loss) on marketable securities, net, is reported net of income tax (benefit) of $3 million and $(3) million at September 30, 2008 and December 31, 2007, respectively. The unrecognized prior service cost and net loss, net, is reported net of income tax benefit of $38 million and $39 million at September 30, 2008 and December 31, 2007, respectively. | ||
I. | The Company owns 68 percent of Hansgrohe AG. The aggregate minority interest, net of dividends, of $132 million and $117 million at September 30, 2008 and December 31, 2007, respectively, was recorded in the caption deferred income taxes and other liabilities on the Companys condensed consolidated balance sheets. |
13
J. | Net periodic pension cost for the Companys defined-benefit pension plans was as follows, in millions: |
Three Months Ended September 30, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
Qualified | Non-Qualified | Qualified | Non-Qualified | |||||||||||||
Service cost |
$ | 4 | $ | | $ | 5 | $ | | ||||||||
Interest cost |
12 | 3 | 11 | 1 | ||||||||||||
Expected return on plan assets |
(13 | ) | | (12 | ) | | ||||||||||
Amortization of prior service
cost |
| | | 1 | ||||||||||||
Amortization of net loss |
| | 1 | | ||||||||||||
Net periodic pension cost |
$ | 3 | $ | 3 | $ | 5 | $ | 2 | ||||||||
Nine Months Ended September 30, | ||||||||||||||||
2008 | 2007 | |||||||||||||||
Qualified | Non-Qualified | Qualified | Non-Qualified | |||||||||||||
Service cost |
$ | 13 | $ | 1 | $ | 14 | $ | 2 | ||||||||
Interest cost |
40 | 7 | 34 | 5 | ||||||||||||
Expected return on plan assets |
(43 | ) | | (38 | ) | | ||||||||||
Amortization of prior service
cost |
| | | 1 | ||||||||||||
Amortization of net loss |
1 | 1 | 4 | 1 | ||||||||||||
Net periodic pension cost |
$ | 11 | $ | 9 | $ | 14 | $ | 9 | ||||||||
The Company recognized $2 million pre-tax net loss in net periodic pension cost from accumulated other comprehensive income for the nine months ended September 30, 2008. The Company recognized $2 million and $6 million pre-tax net loss in net periodic pension cost from accumulated other comprehensive income for the three months and nine months ended September 30, 2007, respectively. |
14
K. | Information about the Company by segment and geographic area was as follows, in millions: |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2008 | 2007 | 2008 | 2007 | |||||||||||||||||||||||||
Net Sales(A) | Operating Profit | Net Sales(A) | Operating Profit | |||||||||||||||||||||||||||||
The Companys operations by
segment were: |
||||||||||||||||||||||||||||||||
Cabinets and Related Products |
$ | 584 | $ | 736 | $ | 23 | $ | 105 | $ | 1,788 | $ | 2,164 | $ | 88 | $ | 273 | ||||||||||||||||
Plumbing Products |
805 | 865 | 88 | 100 | 2,483 | 2,572 | 294 | 272 | ||||||||||||||||||||||||
Installation and Other Services |
492 | 689 | 10 | 60 | 1,486 | 2,026 | 8 | 148 | ||||||||||||||||||||||||
Decorative Architectural Products |
446 | 467 | 94 | 114 | 1,301 | 1,421 | 257 | 322 | ||||||||||||||||||||||||
Other Specialty Products |
201 | 248 | 16 | 36 | 563 | 714 | 37 | 105 | ||||||||||||||||||||||||
Total |
$ | 2,528 | $ | 3,005 | $ | 231 | $ | 415 | $ | 7,621 | $ | 8,897 | $ | 684 | $ | 1,120 | ||||||||||||||||
The Companys operations by
geographic area were: |
||||||||||||||||||||||||||||||||
North America |
$ | 1,975 | $ | 2,417 | $ | 193 | $ | 346 | $ | 5,935 | $ | 7,223 | $ | 542 | $ | 948 | ||||||||||||||||
International, principally Europe |
553 | 588 | 38 | 69 | 1,686 | 1,674 | 142 | 172 | ||||||||||||||||||||||||
Total |
$ | 2,528 | $ | 3,005 | 231 | 415 | $ | 7,621 | $ | 8,897 | 684 | 1,120 | ||||||||||||||||||||
General corporate expense, net |
(32 | ) | (44 | ) | (110 | ) | (144 | ) | ||||||||||||||||||||||||
Gain on sale of corporate fixed assets, net |
| | | 8 | ||||||||||||||||||||||||||||
Charge for litigation settlement (B) |
(9 | ) | | (9 | ) | | ||||||||||||||||||||||||||
Income (charge) for planned disposition of business (C) |
6 | | | | ||||||||||||||||||||||||||||
Operating profit |
196 | 371 | 565 | 984 | ||||||||||||||||||||||||||||
Other income (expense), net |
(57 | ) | (45 | ) | (197 | ) | (130 | ) | ||||||||||||||||||||||||
Income from continuing operations
before income taxes and minority interest |
$ | 139 | $ | 326 | $ | 368 | $ | 854 | ||||||||||||||||||||||||
(A) | Inter-segment sales were not material. | |
(B) | The charge for litigation settlement relates to employment litigation in the State of California discussed in Note N regarding the Companys subsidiary, Masco Contractor Services, Inc., which is included in the Installation and Other Services segment. | |
(C) | In the third quarter of 2008, the Company recognized pre-tax income of $6 million related to the reversal of the previously recorded impairment charge discussed in Note D. The income resulted from an adjustment of the assets to the lower of the carrying value, prior to inclusion in assets held for sale, adjusted for depreciation expense, or current market value. This business is included in the Plumbing Products segment. |
15
L. | Other, net, which is included in other income (expense), net, was as follows, in millions: |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Income from cash and
cash investments |
$ | 6 | $ | 7 | $ | 17 | $ | 29 | ||||||||
Other interest income |
1 | 1 | 1 | 2 | ||||||||||||
Income from financial
investments, net (Note G) |
| 11 | | 46 | ||||||||||||
Other items, net |
(4 | ) | 13 | (13 | ) | 12 | ||||||||||
Total |
$ | 3 | $ | 32 | $ | 5 | $ | 89 | ||||||||
Other items, net, included $4 million and $19 million of currency losses for the three months and nine months ended September 30, 2008, respectively. Other items, net, included $9 million and $12 million of currency gains for the three months and nine months ended September 30, 2007, respectively. | ||
M. | Reconciliations of the numerators and denominators used in the computations of basic and diluted earnings per common share were as follows, in millions: |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Numerator (basic and diluted): |
||||||||||||||||
Income from continuing
operations |
$ | 36 | $ | 206 | $ | 126 | $ | 525 | ||||||||
(Loss) income from
discontinued operations, net |
(3 | ) | (1 | ) | (9 | ) | 12 | |||||||||
Net income |
$ | 33 | $ | 205 | $ | 117 | $ | 537 | ||||||||
Denominator: |
||||||||||||||||
Basic common shares (based
upon weighted average) |
352 | 365 | 354 | 372 | ||||||||||||
Add: |
||||||||||||||||
Contingent common shares |
| 1 | | 3 | ||||||||||||
Stock option dilution |
| 1 | | 1 | ||||||||||||
Diluted common shares |
352 | 367 | 354 | 376 | ||||||||||||
Income per common share amounts for the first three quarters of 2008 do not total to the per common share amounts for the nine months ended September 30, 2008 due to the timing of common stock repurchases. | ||
For both the three months and nine months ended September 30, 2008 and 2007, the Company did not include any common shares related to the Zero Coupon Convertible Senior Notes (Notes) in the calculation of diluted earnings per common share, as the price of the Companys common stock at September 30, 2008 and 2007 did not exceed the equivalent accreted value of the Notes. | ||
Additionally, 32 million common shares for both the three months and nine months ended September 30, 2008, respectively, and 20 million and 19 million for the three months and nine months ended September 30, 2007, respectively, related to stock options were excluded from the computation of diluted earnings per common share due to their antidilutive effect. |
16
In the first nine months of 2008, the Company repurchased and retired approximately nine million shares of Company common stock, for cash aggregating $160 million. At September 30, 2008, the Company had 32 million shares of its common stock remaining under the July 2007 Board of Directors repurchase authorization. | ||
N. | The Company is subject to lawsuits and pending or asserted claims with respect to matters generally arising in the ordinary course of business. | |
As previously disclosed, a lawsuit has been brought against the Company and a number of its insulation installation companies in the federal court in Atlanta, Georgia alleging that certain practices violate provisions of the federal antitrust laws; the complaint requests class action certification. Consistent with its position regarding several similar lawsuits that have been dismissed, the Company is vigorously defending this lawsuit as well as one other similar lawsuit that is pending. The Company believes that the conduct of the Company and its insulation installation companies, which have been the subject of these lawsuits, has not violated any antitrust laws. The Company is unable at this time to reliably estimate any potential liability which might occur from an adverse judgment but does not believe that any adverse judgment would have a material adverse effect on its businesses or the methods used by its insulation installation companies in doing business. | ||
As previously disclosed, a lawsuit has been brought against the Companys Milgard Manufacturing subsidiary alleging design defects in certain Milgard aluminum windows. The Company is vigorously defending the case and believes that its window products have not been manufactured with the alleged design defects. In May 2008, the California Court of Appeals affirmed the trial courts denial of Plaintiffs motion for class certification, and the plaintiffs did not pursue an appeal to the California Supreme Court. The case has been remanded to the trial court and will be limited to the claims of the ten individual homeowner plaintiffs. The Company believes that it will not incur material liability as a result of this lawsuit. | ||
As previously disclosed, European governmental authorities are investigating possible anticompetitive business practices relating to the plumbing and heating industries in Europe. The investigations involve a number of European companies, including certain of the Companys European manufacturing divisions and a number of other large businesses. The Company believes that it will not incur material liability as a result of the matters that are subject to these investigations. | ||
Several California-based installation subsidiaries of the Company were named as defendants in an alleged employment-related class action lawsuit arising under state law. The subsidiaries recently reached an agreement with the plaintiffs to settle this litigation for approximately $9 million, and the Company anticipates that a hearing will be conducted by the end of 2008 to obtain preliminary court approval of the settlement terms. |
17
O. | Changes in the Companys warranty liability were as follows, in millions: |
Nine Months Ended | Twelve Months Ended | |||||||
September 30, 2008 | December 31, 2007 | |||||||
Balance at January 1 |
$ | 133 | $ | 120 | ||||
Accruals for warranties
issued during the period |
35 | 56 | ||||||
Accruals related to
pre-existing warranties |
5 | 16 | ||||||
Settlements made (in cash or
kind) during the period |
(41 | ) | (57 | ) | ||||
Discontinued operations |
(1 | ) | | |||||
Other, net |
(7 | ) | (2 | ) | ||||
Balance at end of period |
$ | 124 | $ | 133 | ||||
P. | During the first nine months of 2008, the Company recognized $4 million of income tax expense on various unrecognized tax benefits, including $2 million of interest and penalties. As a result of tax audit closings, settlements and the expiration of applicable statutes of limitations in various jurisdictions within the next 12 months, the Company anticipates that it is reasonably possible the liability for unrecognized tax benefits could be reduced by approximately $9 million. | |
The increase in the effective tax rate for the first nine months of 2008 reflects the U.S. tax on anticipated dividend distributions from certain low-taxed foreign subsidiaries to utilize the Companys foreign tax credit carryforward, combined with a decrease in the Companys 2008 pre-tax income from continuing operations. The Company estimates that its effective tax rate should approximate 56 to 57 percent for the full-year 2008. | ||
Q. | On January 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements, (SFAS No. 157) for its financial assets and liabilities. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS No. 157 further defines a fair value hierarchy, as follows: Level 1 inputs as quoted prices in active markets for identical assets or liabilities; Level 2 inputs as observable inputs other than Level 1 prices, such as quoted market prices for similar assets or liabilities or other inputs that are observable or can be corroborated by market data; and Level 3 inputs as unobservable inputs that are supported by little or no market activity and that are financial instruments whose value is determined using pricing models or instruments for which the determination of fair value requires significant management judgment or estimation. |
18
Financial assets and (liabilities) measured at fair value on a recurring basis during the period and the amounts for each level within the fair value hierarchy established by SFAS No. 157, were as follows, in millions: |
Fair Value Measurements Using | ||||||||||||||||
Significant | ||||||||||||||||
Quoted | Other | Significant | ||||||||||||||
Market | Observable | Unobservable | ||||||||||||||
Sept. 30, | Prices | Inputs | Inputs | |||||||||||||
2008 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Asahi Tec Corporation: |
||||||||||||||||
Preferred stock |
$ | 60 | $ | | $ | | $ | 60 | ||||||||
Common stock |
1 | 1 | | | ||||||||||||
Interest rate swaps |
| | | | ||||||||||||
Foreign currency exchange
contract |
(18 | ) | | (18 | ) | | ||||||||||
Auction rate securities |
22 | | | 22 | ||||||||||||
TriMas Corporation |
16 | 16 | | | ||||||||||||
Other investments |
11 | | 11 | | ||||||||||||
Total |
$ | 92 | $ | 17 | $ | (7 | ) | $ | 82 | |||||||
The foreign currency exchange contracts are entered into to hedge currency fluctuations related to intercompany loans denominated in non-functional currencies. The loss on the foreign currency exchange contracts are more than offset by gains related to the translation of loans and accounts denominated in non-functional currencies. | ||
The preferred stock of Asahi Tec Corporation has been valued primarily using a discounted cash flow model, because there are currently no observable prices in an active market for the same or similar securities. | ||
The fair values of the auction rate securities held by the Company have been estimated based on a discounted cash flow model. | ||
The Company also has investments in private equity funds and other private investments which are carried at cost and are evaluated for potential impairment when impairment indicators are present, or when an event or change in circumstances has occurred, that may have a significant adverse effect on the fair value of the investment. There is no active trading market for these investments and they are for the most part illiquid. Due to the significant unobservable inputs, the fair value measurements used to evaluate impairment are a Level 3 input. |
19
Financial investments measured at fair value on a non-recurring basis during the period and the amounts for each level within the fair value hierarchy established by SFAS No. 157, were as follows, in millions: |
Fair Value Measurements Using | ||||||||||||||||||||
Significant | ||||||||||||||||||||
Quoted | Other | Significant | ||||||||||||||||||
Market | Observable | Unobservable | Total | |||||||||||||||||
Sept. 30, | Prices | Inputs | Inputs | Gains | ||||||||||||||||
2008 | (Level 1) | (Level 2) | (Level 3) | (Losses) | ||||||||||||||||
Private equity funds |
$ | 153 | $ | | $ | | $ | 153 | $ | (7 | ) | |||||||||
Other private
investments |
11 | | | 11 | | |||||||||||||||
$ | 164 | $ | | $ | | $ | 164 | $ | (7 | ) | ||||||||||
During the first nine months of 2008, the Company determined that the decline in the estimated value of two private equity funds was other-than-temporary and, accordingly, recognized non-cash, pre-tax impairment charges of $3 million and $4 million, respectively, for the quarters ended June 30, 2008 and March 31, 2008. |
Fair Value Measurements Using | ||||
Significant Unobservable | ||||
Inputs (Level 3) | ||||
Carrying value January 1, 2008 |
$ | 23 | ||
Total losses included in earnings |
(7 | ) | ||
Purchases, issuances, settlements |
| |||
Ending balance at September 30, 2008 |
$ | 16 | ||
R. | Subsequent Events. In October 2008, the Company terminated two interest rate swaps relating to $850 million of fixed-rate debt. These swap agreements were accounted for as fair value hedges. The Company received cash of $16 million for the termination of the swap agreements; the gain of $16 million will be amortized as a reduction of interest expense over the remaining term of the debt, through 2012. | |
The Company retired $100 million of 5.75% Notes on October 15, 2008, the scheduled maturity date. |
20
Three Months Ended | Percent | |||||||||||
September 30, | (Decrease) Increase | |||||||||||
2008 | 2007 | 2008 vs. 2007 | ||||||||||
Net Sales: |
||||||||||||
Cabinets and Related Products |
$ | 584 | $ | 736 | (21 | %) | ||||||
Plumbing Products |
805 | 865 | (7 | %) | ||||||||
Installation and Other Services |
492 | 689 | (29 | %) | ||||||||
Decorative Architectural Products |
446 | 467 | (4 | %) | ||||||||
Other Specialty Products |
201 | 248 | (19 | %) | ||||||||
Total |
$ | 2,528 | $ | 3,005 | (16 | %) | ||||||
North America $ |
1,975 | $ | 2,417 | (18 | %) | |||||||
International, principally Europe |
553 | 588 | (6 | %) | ||||||||
Total |
$ | 2,528 | $ | 3,005 | (16 | %) | ||||||
Nine Months Ended | ||||||||||||
September 30, | ||||||||||||
2008 | 2007 | |||||||||||
Net Sales: |
||||||||||||
Cabinets and Related Products |
$ | 1,788 | $ | 2,164 | (17 | %) | ||||||
Plumbing Products |
2,483 | 2,572 | (3 | %) | ||||||||
Installation and Other Services |
1,486 | 2,026 | (27 | %) | ||||||||
Decorative Architectural Products |
1,301 | 1,421 | (8 | %) | ||||||||
Other Specialty Products |
563 | 714 | (21 | %) | ||||||||
Total |
$ | 7,621 | $ | 8,897 | (14 | %) | ||||||
North America |
$ | 5,935 | $ | 7,223 | (18 | %) | ||||||
International, principally Europe |
1,686 | 1,674 | 1 | % | ||||||||
Total |
$ | 7,621 | $ | 8,897 | (14 | %) | ||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Operating Profit Margins: (A) |
||||||||||||||||
Cabinets and Related Products |
3.9 | % | 14.3 | % | 4.9 | % | 12.6 | % | ||||||||
Plumbing Products |
10.9 | % | 11.6 | % | 11.8 | % | 10.6 | % | ||||||||
Installation and Other Services |
2.0 | % | 8.7 | % | .5 | % | 7.3 | % | ||||||||
Decorative Architectural Products |
21.1 | % | 24.4 | % | 19.8 | % | 22.7 | % | ||||||||
Other Specialty Products |
8.0 | % | 14.5 | % | 6.6 | % | 14.7 | % | ||||||||
North America |
9.8 | % | 14.3 | % | 9.1 | % | 13.1 | % | ||||||||
International, principally Europe |
6.9 | % | 11.7 | % | 8.4 | % | 10.3 | % | ||||||||
Total |
9.1 | % | 13.8 | % | 9.0 | % | 12.6 | % | ||||||||
Total operating profit margin,
as reported |
7.8 | % | 12.3 | % | 7.4 | % | 11.1 | % |
(A) | Before general corporate expense, net, of $32 million and $110 million for the three-month and nine-month periods ended September 30, 2008, respectively. Before general corporate expense, net, of $44 million and $144 million for the three-month and nine-month periods ended September 30, 2007, respectively. Before the charge for litigation settlement of $9 million related to the Installation and Other Services segment for both the three-month and nine-month periods ended September 30, 2008. Before the income for planned disposition of business of $6 million related to the Plumbing Products segment for the three-month period ended September 30, 2008. Before the gain from the sale of corporate fixed assets of $8 million for the nine-month period ended September 30, 2007. |
21
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Net sales, as reported |
$ | 2,528 | $ | 3,005 | $ | 7,621 | $ | 8,897 | ||||||||
Acquisitions |
(16 | ) | | (65 | ) | | ||||||||||
Net sales, excluding
acquisitions |
2,512 | 3,005 | 7,556 | 8,897 | ||||||||||||
Currency translation |
(31 | ) | | (156 | ) | | ||||||||||
Net sales, excluding
acquisitions and the
effect of currency
translation |
$ | 2,481 | $ | 3,005 | $ | 7,400 | $ | 8,897 | ||||||||
22
23
24
25
26
27
a. | Evaluation of Disclosure Controls and Procedures. | ||
The Companys principal executive officer and principal financial officer have concluded, based on an evaluation of the Companys disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)), as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15, that, as of September 30, 2008, the Companys disclosure controls and procedures were effective. | |||
b. | Changes in Internal Control Over Financial Reporting. | ||
In connection with the evaluation of the Companys internal control over financial reporting that occurred during the quarter ended September 30, 2008, which is required under the Securities Exchange Act of 1934 by paragraph (d) of Exchange Rules 13a-15 or 15d-15, (as defined in paragraph (f) of Rule 13a-15), management determined that, except as noted below, there was no change that has materially affected or is reasonably likely to materially affect internal control over financial reporting. | |||
During the third quarter of 2008, the Company continued a phased deployment of a new Enterprise Resource Planning (ERP) system at Masco Builder Cabinet Group, one of the Companys larger business units. The new ERP system is a process improvement initiative and is not in response to any identified deficiency or weakness in the Companys internal control over financial reporting. However, the business process initiative is significant in scale and complexity and will result in modifications to certain internal controls. The new ERP system is designed to enhance the overall system of internal control over financial reporting through further automation and integration of business processes. |
28
Total Number of | Maximum Number of | |||||||||||||||
Shares Purchased | Shares That May | |||||||||||||||
Total Number | Average Price | as Part of | Yet Be Purchased | |||||||||||||
of Shares | Paid Per | Publicly Announced | Under the Plans | |||||||||||||
Period | Purchased | Common Share | Plans or Programs | or Programs | ||||||||||||
7/1/08-7/31/08 |
1 | $ | 15.04 | 1 | 32 | |||||||||||
8/1/08-8/31/08 |
| $ | | | 32 | |||||||||||
9/1/08-9/30/08 |
| $ | | | 32 | |||||||||||
Total for
the quarter |
1 | $ | 15.04 | 1 | 32 |
12
|
- | Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends | ||
31a
|
- | Certification by Chief Executive Officer Required by Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 | ||
31b
|
- | Certification by Chief Financial Officer Required by Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 | ||
32
|
- | Certification Required by Rule 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code |
29
MASCO CORPORATION | ||||
By: | /s/ John G. Sznewajs | |||
Name: | John G. Sznewajs | |||
Title: | Vice President, Treasurer and Chief Financial Officer |
30
Exhibit | ||
Exhibit 12
|
Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends | |
Exhibit 31a
|
Certification by Chief Executive Officer Required by Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 | |
Exhibit 31b
|
Certification by Chief Financial Officer Required by Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934 | |
Exhibit 32
|
Certification Required by Rule 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code |