Masco - 10-Q quarterly report FY2011 Q1

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

     Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Other indefinite-lived intangible assets were $185 million at both March 31, 2011 and December 31, 2010, respectively, and principally included registered trademarks. The carrying value of the Company’s definite-lived intangible assets was $83 million (net of accumulated amortization of $76 million) at March 31, 2011 and $84 million (net of accumulated amortization of $75 million) at December 31, 2010, and principally included customer relationships and non-compete agreements.

Note D – continued:

Note D – concluded:

Note H – continued:

     The following table sets forth our net sales and operating profit (loss) margins by business segment and geographic area, dollars in millions:

     We report our financial results in accordance with generally accepted accounting principles (“GAAP”) in the United States. However, we believe that certain non-GAAP performance measures and ratios, used in managing the business, may provide users of this financial information with additional meaningful comparisons between current results and results in prior periods. Non-GAAP performance measures and ratios should be viewed in addition to, and not as an alternative for, our reported results.

     Net sales decreased four percent for the three-month period ended March 31, 2011 from the comparable period of 2010. The impact of changes in the European euro and Danish kroner was offset by changes in the British pound sterling and Canadian dollar. The following table reconciles reported net sales to net sales, excluding acquisitions and the effect of currency translation, in millions:

     North American net sales were negatively impacted by lower sales volume of installation and other services, cabinets, paints and stains and builders’ hardware, which, in the aggregate, decreased sales by six percent for the three-month period ended March 31, 2011 from the comparable period of 2010. Such declines were partially offset by selling price increases, which increased sales by two percent for the three-month period ended March 31, 2011 from the comparable period of 2010.

     In local currencies, net sales from International operations increased five percent for the three-month period ended March 31, 2011, primarily due to increased sales volume and selling prices of International plumbing products, offset by lower sales volume related to International cabinets. A stronger U.S. dollar decreased International net sales by one percent in the three-month period ended March 31, 2011, compared to the same period of 2010.

     Net sales of Cabinets and Related Products decreased in the three-month period ended March 31, 2011, due to the planned exit of ready-to-assemble and other non-core in-stock cabinet product lines which decreased net sales in this segment by 13 percent, as well as lower sales volumes of both North American and International cabinets compared to the same period of 2010, which decreased sales in this segment by 12 percent. Such declines were partially offset by increased selling prices.

     Net sales of Plumbing Products increased, due to increased sales volume and selling prices in North America, which, on a combined basis, increased sales by three percent in the three-month period ended March 31, 2011 from the comparable period of 2010. In local currencies, net sales of International operations increased sales in this segment by five percent in the three-month period ended March 31, 2011 from the comparable period of 2010. Such increases in International sales were due to increased sales volume and selling prices.

     Net sales of Installation and Other Services decreased for the three-month period ended March 31, 2011, primarily due to lower sales volume in the new home construction market. Such declines were partially offset by increased selling prices.

     Net sales of Decorative Architectural Products decreased for the three-month period ended March 31, 2011, due to lower sales volume of paints and stains and builders’ hardware (principally due to the loss of Wal-Mart business). Such declines were partially offset by increased selling prices of paints and stains and increased sales of professional paint products.

     Net sales of Other Specialty Products were relatively unchanged for the three-month period ended March 31, 2011, compared with the same period in 2010.

     Our gross profit margins were 24.0 percent for the three-month period ended March 31, 2011 compared with 26.6 percent for the comparable periods of 2010. Selling, general and administrative expenses were relatively flat, as a percentage of sales, for the three-month period ended March 31, 2011 compared with the same period in 2010. Results for the three-month period ended March 31, 2011 reflect lower sales volume and a less favorable relationship between selling prices and commodity costs, as well as increased business rationalization expenses.

     We have been focused on the strategic rationalization of our businesses, including business consolidations, plant closures, headcount reductions, system implementations and other initiatives. Operating profit for the three-month period ended March 31, 2011 includes $32 million of costs and charges related to our business rationalizations and other initiatives. For the three-month period ended March 31, 2010, we incurred costs and charges of $14 million related to these initiatives.

     We anticipate that full-year 2011 rationalization charges, for the entire Company, will aggregate approximately $65 million. We continue to evaluate our businesses and the impact of market conditions on our businesses, which may result in additional rationalization charges including severance, plant closure costs and asset impairments.

     Operating margins in the Cabinets and Related Products segment for the three-month period ended March 31, 2011 reflect lower sales volume and the related under-absorption of fixed costs, as well as increased business rationalization expenses, related to previously announced product exits and a less favorable relationship between selling prices and commodity costs, principally in Europe. Such decreases more than offset the benefits associated with business rationalizations and other cost savings initiatives.

     Operating margins in the Plumbing Products segment for the three-month period ended March 31, 2011 were negatively impacted by a less favorable relationship between selling prices and commodity costs, increased business rationalization expenses and a less favorable product mix. Such declines were partially offset by the benefits associated with business rationalizations and other cost savings initiatives.

     Operating margins in the Installation and Other Services segment were negatively impacted by lower sales volume and the related under-absorption of fixed costs, which offset a more favorable relationship between selling prices and commodity costs, as well as the benefits associated with business rationalizations and other cost savings initiatives.

     Operating margins in the Decorative Architectural Products segment for the three-month period ended March 31, 2011 reflect lower sales volume of paints and stains and builders’ hardware, as well as a less favorable relationship between selling prices and commodity costs related to paints and stains and increased program costs.

     Operating margins in the Other Specialty Products segment for the three-month period ended March 31, 2011 reflect a less favorable relationship between selling prices and commodity costs and increased new product launch and geographic expansion costs.

     Interest expense for the three-month period ended March 31, 2011 increased $5 million from the comparable period of 2010, primarily due to the issuance of $500 million of 7.125% notes in the first quarter of 2010.

     Other items, net, for the three-month period ended March 31, 2011 included $2 million of currency transaction gains. Other items, net, for the three-month period ended March 31, 2010 included $1 million of currency transaction losses.

     Other items, net, for the three-month period ended March 31, 2011 included a $17 million gain related to the sale of TriMas common stock ($14 million) and a distribution from private equity funds ($3 million).

     Loss (attributable to Masco Corporation) for the three-month period ended March 31, 2011 was $46 million compared with $7 million for the comparable period of 2010. Diluted loss per common share (attributable to Masco Corporation) for the three-month period ended March 31, 2011 was $.13 per common share compared with $.02 per common share for the comparable period of 2010.

     In the first quarter of 2011, we incurred income tax expense of $13 million on a pre-tax loss of $(21) million, primarily due to an increase in the valuation allowance related to net operating losses and losses in certain jurisdictions providing no tax benefit.

     In the first quarter of 2010, our effective tax rate was 82 percent, resulting primarily from a $9 million increase in our liability for uncertain tax positions including interest and penalties, net of U.S. Federal tax benefit. This increase resulted primarily from changes in the tax environment related to activities performed in various jurisdictions that caused a re-measurement of this liability.

     Our current ratio was 2.2 to 1 and 2.3 to 1, respectively, at March 31, 2011 and December 31, 2010.

     For the three months ended March 31, 2011, cash of $160 million was used for operating activities.

     Net cash used by financing activities was $58 million. Financing activities include $27 million for the payment of cash dividends and $30 million for the acquisition of Company common stock in open-market transactions to offset the dilutive impact of long-term stock awards granted in 2011. Net cash used for investing activities was $14 million and included $29 million for capital expenditures offset by $14 million of proceeds related to the sale of TriMas common stock.

     For 2011, we anticipate capital expenditures, excluding any potential 2011 acquisitions, to be approximately $190 million.

     Our cash and cash investments were $1.5 billion and $1.7 billion at March 31, 2011 and December 31, 2010, respectively. Our cash and cash investments consist of overnight interest bearing money market demand and time deposit accounts, money market mutual funds and government securities.

     Of the $1.5 billion and the $1.7 billion of cash and cash investments held at March 31, 2011 and December 31, 2010, respectively, $513 million and $493 million, respectively, is held in foreign subsidiaries. If these funds were needed for our operations in the U.S., their repatriation into the U.S. may result in additional U.S. income taxes or foreign withholding taxes. The amount of such taxes is dependent on the income tax laws and circumstances at the time of distribution.

     We were in compliance with all covenants and had no borrowings under our credit agreement at March 31, 2011.

     We are subject to lawsuits and claims pending or asserted with respect to matters generally arising in the ordinary course of business. Note M to the condensed consolidated financial statements discusses certain specific claims pending against us.

     We believe that our present cash balance, cash flows from operations and, to the extent necessary, bank borrowings and future financial market activities, are sufficient to fund our working capital and other investment needs.

     While we still believe that the second half of 2011 will be stronger than the first half, our enthusiasm has been tempered somewhat. Job growth has been modest at best, energy costs have increased, reflecting the turmoil in the Middle East and most economists have reduced their forecasts for 2011, including for housing starts. Given the uncertainty of the timing and strength of the recovery in our markets, we will continue to focus on the things we can control to improve our execution and strengthen our brands. The Masco Business System continues to drive positive change across the Company. Our cabinet integration is on plan and we expect will ultimately drive fixed cost reductions and share gains; we have strengthened our brands and our focus on innovation is driving exciting opportunities across all of our product groups.

     Longer-term, we are confident about the fundamentals for the new home construction and home improvement markets and we are optimistic about the future. We expect that improvements in our markets and in consumer spending, together with the changes we are driving across Masco and our financial strength, will create significant value for our shareholders.

     Statements contained in this report that reflect our views about our future performance constitute “forward-looking statements” under the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as “believe,” “anticipate,” “appear,” “may,” “will,” “intend,” “plan,” “estimate,” “expect,” “assume,” “seek,” and similar references to future periods. These views involve risks and uncertainties that are difficult to predict and, accordingly, our actual results may differ materially from the results discussed in our forward-looking statements. We caution you against relying on any of these forward-looking statements. Our future performance may be affected by our reliance on new home construction and home improvement, our reliance on key customers, the cost and availability of raw materials, shifts in consumer preferences and purchasing practices, and our ability to achieve cost savings through the Masco Business System and other initiatives. These and other factors are discussed in detail in Item 1A, “Risk Factors” in our most recent Annual Report on Form 10-K. Our forward-looking statements in this report speak only as of the date of this report. Factors or events that cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. Unless required by law, we undertake no obligation to update publicly any forward-looking statements as a result of new information, future events or otherwise.

Item 1. Legal Proceedings

     There have been no material changes to the legal proceedings disclosed in Part I, Item 3, “Legal Proceedings,” of our Annual Report on Form 10-K for the year ended December 31, 2010.

Item 1A. Risk Factors

     There have been no material changes to the risk factors of the Company set forth in Item 1A, “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     The following table provides information regarding the repurchase of Company common stock for the three months ended March 31, 2011, shares in millions:

Item 6. Exhibits