1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NUMBER 1-5794 MASCO CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) <TABLE> <S> <C> DELAWARE 38-1794485 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) 21001 VAN BORN ROAD, TAYLOR, MICHIGAN 48180 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) </TABLE> REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 313-274-7400 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: <TABLE> <CAPTION> NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - -------------------------------------------- -------------------------------------------- <S> <C> COMMON STOCK, $1.00 PAR VALUE NEW YORK STOCK EXCHANGE, INC. 5 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2012 NEW YORK STOCK EXCHANGE, INC. </TABLE> SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE 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, AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES /X/ NO / / INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. /X/ THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S COMMON STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT ON MARCH 1, 1996 (BASED ON THE CLOSING SALE PRICE OF $28 1/2 OF THE REGISTRANT'S COMMON STOCK, AS REPORTED ON THE NEW YORK STOCK EXCHANGE COMPOSITE TAPE ON SUCH DATE) WAS APPROXIMATELY $4,407,870,000. NUMBER OF SHARES OUTSTANDING OF THE REGISTRANT'S COMMON STOCK AT MARCH 1, 1996: 160,382,079 SHARES OF COMMON STOCK, PAR VALUE $1.00 PER SHARE PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE FILED FOR ITS 1996 ANNUAL MEETING OF STOCKHOLDERS ARE INCORPORATED BY REFERENCE INTO PART III OF THIS REPORT. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
2 TABLE OF CONTENTS <TABLE> <CAPTION> ITEM PAGE - ---- ---- <C> <S> <C> PART I 1. Business.......................................................................... 2 2. Properties........................................................................ 6 3. Legal Proceedings................................................................. 8 4. Submission of Matters to a Vote of Security Holders............................... 8 Supplementary Item. Executive Officers of Registrant.............................. 9 PART II 5. Market for Registrant's Common Equity and Related Stockholder Matters............. 10 6. Selected Financial Data........................................................... 10 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................................... 11 8. Financial Statements and Supplementary Data....................................... 15 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure...................................................................... 38 PART III 10. Directors and Executive Officers of the Registrant................................ 38 11. Executive Compensation............................................................ 38 12. Security Ownership of Certain Beneficial Owners and Management.................... 38 13. Certain Relationships and Related Transactions.................................... 38 PART IV 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................. 39 Signatures........................................................................ 43 FINANCIAL STATEMENT SCHEDULES Masco Corporation Financial Statement Schedule.................................... F-1 MascoTech, Inc. and Subsidiaries Consolidated Financial Statements and Financial Statement Schedule.............................................................. F-3 </TABLE> 1
3 PART I ITEM 1. BUSINESS. Masco Corporation is engaged principally in the manufacture, installation and sale of home improvement and building products. Masco believes that it is the largest domestic manufacturer of faucets, kitchen and bath cabinets and plumbing supplies and that it is a leading domestic producer of a number of other home improvement and building products. Masco was incorporated under the laws of Michigan in 1929 and in 1968 was reincorporated under the laws of Delaware. Except as the context otherwise indicates, the terms "Masco" and the "Company" refer to Masco Corporation and its consolidated subsidiaries. The Company is among the country's largest manufacturers of brand-name consumer products designed for the improvement and building of the home, including faucets, kitchen and bath cabinets, kitchen appliances, bath and shower enclosure units, spas and hot tubs, other shower, bath and plumbing specialties and accessories, door locks and other builders' hardware, air treatment products, venting and ventilating equipment and water pumps. These products are sold for the home improvement and home construction markets through mass merchandisers, hardware stores, home centers, distributors, wholesalers and other outlets to consumers and contractors. The Company manufactures a variety of single and double handle faucets. DELTA(R) and PEERLESS(R) single and double handle faucets are used on kitchen, lavatory and other sinks and in bath and shower installations. DELTA faucets are sold primarily through manufacturers' representatives to distributors who sell the faucets to plumbers, building contractors, remodelers, retailers and others. PEERLESS faucets are sold primarily through manufacturers' representatives directly to retail outlets such as mass merchandisers, home centers and hardware stores and are also sold under private label. The Company's ARTISTIC BRASS(R) and SHERLE WAGNER(TM) faucets and accessories are produced for the decorator markets and are sold through wholesalers, distributor showrooms and other outlets. In addition to its domestic manufacturing, the Company manufactures faucets in Denmark, Italy and Canada. Sales of faucets approximated $698 million in 1995, $667 million in 1994 and $608 million in 1993. The percentage of operating profit on faucets is somewhat higher than that on other products offered by the Company. The Company believes that the simplicity, quality and reliability of its faucet mechanisms, its marketing and merchandising activities, and the development of a broad line of products have accounted for the continued strength of its faucet sales. The Company manufactures stock, semi-custom and custom kitchen and bath cabinetry in a variety of styles and in various price ranges. The Company sells cabinets under a number of trademarks, including MERILLAT(R), KRAFTMAID(R), STARMARK(R) and FIELDSTONE(R), with sales in both the home improvement and new construction markets. In addition to its domestic manufacturing, the Company manufactures cabinetry in Germany and England. Sales of kitchen and bath cabinets were approximately $758 million in 1995, $665 million in 1994 and $570 million in 1993. The Company's brass and copper plumbing system components and other plumbing specialties are sold to plumbing, heating and hardware wholesalers and to home centers, hardware stores, building supply outlets and other mass merchandisers. These products are marketed for the wholesale trade under the BRASSCRAFT(R) trademark and for the "do-it-yourself" market under the PLUMB SHOP(R), HOME PLUMBER(R) and MELARD(TM) trademarks and are also sold under private label. Other kitchen and bath consumer products sold by the Company include THERMADOR(R) cooktops, ovens, ranges and related cooking equipment and refrigerators, which are marketed through appliance distributors and dealers. The Company's acrylic and gelcoat bath and shower units and whirlpools are sold under the AQUA GLASS(R) trademark primarily to wholesale plumbing distributors for use in the home improvement and new home construction markets. Other bath and shower enclosure units, shower trays and laundry tubs are sold to the home improvement market through 2
4 hardware stores and home centers under American Shower & Bath and Trayco trade names. Luxury bath and shower enclosures are manufactured and sold by the Company under the HUPPE(R) trademark primarily in Germany and other foreign markets. The Company manufactures bath and shower accessories, vanity mirrors and bath storage products under ZENITH PRODUCTS(R) and other trademarks and sells these products to home centers, hardware stores and mass merchandisers for the "do-it-yourself" market. The Company's spas and hot tubs are sold under the HOT SPRING SPA(R) and other trademarks directly to retailers for sale to residential customers. Other specialty home improvement and building products include premium quality brass rim and mortise locks, knobs and trim and other builders' hardware which are manufactured and sold under the BALDWIN(R) trademark for the home improvement and new home construction markets. WEISER(R) door locks and related hardware are sold through contractor supply outlets, hardware distributors and home centers. SAFLOK(TM) electronic locks and WINFIELD(TM) mechanical locks are sold primarily to the hospitality market. In 1995, the Company expanded its home improvement and building products with the acquisition of Gale Industries, Inc. Through local offices across the United States, Gale installs fiberglass insulation and other building products primarily for the residential home building industry. RECENT DEVELOPMENTS In late November 1995, the Company's Board of Directors and management approved a formal plan to dispose of the Company's home furnishings products segment. Accordingly, the Company's financial statements and related notes have been reclassified to present such segment as discontinued operations and include an after-tax non-cash charge of $650 million which reflects the anticipated loss from the disposition of this segment. The Company's operations included in this segment are principally engaged in the manufacture and sale of quality furniture, fabrics and other home furnishings. The Company intends to sell the businesses comprising the home furnishings products segment during 1996 and expects to utilize certain of the proceeds from the sale to reduce the Company's indebtedness. Proceeds may also be used to invest in acquisitions related to its continuing operations and to repurchase shares of the Company's Common Stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Discontinued Operations" included in Item 7 of this Report and the Note to the Company's Consolidated Financial Statements included in Item 8 of this Report captioned "Discontinued Operations." Unless otherwise noted, reference to the Company excludes information relating to the discontinued operations. GENERAL INFORMATION No material portion of the Company's business is seasonal or has special working capital requirements, although the Company maintains a higher investment in inventories for certain of its businesses than the average manufacturing company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Receivables and Inventories -- Continuing Operations," included in Item 7 of this Report. The Company does not consider backlog orders to be material and no material portion of its business is dependent upon any one customer or subject to renegotiation of profits or termination of contracts at the election of the federal government. Compliance with federal, state and local regulations relating to the discharge of materials into the environment, or otherwise relating to the protection of the environment, is not expected to result in material capital expenditures by the Company or to have a material effect on the Company's earnings or competitive position. In general, raw materials required by the Company are obtainable from various sources and in the quantities desired. INTERNATIONAL OPERATIONS The Company, through its subsidiaries, has home improvement and building products manufacturing plants in Belgium, Canada, Denmark, France, Germany, Great Britain, Italy, Mexico, Spain, Taiwan 3
5 and Turkey. Home improvement and building products manufactured by the Company outside of the United States include faucets and accessory products, bath and shower enclosures, bath accessories, kitchen and bath cabinets, decorative accessories, door locks and related hardware, floor registers, ventilating fans and equipment and submersible water pumps. The Company's foreign operations are subject to political, monetary, economic and other risks attendant generally to international businesses. These risks generally vary from country to country. Financial information concerning the Company's export sales and foreign operations, including the net sales, operating profit and assets which are attributable to the Company's operations in the United States and in foreign countries are set forth in Item 8 of this Report in the Note to the Company's Consolidated Financial Statements captioned "Geographic Information." EQUITY INVESTMENTS MascoTech, Inc. In 1984, Masco transferred its industrial businesses to a newly formed subsidiary, MascoTech, Inc. (formerly Masco Industries, Inc.), which became a separate public company in July, 1984 when Masco distributed to its stockholders shares of MascoTech common stock as a special dividend. Masco currently owns approximately 45 percent of the outstanding common stock of MascoTech, a voting interest of approximately 39 percent. MascoTech is a supplier of powertrain and chassis components, technical engineering and related services and automotive aftermarket products. In 1995, MascoTech had net sales of approximately $1.7 billion. MascoTech has adopted a strategic plan to focus on certain core operating capabilities and divest certain other businesses. In late 1993, MascoTech adopted a plan to divest the businesses in its energy segment, which has since been completed. MascoTech's financial statements have been reclassified to present the operating results of the energy segment as discontinued operations. These businesses manufactured specialized tools, equipment and other products for energy-related industries. Except as the context otherwise indicates, all information contained herein has been reclassified for these discontinued operations. In late 1994, MascoTech adopted a plan to dispose of its architectural products, defense and certain of its transportation-related businesses. The disposition of these businesses, which had sales of approximately $637 million in 1994, is expected to be completed by mid-1996, with the cash portion of the proceeds applied to reduce MascoTech's indebtedness and to provide capital to invest in its core businesses. The disposition of these businesses does not meet the criteria for discontinued operations treatment for accounting purposes; accordingly, the sales and results of operations of these businesses will be included in the results of continuing operations through the date of disposition. See "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in Item 7 of this Report regarding the effect of these actions on the Company. MascoTech's transportation-related businesses manufacture powertrain, chassis and aftermarket products and provide technical engineering and other related services. Powertrain and chassis products include semi-finished transmission shafts, drive gears, engine connecting rods, wheel spindles, front wheel drive and exhaust system components, control arms and heavy stampings and related assemblies for suspension and chassis applications. MascoTech's technical engineering and related services businesses supply engineering and engineering services to support the vehicle development processes of automotive original equipment manufacturers as well as specialty vehicle, marketing, training, visual and other related professional services. Aftermarket products include fuel and emission systems components, windshield wiper blades, constant-velocity joints, brake hardware repair kits and other automotive accessories. MascoTech's products are manufactured using various metalworking technologies, including cold, warm and hot forming, powdered metal forming and stamping. During 1995, sales to various divisions and subsidiaries of Ford Motor Company, Chrysler Corporation and General Motors Corporation accounted for approximately 24 percent, 11 percent and 11 percent, respectively, of MascoTech's net sales (including businesses held for disposition). 4
6 Including transactions finalized in early 1996, the disposition of MascoTech's architectural and other specialty products businesses is substantially complete. Architectural products businesses held for disposition and not yet sold manufacture steel doors, garage doors and wood and aluminum-clad wood windows. These products are sold principally to wholesalers for the commercial, institutional and residential markets. MascoTech's sales of architectural products in 1995 were $242 million. MascoTech's other specialty products businesses held for disposition and not yet sold consist primarily of property management services for the United States government, waste-water treatment services for industrial companies principally in southern California and the manufacture of small rocket launcher casings for foreign governments. MascoTech's sales in 1995 of these other specialty products were $96 million. TriMas Corporation The Company and MascoTech currently own approximately 5 percent and 41 percent, respectively, of the outstanding common stock of TriMas Corporation. TriMas is a diversified proprietary products company with leadership positions in commercial, industrial and consumer niche markets, including specialty container products, pressurized gas cylinders, specialty industrial gaskets, towing systems products, specialty fasteners, pressure-sensitive tapes and products for fiberglass insulation, and precision cutting tools. Hans Grohe The Company has a partnership interest in Hans Grohe GmbH & Co. KG, a German manufacturer of faucets, handheld showers, shower heads and other shower accessories. PATENTS AND TRADEMARKS The Company holds a number of United States and foreign patents covering various design features and valve constructions used in certain of its faucets, and also holds a number of other patents and patent applications, licenses, trademarks and trade names. As a manufacturer of brand-name consumer products, the Company views its trademarks as important, but does not believe that there is any reasonable likelihood of a loss of such rights that would have a material adverse effect on the Company's present business as a whole. COMPETITION The major domestic and foreign markets for the Company's products are highly competitive. Competition is based primarily on performance, quality, style, service and price, with the relative importance of such factors varying among products. A number of companies of varying size compete with one or more of the Company's product lines. EMPLOYEES At December 31, 1995, approximately 20,500 people were employed in the Company's continuing operations. Satisfactory relations have generally prevailed between the Company and its employees. 5
7 ITEM 2. PROPERTIES. The following list includes the Company's principal manufacturing facilities by location and the industry segments utilizing such facilities: <TABLE> <S> <C> Arizona............ Tucson (1) California......... Carlsbad (1), City of Industry (2), Corona (1), Costa Mesa (1)(1), Los Angeles (1), Pico Rivera (1), South Gate (1), Vista (1) and Whittier (2) Colorado........... Boulder (1) Georgia............ Atlanta (2) Illinois........... Alsip (2) and Chicago (1) Indiana............ Cumberland (1), Greensburg (1) and Kendallville (1) Iowa............... Northwood (1) Kentucky........... Henderson (1) and Morgantown (1) Massachusetts...... Holyoke (2) Michigan........... Adrian (1), Hillsdale (1), Holland (2), Lapeer (1), Madison Heights (1) and Riverview (1) Minnesota.......... Lakeville (1) Mississippi........ Blue Mountain (2), New Albany (2), Olive Branch (1) and Ripley (2)(2)(2) Nevada............. Las Vegas (1) New Jersey......... Moorestown (1) and Passaic (1) North Carolina..... Black Mountain (2), Drexel (2), Goldsboro (2), Hickory (2), High Point (2)(2)(2), Hildebran (2)(2), Lexington (2)(2)(2)(2)(2), Linwood (2), Longview (2), Marion (2)(2), Mocksville (2), Morganton (2)(2)(2)(2)(2), Mt. Airy (2), Shelby (2), Spruce Pine (2)(2), Thomasville (1) and Whittier (2) Ohio............... Jackson (1), Loudonville (1), Middlefield (1)(1) and Orwell (1) Oklahoma........... Chickasha (1) Oregon............. Klamath Falls (1) Pennsylvania....... Aston (1), Reading (1) and Sunbury (2) South Carolina..... Kingstree (2) South Dakota....... Rapid City (1) and Sioux Falls (1) Tennessee.......... Adamsville (1)(1), Jackson (1), LaFollette (1), Livingston (2), McEwen (1), Morristown (2)(2)(2)(2)(2)(2) and Rockwood (2) Texas.............. Lancaster (1) Virginia........... Atkins (1)(1), Culpeper (1), Lynchburg (1) and Mt. Jackson (1) Belgium............ Brussels (1) Canada............. Burnaby (1), British Columbia; Brantford (1), Cambridge (1), London (1), Mississauga (2) and St. Thomas (1), Ontario; Ville D'Anjou (2), Quebec China (P.R.C.)..... Chang Chun (2)(2), Fuzhou (2), Guang Dong (2), Guangzhou (2), Shangxi (2) and Tianjin (2)(2)(2) Denmark............ Odense (1) France............. Sevres (1) Germany............ Ahaus (1), Bad Zwischenahn (1), Iserlohn (1), Netzschkau (1), Steinhagen (1), Tangermunde (2) and Waldenburg (1) </TABLE> 6
8 <TABLE> <S> <C> Great Britain...... Brownhills (1), Corby (1), Silsden (2) and Warminster (2), England; Aberdare (2) and Merthyr Tydfil (2), Wales Hong Kong.......... (2) Indonesia.......... Semarang (2) Italy.............. Lacchiarella (1) and Zingonia (1) Malaysia........... Johor (2) and Kedah (2)(2) Mexico............. Mexicali (1)(1) Philippines........ Cebu (2)(2) Singapore.......... (2)(2) Spain.............. Barcelona (1) Sweden............. Skene (2) Taiwan............. Kaohshiung (2)(2), Ping Tung Hsien (2), Shin Bon (2), Tai Chung (1) and Tao Yuan Hsian (2) Turkey............. Czerkezkoy (1) </TABLE> Note: Multiple footnotes to the same municipality denote separate facilities in that location. Industry segments in the preceding table are identified as follows: (1) home improvement and building products segment and (2) discontinued operations segment. The two principal faucet manufacturing plants are located in Greensburg, Indiana and Chickasha, Oklahoma and a new 394,000 square foot faucet manufacturing plant opened in 1995 in Jackson, Tennessee. The faucet manufacturing plants and the majority of the Company's other facilities range from approximately 20,000 to 700,000 square feet. The Company owns most of its manufacturing facilities and none of the properties is subject to significant encumbrances. In addition to its manufacturing facilities, the Company operates approximately 70 facilities (the majority of which are leased) which install fiberglass insulation and other building products. The Company's corporate headquarters are located in Taylor, Michigan and are owned by the Company. An additional building near its corporate headquarters is used by the Company's corporate research and development department. The Company's buildings, machinery and equipment have been generally well maintained, are in good operating condition, and are adequate for current production requirements. The following list identifies the location of the principal manufacturing and technical service facilities of MascoTech and the industry segments utilizing such facilities: <TABLE> <S> <C> California......... Vernon (3) Florida............ Deerfield Beach (1) and Ocala (1) Indiana............ Elkhart (1), Fort Wayne (1), Kendallville (1) and North Vernon (1) Iowa............... Dubuque (2) Kentucky........... Nicholasville (1) Michigan........... Auburn Hills (1)(1)(1)(1), Brighton (1), Burton (1), Canton (1 and 3), Dearborn (1)(1), Detroit (1)(1)(1), Farmington Hills (1), Fraser (1), Green Oak Township (1 and 3), Hamburg (1 and 3), Holland (1), Livonia (1), Mt. Clemens (1), Oxford (1), Royal Oak (1), St. Clair (1), Sterling Heights (1), Troy (1), Warren (1), West Branch (2) and Ypsilanti (1) Missouri........... St. Louis (1) Ohio............... Bluffton (1), Bucyrus (1), Canal Fulton (1), Lima (1), Minerva (1), Port Clinton (1), Shelby (1) and Upper Sandusky (1) </TABLE> 7
9 <TABLE> <S> <C> Oklahoma........... Tulsa (1) Pennsylvania....... Ridgway (1) Virginia........... Duffield (1) and Salem (1) France............. Paris (1) Germany............ Koln (1), Sindelfingen (1) and Zell am Harmersbach (1 and 3) Great Britain...... Brentwood (1), Hitchen (1), Rayleigh (1), Rochford (1), South End (1), Warwick (1) and Wolverhampton (1) Italy.............. Poggio Rusco (1) </TABLE> Note: Multiple footnotes within the same parenthesis indicate the facility is engaged in significant activities relating to more than one segment. Multiple footnotes to the same municipality denote separate facilities in that location. Industry segments in the preceding table are identified as follows: (1) Transportation-Related Product and Services; (2) Specialty Products -- Architectural; and (3) Specialty Products -- Other. MascoTech's principal manufacturing facilities range in size from approximately 10,000 square feet to 360,000 square feet, substantially all of which are owned by MascoTech and are not subject to significant encumbrances. MascoTech's principal technical service facilities in the United States range in size from approximately 10,000 square feet to 120,000 square feet, substantially all of which are leased to MascoTech. MascoTech's executive offices are located in Taylor, Michigan, and are provided by the Company to MascoTech under a corporate services agreement. MascoTech's buildings, machinery and equipment have been generally well maintained, are in good operating condition, and are adequate for current requirements. ITEM 3. LEGAL PROCEEDINGS. The Company is subject to claims and litigation in the ordinary course of business, but does not believe that any such claim or litigation will have a material adverse effect on its consolidated financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. 8
10 SUPPLEMENTARY ITEM. EXECUTIVE OFFICERS OF REGISTRANT (PURSUANT TO INSTRUCTION 3 TO ITEM 401(B) OF REGULATION S-K). <TABLE> <CAPTION> OFFICER NAME POSITION AGE SINCE - ------------------------------------ ------------------------------------ --- ------- <S> <C> <C> <C> Alex Manoogian...................... Chairman Emeritus 94 1929 Richard A. Manoogian................ Chairman of the Board and 59 1962 Chief Executive Officer Wayne B. Lyon....................... President and Chief Operating 63 1972 Officer Gerald Bright....................... Vice President 73 1970 David A. Doran...................... Vice President -- Taxes 54 1984 Daniel R. Foley..................... Vice President -- Human Resources 54 1996 Eugene A. Gargaro, Jr. ............. Vice President and Secretary 53 1993 Frank M. Hennessey.................. Executive Vice President 57 1995 Raymond F. Kennedy.................. Executive Vice President and 53 1989 President -- Building Products John R. Leekley..................... Vice President and General Counsel 52 1979 Richard G. Mosteller................ Senior Vice President -- Finance 63 1962 John C. Nicholls, Jr. .............. Treasurer 62 1967 Robert B. Rosowski.................. Vice President -- Controller 55 1973 Samuel Valenti, III................. Vice President -- Investments 50 1971 </TABLE> Executive officers who are elected by the Board of Directors serve for a term of one year or less. Each elected executive officer has been employed in a managerial capacity with the Company for over five years except for Messrs. Foley and Gargaro. Mr. Foley was employed by MascoTech, Inc. as its Vice President -- Human Resources from 1994 to 1996 and was President of Executive Business Partners, Inc., a training and consulting firm, from 1993 to 1994. From 1991 to 1992, he was Vice President -- Administration and General Counsel at Domino's Pizza, Inc., engaged in producing, distributing and retail sales of food products through franchised and company-owned stores. Mr. Gargaro joined the Company as its Vice President and Secretary in October, 1993. Prior to joining the Company, Mr. Gargaro was a partner at the Detroit law firm of Dykema Gossett PLLC. Mr. Gargaro has served as a director and Secretary of MascoTech, Inc., since 1984, and a director and Secretary of TriMas Corporation since 1989. Richard A. Manoogian, the Chairman of the Board and Chief Executive Officer of the Company, is the son of its Chairman Emeritus, Alex Manoogian. 9
11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The New York Stock Exchange is the principal market on which the Company's Common Stock is traded. The following table indicates the high and low sales prices of the Company's Common Stock as reported on the New York Stock Exchange Composite Tape and the cash dividends declared per share for the periods indicated: <TABLE> <CAPTION> MARKET PRICE ---------------- DIVIDENDS QUARTER HIGH LOW DECLARED -------------------------------------------- ----- ----- --------- <S> <C> <C> <C> 1994 Fourth.................................... $25 1/4 $21 1/4 $ .18 Third..................................... 28 1/4 23 5/8 .18 Second.................................... 32 1/8 26 1/4 .17 First..................................... 39 3/4 31 .17 ------- Total.................................. $ .70 ======= 1995 Fourth.................................... $31 1/2 $27 $ .19 Third..................................... 29 1/2 25 3/8 .19 Second.................................... 29 3/8 24 5/8 .18 First..................................... 27 3/4 22 1/2 .18 ------- Total.................................. $ .74 ======= </TABLE> On March 1, 1996, there were approximately 6,340 holders of record of the Company's Common Stock. The Company expects that its practice of paying quarterly dividends on its Common Stock will continue, although future dividends will continue to depend upon the Company's earnings, capital requirements, financial condition and other factors. ITEM 6. SELECTED FINANCIAL DATA. The following table sets forth summary consolidated financial information for the Company's continuing operations, for the years and dates indicated: <TABLE> <CAPTION> (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1995 1994 1993 1992 1991 ---------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> Net sales.............................. $2,927,000 $2,583,000 $2,243,000 $2,042,000 $1,763,000 Income from continuing operations(1)... $ 200,050 $ 172,710 $ 215,210 $ 179,130 $ 68,940 Per share of common stock: Income from continuing operations(1)..................... $1.25 $1.09 $1.41 $1.18 $.46 Dividends declared................... $.74 $.70 $.66 $.62 $.58 Dividends paid....................... $.73 $.69 $.65 $.61 $.57 At December 31: Total assets......................... $3,778,630 $4,177,100 $3,864,850 $3,765,220 $3,544,680 Long-term debt....................... $1,577,100 $1,587,160 $1,413,480 $1,481,680 $1,354,970 </TABLE> (1) The year 1994 includes a $79 million after-tax ($.50 per share) non-cash equity investment charge. 10
12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. CORPORATE DEVELOPMENT Acquisitions have historically contributed significantly to Masco's long-term growth, even though generally the initial impact on earnings is minimal after deducting acquisition-related costs such as interest and added depreciation and amortization. The important earnings benefit to Masco arises from subsequent growth of acquired companies, since incremental sales are not handicapped by these expenses. DISCONTINUED OPERATIONS In late November 1995, the Company's Board of Directors approved a formal plan to dispose of the Company's home furnishings products segment. Accordingly, the applicable financial statements and related notes have been reclassified to present the home furnishings products segment as discontinued operations; therefore, net sales of this segment have been excluded from consolidated net sales presented herein. The 1995 fourth quarter includes a non-cash after-tax charge of $650 million to reflect the anticipated loss from the disposition of this segment. Company operations included in this segment are principally engaged in the manufacture and sale of quality furniture, fabrics and other home furnishings. Net sales and operating profit attributable to the home furnishings products segment for the eleven months ended November 30, 1995 and for the years ended December 31, 1994 and 1993 were $1,852 million and $85.9 million, $1,885 million and $78.9 million and $1,643 million and $57.6 million, respectively. The Company intends to dispose of the businesses comprising the home furnishings products segment in 1996. Should the Company retain a common equity interest in these businesses after disposition, such interest would be less than 20 percent. Cash proceeds received from the disposition of these businesses will be used to reduce Company indebtedness, and may be invested in acquisitions or used to repurchase Company common shares. PROFIT MARGINS -- CONTINUING OPERATIONS Net income from continuing operations as a percentage of sales was 6.8 percent, 6.7 percent and 9.6 percent in 1995, 1994 and 1993, respectively. After-tax profit return on shareholders' equity as measured by income from continuing operations was 9.4 percent, 8.6 percent and 11.4 percent in 1995, 1994 and 1993, respectively. For 1994, income from continuing operations as a percentage of sales and after-tax profit return on shareholders' equity, as measured by income from continuing operations, reflect an unusual after-tax charge of $79 million or approximately $.50 per share for the Company's equity share of its affiliate MascoTech, Inc.'s $315 million non-cash after-tax charge for the divestiture of its non-core businesses. Prior to giving effect to such charge, income from continuing operations as a percentage of sales and after-tax profit return on shareholders' equity for 1994 were 9.7 percent and 12.5 percent, respectively. LIQUIDITY AND CAPITAL RESOURCES -- CONTINUING OPERATIONS Over the years, the Company has largely funded its growth through cash provided by a combination of operations and long-term bank and other borrowings. At year-end 1995, current assets were approximately 2.2 times current liabilities. During 1995, cash of $262 million was provided by operating activities of continuing operations, by $74 million from the sale of the Company's Formica Corporation investment and by $35 million from discontinued operations; cash decreased by $165 million for the purchase of property and equipment, by $116 million for cash dividends, by $52 million for a net decrease in debt and by $14 million for 11
13 other cash outflows. The aggregate of the preceding items represents a net cash inflow of $24 million in 1995. Cash provided by operating activities of continuing operations totalled $262 million, $289 million and $269 million in 1995, 1994 and 1993, respectively; the Company has generally reinvested a majority of these funds in its operations. The Company's anticipated internal cash flow is expected to provide sufficient liquidity to fund its near-term working capital and other investment needs. The Company believes that its longer-term working capital and other general corporate requirements will be satisfied through its internal cash flow and, to the extent necessary, in the financial markets. RECEIVABLES AND INVENTORIES -- CONTINUING OPERATIONS During 1995, the Company's receivables increased by $28 million, primarily as a result of increased fourth quarter sales in 1995 compared with the same period in 1994. During 1995, the Company's inventories increased by $22 million. As compared with the average manufacturing company, the Company maintains a higher investment in inventories, which relates to the Company's business strategies of providing better customer service, establishing efficient production scheduling and benefitting from larger, more cost-effective purchasing. CAPITAL EXPENDITURES AND DEPRECIATION -- CONTINUING OPERATIONS Capital expenditures totalled $165 million in 1995, compared with $122 million in 1994. These amounts primarily pertain to expenditures for additional facilities related to increased demand for existing products as well as for new Masco products. The Company also continues to invest in automating its manufacturing operations and increasing its productivity, in order to be a more efficient producer and improve customer service and response time. Depreciation expense and amortization expense were $65.3 million and $24.8 million, respectively, in 1995, compared with $54.5 million and $19.3 million, respectively, in 1994. At each balance sheet date, management assesses whether there has been an impairment in the carrying value of excess of cost over net assets of acquired companies, primarily by comparing current and projected sales, operating income and annual cash flows with the related annual amortization expense. EQUITY AND OTHER INVESTMENTS IN AFFILIATES Equity earnings from affiliates were $26.2 million in 1995 compared with an equity loss of $99.5 million in 1994 and equity earnings of $18.7 million in 1993. In December 1994, MascoTech, Inc., an equity affiliate of the Company, announced and recorded a non-cash after-tax charge of $315 million in anticipation of losses associated with the planned disposition of its non-core businesses. As a result, the Company in 1994 recorded a $138 million pre-tax charge ($79 million after-tax) as its equity share of this non-cash charge. CASH DIVIDENDS During 1995, the Company increased its dividend rate six percent to $.19 per share quarterly. This marks the 37th consecutive year in which dividends have been increased. Dividend payments over this period have increased at an 18 percent average annual rate. Although the Company is aware of the greater interest in yield by many investors and has maintained an increased dividend payout in recent years, the Company continues to believe that its shareholders' long-term interests are best served by investing a significant portion of its earnings in the future growth of the Company. RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," will not have a material impact on 12
14 the Company's financial statements when adopted in 1996. SFAS No. 123, "Accounting for Stock-Based Compensation," becomes effective in 1996. The Company intends to adopt the pro forma disclosure provisions of SFAS No. 123 and will continue to account for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." GENERAL FINANCIAL ANALYSIS -- CONTINUING OPERATIONS 1995 VERSUS 1994 Net sales in 1995, aided by acquisitions in late 1994, increased 13 percent to $2,927 million; excluding acquisitions, net sales increased 7 percent. Cost of sales as a percentage of sales increased to 63.1 percent in 1995 from 60.9 percent in 1994, primarily as a result of plant start-up costs related to a major new faucet facility in the U.S. and product sales mix. Product sales mix was primarily influenced by a higher percentage of lower margin sales to total sales. Selling, general and administrative expenses as a percentage of sales increased to 23.2 percent in 1995 from 22.4 percent in 1994, primarily as a result of increased promotional, advertising and insurance costs. Operating profit, before general corporate expense, decreased 4 percent in 1995 to $493 million. Included in other income and expense for 1995 are equity earnings from MascoTech of $18 million as compared with $106 million of equity loss from MascoTech in 1994; such equity loss reflects the Company's equity share of MascoTech's unusual non-cash 1994 fourth quarter charge for the disposition of its non-core businesses. After-tax income from continuing operations and income from continuing operations per share for 1995 were $200 million and $1.25, respectively, as compared with income from continuing operations and income from continuing operations per share for 1994 (prior to the Company's share of the above- mentioned 1994 MascoTech charge) of $252 million and $1.59, respectively. Including the above-mentioned charge of approximately $.50 per share, income from continuing operations for 1994 was $173 million, with earnings per share of $1.09. 1994 VERSUS 1993 Net sales in 1994, aided by acquisitions, increased 15 percent to $2,583 million; excluding acquisitions, net sales increased 8 percent. Cost of sales as a percentage of sales decreased modestly to 60.9 percent in 1994 from 61.4 percent in 1993. Selling, general and administrative expenses as a percentage of sales decreased to 22.4 percent in 1994 from 23.2 percent in 1993. Operating profit, before general corporate expense, increased 22 percent to $511 million, primarily due to increased sales and profit improvement programs. Included in other income and expense for 1994 are equity losses from MascoTech of $106 million, which reflect the Company's equity share of MascoTech's unusual non-cash fourth quarter charge for the disposition of its non-core businesses, as compared with $13.2 million of equity earnings from MascoTech in 1993. Equity earnings from MascoTech in 1993 are net of an approximate $10 million after-tax fourth quarter charge which reflects the Company's equity share of MascoTech's loss provision for the disposition of its energy-related businesses and extraordinary loss on the early extinguishment of debt. In 1994, MascoTech reported a loss from continuing operations and a net loss, after preferred stock dividends, of $234.4 million and $233.1 million, respectively, as compared with income from continuing operations and net income, after preferred stock dividends, of $70.9 million and $32.7 million, respectively, in 1993. Included in other income and expense for 1993 is a $28.3 million pre-tax gain (approximately $18 million after-tax) on the redemption of MascoTech's 10% exchangeable preferred stock. This gain was principally offset by the Company's approximate $10 million after-tax equity share of MascoTech's 13
15 above-mentioned 1993 fourth quarter special charges, as well as by charges related to certain restructurings of Company operations. After-tax income from continuing operations and income from continuing operations per share for 1994, prior to the above-mentioned MascoTech charge for the disposition of its non-core businesses, were $252 million and $1.59, representing increases of 17 percent and 13 percent from $215 million and $1.41 in 1993, respectively. Including the above-mentioned charge of approximately $.50 per share, income from continuing operations was $173 million, with earnings per share of $1.09. 14
16 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Masco Corporation: We have audited the accompanying consolidated balance sheet of Masco Corporation and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations and cash flows for each of the three years in the period ended December 31, 1995, and the financial statement schedule as listed in Item 14(a)(2)(i) of this Form 10-K. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Masco Corporation and subsidiaries as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Detroit, Michigan March 1, 1996 15
17 MASCO CORPORATION CONSOLIDATED BALANCE SHEET DECEMBER 31, 1995 AND 1994 ASSETS <TABLE> <CAPTION> 1995 1994 -------------- -------------- <S> <C> <C> Current Assets: Cash and cash investments................................... $ 60,470,000 $ 36,530,000 Receivables................................................. 439,900,000 411,590,000 Inventories................................................. 391,760,000 370,010,000 Prepaid expenses and other.................................. 72,370,000 61,510,000 -------------- -------------- Total current assets................................... 964,500,000 879,640,000 Equity investments in MascoTech, Inc. ........................ 202,380,000 184,960,000 Equity investments in other affiliates........................ 62,570,000 56,700,000 Property and equipment........................................ 856,690,000 756,650,000 Excess of cost over acquired net assets....................... 343,510,000 290,710,000 Other assets.................................................. 296,310,000 279,480,000 Net assets of discontinued operations......................... 1,052,670,000 1,728,960,000 -------------- -------------- Total assets........................................... $3,778,630,000 $4,177,100,000 ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable............................................... $ 25,690,000 $ 38,660,000 Accounts payable............................................ 125,230,000 110,550,000 Accrued liabilities......................................... 294,930,000 260,990,000 -------------- -------------- Total current liabilities.............................. 445,850,000 410,200,000 Long-term debt................................................ 1,577,100,000 1,587,160,000 Deferred income taxes and other............................... 100,250,000 61,410,000 -------------- -------------- Total liabilities...................................... 2,123,200,000 2,058,770,000 -------------- -------------- Shareholders' Equity: Common shares authorized: 400,000,000; issued: 1995 -- 160,380,000; 1994 -- 156,990,000......... 160,380,000 156,990,000 Preferred shares authorized: 1,000,000...................... -- -- Paid-in capital............................................. 128,550,000 44,840,000 Retained earnings........................................... 1,366,330,000 1,924,740,000 Cumulative translation adjustments.......................... 170,000 (8,240,000) -------------- -------------- Total shareholders' equity............................. 1,655,430,000 2,118,330,000 -------------- -------------- Total liabilities and shareholders' equity............. $3,778,630,000 $4,177,100,000 ============== ============== </TABLE> See notes to consolidated financial statements. 16
18 MASCO CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 <TABLE> <CAPTION> 1995 1994 1993 -------------- -------------- -------------- <S> <C> <C> <C> Net sales...................................... $2,927,000,000 $2,583,000,000 $2,243,000,000 Cost of sales.................................. 1,846,330,000 1,574,100,000 1,376,260,000 -------------- -------------- -------------- Gross profit......................... 1,080,670,000 1,008,900,000 866,740,000 Selling, general and administrative expenses... 678,330,000 578,150,000 520,520,000 -------------- -------------- -------------- Operating profit..................... 402,340,000 430,750,000 346,220,000 -------------- -------------- -------------- Other income (expense), net: Re: MascoTech, Inc.: Equity earnings (loss).................... 18,200,000 (106,110,000) 13,160,000 Interest and dividend income.............. -- -- 16,220,000 Gain from redemption of preferred stock... -- -- 28,300,000 Equity earnings, other affiliates............ 8,010,000 6,630,000 5,530,000 Other, net................................... (2,960,000) 23,090,000 4,540,000 Interest expense............................. (73,800,000) (61,530,000) (64,780,000) -------------- -------------- -------------- (50,550,000) (137,920,000) 2,970,000 -------------- -------------- -------------- Income from continuing operations before income taxes................ 351,790,000 292,830,000 349,190,000 Income taxes................................... 151,740,000 120,120,000 133,980,000 -------------- -------------- -------------- Income from continuing operations.... 200,050,000 172,710,000 215,210,000 -------------- -------------- -------------- Discontinued operations (net of income taxes): Income from operations of discontinued segment................................... 8,270,000 20,990,000 5,890,000 Loss on disposition, net..................... (650,000,000) -- -- -------------- -------------- -------------- Net income (loss).................... $ (441,680,000) $ 193,700,000 $ 221,100,000 ============== ============== ============== Earnings (loss) per share: Continuing operations........................ $ 1.25 $1.09 $1.41 Discontinued operations: Income from operations of discontinued segment................................. .05 .13 .04 Loss on disposition, net.................. (4.07) -- -- ------ ----- ----- Earnings (loss) per share............ $(2.77) $1.22 $1.45 ====== ===== ===== </TABLE> See notes to consolidated financial statements. 17
19 MASCO CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 <TABLE> <CAPTION> 1995 1994 1993 ------------- ------------- ------------- <S> <C> <C> <C> Cash Flows From (For): Operating Activities: Income from continuing operations.......... $ 200,050,000 $ 172,710,000 $ 215,210,000 Depreciation and amortization.............. 90,090,000 73,830,000 71,450,000 Equity (earnings) loss, net................ (17,770,000) 106,200,000 (13,750,000) Deferred income taxes and other............ 18,240,000 (31,930,000) (3,710,000) Gain from redemption of MascoTech preferred stock, net of tax........................ -- -- (17,550,000) ------------- ------------- ------------- Total from earnings................... 290,610,000 320,810,000 251,650,000 (Increase) in receivables.................. (56,660,000) (25,750,000) (20,680,000) (Increase) decrease in inventories......... (13,970,000) (39,900,000) 1,580,000 Increase in accounts payable and accrued liabilities, net......................... 42,110,000 33,780,000 36,880,000 ------------- ------------- ------------- Net cash from operating activities of continuing operations............... 262,090,000 288,940,000 269,430,000 Operating activities of discontinued operations............................... 60,370,000 24,500,000 (3,670,000) ------------- ------------- ------------- Net cash from operating activities.... 322,460,000 313,440,000 265,760,000 ------------- ------------- ------------- Investing Activities: Capital expenditures....................... (165,080,000) (121,790,000) (96,020,000) Currency translation adjustments........... 8,420,000 12,150,000 (14,120,000) Sale of affiliate investments to MascoTech................................ -- -- 87,500,000 Proceeds from sale of Formica investment... 74,470,000 -- -- Proceeds from redemption of MascoTech preferred stock.......................... -- -- 100,000,000 Acquisition of companies................... -- (126,830,000) -- Other, net................................. (21,990,000) (20,820,000) 38,000,000 Investing activities of discontinued operations............................... (38,290,000) (78,290,000) (85,690,000) ------------- ------------- ------------- Net cash from (for) investing activities.......................... (142,470,000) (335,580,000) 29,670,000 ------------- ------------- ------------- Financing Activities: Issuance of notes.......................... -- -- 400,000,000 Retirement of notes........................ (200,000,000) -- (200,000,000) Increase in other debt..................... 497,830,000 239,710,000 290,520,000 Payment of other debt...................... (350,010,000) (57,240,000) (554,850,000) Repurchase of Company Common Stock......... -- (61,730,000) -- Cash dividends paid........................ (116,350,000) (108,960,000) (99,000,000) Financing activities of discontinued operations............................... 12,480,000 (48,250,000) (67,130,000) ------------- ------------- ------------- Net cash (for) financing activities... (156,050,000) (36,470,000) (230,460,000) ------------- ------------- ------------- Cash and Cash Investments: Increase (decrease) for the year........... 23,940,000 (58,610,000) 64,970,000 At January 1............................... 36,530,000 95,140,000 30,170,000 ------------- ------------- ------------- At December 31............................. $ 60,470,000 $ 36,530,000 $ 95,140,000 ============= ============= ============= </TABLE> See notes to consolidated financial statements. 18
20 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ACCOUNTING POLICIES Principles of Consolidation. The consolidated financial statements include the accounts of Masco Corporation and all majority-owned subsidiaries. All significant intercompany transactions have been eliminated. The Company classified its home furnishings products segment as discontinued operations in 1995 (See "Discontinued Operations" note). Accordingly, the December 31, 1994 balance sheet and statements of operations and cash flows for 1994 and 1993 and related notes have been reclassified to conform to the current year presentation. Use of Estimates in the Preparation of Financial Statements. The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from such estimates and assumptions. Average Shares Outstanding. The average number of common shares outstanding in 1995, 1994 and 1993 approximated 159.6 million, 158.8 million and 152.7 million, respectively. Cash and Cash Investments. The Company considers all highly liquid investments with an original maturity of three months or less to be cash and cash investments. Receivables. Accounts and notes receivable are presented net of allowances for doubtful accounts of $16.3 million at December 31, 1995 and $12.0 million at December 31, 1994. Property and Equipment. Property and equipment, including significant betterments to existing facilities, are recorded at cost. Upon retirement or disposal, the cost and accumulated depreciation are removed from the accounts and any gain or loss is included in income. Maintenance and repair costs are charged to expense as incurred. Depreciation and Amortization. Depreciation is computed principally using the straight-line method over the estimated useful lives of the assets. Annual depreciation rates are as follows: buildings and land improvements, 2 to 10 percent, and machinery and equipment, 5 to 33 percent. Depreciation was $65.3 million, $54.5 million and $50.5 million in 1995, 1994 and 1993, respectively. The excess of cost over net assets of acquired companies is being amortized using the straight-line method over periods not exceeding 40 years; at December 31, 1995 and 1994 such accumulated amortization totalled $58.1 million and $48.1 million, respectively. At each balance sheet date, management assesses whether there has been an impairment in the carrying value of excess of cost over net assets of acquired companies, primarily by comparing current and projected sales, operating income and annual cash flows with the related annual amortization expense. Purchase costs of patents are being amortized using the straight-line method over the legal lives of the patents, not to exceed 17 years. Amortization of intangible assets was $24.8 million, $19.3 million and $20.9 million in 1995, 1994 and 1993, respectively. Fair Value of Financial Instruments. The carrying value of financial instruments reported in the balance sheet for current assets and current liabilities approximates fair value. The fair value of financial instruments that are carried as long-term investments (other than those accounted for by the equity method) was based principally on quoted market prices for those or similar investments or by discounting future cash flows using a discount rate that approximates the risk of the investments. The fair value of the Company's long-term debt instruments was based principally on quoted market prices for the same or similar issues or the current rates available to the Company for debt with similar terms and remaining maturities. The aggregate market value of the Company's long-term investments and long-term debt at December 31, 1995 was approximately $157 million and $1,603 million, as compared with the Company's carrying value of $116 million and $1,577 million, respectively. The aggregate market value of the Company's long-term investments and long-term debt at December 31, 1994 was 19
21 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ACCOUNTING POLICIES -- (CONCLUDED) approximately $158 million and $1,477 million, as compared with the Company's carrying value of $123 million and $1,587 million, respectively. Recently Issued Financial Accounting Standards. Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," will not have a material impact on the Company's financial statements when adopted in 1996. SFAS No. 123, "Accounting for Stock-Based Compensation," becomes effective in 1996. The Company intends to adopt the pro forma disclosure provisions of SFAS No. 123 and will continue to account for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." DISCONTINUED OPERATIONS In late November 1995, the Company's Board of Directors approved a formal plan to dispose of the Company's home furnishings products segment. Accordingly, the applicable financial statements and related notes, except as otherwise noted, have been reclassified to present the home furnishings products segment as discontinued operations. Company operations included in this segment are principally engaged in the manufacture and sale of quality furniture, fabrics and other home furnishings. The Company recorded a fourth quarter 1995 pre-tax and after-tax non-cash charge of $650 million for the anticipated loss on disposition of this segment. The potential income tax benefit of approximately $230 million from the loss on disposition was not recorded due to the likelihood that such loss will be capital in nature and that the Company is unable to quantify the portion of such capital loss benefit which may ultimately be realizable. The approximate components of the charge were as follows, in thousands: <TABLE> <S> <C> Write-down of assets due to anticipated net proceeds being less than carrying value: Excess of cost over acquired net assets....................... $402,000 Property and equipment........................................ 238,000 Provision for disposition costs, net of estimated income during anticipated holding period....................................... 10,000 -------- Pre-tax and after-tax disposition charge.................... $650,000 ======== </TABLE> This charge reflects the Company's best estimate of the amount anticipated to be realized on the disposition of its home furnishings products businesses. The estimated amount that the Company anticipates to realize on disposition is based on negotiations with potential acquirors and independent parties familiar with valuations of this nature. The amount that the Company will ultimately realize could differ materially from the amount assumed in arriving at the loss on disposition of the home furnishings products segment. The Company intends to dispose of the businesses comprising the home furnishings products segment in 1996. Should the Company retain a common equity interest in these businesses after disposition, such interest would be less than 20 percent. 20
22 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DISCONTINUED OPERATIONS -- (CONTINUED) Selected financial information for these discontinued operations is as follows at December 31, 1995 and 1994 and for the period up to the decision to discontinue in late November 1995 and for the years ended December 31, 1994 and 1993: <TABLE> <CAPTION> (IN THOUSANDS) AT DECEMBER 31 ------------------------ 1995 1994 ---------- ---------- <S> <C> <C> Cash.................................................. $ 17,860 $ 24,620 Receivables........................................... 347,570 333,590 Inventories........................................... 560,360 578,820 Prepaid expenses...................................... 55,830 58,500 Excess of cost over acquired net assets............... 401,530 415,450 Property and equipment................................ 490,160 475,150 Other assets.......................................... 39,860 39,500 Liabilities........................................... (210,500) (196,670) Anticipated loss on disposition of segment, net....... (650,000) -- ---------- ---------- Net assets of discontinued operations............... $1,052,670 $1,728,960 ========== ========== </TABLE> The Company guarantees certain credit facilities of the home furnishings products businesses. Amounts available under these facilities aggregate approximately $130 million, of which approximately $25 million was outstanding as of December 31, 1995. <TABLE> <CAPTION> (IN THOUSANDS) ELEVEN MONTHS ENDED NOVEMBER 30, 1995 1994 1993 ------------ ---------- ---------- <S> <C> <C> <C> Net sales................................. $1,852,000 $1,885,000 $1,643,000 ========== ========== ========== Gross profit.............................. $ 450,130 $ 457,330 $ 397,630 Selling, general and administrative expenses................................ 364,210 378,480 340,020 ------------ ---------- ---------- Operating profit.......................... 85,920 78,850 57,610 Other expense, net........................ 55,660 49,080 44,200 ------------ ---------- ---------- Income before income taxes................ 30,260 29,770 13,410 Income taxes.............................. 21,990 8,780 7,520 ------------ ---------- ---------- Income from operations of discontinued segment................................. $ 8,270 $ 20,990 $ 5,890 ========== ========== ========== </TABLE> Other expense, net above includes allocable interest expense of $44.0 million, $43.2 million and $41.0 million in 1995, 1994 and 1993, respectively. Interest expense of the Company not directly attributable to specific operations of the Company was allocated to discontinued operations based upon the assumed reduction of Company debt from application of certain anticipated cash proceeds from the disposal. The income tax rate of discontinued operations was higher in 1995 primarily due to higher taxes on foreign operations and decreased foreign tax credits. 21
23 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) DISCONTINUED OPERATIONS -- (CONCLUDED) Cash flows from (for) discontinued operations as shown in the consolidated statement of cash flows are comprised of the following: <TABLE> <CAPTION> (IN THOUSANDS) 1995 1994 1993 -------- -------- -------- <S> <C> <C> <C> Operating Activities: Income from operations of discontinued segment.................................. $ 8,270 $ 20,990 $ 5,890 Depreciation and amortization............... 50,650 46,800 44,540 (Increase) decrease in working capital...... 1,450 (43,290) (54,100) -------- -------- -------- Net cash from (for) operating activities of discontinued operations.......................... $ 60,370 $ 24,500 $ (3,670) ======== ======== ======== Investing Activities: Capital expenditures........................ $(61,390) $(68,820) $(70,520) Other, net.................................. 23,100 (9,470) (15,170) -------- -------- -------- Net cash (for) investing activities of discontinued operations............. $(38,290) $(78,290) $(85,690) ======== ======== ======== Financing Activities: Payment of debt............................. $ (3,720) $(73,140) $(67,380) Increase in debt............................ 16,200 24,890 250 -------- -------- -------- Net cash from (for) financing activities of discontinued operations.......................... $ 12,480 $(48,250) $(67,130) ======== ======== ======== </TABLE> INVENTORIES <TABLE> <CAPTION> (IN THOUSANDS) AT DECEMBER 31 -------------------- 1995 1994 -------- -------- <S> <C> <C> Raw material............................................. $171,670 $158,710 Finished goods........................................... 130,070 126,250 Work in process.......................................... 90,020 85,050 -------- -------- $391,760 $370,010 ======== ======== </TABLE> Inventories are stated at the lower of cost or net realizable value, with cost determined principally by use of the first-in, first-out method. 22
24 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) EQUITY INVESTMENTS IN AFFILIATES Equity investments in affiliates consist primarily of the following common equity and partnership interests: <TABLE> <CAPTION> AT DECEMBER 31 -------------------- 1995 1994 1993 ---- ---- ---- <S> <C> <C> <C> MascoTech, Inc........................................... 45% 44% 42% Hans Grohe, a German partnership......................... 27% 27% 27% TriMas Corporation....................................... 5% 5% 5% </TABLE> MascoTech, Inc. presently has voting preferred shares outstanding, which are to be converted into common shares no later then mid-1997. On an assumed converted basis and utilizing the minimum number of common shares to be so issued, the Company's equity investment in MascoTech would be 39 percent at December 31, 1995 (which equals the Company's voting interest at that date). Excluding the partnership interest in Hans Grohe, for which there is no quoted market value, the aggregate market value of the Company's equity investments at December 31, 1995 (which may differ from the amounts that could then have been realized upon disposition), based upon quoted market prices at that date, was $376 million, as compared with the Company's related aggregate carrying value of $223 million. The Company's carrying value of its equity investments in MascoTech exceeds its equity in the underlying net book value by approximately $74 million at December 31, 1995. This excess, which principally resulted from repurchases by MascoTech of its common stock, is being amortized over a period not to exceed 40 years. The Company's carrying value of its other equity investments at December 31, 1995 approximates the Company's equity in the underlying net book value in these affiliates. In March 1993, the Company and MascoTech partially restructured their affiliate relationships through transactions that reduced the Company's common equity interest in MascoTech from 47 percent to approximately 35 percent and resulted in MascoTech's acquisition of the Company's investments in Emco Limited, a Canadian company. The Company received $87.5 million in cash, $100 million of 10% exchangeable preferred stock and seven-year warrants to purchase 10 million common shares of MascoTech at $13 per share. MascoTech received 10 million of its common shares, all $77.5 million of its 12% exchangeable preferred stock, the Company's investments in Emco Limited and a modified option expiring in March 1997 to require the Company to purchase up to $200 million aggregate amount of debt securities in MascoTech. In November 1993, MascoTech redeemed for cash its $100 million of 10% exchangeable preferred stock issued in March 1993. As a result of this redemption, the Company realized a $28.3 million pre-tax gain. In December 1993, following MascoTech's call for redemption, the Company converted $130 million of MascoTech's 6% debentures due 2011 into MascoTech common stock, thereby increasing the Company's common equity interest in MascoTech from approximately 35 percent to 42 percent. 23
25 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) EQUITY INVESTMENTS IN AFFILIATES -- (CONCLUDED) Approximate combined condensed financial data of the above-listed affiliates are summarized in U.S. dollars as follows, in thousands: <TABLE> <CAPTION> 1995 1994 1993 ----------- ----------- ----------- <S> <C> <C> <C> At December 31: Current assets........................ $ 788,020 $ 944,940 $ 875,610 Current liabilities................... (276,180) (277,260) (300,650) ----------- ----------- ----------- Working capital.................... 511,840 667,680 574,960 Property and equipment................ 728,730 626,670 720,290 Other assets.......................... 624,430 681,630 853,720 Long-term liabilities................. (1,083,140) (1,266,060) (1,213,940) ----------- ----------- ----------- Shareholders' equity............... $ 781,860 $ 709,920 $ 935,030 =========== =========== =========== Net sales............................... $ 2,488,900 $ 2,465,070 $ 2,230,330 =========== =========== =========== Income (loss) from continuing operations............................ $ 201,860 $ (165,200) $ 199,190 =========== =========== =========== Net income (loss) attributable to common shareholders.......................... $ 115,570 $ (164,750) $ 75,900 =========== =========== =========== The Company's net equity in above net income (loss)......................... $ 26,210 $ (99,480) $ 18,690 =========== =========== =========== Cash dividends received by the Company from affiliates....................... $ 8,440 $ 6,720 $ 4,940 =========== =========== =========== </TABLE> In December 1994, MascoTech announced and recorded a non-cash after-tax charge of $315 million in anticipation of losses associated with the planned disposition of its non-core businesses. As a result, the Company recorded its equity share of this non-cash charge. Equity in undistributed earnings of affiliates of $30 million at December 31, 1995, $17 million at December 31, 1994 and $85 million at December 31, 1993 are included in consolidated retained earnings. PROPERTY AND EQUIPMENT <TABLE> <CAPTION> (IN THOUSANDS) AT DECEMBER 31 ------------------------- 1995 1994 ---------- ---------- <S> <C> <C> Land and improvements................................ $ 61,490 $ 57,350 Buildings............................................ 408,570 374,180 Machinery and equipment.............................. 872,310 768,070 ---------- ---------- 1,342,370 1,199,600 Less accumulated depreciation........................ 485,680 442,950 ---------- ---------- $ 856,690 $ 756,650 ========== ========== </TABLE> 24
26 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ACCRUED LIABILITIES <TABLE> <CAPTION> (IN THOUSANDS) AT DECEMBER 31 --------------------- 1995 1994 -------- -------- <S> <C> <C> Salaries, wages and commissions......................... $ 50,530 $ 47,310 Insurance............................................... 40,930 29,030 Advertising and sales promotion......................... 40,480 33,990 Dividends payable....................................... 29,640 29,250 Employee retirement plans............................... 28,990 18,140 Interest................................................ 28,060 25,770 Income taxes............................................ 4,100 23,690 Other................................................... 72,200 53,810 -------- -------- $294,930 $260,990 ======== ======== </TABLE> LONG-TERM DEBT <TABLE> <CAPTION> (IN THOUSANDS) AT DECEMBER 31 ------------------------ 1995 1994 ---------- ---------- <S> <C> <C> Notes, 6.25%, due June 15, 1995...................... -- $ 200,000 Notes, 9%, due April 15, 1996..................... $ 250,000 250,000 Notes, 6.625%, due September 15, 1999................. 200,000 200,000 Notes, 9%, due October 1, 2001.................... 175,000 175,000 Notes, 6.125%, due September 15, 2003................. 200,000 200,000 Notes, 7.125%, due August 15, 2013.................... 200,000 200,000 Notes payable to banks................................ 250,000 70,000 Convertible subordinated debentures, 5.25%, due 2012................................................ 177,920 177,920 Other, primarily acquisition related.................. 141,870 127,890 ---------- ---------- 1,594,790 1,600,810 Less current portion.................................. 17,690 13,650 ---------- ---------- $1,577,100 $1,587,160 ========== ========== </TABLE> At December 31, 1995, all of the outstanding notes other than notes payable to banks are nonredeemable. In June 1995, the Company retired the 6.25% notes due June 15, 1995 through borrowings under its bank revolving-credit agreement. The Company intends to either refinance the 9% notes due April 15, 1996 through borrowings under its bank revolving-credit agreement or retire these notes with proceeds anticipated from the divestiture of the home furnishings products segment. The 5.25% subordinated debentures due February 15, 2012 are convertible into common stock at $42.28 per share. The notes payable to banks relate to a $750 million revolving-credit agreement, with any outstanding balance due and payable in May 1998. Interest is payable on borrowings under this agreement based upon various floating rates as selected by the Company (approximately 6.1 percent at December 31, 1995). 25
27 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) LONG-TERM DEBT -- (CONCLUDED) Certain debt agreements contain limitations on additional borrowings and restrictions on cash dividend payments and common share repurchases. At December 31, 1995, the amount of retained earnings available for cash dividends and common share repurchases approximated $187 million under the most restrictive of these provisions. At December 31, 1995, the maturities of long-term debt during each of the next five years, assuming that the bank debt is refinanced, were approximately as follows: 1996 -- $267.7 million; 1997 -- $9.0 million; 1998 -- $19.8 million; 1999 -- $218.4 million; and 2000 -- $14.9 million. The Company has on file with the Securities and Exchange Commission, an unallocated shelf registration pursuant to which the Company is able to issue up to a combined $759 million of debt and equity securities. Interest paid was approximately $115 million, $103 million and $104 million in 1995, 1994 and 1993, respectively. Amounts paid include interest allocated to discontinued operations. 26
28 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SHAREHOLDERS' EQUITY <TABLE> <CAPTION> (IN THOUSANDS) 1995 1994 1993 ---------- ---------- ---------- <S> <C> <C> <C> Common Shares, $1 Par Value Balance, January 1.................. $ 156,990 $ 152,850 $ 152,470 Shares issued....................... 3,390 6,910 380 Shares repurchased.................. -- (2,770) -- ---------- ---------- ---------- Balance, December 31................ 160,380 156,990 152,850 ---------- ---------- ---------- Paid-In Capital Balance, January 1.................. 44,840 69,880 61,370 Shares issued....................... 83,710 33,920 8,510 Shares repurchased.................. -- (58,960) -- ---------- ---------- ---------- Balance, December 31................ 128,550 44,840 69,880 ---------- ---------- ---------- Retained Earnings Balance, January 1.................. 1,924,740 1,805,170 1,685,010 Retained earnings of pooled companies......................... -- 37,820 -- Net income (loss)................... (441,680) 193,700 221,100 Cash dividends declared............. (116,730) (111,950) (100,940) ---------- ---------- ---------- Balance, December 31................ 1,366,330 1,924,740 1,805,170 ---------- ---------- ---------- Cumulative Translation Adjustments Balance, December 31................ 170 (8,240) (20,400) ---------- ---------- ---------- Shareholders' Equity Balance, December 31................ $1,655,430 $2,118,330 $2,007,500 ========== ========== ========== </TABLE> On the basis of amounts paid (declared), cash dividends per share were $.73 ($.74) in 1995, $.69 ($.70) in 1994 and $.65 ($.66) in 1993. In December 1995, the Company's Board of Directors announced the approval of a Shareholder Rights Plan. The Rights are designed to enhance the Board's ability to protect shareholders against, among other things, unsolicited attempts to acquire control of the Company that do not offer an adequate price to all shareholders or are otherwise not in the best interests of the Company's shareholders. The Rights were issued to shareholders of record on December 18, 1995 and will expire on December 6, 2005. In 1994, the Company's Board of Directors authorized the repurchase of up to 10 million shares of its common stock in open-market transactions or otherwise. Pursuant to this authorization, approximately 2.8 million common shares were repurchased in 1994 at an aggregate cost of approximately $62 million. 27
29 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) STOCK OPTIONS AND AWARDS For the three years ended December 31, 1995, stock option data pertaining to stock option plans for key employees of the Company and affiliated companies are as follows: <TABLE> <CAPTION> (SHARES IN THOUSANDS) 1995 1994 1993 ------- ------- ------- <S> <C> <C> <C> Option shares outstanding, January 1....... 5,510 5,686 6,742 Option shares granted...................... 205 73 298 Option price............................. $27-$30 $25-$40 $27-$37 Option shares exercised.................... 196 224 1,210 Option price............................. $11-$25 $15-$32 $2-$30 Option shares cancelled.................... 63 25 144 Option price............................. $21-$38 $21-$30 $2-$21 Option shares outstanding, December 31..... 5,456 5,510 5,686 Option price............................. $16-$40 $11-$40 $10-$37 Option shares exercisable, December 31..... 2,916 2,445 1,457 </TABLE> Pursuant to restricted stock incentive award plans, the Company granted long-term incentive awards, net, for 1,250,000, 598,000 and 100,000 shares of Company Common Stock during 1995, 1994 and 1993, respectively, to key employees of the Company and affiliated companies. Long-term incentive awards granted in 1995 include special awards to key employees for performance achievements in the prior year. The unamortized costs of unvested awards under these plans, aggregating approximately $77.6 million at December 31, 1995, are being amortized over the ten-year vesting periods. At December 31, 1995, a combined total of 10,563,000 shares of Company Common Stock was available for the granting of stock options and incentive awards under the above plans. Pursuant to the 1984 Restricted Stock (MascoTech) Incentive Plan, the Company may award to key employees of the Company and affiliated companies, shares of common stock of MascoTech, Inc. held by the Company. No such awards were granted in 1995, 1994 or 1993. At December 31, 1995, there were 4,695,000 of such shares available for granting future awards under this plan. The data in this note include discontinued operations. EMPLOYEE RETIREMENT PLANS The Company sponsors defined-benefit pension plans and defined-contribution plans for most of its employees. In addition, substantially all salaried employees participate in noncontributory profit-sharing plans, to which payments are determined annually by the Directors. Aggregate charges to income under the Company's pension and profit-sharing plans were $31.1 million in 1995, $23.3 million in 1994 and $19.2 million in 1993. Data in this note include discontinued operations. Net periodic pension cost for the Company's pension plans includes the following components: <TABLE> <CAPTION> (IN THOUSANDS) 1995 1994 1993 -------- -------- -------- <S> <C> <C> <C> Service cost................................. $ 12,150 $ 13,690 $ 11,800 Interest cost................................ 22,110 20,060 17,240 Actual return on assets...................... (28,090) 8,650 (28,940) Net amortization and deferral................ 7,170 (35,740) 6,100 -------- -------- -------- Net periodic pension cost.................... $ 13,340 $ 6,660 $ 6,200 ======== ======== ======== </TABLE> 28
30 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) EMPLOYEE RETIREMENT PLANS -- (CONCLUDED) Major assumptions used in accounting for the Company's pension plans are as follows: <TABLE> <CAPTION> 1995 1994 1993 ------ ----- ------ <S> <C> <C> <C> Discount rate for obligations...................... 7.25% 8.5% 7.25% Rate of increase in compensation levels............ 5.0 % 5.0% 5.0 % Expected long-term rate of return on plan assets... 11.0 % 13.0% 13.0 % </TABLE> The funded status of the Company's pension plans is summarized as follows, in thousands, at December 31: <TABLE> <CAPTION> 1995 1994 ------------------------- ------------------------- ASSETS ACCUMULATED ASSETS ACCUMULATED EXCEED BENEFITS EXCEED BENEFITS ACCUMULATED EXCEED ACCUMULATED EXCEED BENEFITS ASSETS BENEFITS ASSETS ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> Actuarial present value of benefit obligations: Vested benefit obligation.............. $ 87,960 $ 172,910 $ 147,110 $ 46,840 ========== ========== ========== ========== Accumulated benefit obligation.............. $ 90,840 $ 179,930 $ 151,710 $ 56,010 ========== ========== ========== ========== Projected benefit obligation.............. $ 115,100 $ 216,600 $ 190,120 $ 64,210 Assets at fair value........... 91,720 133,050 170,130 35,250 ---------- ---------- ---------- ---------- Projected benefit obligation in excess of plan assets.................... (23,380) (83,550) (19,990) (28,960) Reconciling items: Unrecognized net loss........ 29,400 46,080 21,510 5,240 Unrecognized prior service cost...................... (900) 22,110 7,740 10,030 Unrecognized net (asset) obligation at transition................ (4,580) (5,510) (12,340) 6,640 Requirement to recognize minimum liability......... -- (26,010) -- (14,360) ---------- ---------- ---------- ---------- (Accrued)/prepaid pension cost......................... $ 540 $ (46,880) $ (3,080) $ (21,410) ========== ========== ========== ========== </TABLE> The funded status of the Company's pension plans at December 31, 1995 and 1994 includes assets and accumulated benefits of pension plans of discontinued operations. These plans had assets and accumulated benefits of $135 million and $150 million, respectively, as of December 31, 1995, and assets and accumulated benefits of $124 million and $120 million, respectively, as of December 31, 1994. Net periodic pension cost for these plans was $5.1 million in 1995 and $1.6 million in both 1994 and 1993. The Company sponsors certain postretirement benefit plans that provide medical, dental and life insurance coverage for eligible retirees and dependents in the United States based on age and length of service. At December 31, 1995, the aggregate present value of the accumulated postretirement benefit obligation approximated $6.7 million pre-tax and is being amortized over the remaining 18 years. 29
31 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) GEOGRAPHIC INFORMATION The Company is engaged principally in the manufacture, installation and sale of home improvement and building products including: Faucets; plumbing fittings; kitchen and bath cabinets; shower tubs, whirlpools and spas; bath accessories; kitchen appliances; builders' hardware; venting and ventilating equipment; insulation; and water pumps. These products are sold for the home improvement and home construction markets through mass merchandisers, hardware stores, home centers, distributors, wholesalers and other outlets to consumers and contractors. Corporate assets consisted primarily of real property and other investments. Pursuant to a corporate services agreement to provide MascoTech, Inc. with certain corporate staff and administrative services, the Company charges a fee approximating .8 percent of MascoTech net sales. This fee approximated $9 million in 1995 and $11 million in both 1994 and 1993 and is included as a reduction of general corporate expense. The following table presents information about the Company by geographic area: <TABLE> <CAPTION> (IN THOUSANDS) NET SALES(1) OPERATING PROFIT ASSETS AT DECEMBER 31 ------------------------------------ ------------------------------ ------------------------------------ 1995 1994 1993 1995 1994 1993 1995 1994 1993 ---------- ---------- ---------- -------- -------- -------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> The Company's operations by geographic area were: United States....... $2,309,000 $2,106,000 $1,799,000 $400,000 $427,000 $348,000 $1,525,000 $1,312,000 $1,147,000 European Union........ 486,000 336,000 310,000 86,000 74,000 64,000 413,000 352,000 197,000 Other foreign countries.... 132,000 141,000 134,000 7,000 10,000 8,000 98,000 88,000 75,000 ---------- ---------- ---------- -------- -------- -------- ---------- ---------- ---------- Total...... $2,927,000 $2,583,000 $2,243,000 493,000 511,000 420,000 2,036,000 1,752,000 1,419,000 ========== ========== ========== Other (income) expense, net..... 51,000 138,000 (3,000) General corporate expense, net..... 90,000 80,000 74,000 -------- -------- -------- Income from continuing operations before income taxes(2)......... $352,000 $293,000 $349,000 ======== ======== ======== Equity and other investments in affiliates....... 265,000 242,000 347,000 Corporate assets... 425,000 454,000 493,000 Discontinued operations....... 1,053,000 1,729,000 1,606,000 ---------- ---------- ---------- Total assets... $3,779,000 $4,177,000 $3,865,000 ========== ========== ========== </TABLE> (1) Included in net sales in 1995, 1994 and 1993 are export sales from the U.S. of $40.9 million, $45.5 million and $36.1 million, respectively. (2) Income from continuing operations before income taxes and net income pertaining to continuing foreign operations for 1995, 1994 and 1993 were $96 million and $52 million, $94 million and $56 million, and $79 million and $43 million, respectively. 30
32 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) OTHER INCOME (EXPENSE), NET <TABLE> <CAPTION> (IN THOUSANDS) 1995 1994 1993 -------- --------- -------- <S> <C> <C> <C> Re: MascoTech, Inc.: Equity earnings (loss)....................... $ 18,200 $(106,110) $ 13,160 -------- --------- -------- Interest and dividend income................. -- -- 16,220 -------- --------- -------- Gain from redemption of preferred stock...... -- -- 28,300 -------- --------- -------- Equity earnings, other affiliates.............. 8,010 6,630 5,530 -------- --------- -------- Other, net: Income from cash and marketable securities... 3,700 2,150 3,110 Other interest income........................ 4,500 4,950 7,160 Other items.................................. (11,160) 15,990 (5,730) -------- --------- -------- (2,960) 23,090 4,540 -------- --------- -------- Interest expense............................... (73,800) (61,530) (64,780) -------- --------- -------- $(50,550) $(137,920) $ 2,970 ======== ========= ======== </TABLE> Interest expense is presented net of interest expense allocated to discontinued operations of $44.0 million, $43.2 million and $41.0 million in 1995, 1994 and 1993, respectively. Equity earnings from MascoTech for 1994 were $32 million, prior to the Company's pre-tax equity share of MascoTech's non-cash 1994 fourth quarter charge. Other items in 1995 include a $15.9 million gain from the sale of the Company's investment in Formica Corporation; this gain was offset primarily by charges for product line disposals. 31
33 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INCOME TAXES <TABLE> <CAPTION> (IN THOUSANDS) 1995 1994 1993 -------- -------- -------- <S> <C> <C> <C> Income from continuing operations before income taxes: Domestic................................... $256,190 $199,000 $270,550 Foreign.................................... 95,600 93,830 78,640 -------- -------- -------- $351,790 $292,830 $349,190 ======== ======== ======== Provision for income taxes: Currently payable: Federal.................................... $ 84,230 $106,550 $ 89,070 State and local............................ 14,740 13,950 9,580 Foreign.................................... 34,530 31,550 39,040 Deferred: Federal.................................... 9,300 (38,510) (780) Foreign.................................... 8,940 6,580 (2,930) -------- -------- -------- $151,740 $120,120 $133,980 ======== ======== ======== Deferred tax assets at December 31: Intangibles................................... $ 29,340 $ 31,810 Inventories................................... 8,910 11,540 Accrued liabilities........................... 40,430 21,990 Other, principally equity investments......... 50,000 57,770 -------- -------- 128,680 123,110 -------- -------- Deferred tax liabilities at December 31: Property and equipment........................ 102,550 88,270 Other......................................... 25,860 16,330 -------- -------- 128,410 104,600 -------- -------- Net deferred tax asset at December 31...... $ 270 $ 18,510 ======== ======== </TABLE> Net deferred tax asset at December 31, 1995 and 1994 consists of net short-term deferred tax assets of $44.3 million and $28.2 million, respectively, and net long-term deferred tax liabilities of $44.0 million and $9.7 million, respectively. A potential deferred tax asset of approximately $230 million from the anticipated loss on disposition of the Company's home furnishings products segment was not recorded due to the likelihood that such loss will be capital in nature and that the Company is unable to quantify the portion of such capital loss benefit which may ultimately be realizable. 32
34 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INCOME TAXES -- (CONCLUDED) The following is a reconciliation of the U.S. federal statutory rate to the effective tax rate allocated to income from continuing operations before income tax: <TABLE> <CAPTION> 1995 1994 1993 ---- ---- ---- <S> <C> <C> <C> U.S. federal statutory rate........................... 35% 35% 35% State and local taxes, net of federal tax benefit..... 3 3 1 Higher taxes on foreign earnings...................... 5 4 3 Dividends-received deduction.......................... -- (2) (1) Amortization in excess of tax......................... 1 1 1 Other, net............................................ (1) -- (1) ---- ---- ---- Effective tax rate on income from continuing operations....................................... 43% 41% 38% ==== ==== ==== </TABLE> Income taxes paid were approximately $170 million, $175 million and $135 million in 1995, 1994 and 1993, respectively. Amounts paid include taxes on discontinued operations. Earnings of foreign subsidiaries generally become taxable upon the remittance of dividends and under certain other circumstances. Provision has not been made for U.S. or additional foreign taxes on approximately $81 million of remaining undistributed earnings of foreign subsidiaries, as those earnings are intended to be permanently reinvested; it is not practical to estimate the amount of deferred tax liability on such earnings. 33
35 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) COMBINED FINANCIAL STATEMENTS (UNAUDITED) The following presents the combined financial statements of the Company, MascoTech, Inc. and TriMas Corporation as one entity, with Masco Corporation as the parent company. The December 31, 1994 balance sheet and statements of operations and cash flows for 1994 and 1993 have been reclassified to present the Company's home furnishings products segment as discontinued operations. Intercompany transactions have been eliminated. Amounts, except earnings per share, are in thousands. <TABLE> <CAPTION> AT DECEMBER 31 ------------------------ 1995 1994 ---------- ---------- <S> <C> <C> COMBINED BALANCE SHEET Assets Current assets: Cash and cash investments........................... $ 169,240 $ 206,150 Marketable securities............................... 4,120 72,020 Receivables......................................... 727,300 647,360 Prepaid expenses.................................... 52,160 74,990 Deferred income taxes............................... 95,650 52,000 Net current assets of businesses held for disposition...................................... 62,410 146,690 Inventories: Raw material..................................... 230,290 229,670 Finished goods................................... 198,680 187,100 Work in process.................................. 142,700 124,750 ---------- ---------- 571,670 541,520 ---------- ---------- Total current assets........................... 1,682,550 1,740,730 Equity investments in affiliates...................... 199,330 149,220 Property and equipment................................ 1,496,840 1,304,360 Excess of cost over acquired net assets............... 618,190 548,550 Net non-current assets of businesses held for disposition......................................... 104,510 232,370 Net assets of discontinued operations................. 1,052,670 1,728,960 Other assets.......................................... 390,300 366,820 ---------- ---------- Total assets................................... $5,544,390 $6,071,010 ========== ========== Liabilities and Shareholders' Equity Current liabilities: Notes payable....................................... $ 31,050 $ 42,610 Accounts payable.................................... 249,330 244,000 Accrued liabilities................................. 406,570 366,560 ---------- ---------- Total current liabilities...................... 686,950 653,170 Long-term debt........................................ 2,466,210 2,694,000 Deferred income taxes and other....................... 271,030 184,580 Other interests in combined affiliates................ 464,770 420,930 ---------- ---------- Total liabilities.............................. 3,888,960 3,952,680 Equity of shareholders of Masco Corporation........... 1,655,430 2,118,330 ---------- ---------- Total liabilities and shareholders' equity..... $5,544,390 $6,071,010 ========== ========== </TABLE> 34
36 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) COMBINED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED) <TABLE> <CAPTION> YEARS ENDED DECEMBER 31 ----------------------------------------- 1995 1994 1993 ----------- ----------- ----------- <S> <C> <C> <C> COMBINED STATEMENT OF OPERATIONS Net sales............................... $ 5,141,160 $ 4,807,560 $ 4,258,330 Cost of sales........................... (3,598,140) (3,307,870) (2,924,090) Selling, general and administrative expenses.............................. (938,480) (855,390) (772,280) Gains (charge) on disposition of businesses, net....................... 5,290 (400,000) -- ----------- ----------- ----------- Operating profit................. 609,830 244,300 561,960 ----------- ----------- ----------- Other income (expense), net: Interest expense...................... (137,230) (124,290) (148,570) Other, net............................ 26,990 81,070 48,520 ----------- ----------- ----------- (110,240) (43,220) (100,050) ----------- ----------- ----------- Income from continuing operations before income taxes and other interests..................... 499,590 201,080 461,910 Income taxes............................ 230,850 118,230 201,410 Other interests in combined affiliates............................ 68,690 (89,860) 45,290 ----------- ----------- ----------- Income from continuing operations.................... 200,050 172,710 215,210 ----------- ----------- ----------- Discontinued operations (net of income taxes): Income from operations of discontinued segment............................ 8,270 20,990 5,890 Loss on disposition, net.............. (650,000) -- -- ----------- ----------- ----------- Net income (loss)................ $ (441,680) $ 193,700 $ 221,100 =========== =========== =========== Earnings (loss) per share: Continuing operations................. $ 1.25 $1.09 $1.41 Discontinued operations: Income from operations of discontinued segment............. .05 .13 .04 Loss on disposition, net........... (4.07) -- -- ------ ----- ----- Earnings (loss) per share........ $(2.77) $1.22 $1.45 ====== ===== ===== </TABLE> 35
37 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) COMBINED FINANCIAL STATEMENTS (UNAUDITED) -- (CONCLUDED) <TABLE> <CAPTION> YEARS ENDED DECEMBER 31 ------------------------------------- 1995 1994 1993 --------- --------- ----------- <S> <C> <C> <C> COMBINED STATEMENT OF CASH FLOWS Cash Flows From (For) Operating Activities: Income from continuing operations........ $ 200,050 $ 172,710 $ 215,210 Depreciation and amortization............ 158,640 161,170 149,730 Equity earnings, net of dividends........ (5,860) (6,850) (4,790) Gain from change in investment........... (5,100) -- (9,490) Deferred income taxes and other.......... 75,130 (96,480) 12,380 (Gains) charge on disposition of businesses, net....................... (5,290) 400,000 -- Other interests in net income (loss) of combined affiliates, net.............. 68,690 (89,860) 45,290 --------- --------- ----------- Total from earnings................. 486,260 540,690 408,330 (Increase) in receivables................ (83,240) (70,970) (30,830) (Increase) in inventories................ (15,250) (66,150) (9,530) Increase in accounts payable and accrued liabilities, net...................... 28,640 72,220 29,060 Discontinued operations, net............. 62,560 5,790 (6,610) --------- --------- ----------- Net cash from operating activities....................... 478,970 481,580 390,420 --------- --------- ----------- Cash Flows From (For) Investing Activities: Capital expenditures..................... (284,350) (261,320) (181,840) Acquisitions, net of cash acquired....... (23,850) (126,830) -- Proceeds from the sale of Formica investment............................ 74,470 -- -- Currency translation adjustments......... 8,420 12,150 (14,120) Proceeds from sale of subsidiaries....... 122,190 41,220 33,170 Net assets of businesses held for disposition........................... (4,030) -- -- Other, net............................... 45,550 (71,090) 56,670 Discontinued operations, net............. (38,290) (78,290) (85,690) --------- --------- ----------- Net cash (for) investing activities....................... (99,890) (484,160) (191,810) --------- --------- ----------- Cash Flows From (For) Financing Activities: Increase in debt......................... 577,290 659,680 862,550 Payment of debt.......................... (855,250) (406,800) (1,020,020) Issuance of preferred stock.............. -- -- 209,520 Repurchase of common stock............... (13,130) (115,860) -- Cash dividends paid...................... (137,380) (128,150) (106,360) Discontinued operations, net............. 12,480 (48,250) (67,130) --------- --------- ----------- Net cash (for) financing activities....................... (415,990) (39,380) (121,440) --------- --------- ----------- Cash and Cash Investments: Increase (decrease) for the year......... (36,910) (41,960) 77,170 At January 1............................. 206,150 248,110 170,940 --------- --------- ----------- At December 31........................... $ 169,240 $ 206,150 $ 248,110 ========= ========= ========== </TABLE> 36
38 MASCO CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONCLUDED) INTERIM FINANCIAL INFORMATION (UNAUDITED) <TABLE> <CAPTION> (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) QUARTERS ENDED --------------------------------------------------- DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31 ----------- ------------ -------- -------- <S> <C> <C> <C> <C> 1995: Net sales...................... $ 754,000 $738,000 $714,000 $721,000 Gross profit................... $ 256,950 $276,670 $264,880 $282,170 Income from continuing operations: Income.................... $ 10,650 $ 62,070 $ 57,410 $ 69,920 Income per share.......... $.06 $.39 $.36 $.44 Net income (loss): Income (loss)............. $(646,580) $ 67,100 $ 63,400 $ 74,400 Income (loss) per share... $(4.06) $.42 $.40 $.47 1994: Net sales...................... $ 644,000 $671,000 $647,000 $621,000 Gross profit................... $ 250,200 $264,870 $248,100 $245,730 Income (loss) from continuing operations: Income (loss)............. $ (15,870) $ 64,190 $ 63,610 $ 60,780 Income (loss) per share... $(.10) $.40 $.40 $.39 Net income (loss): Income (loss)............. $ (13,800) $ 72,100 $ 70,100 $ 65,300 Income (loss) per share... $(.09) $.45 $.44 $.42 </TABLE> Fourth quarter 1995 net loss and loss per share reflect the Company's $650 million non-cash pre-tax and after-tax charge for the disposition of its home furnishings products segment. Quarterly net sales and gross profit amounts for 1995 and 1994 exclude net sales and gross profit of the Company's home furnishings products segment, which the Company classified as discontinued operations during the fourth quarter of 1995. Net sales and gross profit of the Company's home furnishings products segment for the 1995 quarters ended March 31, June 30, September 30 and December 31 were $505 million and $128.4 million, $494 million and $121.2 million, $497 million and $115.5 million and $518 million and $123.8 million, respectively. Net sales and gross profit of the Company's home furnishings products segment for the 1994 quarters ended March 31, June 30, September 30 and December 31 were $429 million and $106.3 million, $473 million and $118.4 million, $479 million and $117.8 million and $504 million and $114.8 million, respectively. Fourth quarter 1994 loss from continuing operations and net loss and their respective per share amounts reflect the Company's equity share of MascoTech's non-cash fourth quarter charge associated with the planned disposition of its non-core businesses. 37
39 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information regarding executive officers required by this Item is set forth as a Supplementary Item at the end of Part I hereof (pursuant to Instruction 3 to Item 401(b) of Regulation S-K). Other information required by this Item will be contained in the Company's definitive Proxy Statement for its 1996 Annual Meeting of Stockholders, to be filed on or before April 29, 1996, and such information is incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. Information required by this Item will be contained in the Company's definitive Proxy Statement for its 1996 Annual Meeting of Stockholders, to be filed on or before April 29, 1996, and such information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Information required by this Item will be contained in the Company's definitive Proxy Statement for its 1996 Annual Meeting of Stockholders, to be filed on or before April 29, 1996, and such information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information required by this Item will be contained in the Company's definitive Proxy Statement for its 1996 Annual Meeting of Stockholders, to be filed on or before April 29, 1996, and such information is incorporated herein by reference. 38
40 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (A) LISTING OF DOCUMENTS. (1) Financial Statements. The Company's Consolidated Financial Statements included in Item 8 hereof, as required at December 31, 1995 and 1994, and for the years ended December 31, 1995, 1994 and 1993, consist of the following: Consolidated Balance Sheet Consolidated Statement of Operations Consolidated Statement of Cash Flows Notes to Consolidated Financial Statements (2) Financial Statement Schedules. (i) Financial Statement Schedule of the Company appended hereto, as required for the years ended December 31, 1995, 1994 and 1993, consists of the following: II. Valuation and Qualifying Accounts (ii) (A) MascoTech, Inc. and Subsidiaries Consolidated Financial Statements appended hereto, as required at December 31, 1995 and 1994, and for the years ended December 31, 1995, 1994 and 1993, consist of the following: Consolidated Balance Sheet Consolidated Statement of Operations Consolidated Statement of Cash Flows Notes to Consolidated Financial Statements (ii) (B) MascoTech, Inc. and Subsidiaries Financial Statement Schedule appended hereto, as required for the years ended December 31, 1995, 1994 and 1993, consists of the following: II. Valuation and Qualifying Accounts (3) Exhibits. 3.i Restated Certificate of Incorporation of Masco Corporation and amendments thereto. 3.ii Bylaws of Masco Corporation, as amended.(4) 4.a.i Indenture dated as of December 1, 1982 between Masco Corporation and Morgan Guaranty Trust Company of New York, as Trustee(8), and Directors' resolutions establishing Masco Corporation's: (i) 9% Notes Due April 15, 1996(6), (ii) 9% Notes Due October 1, 2001(8), (iii) 6 1/4% Notes Due June 15, 1995(6), (iv) 6 5/8% Notes Due September 15, 1999(6), 6 1/8% Notes Due September 15, 2003(5), and (vi) 7 1/8% Debentures Due August 15, 2013.(5) 4.a.ii Agreement of Appointment and Acceptance of Successor Trustee dated as of July 25, 1994 among Masco Corporation, Morgan Guaranty Trust Company of New York and The First National Bank of Chicago.(3) 4.a.iii Supplemental Indenture dated as of July 26, 1994 between Masco Corporation and The First National Bank of Chicago.(3) 4.b Indenture dated as of December 1, 1982 between Masco Corporation and Citibank, N.A., as Trustee, and Directors' resolutions establishing Masco Corporation's 5 1/4% Convertible Subordinated Debentures Due 2012, including form of Debenture.(8) 39
41 4.c $750,000,000 Amended and Restated Credit Agreement dated as of May 18, 1994 among Masco Corporation, the banks signatory thereto and Morgan Guaranty Trust Company of New York, as agent(3), Amendment No. 1 thereto dated as of June 1, 1995(1), Amendment No. 2 thereto dated as of November 30, 1995 and Amendment No. 3 thereto dated as of January 31, 1996. 4.d Indenture dated as of November 1, 1986 between Masco Industries, Inc. (now known as MascoTech, Inc.) and Morgan Guaranty Trust Company of New York, as Trustee, and Directors' resolutions establishing Masco Industries, Inc.'s 4 1/2% Convertible Subordinated Debentures Due 2003(4), Agreement of Appointment and Acceptance of Successor Trustee dated as of August 4, 1994 among MascoTech, Inc., Morgan Guaranty Trust Company of New York and The First National Bank of Chicago and Supplemental Indenture dated as of August 5, 1994 among MascoTech, Inc. and The First National Bank of Chicago.(2) 4.e Credit Agreement dated as of September 2, 1993 by and among MascoTech, Inc., the banks party thereto, and NBD Bank, N.A. (now known as NBD Bank), as Agent, and Comerica Bank, The Bank of New York, The First National Bank of Chicago, Morgan Guaranty Trust Company of New York and NationsBank of North Carolina, N.A., as Co-Agents(4), First Amendment thereto dated June 29, 1994(2), Second Amendment thereto dated December 21, 1994 and Third Amendment thereto dated as of September 28, 1995. 4.f Rights Agreement dated as of December 6, 1995 between Masco Corporation and The Bank of New York, as Rights Agent. NOTE: Other instruments, notes or extracts from agreements defining the rights of holders of long-term debt of Masco Corporation or its subsidiaries have not been filed since (i) in each case the total amount of long-term debt permitted thereunder does not exceed 10 percent of Masco Corporation's consolidated assets, and (ii) such instruments, notes and extracts will be furnished by Masco Corporation to the Securities and Exchange Commission upon request. 10.a Assumption and Indemnification Agreement dated as of May 1, 1984 between Masco Corporation and Masco Industries, Inc. (now known as MascoTech, Inc.). 10.b Corporate Services Agreement dated as of January 1, 1987 between Masco Corporation and Masco Industries, Inc. (now known as MascoTech, Inc.).(6) 10.c Corporate Opportunities Agreement dated as of May 1, 1984 between Masco Corporation and Masco Industries, Inc. (now known as MascoTech, Inc.). 10.d Stock Repurchase Agreement dated as of May 1, 1984 between Masco Corporation and Masco Industries, Inc. (now known as MascoTech, Inc.) and related forfeiture letter dated September 20, 1985, Amendment to Stock Repurchase Agreement dated as of December 20, 1990(8) and Agreement dated as of November 23, 1993 including an amendment to Stock Repurchase Agreement.(4) NOTE: Exhibits 10.e through 10.p constitute the management contracts and executive compensatory plans or arrangements in which certain of the Directors and executive officers of the Company participate. 10.e Masco Corporation 1991 Long-Term Stock Incentive Plan (Restated December 6, 1995). 10.f Masco Corporation 1988 Restricted Stock Incentive Plan (Restated December 6, 1995). 40
42 10.g Masco Corporation 1988 Stock Option Plan (Restated December 6, 1995). 10.h Masco Corporation 1984 Restricted Stock (Industries) Incentive Plan (Restated December 6, 1995). 10.i Masco Corporation 1984 Stock Option Plan (Restated December 6, 1995). 10.j Masco Corporation Restricted Stock Incentive Plan (Restated December 6, 1995). 10.k MascoTech, Inc. 1991 Long-Term Stock Incentive Plan (Restated December 6, 1995). 10.l MascoTech, Inc. 1984 Restricted Stock Incentive Plan (Restated December 6, 1995). 10.m MascoTech, Inc. 1984 Stock Option Plan (Restated December 6, 1995). 10.n Masco Corporation Supplemental Executive Retirement and Disability Plan.(2) 10.o Masco Corporation Benefits Restoration Plan.(2) 10.p Form of Agreement dated June 29, 1989 between Masco Corporation and certain of its officers.(4) 10.q Amended and Restated Securities Purchase Agreement dated as of November 23, 1993 between Masco Corporation and MascoTech, Inc., including form of Note.(4) 10.r Registration Agreement dated as of March 31, 1993 between Masco Corporation and Masco Industries, Inc. (now known as MascoTech, Inc.).(4) 10.s Stock Purchase Agreement between Masco Corporation and Masco Industries, Inc. (now known as MascoTech, Inc.) dated as of December 23, 1991 (regarding Masco Capital Corporation).(8) 11 Computation of Primary and Fully Diluted Per Share Earnings. 12 Computation of Ratio of Earnings to Fixed Charges. 21 List of Subsidiaries. 23.a Consent of Coopers & Lybrand L.L.P. relating to Masco Corporation's Financial Statements and Financial Statement Schedule. 23.b Consent of Coopers & Lybrand L.L.P. relating to MascoTech, Inc.'s Financial Statements and Financial Statement Schedule. 27 Financial Data Schedule. - --------------- (1) Incorporated by reference to the Exhibits filed with Masco Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. (2) Incorporated by reference to the Exhibits filed with Masco Corporation's Annual Report on Form 10-K for the year ended December 31, 1994. (3) Incorporated by reference to the Exhibits filed with Masco Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994. (4) Incorporated by reference to the Exhibits filed with Masco Corporation's Annual Report on Form 10-K for the year ended December 31, 1993. (5) Incorporated by reference to the Exhibits filed with Masco Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993. (6) Incorporated by reference to the Exhibits filed with Masco Corporation's Annual Report on Form 10-K for the year ended December 31, 1992. (7) Incorporated by reference to the Exhibits filed with Masco Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1991. (8) Incorporated by reference to the Exhibits filed with Masco Corporation's Annual Report on Form 10-K for the year ended December 31, 1991. 41
43 THE COMPANY WILL FURNISH ITS STOCKHOLDERS A COPY OF ANY OF THE ABOVE EXHIBITS NOT INCLUDED HEREIN UPON THE WRITTEN REQUEST OF SUCH STOCKHOLDER AND THE PAYMENT TO THE COMPANY OF THE REASONABLE EXPENSES INCURRED BY THE COMPANY IN FURNISHING SUCH COPY OR COPIES. (B) REPORTS ON FORM 8-K. The following Current Reports on Form 8-K were filed by Masco Corporation during the quarters ended December 31, 1995 and March 31, 1996: 1. Current Report on Form 8-K dated November 22, 1995 reporting under Item 5. "Other Events" the Company's agreement to sell its home furnishings group. 2. Current Report on Form 8-K dated December 21, 1995 reporting under Item 5. "Other Events" the Company's declaration of a dividend of one preferred stock purchase right for each outstanding share of common stock of the Company, payable to holders of record as of the close of business on December 18, 1995. 3. Current Report on Form 8-K dated January 4, 1996 reporting under Item 5. "Other Events" the termination of Morgan Stanley Capital Partners' participation in the purchase of the Company's home furnishings group. 42
44 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. MASCO CORPORATION By /s/ RICHARD G. MOSTELLER ------------------------------------ RICHARD G. MOSTELLER Senior Vice President -- Finance March 28, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. <TABLE> <C> <S> <C> PRINCIPAL EXECUTIVE OFFICER: /s/ RICHARD A. MANOOGIAN Chairman of the Board - ------------------------------------- and Chief Executive Officer RICHARD A. MANOOGIAN PRINCIPAL FINANCIAL OFFICER: /s/ RICHARD G. MOSTELLER Senior Vice President -- Finance - ------------------------------------- RICHARD G. MOSTELLER PRINCIPAL ACCOUNTING OFFICER: /s/ ROBERT B. ROSOWSKI Vice President -- Controller - ------------------------------------- ROBERT B. ROSOWSKI /s/ WAYNE B. LYON President and Director March 28, 1996 - ------------------------------------- WAYNE B. LYON /s/ LILLIAN BAUDER Director - ------------------------------------- LILLIAN BAUDER /s/ ERWIN L. KONING Director - ------------------------------------- ERWIN L. KONING /s/ JOHN A. MORGAN Director - ------------------------------------- JOHN A. MORGAN /s/ ARMAN SIMONE Director - ------------------------------------- ARMAN SIMONE /s/ PETER W. STROH Director - ------------------------------------- PETER W. STROH </TABLE> 43
45 MASCO CORPORATION FINANCIAL STATEMENT SCHEDULES PURSUANT TO ITEM 14(A)(2) OF FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION Schedules, as required, for the years ended December 31, 1995, 1994 and 1993: <TABLE> <CAPTION> PAGE ----- <S> <C> II. Valuation and Qualifying Accounts................................................ F-2 MascoTech, Inc. and Subsidiaries Consolidated Financial Statements and Financial Statement Schedule..................................................... F-3 </TABLE> F-1
46 MASCO CORPORATION SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 <TABLE> <CAPTION> COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - ------------------------------- ----------- -------------------------- ----------- ----------- ADDITIONS -------------------------- CHARGED BALANCE AT CHARGED (CREDITED) BALANCE AT BEGINNING TO COSTS TO OTHER END OF DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS PERIOD - ------------------------------- ----------- ------------ ---------- ----------- ----------- (A) (B) <S> <C> <C> <C> <C> <C> Allowance for doubtful accounts, deducted from accounts receivable in the balance sheet: 1995.................... $12,050,000 $6,450,000 $ 80,000 $(2,320,000) $16,260,000 =========== ========== ========== =========== =========== 1994.................... $ 9,010,000 $4,380,000 $1,230,000 $(2,570,000) $12,050,000 =========== ========== ========== =========== =========== 1993.................... $ 8,700,000 $5,810,000 $ (280,000) $(5,220,000) $ 9,010,000 =========== ========== ========== =========== =========== </TABLE> NOTES: (A) Allowance of companies acquired and companies disposed of, net. (B) Deductions, representing uncollectible accounts written off, less recoveries of accounts written off in prior years. F-2
47 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of MascoTech, Inc.: We have audited the accompanying consolidated balance sheet of MascoTech, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of operations and cash flows for each of the three years in the period ended December 31, 1995, and the financial statement schedule as listed in Item 14(a)(2)(ii) of this Form 10-K. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of MascoTech, Inc. and subsidiaries as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Detroit, Michigan February 23, 1996 F-3
48 MASCOTECH, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 1995 AND 1994 <TABLE> <CAPTION> ASSETS 1995 1994 -------------- -------------- <S> <C> <C> Current assets: Cash and cash investments................................... $ 16,380,000 $ 61,950,000 Marketable securities....................................... 4,120,000 62,110,000 Receivables................................................. 216,490,000 171,870,000 Inventories................................................. 94,420,000 91,950,000 Deferred and refundable income taxes........................ 51,300,000 23,800,000 Prepaid expenses and other assets........................... 21,630,000 39,800,000 Net current assets of businesses held for disposition....... 62,410,000 146,690,000 -------------- -------------- Total current assets................................... 466,750,000 598,170,000 Equity and other investments in affiliates.................... 237,530,000 173,230,000 Property and equipment, net................................... 466,450,000 379,330,000 Excess of cost over net assets of acquired companies.......... 115,750,000 93,820,000 Notes receivable and other assets............................. 47,780,000 53,770,000 Net non-current assets of businesses held for disposition..... 104,510,000 232,370,000 -------------- -------------- Total assets........................................... $1,438,770,000 $1,530,690,000 ============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable............................................ $ 99,710,000 $ 111,860,000 Accrued liabilities......................................... 82,400,000 72,090,000 Current portion of long-term debt........................... 5,150,000 3,670,000 -------------- -------------- Total current liabilities.............................. 187,260,000 187,620,000 Long-term debt................................................ 701,910,000 868,240,000 Deferred income taxes and other long-term liabilities......... 134,420,000 93,690,000 -------------- -------------- Total liabilities...................................... 1,023,590,000 1,149,550,000 -------------- -------------- Shareholders' equity: Preferred stock, $1 par: Authorized: 25 million; Outstanding: 10.8 million (liquidation value -- $216 million)............................................ 10,800,000 10,800,000 Common stock, $1 par: Authorized: 250 million; Outstanding: 55.5 million and 56.6 million............................ 55,520,000 56,610,000 Paid-in capital............................................. 307,910,000 318,960,000 Retained earnings (deficit)................................. 32,380,000 (7,590,000) Cumulative translation adjustments.......................... 8,570,000 2,360,000 -------------- -------------- Total shareholders' equity............................. 415,180,000 381,140,000 -------------- -------------- Total liabilities and shareholders' equity............. $1,438,770,000 $1,530,690,000 ============== ============== </TABLE> The accompanying notes are an integral part of the consolidated financial statements. F-4
49 MASCOTECH, INC. CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 <TABLE> <CAPTION> 1995 1994 1993 --------------- --------------- --------------- <S> <C> <C> <C> Net sales................................... $ 1,678,210,000 $ 1,702,260,000 $ 1,582,880,000 Cost of sales............................... (1,397,880,000) (1,385,430,000) (1,257,480,000) --------------- -------------- --------------- Gross profit........................... 280,330,000 316,830,000 325,400,000 Selling, general and administrative expenses.................................. (176,810,000) (194,680,000) (179,680,000) Gains (charge) on disposition of businesses, net....................................... 5,290,000 (400,000,000) -- --------------- -------------- --------------- Operating profit (loss)................ 108,810,000 (277,850,000) 145,720,000 --------------- --------------- --------------- Other income (expense), net: Interest expense.......................... (49,900,000) (49,830,000) (81,360,000) Equity and interest income from affiliates............................. 31,420,000 29,810,000 21,000,000 Gain from change in investment of an equity affiliate....................... 5,100,000 -- 9,490,000 Other, net................................ 4,850,000 33,380,000 26,330,000 --------------- --------------- --------------- (8,530,000) 13,360,000 (24,540,000) --------------- --------------- --------------- Income (loss) from continuing operations before income taxes (credit) and extraordinary item...... 100,280,000 (264,490,000) 121,180,000 Income taxes (credit)....................... 41,090,000 (30,070,000) 50,290,000 --------------- --------------- --------------- Income (loss) from continuing operations before extraordinary item................................. 59,190,000 (234,420,000) 70,890,000 Discontinued energy operations (net of income taxes): Income from operations of discontinued energy segment....................... -- -- 2,630,000 Gain (loss) on disposition............. -- 11,700,000 (22,270,000) --------------- --------------- --------------- Income (loss) before extraordinary item................................. 59,190,000 (222,720,000) 51,250,000 Extraordinary income (loss) (net of income taxes)............................. -- 2,600,000 (3,650,000) --------------- --------------- --------------- Net income (loss)...................... $ 59,190,000 $ (220,120,000) $ 47,600,000 =============== =============== =============== Preferred stock dividends................... $ 12,960,000 $ 12,960,000 $ 14,930,000 =============== =============== =============== Earnings (loss) attributable to common stock......................... $ 46,230,000 $ (233,080,000) $ 32,670,000 =============== =============== =============== </TABLE> <TABLE> <CAPTION> 1993 ------------------ ASSUMING 1995 1994 FULL PRIMARY PRIMARY PRIMARY DILUTION --------------- --------------- ------- -------- <S> <C> <C> <C> <C> Earnings (loss) per common and common equivalent share: Continuing operations................. $.81 $(4.20) $ .97 $.91 Discontinued energy operations: Income from operations of discontinued energy segment................... -- -- .05 .04 Gain (loss) on disposition.......... -- .20 (.39) * ---- ------ ------ ------ Income (loss) before extraordinary item................................ .81 (4.00) .63 .63 Extraordinary income (loss)........... -- .04 (.06) * ---- ------ ------ ------ Earnings (loss) attributable to common stock............................... $.81 $(3.96) $ .57 $.57 ==== ====== ====== ====== </TABLE> * Anti-dilutive The accompanying notes are an integral part of the consolidated financial statements. F-5
50 MASCOTECH, INC. CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 <TABLE> <CAPTION> 1995 1994 1993 ------------- ------------- ------------- <S> <C> <C> <C> CASH FROM (USED FOR): OPERATING ACTIVITIES: Net income (loss)............................. $ 59,190,000 $(220,120,000) $ 47,600,000 Adjustments to reconcile net income (loss) to net cash provided by operating activities, excluding reclassification of businesses held for disposition: (Gains) charge on disposition of businesses, net.......................... (5,290,000) 400,000,000 -- Gain from change in investment of an equity affiliate................................ (5,100,000) -- (9,490,000) Gains from sales of TriMas common stock.... -- (17,900,000) -- Depreciation and amortization.............. 47,070,000 66,760,000 59,810,000 Equity earnings, net of dividends.......... (23,360,000) (23,720,000) (12,000,000) Increase (decrease) in deferred taxes...... 51,330,000 (67,760,000) 15,590,000 Decrease (increase) in marketable securities, net.......................... 57,990,000 (34,320,000) 2,980,000 (Increase) in receivables.................. (21,910,000) (37,940,000) (5,900,000) Decrease (increase) in inventories......... 4,650,000 (23,390,000) (2,990,000) (Increase) in prepaid expenses and other current assets........................... (1,900,000) (32,860,000) (11,650,000) (Decrease) increase in accounts payable and accrued liabilities...................... (9,070,000) 65,330,000 (5,900,000) Other, net, including extraordinary item... 2,390,000 (6,000,000) 8,180,000 Net assets of businesses held for disposition, net......................... 2,190,000 (30,410,000) 16,700,000 ------------- ------------- ------------- Net cash from operating activities....... 158,180,000 37,670,000 102,930,000 ------------- ------------- ------------- FINANCING ACTIVITIES: Issuance of convertible debt.................. -- 337,240,000 -- Increase in other debt........................ 79,460,000 82,730,000 -- Payment or repurchase of other debt........... (253,770,000) (349,230,000) (150,020,000) Issuance of preferred stock................... -- -- 209,520,000 Retirement of Company Common Stock............ (13,130,000) (54,130,000) -- Retirement of preferred stock................. -- -- (100,000,000) Payment of dividends.......................... (21,000,000) (18,980,000) (16,020,000) Other, net.................................... (2,250,000) (5,010,000) 3,770,000 ------------- ------------- ------------- Net cash used for financing activities... (210,690,000) (7,380,000) (52,750,000) ------------- ------------- ------------- INVESTING ACTIVITIES: Cash received from sales of TriMas securities................................. -- 18,180,000 -- Cash paid Masco Corporation................... -- -- (87,500,000) Cash received from sale of businesses......... 122,190,000 41,220,000 93,450,000 Acquisition of businesses..................... (23,850,000) -- -- Capital expenditures.......................... (95,800,000) (115,220,000) (59,540,000) Receipt of cash from notes receivable......... 6,570,000 14,640,000 14,000,000 Other, net.................................... 1,860,000 (10,360,000) (3,390,000) Net assets of businesses held for disposition, net........................................ (4,030,000) -- -- ------------- ------------- ------------- Net cash from (used for) investing activities............................ 6,940,000 (51,540,000) (42,980,000) ------------- ------------- ------------- CASH AND CASH INVESTMENTS: (Decrease) increase for the year.............. (45,570,000) (21,250,000) 7,200,000 At January 1.................................. 61,950,000 83,200,000 76,000,000 ------------- ------------- ------------- At December 31........................... $ 16,380,000 $ 61,950,000 $ 83,200,000 ============= ============= ============= </TABLE> The accompanying notes are an integral part of the consolidated financial statements. F-6
51 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ACCOUNTING POLICIES: Principles of Consolidation. The consolidated financial statements include the accounts of the Company and all majority-owned subsidiaries. All significant intercompany transactions have been eliminated. Corporations that are 20 to 50 percent owned are accounted for by the equity method of accounting; ownership less than 20 percent is accounted for on the cost basis unless the Company exercises significant influence over the investee. Capital transactions by equity affiliates, which reduce the Company's ownership interest at amounts differing from the Company's carrying amount, are reflected in other income or expense and the investment in affiliates account. Certain amounts for the years ended December 31, 1994 and 1993 have been reclassified to conform to the presentation adopted in 1995. The consolidated balance sheet at December 31, 1995 and 1994 reflects the segregation of net current and net non-current assets related to the plan, adopted in late 1994, to dispose of certain businesses. The Company has a corporate services agreement with Masco Corporation, which at December 31, 1995 owned approximately 45 percent of the Company's Common Stock. Under the terms of the agreement, the Company pays fees to Masco Corporation for various corporate staff support and administrative services, research and development and facilities. Such fees, which are determined principally as a percentage of net sales, including net sales related to businesses held for disposition, aggregated approximately $9 million in 1995, and $11 million in each of 1994 and 1993. The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements. Such estimates and assumptions also affect the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from such estimates and assumptions. Cash and Cash Investments. The Company considers all highly liquid debt instruments with an initial maturity of three months or less to be cash and cash investments. The carrying amount reported in the balance sheet for cash and cash investments approximates fair value. Marketable Securities. The Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities", in 1994. At December 31, 1995 and 1994, marketable equity securities have been categorized as trading securities, and, as a result, are stated at fair value. Receivables. Receivables are presented net of allowances for doubtful accounts of approximately $1.9 million and $1.6 million at December 31, 1995 and 1994, respectively. Inventories. Inventories are stated at the lower of cost or net realizable value, with cost determined principally by use of the first-in, first-out method. Inventories include technical services work in process, at the lower of cost or net realizable value, totalling approximately $12 million at both December 31, 1995 and 1994. Property and Equipment, Net. Property and equipment additions, including significant betterments, are recorded at cost. Upon retirement or disposal of property and equipment, the cost and accumulated depreciation are removed from the accounts, and any gain or loss is included in income. Repair and maintenance costs are charged to expense as incurred. Depreciation and Amortization. Depreciation is computed principally using the straight-line method over the estimated useful lives of the assets. Annual depreciation rates are as follows: buildings and land improvements, 2 1/2 to 10 percent, and machinery and equipment, 6 2/3 to 33 1/3 percent. Deferred financing costs are amortized over the lives of the related debt securities. The excess of cost over net assets of acquired companies is amortized using the straight-line method over the period estimated to F-7
52 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) be benefitted, not exceeding 40 years. At each balance sheet date, management assesses whether there has been a permanent impairment of the excess of cost over net assets of acquired companies by comparing anticipated undiscounted future cash flows from operating activities with the carrying amount of the excess of cost over net assets of acquired companies. The factors considered by management in performing this assessment include current operating results, business prospects, market trends, potential product obsolescence, competitive activities and other economic factors. Based on this assessment, there was no permanent impairment related to the excess of cost over net assets of acquired companies not held for disposition at December 31, 1995. At December 31, 1995 and 1994, accumulated amortization of the excess of cost over net assets of acquired companies and patents was $42.3 million and $34.5 million, respectively. Amortization expense was $13.7 million, $22.9 million and $22.2 million in 1995, 1994 and 1993, respectively, including amortization expense of approximately $1.6 million in 1993 related to discontinued operations. Income Taxes. The Company records income taxes in accordance with Statement of Financial Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." SFAS 109 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company's financial statements or tax returns. In estimating future tax consequences, SFAS 109 generally allows consideration of all expected future events other than enactments of changes in the tax law or tax rates. A provision has not been made for U.S. or additional foreign taxes on approximately $38 million of undistributed earnings of foreign subsidiaries as those earnings are intended to be permanently reinvested. Generally, such earnings become taxable upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of deferred tax liability on such undistributed earnings. Earnings (Loss) Per Common Share. Primary earnings per common share are based on the weighted average shares of common stock and common stock equivalents outstanding (including the dilutive effect of options and warrants, utilizing the treasury stock method) of 57.1 million and 57.4 million in 1995 and 1993, respectively. Primary loss per common share in 1994 is based on 58.9 million weighted average shares of common stock outstanding. The effect of stock options and warrants on earnings per common share in 1994 would be anti-dilutive. Primary earnings (loss) per common share are calculated on earnings (loss) after deducting preferred stock dividends of $13.0 million, $13.0 million, and $14.9 million in 1995, 1994 and 1993, respectively. Fully diluted earnings per common share are only presented when the assumed conversion of convertible securities is dilutive. Fully diluted earnings per common share in 1993 was calculated based on 68.8 million weighted average common shares outstanding. Convertible securities did not have a dilutive effect on earnings (loss) per common share in 1995 or 1994. In late 1993, approximately 10.4 million common shares were issued as a result of the conversion of the 6% Convertible Subordinated Debentures (see "Shareholders' Equity" note). If such conversion had taken place at the beginning of 1993, the primary earnings per common and common equivalent share amounts would have approximated the amounts presented for earnings per common and common equivalent share, assuming full dilution, in 1993. Adoption of Statements of Financial Accounting Standards. The Company expects that Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock Based Compensation", will not have a material impact on the financial position or the results of operations of the Company when adopted in 1996. The Company expects to continue to account for employee stock based compensation under APB Opinion No. 25, "Accounting for Stock Issued to Employees" and present the proforma disclosures required by SFAS 123. The Company has estimated that the impact of F-8
53 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) adopting SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," will result in an after-tax gain (since the Company believes the fair value of the businesses being held for sale at January 1, 1996 exceeds the carrying value) in the range of $10 to $15 million recorded as a cumulative accounting change effective January 1, 1996. SUPPLEMENTARY CASH FLOWS INFORMATION: Significant transactions not affecting cash were: in 1995, in addition to cash received, approximately $34 million comprised of both notes receivable due from, and a 29 percent equity ownership interest in, the acquiring company, as consideration for a non-core business unit; in 1993, in addition to the payment by the Company of $87.5 million, the non-cash portion of the issuance of Company Preferred Stock and warrants in exchange for Company Common Stock, Company Preferred Stock and Masco Corporation's holdings of Emco Limited common stock and convertible debentures (see "Shareholders' Equity" note); conversion of $187 million of convertible debentures into Company Common Stock (see "Shareholders' Equity" note); and conversion of the Company's TriMas Corporation ("TriMas") convertible preferred stock holdings into TriMas common stock. Income taxes paid were $11 million, $28 million and $32 million in 1995, 1994 and 1993, respectively. Interest paid was $55 million, $61 million and $82 million in 1995, 1994 and 1993, respectively. DISPOSITIONS OF OPERATIONS: In late 1994, the Company adopted a plan to dispose, by sale or liquidation, a number of businesses, including its Architectural Products, Defense and certain of its Transportation-Related Products and Services businesses, as part of its long-term strategic plan to increase the focus on its core operating capabilities. The disposition of these businesses does not meet the criteria for discontinued operations treatment for accounting purposes; accordingly, the sales and results of operations of these businesses will be included in continuing operations until disposition. Through dates of sale, the businesses held for disposition had sales of approximately $468 million, $637 million and $727 million in 1995, 1994 and 1993, respectively, and operating profit (loss) before gains (charge) on disposition of businesses, net of $(11) million, $(7) million and $24 million in 1995, 1994 and 1993, respectively. These amounts for 1994 and 1993 have been restated principally to reflect the Company's subsequent decisions in 1995 and 1996 to retain two manufacturing plants and one business originally included in the businesses held for disposition, respectively. The Company's carrying value of a number of the businesses to be disposed exceeded the estimated proceeds expected from such dispositions. To reflect the estimated loss on the disposition of these businesses, the Company in 1994 recorded a non-cash charge aggregating $400 million pre-tax (approximately $315 million after-tax or $5.35 per common share) for those businesses for which a loss was anticipated. The approximate components of the charge were as follows at December 31, 1994 (in thousands): <TABLE> <S> <C> Write-down of assets due to anticipated net proceeds being less than carrying value: Excess of cost over net assets of acquired companies.......... $270,000 Other assets, principally property and equipment.............. 105,000 Costs to sell included as a reduction of proceeds.................. 8,000 Exit costs accruable during year................................... 17,000 -------- Pre-tax charge.............................................. $400,000 ======== </TABLE> The expected proceeds from the sale or liquidation of the businesses to be disposed is estimated by the Company's management at each balance sheet date based on a variety of factors, including: F-9
54 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) historical and projected operating performance, competitive market position, perceived strategic value to potential acquirors, tangible asset values, and other relevant factors. In addition, management's estimates of the expected proceeds included input from independent parties familiar with business valuations of this nature. During 1995, the Company divested a number of such businesses, in separate transactions, for aggregate pre-tax proceeds of approximately $160 million, which resulted in net gains of approximately $25 million. These net gains were substantially offset by reductions in the estimated net proceeds the Company expects to receive from certain remaining businesses to be sold, aggregating approximately $12 million, and by certain exit costs incurred in 1995 aggregating approximately $8 million. Including transactions finalized in early 1996 which generated additional proceeds of approximately $120 million, the Company has received aggregate proceeds (including related tax benefits) from the dispositions of businesses of approximately $300 million. The cash portion of these proceeds has been applied to reduce the Company's indebtedness and for investment in its core businesses. The businesses that remain for sale at February 1, 1996 had net sales and operating losses before gains (charge) on disposition of businesses, net of approximately $181 million and $28 million, respectively, in 1995. The Company expects to dispose of these remaining businesses by mid-1996 for estimated proceeds (including related tax benefits) of approximately $100 million. Future periods will include the operating results of the remaining businesses to be sold and any additional costs to be incurred in connection with these dispositions which cannot be accrued at December 31, 1995, as well as the result of differences, if any, between estimated and actual proceeds. During 1995 and 1994, the Company accrued $8 and $17 million of exit costs, respectively, related to the businesses sold or held for sale. During 1995, $7 million has been charged against this accrual (principally employee termination, business valuation and non-cancellable lease expenses and costs). At December 31, 1995, the liability for accrued exit costs approximates $18 million. In late 1993, the Company adopted a plan to divest the business units in its energy segment. This plan met the criteria for discontinued operations accounting treatment; accordingly, the consolidated statements of operations and cash flows and related notes present the Company's energy segment as discontinued operations. During 1993, two such business units were sold for approximately $93 million, including the sale of one business unit to the Company's equity affiliate, TriMas, for $60 million cash. The expected loss from the disposition of the Company's energy segment resulted in a fourth quarter 1993 pre-tax charge of approximately $41 million (approximately $22 million after-tax), including a provision for the businesses not sold in 1993 and the deferral of a portion of the gain (approximately $6 million after-tax) related to the sale of the business to TriMas. Certain of the remaining business units were sold at prices greater than those used in estimating the loss on disposition in 1993, resulting in a reversal in 1994 of approximately $18 million pre-tax ($11.7 million after-tax) relating to the charge established in 1993. F-10
55 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Amounts included in the consolidated balance sheet for net assets of businesses held for disposition consist of the following at December 31, 1995 and 1994, after reflecting the anticipated loss on disposition recorded in 1994 and the $12 million reduction in estimated proceeds in 1995: <TABLE> <CAPTION> (IN THOUSANDS) AT DECEMBER 31 --------------------- 1995 1994 -------- --------- <S> <C> <C> Receivables............................................. $ 49,510 $ 107,760 Other current assets.................................... 88,000 141,140 Current liabilities, including accrued exit costs....... (75,100) (102,210) -------- --------- Net current assets.................................... 62,410 146,690 -------- --------- Property and equipment, net............................. 26,180 120,350 Other non-current assets and liabilities, net........... 78,330 112,020 -------- --------- Net non-current assets................................ 104,510 232,370 -------- --------- Net assets of businesses held for disposition........... $166,920 $ 379,060 ======== ========= </TABLE> INVENTORIES: <TABLE> <CAPTION> (IN THOUSANDS) AT DECEMBER 31 ------------------ 1995 1994 ------- ------- <S> <C> <C> Finished goods............................................. $21,120 $15,990 Work in process............................................ 38,480 35,410 Raw material............................................... 34,820 40,550 ------- ------- $94,420 $91,950 ======= ======= </TABLE> EQUITY AND OTHER INVESTMENTS IN AFFILIATES: Equity and other investments in affiliates consist primarily of the following common stock interests in publicly traded affiliates: <TABLE> <CAPTION> AT DECEMBER 31 -------------------- 1995 1994 1993 ---- ---- ---- <S> <C> <C> <C> TriMas Corporation........................................ 41% 41% 43% Emco Limited.............................................. 43% 43% 43% Titan Wheel International, Inc............................ 15% 20% 21% </TABLE> TriMas is a diversified manufacturer of commercial, industrial and consumer products. Emco Limited ("Emco") is a Canadian-based manufacturer and distributor of building and other industrial products. Titan Wheel International, Inc. ("Titan") is a manufacturer of wheels, tires and other products for agricultural, construction and off-highway equipment markets. F-11
56 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The carrying amount of investments in affiliates at December 31, 1995 and 1994 and quoted market values at December 31, 1995 for publicly traded affiliates (which may differ from the amounts that could have been realized upon disposition) are as follows: <TABLE> <CAPTION> (IN THOUSANDS) 1995 QUOTED 1995 1994 MARKET CARRYING CARRYING VALUE AMOUNT AMOUNT -------- -------- -------- <S> <C> <C> <C> Common stock: TriMas Corporation............................ $284,830 $ 80,150 $ 60,090 Emco Limited.................................. 35,260 43,720 50,130 Titan Wheel International, Inc................ 53,880 32,240 20,180 -------- -------- -------- Common stock holdings........................... 373,970 156,110 130,400 Convertible and other debt: Emco Limited.................................. 31,420 32,390 31,560 -------- -------- -------- Investments in publicly traded affiliates....... $405,390 188,500 161,960 ======== Other non-public affiliates..................... 49,030 11,270 -------- -------- Total........................................... $237,530 $173,230 ======== ======== </TABLE> During 1994, the Company sold a portion of its common stock holdings in TriMas, decreasing the Company's common equity ownership interest in TriMas to 41 percent, and resulting in a pre-tax gain of $17.9 million. In May, 1993, Titan completed an initial public offering of common stock, including shares held by the Company, reducing the Company's common equity ownership interest in Titan to 24 percent from 47 percent. The Company's ownership interest was further reduced in late 1993 to 21 percent as a result of the issuance of additional common shares by Titan in connection with an acquisition by Titan. These transactions resulted in 1993 gains aggregating approximately $12.8 million pre-tax as a result of the sale of shares held by the Company ($3.3 million) and from the change in the Company's common equity ownership interest in Titan ($9.5 million). In June, 1995, Titan sold newly issued common stock in a public offering and issued common stock as a result of the conversion of convertible securities. The Company recognized pre-tax income of approximately $5.1 million (approximately $.05 per common share after-tax) as a result of the change in the Company's common equity ownership interest in Titan. In addition to its equity and other investments in publicly traded affiliates, the Company has equity and other investment interests in privately held manufacturers of automotive components, including the Company's common equity ownership interest in Delco Remy International, Inc., a manufacturer of automotive electric motors and other components (acquired in 1994), and Saturn Electronics & Engineering, Inc., a manufacturer of electromechanical and electronic automotive components (acquired in 1995). Equity in undistributed earnings of affiliates of $38 million at December 31, 1995, $24 million at December 31, 1994 and $10 million at December 31, 1993 are included in consolidated retained earnings (deficit). F-12
57 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Approximate combined condensed financial data of the Company's equity affiliates are as follows: <TABLE> <CAPTION> (IN THOUSANDS) AT DECEMBER 31 ---------------------- 1995 1994 --------- --------- <S> <C> <C> Current assets......................................... $ 985,310 $ 881,150 Current liabilities.................................... (413,290) (320,400) --------- --------- Working capital...................................... 572,020 560,750 Property and equipment, net............................ 581,670 524,140 Excess of cost over net assets of acquired companies... 261,300 198,620 Other assets........................................... 90,180 80,710 Long-term debt......................................... (745,480) (780,220) Deferred income taxes and other long-term liabilities.......................................... (60,240) (75,730) --------- --------- Shareholders' equity................................. $ 699,450 $ 508,270 ========= ========= </TABLE> <TABLE> <CAPTION> FOR THE YEARS ENDED DECEMBER 31 -------------------------------------- 1995 1994 1993 ---------- ---------- ---------- <S> <C> <C> <C> Net sales.................................. $2,729,260 $1,989,670 $1,412,620 ========== ========== ========== Operating profit........................... $ 235,510 $ 174,850 $ 119,780 ========== ========== ========== Earnings attributable to common stock...... $ 92,700 $ 74,870 $ 52,030 ========== ========== ========== </TABLE> Equity and interest income from affiliates consists of the following: <TABLE> <CAPTION> (IN THOUSANDS) FOR THE YEARS ENDED DECEMBER 31 ------------------------------- 1995 1994 1993 ------- ------- ------- <S> <C> <C> <C> The Company's equity in affiliates' earnings available for common shareholders............. $26,230 $25,970 $12,890 Dividends on TriMas preferred stock............. -- -- 5,250 Interest income................................. 5,190 3,840 2,860 ------- ------- ------- Equity and interest income from affiliates...... $31,420 $29,810 $21,000 ======= ======= ======= </TABLE> PROPERTY AND EQUIPMENT, NET: <TABLE> <CAPTION> (IN THOUSANDS) AT DECEMBER 31 --------------------- 1995 1994 -------- -------- <S> <C> <C> Cost: Land and land improvements............................ $ 16,030 $ 15,180 Buildings............................................. 121,470 103,630 Machinery and equipment............................... 609,730 507,190 -------- -------- 747,230 626,000 Less accumulated depreciation........................... 280,780 246,670 -------- -------- $466,450 $379,330 ======== ======== </TABLE> Depreciation expense totalled $38 million, $44 million and $48 million in 1995, 1994 and 1993, respectively. Depreciation expense in 1993 includes approximately $8 million related to the discontinued energy segment. F-13
58 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) ACCRUED LIABILITIES: <TABLE> <CAPTION> (IN THOUSANDS) AT DECEMBER 31 ------------------ 1995 1994 ------- ------- <S> <C> <C> Salaries, wages and commissions............................ $19,690 $18,050 Income taxes............................................... 3,260 2,740 Interest................................................... 3,940 9,020 Insurance.................................................. 30,880 16,940 Property, payroll and other taxes.......................... 6,830 6,730 Other...................................................... 17,800 18,610 ------- ------- $82,400 $72,090 ======= ======= </TABLE> LONG-TERM DEBT: <TABLE> <CAPTION> (IN THOUSANDS) AT DECEMBER 31 --------------------- 1995 1994 -------- -------- <S> <C> <C> Bank revolving credit agreement, due 1998............... $350,000 $280,000 10% Senior Subordinated Notes, due 1995................. -- 233,150 4 1/2% Convertible Subordinated Debentures, due 2003.... 310,000 310,000 Other................................................... 47,060 48,760 -------- -------- 707,060 871,910 Less current portion of long-term debt.................. 5,150 3,670 -------- -------- Long-term debt.......................................... $701,910 $868,240 ======== ======== </TABLE> The Company has a $675 million revolving credit agreement with a group of banks, due July, 1998. The interest rates applicable to the revolving credit agreement are principally at alternative floating rates provided for in the agreement (approximately six percent at December 31, 1995). The revolving credit agreement requires the maintenance of a specified level of shareholders' equity, with limitations on the ratio of senior debt to earnings, long-term debt, intangible assets and the acquisition of Company Capital Stock. Under the most restrictive of these provisions, approximately $16 million was available at December 31, 1995 for the payment of cash dividends and the acquisition of Company Capital Stock. In January, 1996, the Company received approximately $120 million in cash proceeds from the sale of non-core businesses. These proceeds were principally utilized to reduce the Company's indebtedness related to its revolving credit agreement. On March 15, 1995, the Company redeemed at maturity $233 million of its 10% Senior Subordinated Notes utilizing its bank revolving credit agreement. In January, 1994, the Company issued, in a public offering, $345 million of 4 1/2% Convertible Subordinated Debentures due December 15, 2003. These debentures are convertible into Company Common Stock at $31 per share. The net proceeds of approximately $337 million were used to redeem $250 million of 10 1/4% Senior Subordinated Notes on February 1, 1994 and to reduce other indebtedness. During 1994, the Company recognized extraordinary income of $4.4 million pre-tax ($2.6 million after-tax) related to the early extinguishment of a portion of the 4 1/2% Convertible Subordinated Debentures. The maturities of debt during the next five years are as follows (in millions): 1996 -- $5; 1997 -- $3; 1998 -- $377; 1999 -- $3; and 2000 -- $2. F-14
59 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SHAREHOLDERS' EQUITY: <TABLE> <CAPTION> (IN THOUSANDS) RETAINED CUMULATIVE PREFERRED COMMON PAID-IN EARNINGS TRANSLATION SHAREHOLDERS' STOCK STOCK CAPITAL (DEFICIT) ADJUSTMENTS EQUITY --------- -------- -------- --------- ----------- ------------- <S> <C> <C> <C> <C> <C> <C> Balance, January 1, 1993......... $ 780 $ 59,520 $ 84,390 $ 202,660 $ 6,050 $ 353,400 Net income.................. -- -- -- 47,600 -- 47,600 Preferred stock dividends... -- -- -- (14,930) -- (14,930) Common stock dividends...... -- -- -- (3,210) -- (3,210) Retirement of 12% Preferred................. (780) -- (76,720) -- -- (77,500) Issuance of 10% Preferred... 1,000 -- 99,000 -- -- 100,000 Issuance of warrants........ -- -- 70,800 -- -- 70,800 Issuance of DECS............ 10,800 -- 198,720 -- -- 209,520 Retirement of common stock..................... -- (10,000) (90,000) -- -- (100,000) Retirement of 10% Preferred................. (1,000) -- (99,000) -- -- (100,000) Conversion of convertible debentures................ -- 10,370 174,120 -- -- 184,490 Translation adjustments, net....................... -- -- -- -- (9,140) (9,140) Exercise of stock options... -- 620 5,980 -- -- 6,600 ------- -------- -------- --------- ------ --------- Balance, December 31, 1993....... 10,800 60,510 367,290 232,120 (3,090) 667,630 Net loss.................... -- -- -- (220,120) -- (220,120) Preferred stock dividends... -- -- -- (12,960) -- (12,960) Common stock dividends...... -- -- -- (6,630) -- (6,630) Retirement of common stock..................... -- (4,070) (50,060) -- -- (54,130) Translation adjustments, net....................... -- -- -- -- 5,450 5,450 Exercise of stock options... -- 170 1,730 -- -- 1,900 ------- -------- -------- --------- ------ --------- Balance, December 31, 1994....... 10,800 56,610 318,960 (7,590) 2,360 381,140 Net income.................. -- -- -- 59,190 -- 59,190 Preferred stock dividends... -- -- -- (12,960) -- (12,960) Common stock dividends...... -- -- -- (6,260) -- (6,260) Retirement of common stock..................... -- (1,210) (11,920) -- -- (13,130) Translation adjustments, net....................... -- -- -- -- 6,210 6,210 Exercise of stock options... -- 120 870 -- -- 990 ------- -------- -------- --------- ------ --------- Balance, December 31, 1995....... $10,800 $ 55,520 $307,910 $ 32,380 $ 8,570 $ 415,180 ======= ======== ======== ========= ====== ========= </TABLE> On March 31, 1993, the Company acquired from Masco Corporation 10 million shares of Company Common Stock, recorded at $100 million, $77.5 million of the Company's previously outstanding 12% Exchangeable Preferred Stock, and Masco Corporation's holdings of Emco Limited common stock and convertible debentures, recorded at $80.8 million. In exchange, Masco Corporation received $100 million (liquidation value) of the Company's 10% Exchangeable Preferred Stock, seven-year warrants to purchase 10 million shares of Company Common Stock at $13 per share, recorded at $70.8 million, and $87.5 million in cash. The transferable warrants are not exercisable by Masco Corporation if an exercise would increase Masco Corporation's common equity ownership interest in the Company above 35 percent. The cash portion of this transaction is included in the accompanying statement of cash flows as cash used for investing activities of $87.5 million. As part of this transaction, as modified in late 1993, Masco Corporation agreed to purchase from the Company, at the Company's option through March, 1997, up to $200 million of subordinated debentures. In late 1993, the Company redeemed the 10% Exchangeable Preferred Stock for its $100 million liquidation value. F-15
60 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In July, 1993, the Company issued 10.8 million shares of 6% Dividend Enhanced Convertible Stock (DECS, classified as Convertible Preferred Stock) at $20 per share ($216 million aggregate liquidation amount) in a public offering. The net proceeds from this issuance were used to reduce the Company's indebtedness. On July 1, 1997, each of the then outstanding shares of the DECS will convert into one share of Company Common Stock, if not previously redeemed by the Company or converted at the option of the holder, in both cases for Company Common Stock. Each share of the DECS is convertible at the option of the holder anytime prior to July 1, 1997 into .806 of a share of Company Common Stock, equivalent to a conversion price of $24.81 per share of Company Common Stock. Dividends are cumulative and each share of the DECS has 4/5 of a vote, voting together as one class with holders of Company Common Stock. Beginning July 1, 1996, the Company, at its option, may redeem the DECS at a call price payable in shares of Company Common Stock principally determined by a formula based on the then current market price of Company Common Stock. Redemption by the Company, as a practical matter, will generally not result in a call price that exceeds one share of Company Common Stock or is less than .806 of a share of Company Common Stock (resulting from the holder's conversion option). The Company's 6% Convertible Subordinated Debentures were called for redemption in late 1993. Substantially all holders, including Masco Corporation, exercised their right to convert these debentures into Company Common Stock (at a conversion price of $18 per share), resulting in the issuance of approximately 10.4 million shares of Company Common Stock. Included in 1993 interest expense was approximately $7 million related to the Company's 6% Convertible Subordinated Debentures held by Masco Corporation. During 1995 and 1994, the Company repurchased and retired approximately one million and four million shares, respectively, of its common stock in open-market purchases, pursuant to a Board of Directors' authorized repurchase program. At December 31, 1995, the Company may repurchase approximately five million additional shares of Company Common Stock and Convertible Preferred Stock pursuant to this repurchase authorization. The Company commenced paying cash dividends on its common stock in August, 1993. On the basis of amounts paid (declared), cash dividends per common share were $.14 ($.11) in 1995, $.10 ($.11) in 1994 and $.04 ($.06) in 1993. STOCK OPTIONS AND AWARDS: For the three years ended December 31, 1995, stock option data pertaining to stock option plans for key employees of the Company and affiliated companies are as follows: <TABLE> <CAPTION> (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1995 1994 1993 ------ ------- ------ <S> <C> <C> <C> Options outstanding, January 1.... 3,620 3,810 4,540 Options granted................... -- 20 30 Option price per share.......... -- $17-25 1/8 $13-26 Options cancelled................. 60 40 -- Option price per share.......... $4 1/2 $ 4 1/2 -- Options exercised................. 120 170 760 Option price per share.......... $4 1/2-9 1/8 $4 1/2-9 1/8 $4 1/2-9 1/8 ------------ ------------ ------------ Options outstanding, December 31.. 3,440 3,620 3,810 ============ ============ ============ Options exercisable, December 31.. 1,640 1,080 680 ============ ============ ============ </TABLE> F-16
61 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At December 31, 1995, options have been granted and are outstanding with exercise prices ranging from $4 1/2 to $26 per share, the fair market value at the dates of grant. Pursuant to restricted stock incentive plans, the Company granted long-term incentive awards, net, for 461,000, 213,000 and 202,000 shares of Company Common Stock during 1995, 1994 and 1993, respectively, to key employees of the Company and affiliated companies. The unamortized costs of incentive awards, aggregating approximately $17 million at December 31, 1995, are being amortized over the ten-year vesting periods. At December 31, 1995 and 1994, a combined total of 5,646,000 and 5,773,000 shares, respectively, of Company Common Stock were available for the granting of options and incentive awards under the above plans. EMPLOYEE BENEFIT PLANS: Pension and Profit-Sharing Benefits. The Company sponsors defined-benefit pension plans for most of its employees. In addition, substantially all salaried employees participate in noncontributory profit-sharing plans, to which payments are approved annually by the Directors. Aggregate charges to income under these plans were $13.0 million in 1995, $9.8 million in 1994 and $10.9 million in 1993, including approximately $.9 million in 1993 related to the discontinued energy segment. Net periodic pension cost for the Company's defined-benefit pension plans includes the following components for the three years ended December 31, 1995: <TABLE> <CAPTION> (IN THOUSANDS) 1995 1994 1993 ------- ------- ------- <S> <C> <C> <C> Service cost -- benefits earned during the year.... $ 4,680 $ 4,800 $ 4,110 Interest cost on projected benefit obligations..... 6,330 5,800 5,540 Actual (return) loss on assets..................... (6,540) 1,850 (7,730) Net amortization and deferral...................... 1,600 (8,240) 1,600 ------- ------- ------- Net periodic pension cost.......................... $ 6,070 $ 4,210 $ 3,520 ======= ======= ======= </TABLE> Major assumptions used in accounting for the Company's defined-benefit pension plans are as follows: <TABLE> <CAPTION> 1995 1994 1993 ------ ------ ------ <S> <C> <C> <C> Discount rate for obligations....................... 7.25% 8.50% 7.00% Rate of increase in compensation levels............. 5.00% 5.00% 5.00% Expected long-term rate of return on plan assets.... 11.00% 13.00% 13.00% </TABLE> F-17
62 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The funded status of the Company's defined-benefit pension plans at December 31, 1995 and 1994 is as follows: <TABLE> <CAPTION> (IN THOUSANDS) 1995 1994 ----------- ----------- ACCUMULATED ACCUMULATED BENEFITS BENEFITS EXCEED EXCEED RECONCILIATION OF FUNDED STATUS ASSETS ASSETS ------------------------------- ----------- ----------- <S> <C> <C> Actuarial present value of benefit obligations: Vested benefit obligation......................................... $ 70,960 $ 60,300 ======== ======== Accumulated benefit obligation.................................... $ 76,370 $ 64,570 ======== ======== Projected benefit obligation...................................... $ 89,410 $ 75,000 Assets at fair value................................................ 54,480 53,280 -------- -------- Projected benefit obligation in excess of plan assets............. (34,930) (21,720) Reconciling items: Unrecognized net loss............................................. 22,350 10,890 Unrecognized prior service cost................................... 7,540 7,950 Unrecognized net asset at transition.............................. (1,060) (1,330) Adjustment required to recognize minimum liability................ (15,810) (10,010) -------- -------- Accrued pension cost................................................ $ (21,910) $ (14,220) ======== ======== </TABLE> Postretirement Benefits. The Company provides postretirement medical and life insurance benefits for certain of its active and retired employees. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106 ("SFAS 106"), "Employers' Accounting for Postretirement Benefits Other Than Pensions", for its postretirement benefit plans. This statement requires the accrual method of accounting for postretirement health care and life insurance based on actuarially determined costs to be recognized over the period from the date of hire to the full eligibility date of employees who are expected to qualify for such benefits. In conjunction with the adoption of SFAS 106, the Company elected to recognize the transition obligation on a prospective basis and accordingly, the net transition obligation is being amortized over 20 years. Net periodic postretirement benefit cost includes the following components for the years ended December 31, 1995, 1994 and 1993: <TABLE> <CAPTION> (IN THOUSANDS) 1995 1994 1993 ------ ------ ------ <S> <C> <C> <C> Service cost.......................................... $ 300 $ 400 $ 300 Interest cost......................................... 1,900 1,800 1,900 Net amortization...................................... 1,100 1,300 1,200 ------ ------ ------ Net periodic postretirement benefit cost.............. $3,300 $3,500 $3,400 ====== ====== ====== </TABLE> F-18
63 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Postretirement benefit obligations, none of which are funded, are summarized as follows at December 31, 1995 and 1994: <TABLE> <CAPTION> (IN THOUSANDS) 1995 1994 -------- -------- <S> <C> <C> Accumulated postretirement benefit obligations: Retirees............................................... $ 18,400 $ 16,400 Fully eligible active plan participants................ 900 1,000 Other active participants.............................. 5,600 5,500 -------- -------- Total accumulated postretirement benefit obligation...... 24,900 22,900 Unrecognized net gain.................................. 400 1,800 Unamortized transition obligation...................... (16,000) (17,100) -------- -------- Accrued postretirement benefits.......................... $ 9,300 $ 7,600 ======== ======== </TABLE> The discount rates used in determining the accumulated postretirement benefit obligation were 7.25 percent and 8.5 percent in 1995 and 1994, respectively. The assumed health care cost trend rate in 1995 was 12 percent, decreasing to an ultimate rate in the year 2000 of seven percent. If the assumed medical cost trend rates were increased by one percent, the accumulated postretirement benefit obligation would increase by $2.1 million and the aggregate of the service and interest cost components of net periodic postretirement benefit cost would increase by $.2 million. Included in the Company's 1994 charge for the disposition of certain businesses are curtailment costs for postretirement benefit obligations relating to these businesses of approximately $3.7 million. SEGMENT INFORMATION: The Company's business segments involve the sale of the following products and services: Transportation-Related Products and Services: Precision products, generally produced using advanced metalworking technologies with significant proprietary content, and aftermarket products for the transportation industry. Engineering and technical business services. Specialty Products: Architectural -- Doors, windows, security grilles and office panels and partitions for commercial and residential markets. Other -- Products manufactured principally for the defense industry. Sales of the Company's foreign operations (principally in Western Europe) approximate $166 million, $116 million and $97 million for 1995, 1994 and 1993, respectively. The Company's export sales approximate $85 million, $102 million and $81 million in 1995, 1994 and 1993, respectively. Amounts related to the Company's energy segment have been presented as discontinued operations. Corporate assets consist primarily of cash and cash investments, marketable securities, equity and other investments in affiliates, notes receivable and net assets of the discontinued energy segment. F-19
64 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) <TABLE> <CAPTION> (IN THOUSANDS) ASSETS EMPLOYED AT NET SALES OPERATING PROFIT (LOSS)(B) DECEMBER 31(C) ------------------------------------ ------------------------------- ------------------------------------ 1995 1994 1993 1995 1994 1993 1995 1994 1993 ---------- ---------- ---------- -------- --------- -------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> The Company's operations by industry segment are: Transportation- Related Products and Services (A).... $1,340,000 $1,332,000 $1,195,000 $144,000 $ (55,000) $160,000 $ 870,000 $ 796,000 $ 883,000 Specialty Products: Architectural... 242,000 277,000 289,000 (2,000) (118,000) (4,000) 115,000 149,000 313,000 Other........... 96,000 93,000 99,000 (1,000) (78,000) 5,000 35,000 32,000 104,000 ---------- ---------- ---------- -------- --------- -------- ---------- ---------- ---------- Total....... $1,678,000 $1,702,000 $1,583,000 141,000 (251,000) 161,000 1,020,000 977,000 1,300,000 ========== ========== ========== Other income (expense), net............. (9,000) 13,000 (25,000) General corporate expense......... (32,000) (26,000) (15,000) -------- --------- -------- Income (loss) from continuing operations before income taxes (credit) and extraordinary item............ $100,000 $(264,000) $121,000 ======== ========= ======== Corporate assets.......... 419,000 554,000 490,000 ---------- ---------- ---------- Total assets.... $1,439,000 $1,531,000 $1,790,000 ========== ========== ========== </TABLE> <TABLE> <CAPTION> DEPRECIATION AND PROPERTY ADDITIONS(D) AMORTIZATION(E) ------------------------------- ----------------------------- 1995 1994 1993 1995 1994 1993 -------- -------- ------- ------- ------- ------- <S> <C> <C> <C> <C> <C> <C> The Company's operations by industry segment are: Transportation-Related Products and Services.................. $ 96,000 $101,000 $52,000 $45,000 $48,000 $42,000 Specialty Products: Architectural............................................... 8,000 5,000 5,000 5,000 12,000 12,000 Other....................................................... 6,000 9,000 3,000 2,000 7,000 6,000 -------- -------- ------- ------- ------- ------- Total................................................... $110,000 $115,000 $60,000 $52,000 $67,000 $60,000 ======== ======== ======= ======= ======= ======= </TABLE> (A) Included within this segment are sales to one customer of $397 million, $361 million and $324 million in 1995, 1994 and 1993, respectively; sales to another customer of $182 million, $225 million and $186 million in 1995, 1994 and 1993, respectively; and sales to a third customer of $178 million, $212 million and $222 million in 1995, 1994 and 1993, respectively. (B) Operating profit in 1995 includes a $25 million net gains resulting from sales of non-core businesses in the third quarter. These net gains were substantially offset by reductions in the estimated proceeds the Company expects to receive from businesses to be sold, aggregating $12 million, and by certain exit costs incurred in 1995 aggregating approximately $8 million. The net gains (charge) impact the Company's industry segments as follows: Transportation-Related Products and Services -- $21 million and Other Specialty Products -- $(2) million. The remaining $(14) million of the net gains (charge) was allocated to General Corporate Expense. Operating loss in 1994 includes the impact of a pre-tax charge in the amount of $400 million for the disposition of businesses. The charge impacts the Company's industry segments as follows: Transportation-Related Products and Services -- $196 million; Architectural Products -- $116 million; and Other Specialty Products -- $75 million. The remaining $13 million of the charge was allocated to General Corporate Expense. (C) Assets employed at December 31, 1995 and December 31, 1994 include net assets related to the disposition of certain operations (see "Dispositions of Operations" note). (D) Property additions in 1995 include approximately $14 million of capital expenditures for the Company's businesses held for disposition. (E) Depreciation and amortization expense in 1995 include approximately $5 million of expense for the Company's businesses held for disposition. F-20
65 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) OTHER INCOME (EXPENSE), NET: <TABLE> <CAPTION> (IN THOUSANDS) 1995 1994 1993 ------ ------- ------- <S> <C> <C> <C> Other, net: Net realized and unrealized gains and losses from marketable securities................................... $ 730 $ 4,360 $11,550 Gains from sales of TriMas common stock.................... -- 17,900 -- Interest income............................................ 2,390 5,490 9,570 Dividend income............................................ 950 2,880 3,150 Other, net................................................. 780 2,750 2,060 ------ ------- ------- $4,850 $33,380 $26,330 ====== ======= ======= </TABLE> Gains and losses realized from sales of marketable securities and gains from sales of common stock of equity affiliates are determined on a specific identification basis at the time of sale. INCOME TAXES: <TABLE> <CAPTION> (IN THOUSANDS) 1995 1994 1993 -------- --------- -------- <S> <C> <C> <C> Income (loss) from continuing operations before income taxes (credit) and extraordinary item: Domestic..................................... $ 78,870 $(280,900) $105,470 Foreign...................................... 21,410 16,410 15,710 -------- --------- -------- $100,280 $(264,490) $121,180 ======== ========= ======== Provision for income taxes (credit): Federal, current............................. $(24,210) $ 36,660 $ 17,940 State and local.............................. 6,110 8,880 8,350 Foreign, current............................. 7,860 (7,850) 8,410 Deferred, principally federal................ 51,330 (67,760) 15,590 -------- --------- -------- Income taxes (credit) on income (loss) from continuing operations before extraordinary item...................... $ 41,090 $ (30,070) $ 50,290 ======== ========= ======== </TABLE> F-21
66 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The components of deferred taxes at December 31, 1995 and 1994 are as follows: <TABLE> <CAPTION> (IN THOUSANDS) 1995 1994 -------- ------- <S> <C> <C> Deferred tax assets: Inventories............................................. $ 3,550 $ 3,400 Expected capital loss benefit related to net assets of businesses held for disposition...................... 15,600 53,000 Expected ordinary loss benefit related to net assets of businesses held for disposition and other, principally accrued liabilities...................... 37,250 19,260 -------- ------- 56,400 75,660 -------- ------- Deferred tax liabilities: Property and equipment.................................. 71,610 57,390 Other, principally equity investments in affiliates..... 45,280 27,430 -------- ------- 116,890 84,820 -------- ------- Net deferred tax liability................................ $ 60,490 $ 9,160 ======== ======= </TABLE> Net current and non-current assets of businesses held for disposition at December 31, 1995 and 1994 include approximately $41 million and $60 million, respectively, of the above deferred tax assets. The following is a reconciliation of tax computed at the U.S. federal statutory rate to the provision for income taxes (credit) allocated to income (loss) from continuing operations before income taxes (credit) and extraordinary item: <TABLE> <CAPTION> (IN THOUSANDS) 1995 1994 1993 ------- -------- ------- <S> <C> <C> <C> U.S. federal statutory rate....................... 35% 35% 35% ------- -------- ------- Tax (credit) at U.S. federal statutory rate....... $35,100 $(92,570) $42,410 State and local taxes, net of federal tax benefit......................................... 3,970 5,770 5,430 Higher effective foreign tax rate................. 2,710 3,380 2,910 Tax benefit on distributed foreign earnings, net............................................. -- (4,200) -- Dividends-received deduction...................... (230) (690) (2,290) Non-deductible portion of charge for disposition of businesses................................... -- 54,600 -- Amortization in excess of tax, net................ 1,630 2,190 3,820 Other, net........................................ (2,090) 1,450 (1,990) ------- -------- ------- Income taxes (credit) from continuing operations before extraordinary item.................... $41,090 $(30,070) $50,290 ======= ======== ======= </TABLE> F-22
67 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS: In accordance with Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," the following methods were used to estimate the fair value of each class of financial instruments: MARKETABLE SECURITIES, NOTES RECEIVABLE AND OTHER ASSETS Fair values of financial instruments included in marketable securities, notes receivable and other assets were estimated using various methods including quoted market prices and discounted future cash flows based on the incremental borrowing rates for similar types of investments. In addition, for variable-rate notes receivable that fluctuate with the prime rate, the carrying amounts approximate fair value. LONG-TERM DEBT The carrying amount of bank debt and certain other long-term debt instruments approximate fair value as the floating rates inherent in this debt reflect changes in overall market interest rates. The fair values of the Company's subordinated debt instruments are based on quoted market prices. The fair values of certain other debt instruments are estimated by discounting future cash flows based on the Company's incremental borrowing rate for similar types of debt instruments. The carrying amounts and fair values of the Company's financial instruments at December 31, 1995 and 1994 are as follows: <TABLE> <CAPTION> (IN THOUSANDS) 1995 1994 -------------------- -------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- -------- -------- -------- <S> <C> <C> <C> <C> Cash and cash investments........................... $ 16,380 $ 16,380 $ 61,950 $ 61,950 Marketable securities, notes receivable and other assets...................................... $ 38,710 $ 38,990 $101,900 $ 99,600 Long-term debt: Bank debt......................................... $375,000 $375,000 $316,000 $316,000 10% Senior Subordinated Notes..................... -- -- $233,150 $233,910 4 1/2% Convertible Subordinated Debentures........ $310,000 $244,900 $310,000 $234,050 Other long-term debt.............................. $ 16,910 $ 15,330 $ 9,090 $ 8,990 </TABLE> F-23
68 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) INTERIM AND OTHER SUPPLEMENTAL FINANCIAL DATA (UNAUDITED): <TABLE> <CAPTION> (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) FOR THE QUARTERS ENDED ---------------------------------------------- DECEMBER SEPTEMBER JUNE MARCH 31ST 30TH 30TH 31ST --------- --------- -------- -------- <S> <C> <C> <C> <C> 1995: - ----- Net sales.......................................... $ 389,010 $404,900 $439,290 $445,010 Gross profit....................................... $ 67,570 $ 67,050 $ 69,250 $ 76,460 Net income: Income........................................... $ 14,670 $ 15,960 $ 15,100 $ 13,460 Income attributable to common stock.............. $ 11,430 $ 12,720 $ 11,860 $ 10,220 Per common share................................. $.20 $.22 $.21 $.18 Market price per common share: High............................................. $12 1/2 $13 3/4 $12 7/8 $13 1/2 Low.............................................. $10 $11 1/4 $10 1/2 $11 3/8 1994: - ----- Net sales.......................................... $ 440,570 $416,500 $432,780 $412,410 Gross profit....................................... $ 73,390 $ 73,440 $ 89,710 $ 80,290 Income (loss) from continuing operations before extraordinary item: Income (loss).................................... $(305,940) $ 15,780 $ 29,440 $ 26,300 Per common and common equivalent share: Primary....................................... $(5.46) $.21 $.39 $.34 Assuming full dilution........................ $(5.46) $.21 $.37 $.32 Net income (loss): Income (loss).................................... $(294,240) $ 18,380 $ 29,440 $ 26,300 Income (loss) attributable to common stock....... $(297,480) $ 15,140 $ 26,200 $ 23,060 Per common and common equivalent share: Primary....................................... $(5.25) $.25 $.39 $.34 Assuming full dilution........................ $(5.25) $.25 $.37 $.32 Market price per common share: High............................................. $13 3/8 $15 1/4 $23 1/4 $27 7/8 Low.............................................. $11 $11 $13 $19 7/8 </TABLE> Results for the third quarter of 1995 include net gains aggregating approximately $25 million from the sale of certain businesses held for disposition. These net gains were offset by reductions in the estimated net proceeds the Company expects to receive from businesses to be sold, aggregating $12 million and by certain exit costs incurred in 1995 aggregating approximately $8 million. Results for the second quarter of 1995 include pre-tax income of approximately $5 million as a result of gains associated with the sale of common stock through a public offering by an equity affiliate. Certain amounts for the quarters ended June 30, 1995 and March 31, 1995 have been reclassified to conform to the presentation adopted at December 31, 1995. Results for the fourth quarter of 1994 include a non-cash pre-tax charge of $400 million ($315 million after-tax or $5.56 per common share in the fourth quarter of 1994) reflecting the anticipated loss on the disposition of certain businesses (see "Dispositions of Operations" note). Results for the fourth quarter of 1994 also include income aggregating approximately $18 million pre-tax ($11.7 million after-tax or $.21 per common share) relating to the partial reversal of the charge F-24
69 MASCOTECH, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) established in the fourth quarter of 1993 for the disposition of the Company's energy segment (see "Dispositions of Operations" note). Results for the third quarter of 1994 include $4.4 million pre-tax of extraordinary income ($2.6 million after-tax or $.04 per common share) related to the early extinguishment of convertible debt. Results for the first, second and third quarters of 1994 include pre-tax gains of approximately $9.8 million, $7.1 million and $1.0 million, respectively, from the sale by the Company of a portion of its common stock holdings of an equity affiliate. The 1994 income (loss) per common share amounts for the quarters do not total to the full year amounts due to the purchase and retirement of shares throughout the year and a lower dilutive effect from outstanding options and warrants on the year-to-date calculation. The following supplemental unaudited financial data combine the Company with TriMas and have been presented for analytical purposes. The Company had a common equity ownership interest in TriMas of approximately 41 percent at December 31, 1995 and December 31, 1994. The interests of the other common shareholders are reflected below as "Equity of other shareholders of TriMas." All significant intercompany transactions have been eliminated. <TABLE> <CAPTION> (IN THOUSANDS) AT DECEMBER 31 ------------------------ 1995 1994 --------- ----------- <S> <C> <C> Current assets........................................ $ 718,340 $ 861,380 Current liabilities................................... (241,390) (243,260) --------- ----------- Working capital.................................. 476,950 618,120 Property and equipment, net........................... 640,150 547,710 Excess of cost over net assets of acquired companies........................................... 200,210 182,470 Other assets.......................................... 355,880 432,850 Bank and other debt................................... (889,110) (1,106,840) Deferred income taxes and other long-term liabilities......................................... (170,780) (123,170) Equity of other shareholders of TriMas................ (198,120) (170,000) --------- ----------- Equity of shareholders of MascoTech.............. $ 415,180 $ 381,140 ========= =========== </TABLE> <TABLE> <CAPTION> FOR THE YEARS ENDED DECEMBER 31 -------------------------------------- 1995 1994 1993 ---------- ---------- ---------- <S> <C> <C> <C> Net sales.................................. $2,227,850 $2,232,430 $2,022,240 ========== ========== ========== Operating profit (loss).................... $ 207,490 $ (186,450) $ 215,740 ========== ========== ========== Income (loss) from continuing operations before extraordinary item................ $ 59,190 $ (234,420) $ 70,890 ========== ========== ========== </TABLE> F-25
70 FINANCIAL STATEMENT SCHEDULE PURSUANT TO ITEM 14(a)(2)(II)(B) OF FORM 10-K ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION FOR THE YEAR ENDED DECEMBER 31, 1995 Schedules, as required for the years ended December 31, 1995, 1994 and 1993: <TABLE> <CAPTION> PAGE ----- <S> <C> II. Valuation and Qualifying Accounts................................................ F-27 </TABLE> F-26
71 MASCOTECH, INC. SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 <TABLE> <CAPTION> COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - --------------------------------- ---------- --------------------------- ---------- ------------- ADDITIONS --------------------------- CHARGED BALANCE AT CHARGED (CREDITED) BEGINNING TO COSTS TO OTHER BALANCE AT DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD - --------------------------------- ---------- ------------ ----------- ---------- ------------- (A) (B) <S> <C> <C> <C> <C> <C> Allowance for doubtful accounts, deducted from accounts receivable in the balance sheet: 1995........................... $1,590,000 $ 400,000 $ 410,000 $ 520,000 $ 1,880,000 ========== ========== =========== ========== ========== 1994........................... $5,130,000 $3,480,000 $(4,310,000) $2,710,000 $ 1,590,000 ========== ========== =========== ========== ========== 1993........................... $7,190,000 $2,470,000 $(1,820,000) $2,710,000 $ 5,130,000 ========== ========== =========== ========== ========== </TABLE> NOTES: (A) Allowance of companies acquired, and other adjustments, net in 1995. Allowance of companies reclassified for businesses held for disposition in 1995 and 1994, and for discontinuance of Energy-related segment in 1993. (B) Deductions, representing uncollectible accounts written off, less recoveries of accounts written off in prior years. F-27
72 EXHIBIT INDEX <TABLE> <CAPTION> EXHIBIT PAGE NUMBER DESCRIPTION NO. - ------ ------------------------------------------------------------------------------ ---- <S> <C> <C> 3.i Restated Certificate of Incorporation of Masco Corporation and amendments thereto. 3.ii Bylaws of Masco Corporation, as amended.(4) 4.a.i Indenture dated as of December 1, 1982 between Masco Corporation and Morgan Guaranty Trust Company of New York, as Trustee(8), and Directors' resolutions establishing Masco Corporation's: (i) 9% Notes Due April 15, 1996(6), (ii) 9% Notes Due October 1, 2001(8), (iii) 6 1/4% Notes Due June 15, 1995(6), (iv) 6 5/8% Notes Due September 15, 1999(6), 6 1/8% Notes Due September 15, 2003(5), and (vi) 7 1/8% Debentures Due August 15, 2013(5). 4.a.ii Agreement of Appointment and Acceptance of Successor Trustee dated as of July 25, 1994 among Masco Corporation, Morgan Guaranty Trust Company of New York and The First National Bank of Chicago.(3) 4.a.iii Supplemental Indenture dated as of July 26, 1994 between Masco Corporation and The First National Bank of Chicago.(3) 4.b Indenture dated as of December 1, 1982 between Masco Corporation and Citibank, N.A., as Trustee, and Directors' resolutions establishing Masco Corporation's 5 1/4% Convertible Subordinated Debentures Due 2012, including form of Debenture.(8) 4.c $750,000,000 Amended and Restated Credit Agreement dated as of May 18, 1994 among Masco Corporation, the banks signatory thereto and Morgan Guaranty Trust Company of New York, as agent(3), Amendment No. 1 thereto dated as of June 1, 1995(1), Amendment No. 2 thereto dated as of November 30, 1995 and Amendment No. 3 thereto dated as of January 31, 1996. 4.d Indenture dated as of November 1, 1986 between Masco Industries, Inc. (now known as MascoTech, Inc.) and Morgan Guaranty Trust Company of New York, as Trustee, and Directors' resolutions establishing Masco Industries, Inc.'s 4 1/2% Convertible Subordinated Debentures Due 2003(4), Agreement of Appointment and Acceptance of Successor Trustee dated as of August 4, 1994 among MascoTech, Inc., Morgan Guaranty Trust Company of New York and The First National Bank of Chicago and Supplemental Indenture dated as of August 5, 1994 among MascoTech, Inc. and The First National Bank of Chicago.(2) 4.e Credit Agreement dated as of September 2, 1993 by and among MascoTech, Inc., the banks party thereto, and NBD Bank, N.A. (now known as NBD Bank), as Agent, and Comerica Bank, The Bank of New York, The First National Bank of Chicago, Morgan Guaranty Trust Company of New York and NationsBank of North Carolina, N.A., as Co-Agents(4), First Amendment thereto dated June 29, 1994(2), Second Amendment thereto dated December 21, 1994 and Third Amendment thereto dated as of September 28, 1995. 4.f Rights Agreement dated as of December 6, 1995 between Masco Corporation and The Bank of New York, as Rights Agent. NOTE: Other instruments, notes or extracts from agreements defining the rights of holders of long-term debt of Masco Corporation or its subsidiaries have not been filed since (i) in each case the total amount of long-term debt permitted thereunder does not exceed 10 percent of Masco Corporation's consolidated assets, and (ii) such instruments, notes and extracts will be furnished by Masco Corporation to the Securities and Exchange Commission upon request. 10.a Assumption and Indemnification Agreement dated as of May 1, 1984 between Masco Corporation and Masco Industries, Inc. (now known as MascoTech, Inc.). </TABLE>
73 <TABLE> <CAPTION> EXHIBIT PAGE NUMBER DESCRIPTION NO. - ------ ------------------------------------------------------------------------------ ---- <S> <C> <C> 10.b Corporate Services Agreement dated as of January 1, 1987 between Masco Corporation and Masco Industries, Inc. (now known as MascoTech, Inc.).(6) 10.c Corporate Opportunities Agreement dated as of May 1, 1984 between Masco Corporation and Masco Industries, Inc. (now known as MascoTech, Inc.). 10.d Stock Repurchase Agreement dated as of May 1, 1984 between Masco Corporation and Masco Industries, Inc. (now known as MascoTech, Inc.) and related forfeiture letter dated September 20, 1985, Amendment to Stock Repurchase Agreement dated as of December 20, 1990(8) and Agreement dated as of November 23, 1993 including an amendment to Stock Repurchase Agreement.(4) NOTE: Exhibits 10.e through 10.p constitute the management contracts and executive compensatory plans or arrangements in which certain of the Directors and executive officers of the Company participate. 10.e Masco Corporation 1991 Long-Term Stock Incentive Plan (Restated December 6, 1995). 10.f Masco Corporation 1988 Restricted Stock Incentive Plan (Restated December 6, 1995). 10.g Masco Corporation 1988 Stock Option Plan (Restated December 6, 1995). 10.h Masco Corporation 1984 Restricted Stock (Industries) Incentive Plan (Restated December 6, 1995). 10.i Masco Corporation 1984 Stock Option Plan (Restated December 6, 1995). 10.j Masco Corporation Restricted Stock Incentive Plan (Restated December 6, 1995). 10.k MascoTech, Inc. 1991 Long-Term Stock Incentive Plan (Restated December 6, 1995). 10.l MascoTech, Inc. 1984 Restricted Stock Incentive Plan (Restated December 6, 1995). 10.m MascoTech, Inc. 1984 Stock Option Plan (Restated December 6, 1995). 10.n Masco Corporation Supplemental Executive Retirement and Disability Plan.(2) 10.o Masco Corporation Benefits Restoration Plan.(2) 10.p Form of Agreement dated June 29, 1989 between Masco Corporation and certain of its officers.(4) 10.q Amended and Restated Securities Purchase Agreement dated as of November 23, 1993 between Masco Corporation and MascoTech, Inc., including form of Note.(4) 10.r Registration Agreement dated as of March 31, 1993 between Masco Corporation and Masco Industries, Inc. (now known as MascoTech, Inc.).(4) 10.s Stock Purchase Agreement between Masco Corporation and Masco Industries, Inc. (now known as MascoTech, Inc.) dated as of December 23, 1991 (regarding Masco Capital Corporation).(8) 11 Computation of Primary and Fully Diluted Per Share Earnings. 12 Computation of Ratio of Earnings to Fixed Charges. 21 List of Subsidiaries. 23.a Consent of Coopers & Lybrand L.L.P. relating to Masco Corporation's Financial Statements and Financial Statement Schedule. 23.b Consent of Coopers & Lybrand L.L.P. relating to MascoTech, Inc.'s Financial Statements and Financial Statement Schedule. 27 Financial Data Schedule. </TABLE> - --------------- (1) Incorporated by reference to the Exhibits filed with Masco Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. (2) Incorporated by reference to the Exhibits filed with Masco Corporation's Annual Report on Form 10-K for the year ended December 31, 1994.
74 (3) Incorporated by reference to the Exhibits filed with Masco Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994. (4) Incorporated by reference to the Exhibits filed with Masco Corporation's Annual Report on Form 10-K for the year ended December 31, 1993. (5) Incorporated by reference to the Exhibits filed with Masco Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993. (6) Incorporated by reference to the Exhibits filed with Masco Corporation's Annual Report on Form 10-K for the year ended December 31, 1992. (7) Incorporated by reference to the Exhibits filed with Masco Corporation's Quarterly Report on Form 10-Q for the quarter ended March 31, 1991. (8) Incorporated by reference to the Exhibits filed with Masco Corporation's Annual Report on Form 10-K for the year ended December 31, 1991.