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(Exact name of Registrant as Specified in its Charter)
iDelaware
i38-1794485
(State
or Other Jurisdiction of Incorporation or Organization)
(I.R.S. Employer Identification No.)
i17450 College Parkway,
iLivonia,
iMichigan
i48152
(Address
of Principal Executive Offices)
(Zip Code)
(i313) i274-7400
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
Title
of Each Class
Trading Symbol
Name of Each Exchange On Which Registered
iCommon Stock, $1.00 par value
iMAS
iNew
York Stock Exchange
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYesþ No o
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYesþ No o
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”“accelerated filer,”“smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☑
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No þ
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
See
notes to condensed consolidated financial statements.
6
MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
i
A. ACCOUNTING POLICIES
In
our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary to fairly state our financial position at September 30, 2023, our results of operations and comprehensive income (loss) for the three and nine months ended September 30, 2023 and 2022, cash flows for the nine months ended September 30, 2023 and 2022 and changes in shareholders' equity for the three and nine months ended September 30, 2023 and 2022. The condensed consolidated balance sheet at December 31, 2022 was derived from audited
financial statements, but does not include all disclosures required by accounting principles generally accepted ("GAAP") in the United States of America.
i
Recently Adopted Accounting Pronouncements. In September 2022, the Financial Accounting Standards Board ("FASB") issued ASU 2022-04, "Liabilities – Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations,” which requires that an entity that uses a supplier finance program in connection with the purchase of goods or services disclose information about the program’s nature, activity
during the period, changes from period to period, and potential magnitude. We adopted this standard for annual periods on a retrospective basis, including interim periods within those annual periods, beginning January 1, 2023, except for the amendment on rollforward information, which is effective prospectively for annual periods beginning January 1, 2024 and will be adopted at that time. The adoption of this guidance modified our disclosures, but did not have an impact on our financial position and results of operations.
Recently Issued Accounting Pronouncements. In March 2023, the FASB issued ASU 2023-02, "Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method,” which permits an entity to elect
to account for their tax equity investments using the proportional amortization method if certain conditions are met, regardless of the tax credit program from which the income tax credits are received. ASU 2023-02 is effective for annual periods on either a modified retrospective or retrospective basis, including interim periods within those annual periods, beginning January 1, 2024. Early adoption is permitted. We plan to adopt this standard beginning January 1, 2024, and do not anticipate that the adoption of this new standard will have a material effect on our financial position or results of operations.
/
i
B.
ACQUISITIONS
In the third quarter of 2023, we acquired all of the share capital of Sauna360 Group Oy (“Sauna360”) for approximately €i124 million ($i136 million),
net of cash acquired. Sauna360 has a portfolio of products that includes traditional, infrared, and wood-burning saunas as well as steam showers. The business is included within the Plumbing Products segment. In connection with this acquisition, we recognized $i22 million of indefinite-lived intangible assets, which is related to trademarks, and $i45 million
of definite-lived intangible assets, primarily related to customer relationships. The definite-lived intangible assets are being amortized on a straight-line basis over a weighted average amortization period of i16 years. We also recognized $i60 million of goodwill, which is not tax deductible, and is related primarily to the expected synergies
from combining the operations into our business. The purchase price allocation for this acquisition is based on analysis of information as of the acquisition date that was available through September 30, 2023, and will be updated through the measurement period, if necessary.
/
7
MASCO
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
i
C. REVENUE
i
Our revenues are derived from sales to customers in North America and Internationally, principally
Europe. Net sales from these geographic markets, by segment, were as follows, in millions:
We
recognized $ii8/ million
of revenue for both the three months ended September 30, 2023 and 2022, related to performance obligations settled in previous quarters of the same year. We recognized $i6 million and $i11
million of revenue for the three and nine months ended September 30, 2023, respectively, and $i5 million and $i18
million of revenue for the three and nine months ended September 30, 2022, respectively, related to performance obligations settled in previous years.
(A) In
the third quarter of 2023, we acquired Sauna360. Refer to Note B for additional information.
//
9
MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
F. GOODWILL AND OTHER INTANGIBLE ASSETS (Concluded)
The
carrying value of our other indefinite-lived intangible assets were $i123 million and $i102 million at September 30,
2023 and December 31, 2022, respectively, and principally included registered trademarks. The carrying value of our definite-lived intangible assets was $i272 million (net of accumulated amortization of $i110
million) at September 30, 2023 and $i248 million (net of accumulated amortization of $i94 million) at December 31,
2022, and principally included customer relationships. The increase in our indefinite-lived and definite-lived intangible assets is primarily a result of our acquisition of Sauna360.
i
G. SUPPLIER FINANCE PROGRAM
We facilitate a voluntary supply chain finance program (the "program") to provide certain of our suppliers with the opportunity to sell receivables due from us to participating financial
institutions at the sole discretion of both the suppliers and the financial institutions. A third party administers the program; our responsibility is limited to making payment on the terms originally negotiated with our supplier, regardless of whether the supplier sells its receivable to a financial institution. We do not enter into agreements with any of the participating financial institutions in connection with the program. The range of payment terms we negotiate with our suppliers is consistent, irrespective of whether a supplier participates in the program.
All outstanding payments owed under the program are recorded within accounts payable in our condensed consolidated balance sheets. The amounts confirmed as valid under the program and included in accounts payable were $i60 million
and $i50 million at September 30, 2023 and December 31, 2022, respectively. Of the amounts confirmed as valid under the program, the amounts owed to participating financial institutions were $i21 million
and $i29 million at September 30, 2023 and December 31, 2022, respectively. All payments made under the program are recorded as a decrease in accounts payable and accrued liabilities, net, in our condensed consolidated statements of cash flows.
i
H.
DEBT
On April 26, 2022, we entered into a revolving credit agreement (the “2022 Credit Agreement”) with an aggregate commitment of $i1.0 billion and a maturity date of April 26, 2027. Under the 2022 Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate commitment up to an additional $i500 million
with the current lenders or new lenders.
The 2022 Credit Agreement provides for an unsecured revolving credit facility available to us and one of our foreign subsidiaries in U.S. dollars, European euros, British pounds sterling, Canadian dollars and certain other currencies for revolving credit loans, swingline loans and letters of credit. Borrowings under the revolving credit loans denominated in any agreed upon currency other than U.S. dollars are limited to the equivalent of $i500
million. We can also borrow swingline loans up to $i125 million and obtain letters of credit of up to $i25 million. Outstanding letters of credit under the 2022 Credit Agreement
reduce our borrowing capacity and we had ino outstanding letters of credit under the 2022 Credit Agreement at September 30, 2023.
The 2022 Credit Agreement contains financial covenants requiring us to maintain (A) a net leverage ratio, as adjusted for certain items, not exceeding i4.0
to 1.0, and (B) an interest coverage ratio, as adjusted for certain items, not less than i2.5 to 1.0.
In order for us to borrow under the 2022 Credit Agreement, there must not be any default in our covenants in the 2022 Credit Agreement (i.e., in addition to the two financial covenants described above, principally limitations on subsidiary debt, negative pledge restrictions, and requirements relating to legal compliance, maintenance of our properties and insurance) and our representations and warranties in the 2022 Credit Agreement must be true in all material respects on the date of borrowing (i.e., principally
no material adverse change or litigation likely to result in a material adverse change, since December 31, 2021, no material ERISA or environmental non-compliance, and no material tax deficiency). We were in compliance with all covenants and ino borrowings were outstanding at September 30, 2023.
/
10
MASCO
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
H. DEBT (Concluded)
On April 26, 2022, we entered into a 364-day $i500 million senior unsecured delayed draw term loan (the "term loan") due April 26, 2023 with a syndicate of lenders. The term loan and commitments thereunder were subject to prepayment
or termination at our option and the loans bore interest at SOFR plus a spread adjustment and i0.70%. The covenants, including the financial covenants, were substantially the same as those in the 2022 Credit Agreement. We repaid $i300 million during 2022 and the remaining
$i200 million upon the maturity of the term loan on April 26, 2023.
On May 9, 2023, our Hansgrohe SE subsidiary entered into €i70 million
($i77 million) of short-term borrowings to support working capital needs. The loans contain no financial covenants and €i60 million ($i63
million) remained borrowed and outstanding at a weighted average interest rate of i4.807% at September 30, 2023.
Fair Value of Debt. The fair value of our short-term and long-term fixed-rate debt instruments is based principally upon modeled market prices for the same or similar issues, which are Level 1 inputs. The aggregate estimated market value of our short-term and long-term debt at September 30, 2023 was approximately $i2.5
billion, compared with the aggregate carrying value of $i3.0 billion. The aggregate estimated market value of our short-term and long-term debt at December 31, 2022 was approximately $i2.7
billion, compared with the aggregate carrying value of $i3.2 billion.
i
I. SEGMENT INFORMATION
i
Information
by segment and geographic area was as follows, in millions:
Net
periodic pension and post-retirement benefit expense
(i3)
(i2)
(i9)
(i7)
Income
from cash and cash investments
i3
i1
i5
i2
Equity
investment loss, net
(i1)
(i6)
(i1)
(i6)
Realized
gains from private equity funds
i—
i—
i1
i—
Contingent
consideration (A)
i—
i—
i—
i24
Loss
on sale of businesses, net
i—
i—
i—
(i1)
Other
items, net
(i3)
(i1)
(i3)
(i2)
Total
other, net
$
(i11)
$
(i12)
$
(i14)
$
i4
//
(A)In
the nine months ended September 30, 2022 we recognized $i24 million of income from the revaluation of contingent consideration related to our acquisition of Kraus USA Inc.
i
K.
INCOME TAXES
Our effective tax rate was i25 percent and i24 percent for the three and nine months ended September 30,
2023, respectively, and was ii25/
percent for both the three and nine months ended September 30, 2022. Our effective tax rate for the nine months ended September 30, 2023 and 2022 was favorably impacted by $i14 million and $i10 million
of income tax benefits, respectively. For both periods, the income tax benefits primarily resulted from a reduction in the liability for uncertain tax positions resulting from the expiration of statutes of limitation and stock-based compensation.
/
12
MASCO
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
i
L. INCOME PER COMMON SHARE
i
Reconciliations of the numerators and denominators used in the computations
of basic and diluted income per common share were as follows, in millions:
Less:
Allocation to redeemable noncontrolling interest
i—
(i2)
i—
(i2)
Less:
Allocation to unvested restricted stock awards
i—
i—
i—
i3
Net
income attributable to common shareholders
$
i249
$
i220
$
i717
$
i728
Denominator:
Basic
common shares (based upon weighted average)
i225
i226
i225
i232
Add: Stock
option dilution
i1
i1
i1
i1
Diluted
common shares
i226
i227
i226
i233
/
For the three and nine months ended September 30, 2023 and 2022, we allocated dividends and undistributed earnings to the unvested restricted stock awards.
i
The following stock options, restricted stock units and performance restricted stock units were excluded from the computation of weighted-average diluted common shares outstanding due to their anti-dilutive effect, in thousands:
Effective
October 20, 2022, our Board of Directors authorized the repurchase, for retirement, of up to $i2.0 billion of shares of our common stock in open-market transactions or otherwise, replacing the previous Board of Directors authorization established in 2021. We repurchased and retired approximately i2.4 million
shares of our common stock in the nine months ended September 30, 2023 for approximately $i126 million. This included i0.2 million
shares to offset the dilutive impact of restricted stock units granted in the nine months ended September 30, 2023. At September 30, 2023, we had approximately $i1.9 billion remaining under the 2022 authorization.
/
We have declared and paid cash dividends per common share of
$i0.285 and $i0.855 for the three and nine months ended September 30, 2023, respectively, and $i0.280
and $i0.840 for the three and nine months ended September 30, 2022, respectively.
13
MASCO CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Concluded)
i
M.
OTHER COMMITMENTS AND CONTINGENCIES
Litigation. We are involved in claims and litigation, including class actions, mass torts and regulatory proceedings, which arise in the ordinary course of our business. The types of matters may include, among others: advertising, competition, contract, data privacy, employment, environmental, insurance coverage, intellectual property, personal injury, product compliance, product liability, securities and warranty. We believe we have adequate defenses in these matters. We are also subject to product safety regulations, product recalls and direct claims for product liabilities. We believe the likelihood that the outcome of these claims, litigation and product safety matters would have a material adverse effect on us is remote. However, there is no
assurance that we will prevail in these matters, and we could, in the future, incur judgments or penalties, enter into settlements of claims or revise our expectations regarding the outcome of these matters, which could materially impact our results of operations.
Warranty.iChanges in our warranty liability were as follows, in millions:
Settlements
made (in cash or kind) during the period
(i30)
(i34)
Other,
net (including currency translation and acquisitions)
i1
(i3)
Balance
at end of period
$
i83
$
i80
/
i
N.
INSURANCE SETTLEMENT
During the three months ended September 30, 2023, we received an insurance settlement payment in our Decorative Architectural Products segment related to lost sales resulting from a weather event that occurred in Texas in 2021 which impacted the operations of a resin supplier and interrupted our ability to manufacture certain paints and other coating products. The insurance settlement payment increased gross profit and operating profit by $iiii40/// million
for the three and nine months ended September 30, 2023.
/
14
MASCO CORPORATION
Item 2.
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Due to changing market conditions, we are experiencing, and may continue to experience, lower market demand for our products. We have been experiencing, and may continue to experience, elevated commodity and other input costs, as well as employee-related cost inflation. While still elevated, we have recently seen some reduction of certain costs, and we aim to offset the potential unfavorable impact of our costs and lower demand for our products with productivity improvement,
pricing, and other initiatives.
We continue to execute our strategies of leveraging our strong brand portfolio, industry-leading positions and the Masco Operating System, our methodology to drive growth and productivity, to create long-term shareholder value. We remain confident in the fundamentals of our business and long-term strategy. We believe that our strong financial position and cash flow generation, together with our investments in our industry-leading branded building products, our continued focus on innovation and disciplined capital allocation, will allow us to drive long-term growth and create value for our shareholders.
THIRD QUARTER 2023 AND THE FIRST NINE MONTHS 2023 VERSUS
THIRD QUARTER
2022 AND THE FIRST NINE MONTHS 2022
Consolidated Results of Operations
We report our financial results in accordance with accounting principles generally accepted in the United States of America ("GAAP"). However, we believe that certain non-GAAP performance measures and ratios used in managing the business may provide users of this financial information with additional meaningful comparisons between current results and results in prior periods. Non-GAAP performance measures and ratios should be viewed in addition to, and not as an alternative for, our reported results under GAAP.
The following discussion of consolidated results of operations refers to the three and nine months ended September 30, 2023 compared to the same periods of 2022.
SALES
AND OPERATIONS
Net Sales
Below is a summary of our net sales, in millions, for the three and nine months ended September 30, 2023 and 2022:
Net
sales, excluding acquisitions and the effect of currency translation
$
1,959
$
2,204
$
(245)
$
6,099
$
6,757
$
(658)
15
Net
sales for the three months ended September 30, 2023 were $2.0 billion, which decreased 10 percent compared to the three months ended September 30, 2022. Excluding acquisitions and the effect of currency translation, net sales decreased 11 percent. Net sales for the nine months ended September 30, 2023 were $6.1 billion, which decreased 10 percent compared to the nine months ended September 30, 2022. Excluding acquisitions and the effect of currency translation, net sales decreased 10 percent.
Net
sales decreased primarily due to:
•
Lower sales volume which decreased sales by 12 percent and 13 percent for the three and nine months ended September 30, 2023, respectively.
•
Unfavorable sales mix of plumbing products which decreased sales by one percent for the nine months ended September 30, 2023.
These
amounts were partially offset by:
•
Higher net selling prices driven by plumbing products which increased sales by one percent for the three months ended September 30, 2023 and higher net selling prices across the entire company which increased sales by four percent for the nine months ended September 30, 2023.
Gross
Profit and Gross Margin
Below is a summary of our gross profit, in millions, and gross margin for the three and nine months ended September 30, 2023 and 2022:
Below is a summary of our selling, general and administrative expenses, in millions, and selling, general and administrative expenses as a percentage of net sales for the three and nine months ended September 30, 2023 and 2022:
For
the nine months ended September 30, 2022, other, net included $24 million of income from the revaluation of contingent consideration related to our acquisition of Kraus USA Inc.
INCOME TAXES
Below is a summary of our income tax expense, in millions, and our effective tax rate for the three and nine months ended September 30, 2023 and 2022:
Our effective tax rate for the nine months ended September 30, 2023 and 2022
was favorably impacted by $14 million and $10 million of income tax benefits, respectively. For both periods, the income tax benefits primarily resulted from a reduction in the liability for uncertain tax positions resulting from the expiration of statutes of limitation and stock-based compensation.
18
NET INCOME AND INCOME PER COMMON SHARE - ATTRIBUTABLE TO MASCO CORPORATION
Below
is a summary of our net income and diluted income per common share, in millions, except per share data, for the three and nine months ended September 30, 2023 and 2022:
The following tables set forth our net sales and operating profit information by business segment and geographic area, dollars in millions.
Three
Months Ended September 30,
Percent Change
Nine Months Ended September 30,
Percent Change
2023
2022
2023 vs. 2022
2023
2022
2023 vs. 2022
Net
Sales:
Plumbing Products
$
1,191
$
1,324
(10)
%
$
3,638
$
4,056
(10)
%
Decorative
Architectural Products
788
880
(10)
%
2,447
2,701
(9)
%
Total
$
1,979
$
2,204
(10)
%
$
6,085
$
6,757
(10)
%
North
America
$
1,602
$
1,792
(11)
%
$
4,875
$
5,431
(10)
%
International, principally Europe
377
412
(8)
%
1,210
1,326
(9)
%
Total
$
1,979
$
2,204
(10)
%
$
6,085
$
6,757
(10)
%
Three
Months Ended September 30,
Percent Change
Nine Months Ended September 30,
Percent Change
2023
2022
2023 vs. 2022
2023
2022
2023 vs. 2022
Operating
Profit (A):
Plumbing Products
$
223
$
220
1
%
$
673
$
686
(2)
%
Decorative
Architectural Products
181
151
20
%
493
498
(1)
%
Total
$
404
$
371
9
%
$
1,166
$
1,184
(2)
%
North
America
$
348
$
305
14
%
$
972
$
961
1
%
International, principally Europe
56
66
(15)
%
194
223
(13)
%
Total
404
371
9
%
1,166
1,184
(2)
%
General
corporate expense, net
(21)
(20)
5
%
(65)
(72)
(10)
%
Total operating profit
$
383
$
351
9
%
$
1,101
$
1,112
(1)
%
(A)Before
general corporate expense, net; refer to Note I to the condensed consolidated financial statements.
20
The following discussion of business segment and geographic
area results refers to the three and nine months ended September 30, 2023 compared to the same periods of 2022. Changes in operating profit in the following business segment and geographic area results discussion exclude general corporate expense, net.
BUSINESS SEGMENT RESULTS DISCUSSION
Plumbing Products
Sales
Net sales in the Plumbing Products segment decreased 10 percent for both the three and nine months ended September 30, 2023. In local currencies (including sales in currencies outside their respective functional currencies), net sales decreased 11 percent and 10 percent for the three and nine months ended September 30,
2023, respectively. Lower sales volume decreased sales by 14 percent and 13 percent for the three and nine months ended September 30, 2023, respectively. Unfavorable sales mix decreased sales by one percent for both the three and nine months ended September 30, 2023. These amounts were partially offset by higher net selling prices which increased sales by three percent and four percent for the three and nine months ended September 30, 2023, respectively.
Operating Results
Operating profit in the Plumbing Products segment for the three months ended September 30, 2023 was positively impacted by higher net selling prices, lower transportation and commodity costs and cost savings initiatives.
These amounts were mostly offset by lower sales volume, unfavorable foreign currency translation and increased employee-related costs. Operating profit for the nine months ended September 30, 2023 was negatively impacted by lower sales volume, increased employee-related costs, unfavorable foreign currency translation, unfavorable sales mix and increased marketing costs. These amounts were partially offset by higher net selling prices, lower transportation and commodity costs and cost savings initiatives.
Decorative Architectural Products
Sales
Net sales in the Decorative Architectural Products segment decreased 10 percent and nine percent for the three and nine months ended September 30, 2023, respectively. For the three months ended September 30,
2023 this decrease was due primarily to lower sales volume and lower net selling prices. For the nine months ended September 30, 2023 this decrease was due primarily to lower sales volume, partially offset by higher net selling prices.
Operating Results
Operating profit in the Decorative Architectural Products segment for the three months ended September 30, 2023 was positively impacted by the receipt of an insurance settlement payment and cost savings initiatives, partially offset by lower sales volume and lower net selling prices. Operating profit for the nine months ended September 30, 2023 was negatively impacted by lower sales volume and increased commodity costs, mostly offset by higher net selling prices, receipt of an insurance
settlement payment and cost saving initiatives.
21
GEOGRAPHIC AREA RESULTS DISCUSSION
North
America
Sales
North America net sales decreased 11 percent and 10 percent for the three and nine months ended September 30, 2023, respectively. Lower sales volume across all product categories decreased sales by 11 percent and 13 percent for the three and nine months ended September 30, 2023, respectively. Unfavorable sales mix decreased sales by one percent for both the three and nine months ended September 30, 2023. These amounts were partially offset by higher net selling prices which increased sales by one percent and three percent for the three and nine months ended September 30, 2023, respectively.
Operating Results
North
America operating profit for the three months ended September 30, 2023 was positively impacted by lower transportation and commodity costs, receipt of an insurance settlement payment and cost savings initiatives. These amounts were partially offset by lower sales volume and higher employee-related costs. North America operating profit for the nine months ended September 30, 2023 was positively impacted by higher net selling prices, cost savings initiatives, receipt of an insurance settlement payment and lower transportation costs. These amounts were mostly offset by lower sales volume, higher employee-related costs and higher marketing costs.
International, Principally Europe
Sales
International net sales decreased eight percent and nine
percent for the three and nine months ended September 30, 2023, respectively. In local currencies (including sales in currencies outside their respective functional currencies), net sales decreased 11 percent and seven percent for the three and nine months ended September 30, 2023, respectively. Lower sales volume decreased sales by 16 percent and 12 percent for the three and nine months ended September 30, 2023, respectively. Unfavorable sales mix decreased sales by one percent for the nine months ended September 30, 2023. These amounts were partially offset by higher net selling prices which increased sales by four percent and six percent for the three and nine months ended September 30, 2023, respectively.
Operating
Results
International operating profit for the three and nine months ended September 30, 2023 was negatively impacted by lower sales volume and unfavorable foreign currency translation. For the nine months ended September 30, 2023 operating profit was also negatively impacted by unfavorable sales mix. These amounts were partially offset by higher net selling prices and lower transportation and commodity costs.
Liquidity and Capital Resources
Overview of Capital Structure
We had cash and cash investments of approximately
$560 million and $452 million at September 30, 2023 and December 31, 2022, respectively. Our cash and cash investments consist of overnight interest bearing money market demand accounts, time deposit accounts, and money market mutual funds containing government securities and treasury obligations. While we attempt to diversify these investments in a prudent manner to minimize risk, it is possible that future changes in the financial markets could affect the security or availability of these investments. Of the cash and cash investments we held at September 30, 2023 and December 31, 2022, $274 million and $321 million, respectively, was held in our foreign subsidiaries. If these funds
were needed for our operations in the U.S., their repatriation into the U.S. would not result in significant additional U.S. income tax or foreign withholding tax, as we have recorded such taxes on substantially all undistributed foreign earnings, except for those that are legally restricted.
Our current ratio was 1.8 to 1 and 1.6 to 1 at September 30, 2023 and December 31, 2022, respectively. The increase in our current ratio is primarily due to the repayment of the 364-day term loan during 2023.
22
We believe that our present cash balance and cash
flows from operations, and borrowing availability under our revolving credit agreement, are sufficient to fund our near-term working capital and other investment needs. We believe that our longer-term working capital and other general corporate requirements will be satisfied through cash flows from operations and, to the extent necessary, from bank borrowings and future financial market activities. However, due to the changing market conditions and its impact on our customers and suppliers, we are unable to fully estimate the extent of the impact that the changing market conditions may have on our future financial condition.
Credit Agreement
On April 26, 2022, we entered into a revolving credit agreement (the “2022 Credit Agreement”) with an aggregate commitment of $1.0 billion and a maturity date of April
26, 2027.
Under the 2022 Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate commitment up to an additional $500 million with the current lenders or new lenders. See Note H to the condensed consolidated financial statements for additional information.
The 2022 Credit Agreement contains financial covenants requiring us to maintain (A) a net leverage ratio, as adjusted for certain items, not exceeding 4.0 to 1.0, and (B) an interest coverage ratio, as adjusted for certain items, not less than 2.5 to 1.0. We were in compliance with all covenants and no borrowings were outstanding at September 30, 2023.
364-day Term Loan
On April 26, 2022, we entered
into a 364-day $500 million senior unsecured delayed draw term loan (the "term loan") due April 26, 2023 with a syndicate of lenders. The term loan and commitments thereunder were subject to prepayment or termination at our option and the loans bore interest at SOFR plus a spread adjustment and 0.70%. The covenants, including the financial covenants, were substantially the same as those in the 2022 Credit Agreement. We repaid $300 million during 2022 and the remaining $200 million upon the maturity of the term loan on April 26, 2023.
Other Liquidity and Capital Resource Activities
On May 9, 2023, our Hansgrohe SE subsidiary entered into €70 million ($77 million) of short-term borrowings to support working
capital needs. The loans contain no financial covenants and €60 million ($63 million) remained borrowed and outstanding at a weighted average interest rate of 4.807% at September 30, 2023.
As part of our ongoing efforts to improve our cash flow and related liquidity, we work with suppliers to optimize our terms and conditions, including extending payment terms. We also facilitate a voluntary supply chain finance program (the "program") to provide certain of our suppliers with the opportunity to sell receivables due from us to participating financial institutions at the sole discretion of both the suppliers and the financial institutions. The amounts confirmed as valid under the program and included in accounts payable were $60 million and $50 million at September 30, 2023 and December 31,
2022, respectively. Of the amounts confirmed as valid under the program, the amounts owed to participating financial institutions were $21 million and $29 million at September 30, 2023 and December 31, 2022, respectively. All payments made under the program are recorded as a decrease in accounts payable and accrued liabilities, net, in our condensed consolidated statements of cash flows. A downgrade in our credit rating or changes in the financial markets could limit the financial institutions’ willingness to commit funds to, and participate in, the program. We do not believe such risk would have a material impact on our working capital or cash flows, as substantially all of our payments are made outside of the program.
Acquisitions
In the third quarter of 2023, we acquired all
of the share capital of Sauna360 for approximately €124 million ($136 million), net of cash acquired. Sauna360 has a portfolio of products that includes traditional, infrared, and wood-burning saunas as well as steam showers.
23
Share Repurchases
Effective October 20, 2022, our Board of Directors authorized the repurchase, for retirement, of up to $2.0 billion of shares of our common stock in open-market transactions or otherwise, replacing the previous Board of Directors authorization established in 2021. We repurchased and retired approximately 2.4 million shares
of our common stock in the nine months ended September 30, 2023 for approximately $126 million. This included 0.2 million shares to offset the dilutive impact of restricted stock units granted in the nine months ended September 30, 2023. At September 30, 2023, we had approximately $1.9 billion remaining under the 2022 authorization. Consistent with our past practice and as part of our long-term capital allocation strategy, we anticipate using approximately $350 million of cash for share repurchases (including shares which will be purchased to offset any dilution from restricted stock units granted as part of our compensation program) in 2023.
Cash Flows
For
the nine months ended September 30, 2023, net cash provided by operations was $928 million, primarily driven by operating profit.
For the nine months ended September 30, 2023, net cash used for financing activities was $498 million, primarily due to $200 million for the repayment of the 364-day term loan, $193 million for the payment of cash dividends, $126 million for the repurchase and retirement of our common stock (including 0.2 million shares repurchased to offset the dilutive impact of restricted stock units granted in 2023), and $49 million for dividends paid to noncontrolling interest. These uses of cash were partially offset by $66 million of net proceeds from short-term debt borrowings.
For the nine months ended September 30, 2023,
net cash used for investing activities was $321 million, primarily driven by $181 million of capital expenditures and $136 million for the acquisition of Sauna360.
This Report contains statements that reflect our views about our future performance and constitute "forward-looking statements" under the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as "outlook,""believe,""anticipate,""appear,""may,""will,""should,""intend,""plan,""estimate,""expect,""assume,""seek,""forecast," and similar references to future periods. Our views about future performance involve risks and uncertainties that are difficult to predict and, accordingly, our actual results may differ materially from the results discussed in our forward-looking statements. We caution you against relying on any of these forward-looking statements.
Our future performance may be affected by the levels of residential repair and remodel activity, and to a lesser extent, new home construction, our ability to maintain our strong brands and to develop innovative products, our ability to maintain our public reputation, our ability to maintain our competitive position in our industries, our reliance on key customers, the cost and availability of materials, our
dependence on suppliers and service providers, extreme weather events and changes in climate, risks associated with our international operations and global strategies, our ability to achieve the anticipated benefits of our strategic initiatives, our ability to successfully execute our acquisition strategy and integrate businesses that we have acquired and may in the future acquire, our ability to attract, develop and retain a talented and diverse workforce, risks associated with cybersecurity vulnerabilities, threats and attacks, risks associated with our reliance on information systems and technology and the impact of the ongoing COVID-19 pandemic on our business and operations.
These and other factors are discussed in detail in Item 1A. "Risk Factors" in our most recent Annual Report on Form 10-K, as well as in other filings we make with the Securities and Exchange Commission.
Any forward-looking statement made by us speaks only as of the date on which it was made. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. Unless required by law, we undertake no obligation to update publicly any forward-looking statements as a result of new information, future events or otherwise.
25
MASCO CORPORATION
Item 4.
CONTROLS
AND PROCEDURES
a.Evaluation of Disclosure Controls and Procedures.
The Company's Principal Executive Officer and Principal Financial Officer have concluded, based on an evaluation of the Company's disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) or 15d-15(e)) as required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15 that, as of September 30, 2023, the Company's disclosure controls and procedures were effective.
b. Changes
in Internal Control over Financial Reporting.
In connection with the evaluation of the Company's internal control over financial reporting that occurred during the quarter ended September 30, 2023, which is required under the Securities Exchange Act of 1934 by paragraph (d) of Exchange Rules 13a-15 or 15d-15 (as defined in paragraph (f) of Rule 13a-15), management determined that there was no change that materially affected or is reasonably likely to materially affect internal control over financial reporting.
26
MASCO
CORPORATION
PART II. OTHER INFORMATION
Item 1.Legal Proceedings
Information regarding legal proceedings involving us is set forth in Note M to our condensed consolidated financial statements included in Part I, Item 1 of this Report and is incorporated herein by reference.
Item
1A. Risk Factors
There have been no material changes to the risk factors of the Company set forth in Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information regarding the repurchase of our common stock for the three months ended September 30,
2023 under the 2022 share repurchase authorization:
Period
Total Number Of Shares Purchased
Average Price Paid Per Common Share
Total Number Of Shares Purchased As Part Of Publicly Announced Plans or Programs
Maximum Value Of Shares That May Yet Be Purchased Under The Plans
Or Programs
7/1/23 - 7/31/23
773,051
$
58.22
773,051
$
1,873,997,902
8/1/23 - 8/31/23
—
$
—
—
$
1,873,997,902
9/1/23
- 9/30/23
—
$
—
—
$
1,873,997,902
Total for the quarter
773,051
$
58.22
773,051
$
1,873,997,902
Item
5. Other Information
Rule 10b5-1 and Non-Rule 10b5-1 Trading Arrangements
During the three months ended September 30, 2023, none of our officers or directors iiadopted/
or iiterminated/ any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement.
Certifications
required by Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code.
101
The following financial information from Masco Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL: (i) the Condensed Consolidated Balance Sheets, (ii) the Condensed Consolidated Statements of Operations, (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Condensed Consolidated Statements of Cash Flows, (v) the Condensed Consolidated Statements of Shareholders' Equity, and (vi) Notes to Condensed Consolidated Financial Statements.
104
Cover
Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)
28
MASCO CORPORATION
PART II. OTHER INFORMATION, Concluded
SIGNATURE
Pursuant to the requirements 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.