MASCO CORP /DE/, 10-Q filed on 5/2/2013
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2013
Apr. 26, 2013
Document Document And Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Mar. 31, 2013 
 
Document Fiscal Year Focus
2013 
 
Document Fiscal Period Focus
Q1 
 
Trading Symbol
MAS 
 
Entity Registrant Name
MASCO CORP /DE/ 
 
Entity Central Index Key
0000062996 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
356,866,800 
CONSOLIDATED BALANCE SHEETS (USD $)
In Millions, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Current assets:
 
 
Cash and cash investments
$ 1,032 
$ 1,351 
Receivables
1,174 
933 
Prepaid expenses and other
107 
107 
Assets held for sale
98 
100 
Inventories:
 
 
Finished goods
408 
368 
Raw material
261 
266 
Work in process
94 
92 
Inventories
763 
726 
Total current assets
3,174 
3,217 
Property and equipment, net
1,294 
1,326 
Goodwill
1,891 
1,894 
Other intangible assets, net
150 
151 
Other assets
182 
184 
Assets held for sale
88 
103 
Total assets
6,779 
6,875 
Current liabilities:
 
 
Notes payable
206 
206 
Accounts payable
863 
788 
Accrued liabilities
714 
823 
Liabilities held for sale
43 
45 
Total current liabilities
1,826 
1,862 
Long-term debt
3,421 
3,422 
Deferred income taxes and other
1,037 
1,053 
Liabilities held for sale
 
Total liabilities
6,284 
6,341 
Commitments and contingencies
   
   
Masco Corporation's shareholders' equity:
 
 
Common shares, par value $1 per share Authorized shares: 1,400,000,000; issued and outstanding: 2013 - 349,100,000; 2012 -349,000,000
349 
349 
Preferred shares authorized: 1,000,000; issued and outstanding: 2013 - None; 2012 - None
   
   
Paid-in capital
 
16 
Accumulated deficit
(103)
(102)
Accumulated other comprehensive income
36 
59 
Total Masco Corporation's shareholders' equity
282 
322 
Noncontrolling interest
213 
212 
Total equity
495 
534 
Total liabilities and equity
$ 6,779 
$ 6,875 
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
Mar. 31, 2013
Dec. 31, 2012
Statement Of Financial Position [Abstract]
 
 
Common shares, par value
$ 1 
$ 1 
Common shares, shares Authorized
1,400,000,000 
1,400,000,000 
Common shares, shares issued
349,100,000 
349,000,000 
Common shares, shares outstanding
349,100,000 
349,000,000 
Preferred shares, shares authorized
1,000,000 
1,000,000 
Preferred shares, shares issued
Preferred shares, shares outstanding
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Income Statement [Abstract]
 
 
Net sales
$ 1,876 
$ 1,806 
Cost of sales
1,368 
1,322 
Gross profit
508 
484 
Selling, general and administrative expenses
376 
377 
Income from litigation settlements, net
 
(2)
Operating profit
132 
109 
Other income (expense), net:
 
 
Interest expense
(60)
(64)
Other, net
15 
Total other income (expense), net
(53)
(49)
Income from continuing operations before income taxes
79 
60 
Income taxes
14 
Income from continuing operations
65 
53 
Loss from discontinued operations
(9)
(9)
Net income
56 
44 
Less: Net income attributable to noncontrolling interest
11 
Net income attributable to Masco Corporation
47 
33 
Basic:
 
 
Income from continuing operations
$ 0.16 
$ 0.12 
Loss from discontinued operations
$ (0.03)
$ (0.03)
Net income
$ 0.13 
$ 0.09 
Diluted:
 
 
Income from continuing operations
$ 0.16 
$ 0.12 
Loss from discontinued operations
$ (0.03)
$ (0.03)
Net income
$ 0.13 
$ 0.09 
Amounts attributable to Masco Corporation:
 
 
Income from continuing operations
56 
42 
Loss from discontinued operations
(9)
(9)
Net income attributable to Masco Corporation
$ 47 
$ 33 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Statement Of Income And Comprehensive Income [Abstract]
 
 
Net income
$ 56 
$ 44 
Less: Net income attributable to noncontrolling interest
11 
Net income attributable to Masco Corporation
47 
33 
Other comprehensive income (loss), net of tax (see Footnote K):
 
 
Cumulative translation adjustment
(36)
30 
Interest rate swaps, net of income tax of $- and $-, respectively
   
   
Unrecognized pension prior service cost and net loss, net of income tax of $-and $-, respectively
Other comprehensive (loss) income
(31)
34 
Less: Other comprehensive (loss) income attributable to noncontrolling interest
(8)
Other comprehensive (loss) income attributable to Masco Corporation
(23)
27 
Total comprehensive income
25 
78 
Less: Total comprehensive income attributable to noncontrolling interest
18 
Total comprehensive income attributable to Masco Corporation
$ 24 
$ 60 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (Parenthetical) (USD $)
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Statement Of Income And Comprehensive Income [Abstract]
 
 
Income tax on interest rate swaps
   
   
Income tax on unrecognized pension prior service cost and net loss
   
   
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
 
 
Cash provided by operations
$ 130 
$ 90 
Increase in receivables
(263)
(272)
Increase in inventories
(43)
(50)
(Decrease) increase in accounts payable and accrued liabilities, net
(34)
65 
Net cash for operating activities
(210)
(167)
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
 
 
Purchase of Company common stock
(35)
(8)
Cash dividends paid
(26)
(26)
New Credit Agreement costs
(4)
 
Issuance of Notes, net of issuance costs
 
396 
Retirement of Notes
 
(46)
Payment for settlement of swaps
 
(25)
Payment of debt
 
(1)
Net cash (for) from financing activities
(65)
290 
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:
 
 
Capital expenditures
(31)
(24)
Acquisition of companies, net of cash acquired
(5)
 
Proceeds from disposition of:
 
 
Other financial investments
23 
Property and equipment
Purchases of other financial investments
 
(1)
Other, net
(4)
(8)
Net cash for investing activities
(30)
(2)
Effect of exchange rate changes on cash and cash investments
(14)
11 
CASH AND CASH INVESTMENTS:
 
 
(Decrease) increase for the period
(319)
132 
At January 1
1,351 
1,656 
At March 31
$ 1,032 
$ 1,788 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (USD $)
In Millions, unless otherwise specified
Total
Common Shares ($1 par value) [Member]
Paid-In Capital [Member]
Retained (Deficit) Earnings [Member]
Accumulated Other Comprehensive Income [Member]
Noncontrolling Interest [Member]
Beginning balance at Dec. 31, 2011
$ 742 
$ 348 
$ 65 
$ 38 
$ 76 
$ 215 
Total comprehensive income
78 
 
 
33 
27 
18 
Shares issued
 
(2)
 
 
 
Shares retired:
 
 
 
 
 
 
Repurchased
(8)
(1)
(7)
 
 
 
Surrendered (non-cash)
(7)
 
(7)
 
 
 
Cash dividends declared
(26)
 
 
(26)
 
 
Stock-based compensation
13 
 
13 
 
 
 
Ending balance at Mar. 31, 2012
792 
349 
62 
45 
103 
233 
Beginning balance at Dec. 31, 2012
534 
349 
16 
(102)
59 
212 
Total comprehensive income
25 
 
 
47 
(23)
Shares issued
(7)
(9)
 
 
 
Shares retired:
 
 
 
 
 
 
Repurchased
(35)
(2)
(11)
(22)
 
 
Surrendered (non-cash)
(10)
 
(10)
 
 
 
Cash dividends declared
(26)
 
 
(26)
 
 
Stock-based compensation
14 
 
14 
 
 
 
Ending balance at Mar. 31, 2013
$ 495 
$ 349 
 
$ (103)
$ 36 
$ 213 
Accounting Policies
Accounting Policies
A. In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary to present fairly its financial position as at March 31, 2013 and the results of operations and cash flows for the three months ended March 31, 2013 and 2012. The condensed consolidated balance sheet at December 31, 2012 was derived from audited financial statements.

Certain prior-year amounts have been reclassified to conform to the 2013 presentation in the condensed consolidated financial statements. In the Company’s condensed consolidated balance sheets, assets and liabilities related to the 2013 discontinued operations have been separately presented at March 31, 2013 and December 31, 2012. The results of operations related to the 2013 discontinued operations have been separately stated in the accompanying condensed consolidated statements of operations for the three months ended March 31, 2013 and 2012. In the Company’s condensed consolidated statements of cash flows for the three months ended March 31, 2013 and 2012, cash flows from discontinued operations are not separately classified.

Recently Issued Accounting Pronouncements. On January 1, 2013, the Company adopted new accounting guidance requiring disclosure of amounts reclassified from accumulated other comprehensive income. The adoption of this new guidance did not have an impact on the Company’s financial position or its results of operations.

Discontinued Operations
Discontinued Operations
B. In the first quarter of 2013, the Company determined that Tvilum, its Danish ready-to-assemble cabinet business, is no longer core to its long-term growth strategy and, accordingly, the Company has embarked on a plan for disposition. The Company has accounted for this business and those which were sold in 2012 as discontinued operations.

Selected financial information for the discontinued operations, during the period owned by the Company, was as follows, in millions:

 

     Three Months Ended  
     March 31,  
     2013     2012  

Net Sales

   $ 59      $ 89   
  

 

 

   

 

 

 

Operating loss from discontinued operations

   $ (3   $ (11

Impairment of assets

     (10     —     

Loss on disposal of discontinued operations, net

     —          (1
  

 

 

   

 

 

 

Loss before income tax

     (13     (12

Income tax benefit

     (4     (3
  

 

 

   

 

 

 

Loss from discontinued operations

   $ (9   $ (9
  

 

 

   

 

 

 

Included in impairment of assets in 2013 is the impairment of fixed assets held for sale. During the first quarter of 2013, the Company estimated the fair value of the business held for sale, using unobservable inputs (Level 3). After considering the deferred gains reported in Accumulated Other Comprehensive Income, the Company recorded an impairment of $10 million in the first quarter of 2013.

The following balance sheet items have been reclassified as held for sale:

 

     March 31,      December 31,  
     2013      2012  

Receivables

   $ 32       $ 32   

Inventories

     64         66   

Prepaid expenses and other

     2         2   

Property and equipment, net

     88         103   
  

 

 

    

 

 

 

Total assets

   $ 186       $ 203   
  

 

 

    

 

 

 

Accounts payable

   $ 31       $ 31   

Accrued liabilities

     12         14   

Deferred income taxes

     —           4   
  

 

 

    

 

 

 

Total liabilities

   $ 43       $ 49   
  

 

 

    

 

 

 
Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
C. The changes in the carrying amount of goodwill for the three months ended March 31, 2013, by segment, were as follows, in millions:

 

     Gross Goodwill      Accumulated     Net Goodwill  
     At      Impairment     At  
     Mar. 31, 2013      Losses     Mar. 31, 2013  

Cabinets and Related Products

   $ 240       $ (59   $ 181   

Plumbing Products

     539         (340     199   

Installation and Other Services

     1,806         (762     1,044   

Decorative Architectural Products

     294         (75     219   

Other Specialty Products

     982         (734     248   
  

 

 

    

 

 

   

 

 

 

Total

   $ 3,861       $ (1,970   $ 1,891   
  

 

 

    

 

 

   

 

 

 

 

     Gross Goodwill
At

Dec. 31, 2012
     Accumulated
Impairment
Losses
    Net Goodwill
At

Dec. 31, 2012
     Other(A)     Additions(B)      Net Goodwill
At
Mar. 31, 2013
 

Cabinets and Related Products

   $ 240       $ (59   $ 181       $ —        $ —         $ 181   

Plumbing Products

     544         (340     204         (5     —           199   

Installation and Other Services

     1,806         (762     1,044         —          —           1,044   

Decorative Architectural Products

     294         (75     219         —          —           219   

Other Specialty Products

     980         (734     246         —          2         248   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 3,864       $ (1,970   $ 1,894       $ (5   $ 2       $ 1,891   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

(A) Other principally includes the effect of foreign currency translation.
(B) Additions include the acquisition of a U.K. door business.

Other indefinite-lived intangible assets were $132 million at both March 31, 2013 and December 31, 2012, and principally included registered trademarks. The carrying value of the Company’s definite-lived intangible assets was $18 million (net of accumulated amortization of $58 million) at March 31, 2013 and $19 million (net of accumulated amortization of $57 million) at December 31, 2012, and principally included customer relationships and non-compete agreements.

Depreciation and Amortization Expense
Depreciation and Amortization Expense
D. Depreciation and amortization expense, including discontinued operations, was $49 million and $55 million, including accelerated depreciation, relating to business rationalization initiatives, of $4 million and $7 million, for the three months ended March 31, 2013 and 2012, respectively.
Fair Value of Financial Investments and Liabilities
Fair Value of Financial Investments and Liabilities
E. The Company has maintained investments in available-for-sale securities and a number of private equity funds, principally as part of its tax planning strategies, as any gains enhance the utilization of any current and future tax capital losses. Financial investments included in other assets were as follows, in millions:

 

     March 31,
2013
     December 31,
2012
 

Auction rate securities

   $ 22       $ 22   
  

 

 

    

 

 

 

Total recurring investments

     22         22   
  

 

 

    

 

 

 

Private equity funds

     67         69   

Other investments

     4         4   
  

 

 

    

 

 

 

Total non-recurring investments

     71         73   
  

 

 

    

 

 

 

Total

   $ 93       $ 95   
  

 

 

    

 

 

 

The Company’s investments in available-for-sale securities at March 31, 2013 and December 31, 2012 were as follows, in millions:

 

            Pre-tax         
     Cost Basis      Unrealized
Gains
     Unrealized
Losses
     Recorded
Basis
 

March 31, 2013

   $ 19       $ 3       $ —         $ 22   

December 31, 2012

   $ 19       $ 3       $ —         $ 22   

Recurring Fair Value Measurements. Financial investments measured at fair value on a recurring basis at each reporting period and the amounts for each level within the fair value hierarchy were as follows, in millions:

 

            Fair Value Measurements Using  
     Mar. 31,
2013
     Quoted
Market
Prices
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Auction rate securities

   $ 22         —           —         $ 22   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 22       $ —         $ —         $ 22   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

            Fair Value Measurements Using  
     Dec. 31,
2012
     Quoted
Market
Prices
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Auction rate securities

   $ 22       $ —         $ —         $ 22   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 22       $ —         $ —         $ 22   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

The fair value of the auction rate securities held by the Company have been estimated, on a recurring basis, using a discounted cash flow model (Level 3 input). The significant inputs in the discounted cash flow model used to value the auction rate securities include the expected maturity date of auction rate securities, discount rate used to determine the present value of expected cash flows and the assumptions for credit defaults, since the auction rate securities are backed by credit default swap agreements.

The following table summarizes the changes in Level 3 financial assets measured at fair value on a recurring basis for the three months ended March 31, 2013 and the year ended December 31, 2012, in millions:

 

     March 31, 2013
Auction Rate
Securities
     December 31, 2012
Auction Rate
Securities
 

Fair value at beginning of period

   $ 22       $ 22   

Total losses included in earnings

     —           —     

Unrealized (losses)

     —           —     

Purchases

     —           —     

Settlements

     —           —     

Transfer from Level 3 to Level 2

     —           —     
  

 

 

    

 

 

 

Fair value at period end

   $ 22       $ 22   
  

 

 

    

 

 

 

Non-Recurring Fair Value Measurements. During the three-months ended March 31, 2013 and 2012, the Company did not measure any financial investments at fair value on a non-recurring basis, as there was no other-than-temporary decline in the estimated value of private equity funds.

The Company did not have any transfers between Level 1 and Level 2 financial assets in the three months ended March 31, 2013 or 2012

Realized Gains. Income from financial investments net, included in other, net, within other income (expense), net, was as follows, in millions:

 

     Three Months Ended
March  31,
 
     2013      2012  

Realized gains from private equity funds

   $ 3       $ 16   
  

 

 

    

 

 

 

Total income from financial investments

   $ 3       $ 16   
  

 

 

    

 

 

 

The fair value of the Company’s short-term and long-term fixed-rate debt instruments is based principally upon modeled 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 estimated market value of short-term and long-term debt at March 31, 2013 was approximately $4.0 billion, compared with the aggregate carrying value of $3.6 billion. The aggregate estimated market value of short-term and long-term debt at December 31, 2012 was approximately $4.0 billion, compared with the aggregate carrying value of $3.6 billion.

Derivative Instruments and Hedging Activities
Derivative Instruments and Hedging Activities
F. The Company is exposed to global market risk as part of its normal daily business activities. To manage these risks, the Company enters into various derivative contracts. These contracts include interest rate swap agreements, foreign currency exchange contracts and contracts intended to hedge the Company’s exposure to copper and zinc. The Company reviews its hedging program, derivative positions and overall risk management on a regular basis.

Interest Rate Swap Agreements. In March 2012, in connection with the issuance of $400 million of debt, the Company terminated the interest rate swap hedge relationships that it entered into in August 2011. These interest rate swaps were designated as cash flow hedges and effectively fixed interest rates on the forecasted debt issuance to variable rates based on 3-month LIBOR. Upon termination, the ineffective portion of the cash flow hedges of approximately $2 million loss was recognized in the Company’s consolidated statement of income in other, net. The remaining loss of approximately $23 million from the termination of these swaps is being amortized as an increase to interest expense over the remaining term of the debt, through March 2022. At March 31, 2013, the balance remaining in Accumulated Other Comprehensive Income was $21 million.

In the three months ended March 31, 2012, the Company recognized a net decrease in interest expense of $3 million resulting from the amortization of net gains related to the terminations (in 2012, 2008 and 2004) of the interest rate swap agreements.

Foreign Currency Contracts. The Company’s net cash inflows and outflows exposed to the risk of changes in foreign currency exchange rates arise from the sale of products in countries other than the manufacturing source, foreign currency denominated supplier payments, debt and other payables, and investments in subsidiaries. To mitigate this risk during 2013 and 2012, the Company, including certain European operations, entered into foreign currency forward contracts and foreign currency exchange contracts.

Gains (losses) related to foreign currency forward and exchange contracts are recorded in the Company’s condensed consolidated statements of operations in other income (expense), net. In the event that the counterparties fail to meet the terms of the foreign currency forward contracts, the Company’s exposure is limited to the aggregate foreign currency rate differential with such institutions.

Metal Contracts. During 2013 and 2012, the Company entered into several contracts to manage its exposure to increases in the price of copper and zinc. Gains (losses) related to these contracts are recorded in the Company’s condensed consolidated statements of operations in cost of sales.

The pre-tax gain (loss) included in the Company’s condensed consolidated statements of operations is as follows, in millions:

 

     Three Months Ended  
     March 31,  
     2013     2012  

Foreign Currency Contracts

    

Exchange Contracts

   $ 7      $ (5

Forward Contracts

     2        (1

Metal Contracts

     (4     7   
  

 

 

   

 

 

 

Total gain

   $ 5      $ 1   
  

 

 

   

 

 

 

 The Company presents its derivatives, net by counterparty due to the right of offset under master netting arrangements in current assets or current liabilities in the condensed consolidated balance sheets. The notional amounts being hedged and the fair value of those derivative instruments, on a gross basis, are as follows, in millions:

 

     At March 31, 2013  
     Notional                
     Amount      Assets      Liabilities  

Foreign Currency Contracts

        

Exchange Contracts

   $ 162         

Current assets

      $ 4       $ 1   

Forward Contracts

     68         

Current assets

        1         —     

Metal Contracts

     56         

Current liabilities

        —           4   
     

 

 

    

 

 

 

Total

      $ 5       $ 5   
     

 

 

    

 

 

 

 

     At December 31, 2012  
     Notional                
     Amount      Assets      Liabilities  

Foreign Currency Contracts

        

Exchange Contracts

   $ 172         

Current liabilities

      $ —         $ 5   

Forward Contracts

     76         

Current assets

        1         1   

Metal Contracts

     35         

Current liabilities

        1         2   
     

 

 

    

 

 

 

Total

      $ 2       $ 8   
     

 

 

    

 

 

 

The fair value of all metal and foreign currency derivative contracts is estimated on a recurring basis, quarterly, using Level 2 inputs (significant other observable inputs).

Warranty
Warranty
G. Changes in the Company’s warranty liability were as follows, in millions:

 

     Three Months Ended     Twelve Months Ended  
     March 31, 2013     December 31, 2012  

Balance at January 1

   $ 118      $ 102   

Accruals for warranties issued during the period

     9        42   

Accruals related to pre-existing warranties

     1        16   

Settlements made (in cash or kind) during the period

     (10     (38

Other, net

     —          (4
  

 

 

   

 

 

 

Balance at end of period

   $ 118      $ 118   
  

 

 

   

 

 

 
Debt
Debt
H. On March 28, 2013, the Company entered into a credit agreement (the “New Credit Agreement”) with a bank group, with an aggregate commitment of $1.25 billion and a maturity date of March 28, 2018. Upon entry into the New Credit Agreement, the Company’s credit agreement dated as of June 21, 2010, as amended, with an aggregate commitment of $1.25 billion, was terminated.

The New Credit Agreement provides for an unsecured revolving credit facility available to the Company and one of its foreign subsidiaries, in U.S. dollars, European euros and certain other currencies. Borrowings under the revolver denominated in euros are limited to $500 million, equivalent. The Company can also borrow swingline loans up to $150 million and obtain letters of credit of up to $250 million; any outstanding Letters of Credit reduce the Company’s borrowing capacity. At March 31, 2013, the Company had $78 million of outstanding and unused Letters of Credit, reducing the Company’s borrowing capacity by such amount.

Revolving credit loans bear interest under the New Credit Agreement, at the Company’s option, at (A) a rate per annum equal to the greatest of (i) the prime rate, (ii) the Federal Funds effective rate plus 0.50% and (iii) LIBOR plus 1.0% (the “Alternative Base Rate”); plus an applicable margin based upon the then applicable corporate credit ratings of the Company; or (B) LIBOR plus an applicable margin based upon the then applicable corporate credit ratings of the Company. The foreign currency revolving credit loans bear interest at a rate equal to LIBOR plus an applicable margin based upon the then applicable corporate credit ratings of the Company.

The New Credit Agreement contains financial covenants requiring the Company to maintain (A) a maximum debt to total capitalization ratio, as adjusted for certain items, of 65 percent, and (B) a minimum interest coverage ratio, as adjusted for certain items, equal to or greater than 2.5 to 1.0. The debt to total capitalization ratio allows the add-back, if incurred, of up to the first $250 million of certain non-cash charges, including goodwill and other intangible asset impairment charges, occurring from and after January 1, 2012 that would negatively impact shareholders’ equity.

Based on the limitations of the debt to total capitalization ratio covenant in the New Credit Agreement, at March 31, 2013, the Company had additional borrowing capacity, subject to availability, of up to $858 million. Additionally, at March 31, 2013, the Company could absorb a reduction to shareholders’ equity of approximately $462 million and remain in compliance with the debt to total capitalization covenant.

In order for the Company to borrow under the New Credit Agreement, there must not be any default in the Company’s covenants in the New Credit Agreement (i.e., in addition to the two financial covenants, principally limitations on subsidiary debt, negative pledge restrictions, legal compliance requirements and maintenance of properties and insurance) and the Company’s representations and warranties in the New 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, 2012, in each case, no material ERISA or environmental non-compliance and no material tax deficiency). The Company was in compliance with all covenants and no borrowings have been made at March 31, 2013.

Stock-Based Compensation
Stock-Based Compensation
I. The Company’s 2005 Long Term Stock Incentive Plan (the “2005 Plan”) provides for the issuance of stock-based incentives in various forms to employees and non-employee Directors of the Company. At March 31, 2013, outstanding stock-based incentives were in the form of long-term stock awards, stock options, phantom stock awards and stock appreciation rights. Pre-tax compensation expense and the related income tax benefit for these stock-based incentives were as follows, in millions:

 

     Three Months Ended  
     March 31,  
     2013      2012  

Long-term stock awards

   $ 9       $ 8   

Stock options

     5         5   

Phantom stock awards and stock appreciation rights

     3         5   
  

 

 

    

 

 

 

Total

   $ 17       $ 18   
  

 

 

    

 

 

 

Income tax benefit (37 percent tax rate - before valuation allowance)

   $ 6       $ 7   
  

 

 

    

 

 

 

Long-Term Stock Awards. Long-term stock awards are granted to key employees and non-employee Directors of the Company and do not cause net share dilution inasmuch as the Company continues the practice of repurchasing and retiring an equal number of shares in the open market. The Company granted 1,570,020 shares of long-term stock awards in the three months ended March 31, 2013.

The Company’s long-term stock award activity was as follows, shares in millions:

 

     Three Months Ended  
     March 31,  
     2013      2012  

Unvested stock award shares at January 1

     8         10   

Weighted average grant date fair value

   $ 16       $ 17   

Stock award shares granted

     2         1   

Weighted average grant date fair value

   $ 20       $ 12   

Stock award shares vested

     2         2   

Weighted average grant date fair value

   $ 16       $ 17   

Stock award shares forfeited

     —           —     

Weighted average grant date fair value

   $ 18       $ 18   

Unvested stock award shares at March 31

     8         9   

Weighted average grant date fair value

   $ 17       $ 16   

At March 31, 2013 and 2012, there was $94 million and $103 million, respectively, of total unrecognized compensation expense related to unvested stock awards; such awards had a weighted average remaining vesting period of four years in both periods.

The total market value (at the vesting date) of stock award shares which vested during the three months ended March 31, 2013 and 2012 was $32 million and $23 million, respectively.

Stock Options. Stock options are granted to key employees of the Company. The exercise price equals the market price of the Company’s common stock at the grant date. These options generally become exercisable (vest ratably) over five years beginning on the first anniversary from the date of grant and expire no later than 10 years after the grant date.

The Company granted 869,000 of stock option shares in the three months ended March 31, 2013 with a grant date exercise price approximating $20 per share. In the first three months of 2013, 453,070 stock option shares were forfeited (including options that expired unexercised).

The Company’s stock option activity was as follows, shares in millions:

 

     Three Months Ended  
     March 31,  
     2013     2012  

Option shares outstanding, January 1

     30        36   

Weighted average exercise price

   $ 21      $ 21   

Option shares granted

     1        1   

Weighted average exercise price

   $ 20      $ 12   

Option shares exercised

     2        —     

Aggregate intrinsic value on date of exercise (A)

   $ 17  million    $ 1  million 

Weighted average exercise price

   $ 11      $ 8   

Option shares forfeited

     —          2   

Weighted average exercise price

   $ 19      $ 18   

Option shares outstanding, March 31

     29        35   

Weighted average exercise price

   $ 22      $ 21   

Weighted average remaining option term (in years)

     4        5   

Option shares vested and expected to vest, March 31

     29        35   

Weighted average exercise price

   $ 22      $ 21   

Aggregate intrinsic value (A)

   $ 82  million    $ 26  million 

Weighted average remaining option term (in years)

     4        5   

Option shares exercisable (vested), March 31

     23        25   

Weighted average exercise price

   $ 24      $ 23   

Aggregate intrinsic value (A)

   $ 45  million    $ 14  million 

Weighted average remaining option term (in years)

     4        4   

 

(A) Aggregate intrinsic value is calculated using the Company’s stock price at each respective date, less the exercise price (grant date price) multiplied by the number of shares.

At March 31, 2013 and 2012, there was $17 million and $29 million, respectively, of unrecognized compensation expense (using the Black-Scholes option pricing model) related to unvested stock options; such options had a weighted average vesting period of two years and three years in 2013 and 2012, respectively.

 

The weighted average grant date fair value of option shares granted in the period and the assumptions used to estimate those values using a Black-Scholes option pricing model were as follows:

 

     Three Months Ended  
     March 31,  
     2013     2012  

Weighted average grant date fair value

   $ 8.33      $ 4.44   

Risk-free interest rate

     1.20     1.10

Dividend yield

     1.47     2.57

Volatility factor

     49.00     51.00

Expected option life

     6 years        6 years   
Employee Retirement Plans
Employee Retirement Plans
J. Net periodic pension cost for the Company’s defined-benefit pension plans was as follows, in millions:

 

     Three Months ended March 31,  
     2013      2012  
     Qualified     Non-Qualified      Qualified     Non-Qualified  

Service cost

   $ 1      $ —         $ 2      $ —     

Interest cost

     10        1         10        1   

Expected return on plan assets

     (9     —           (8     —     

Amortization of net loss

     4        1         3        1   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net periodic pension cost

   $ 6      $ 2       $ 7      $ 2   
  

 

 

   

 

 

    

 

 

   

 

 

 

The Company participates in 20 regional multi-employer pension plans, principally related to building trades; none of the plans are considered significant to the Company.

Effective January 1, 2010, the Company froze all future benefit accruals under substantially all of the Company’s domestic qualified and non-qualified defined benefit pension plans. Future benefit accruals related to the Company’s foreign non-qualified plans were frozen several years ago.

 

Accumulated Other Comprehensive Income (loss)
Accumulated Other Comprehensive Income (loss)
K. The reclassifications from accumulated other comprehensive income (loss) to the income statement were as follows, in millions:

 

     Amount       

Accumulated Other

Comprehensive

Income (Loss)

   Reclassified       
   March 31,       
   2013      2012     

Income Statement Line Item

Amortization of defined benefit pension:

        

Actuarial losses, net

   $ 5       $ 4       Selling, General & Administrative Expense
     —           —         Tax expense
  

 

 

    

 

 

    
   $ 5       $ 4       Net of tax
  

 

 

    

 

 

    

Interest rate swaps

   $ —         $ —         Interest expense

 

Segment Information
Segment Information
L. Information about the Company by segment and geographic area was as follows, in millions:

 

     Three Months Ended March 31,  
     2013      2012      2013     2012  
     Net Sales(A)      Operating Profit (Loss)  

The Company’s operations by segment were:

          

Cabinets and Related Products

   $ 236       $ 228       $ (4   $ (16

Plumbing Products

     762         742         86        97   

Installation and Other Services

     312         278         (4     (14

Decorative Architectural Products

     432         434         89        73   

Other Specialty Products

     134         124         (1     (5
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 1,876       $ 1,806       $ 166      $ 135   
  

 

 

    

 

 

    

 

 

   

 

 

 

The Company’s operations by geographic area were:

          

North America

   $ 1,510       $ 1,431       $ 140      $ 88   

International, principally Europe

     366         375         26        47   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 1,876       $ 1,806         166        135   
  

 

 

    

 

 

      

General corporate expense, net

           (34     (28

Income from litigation settlements

           —          2   
        

 

 

   

 

 

 

Operating profit, as reported

           132        109   

Other income (expense), net

           (53     (49
        

 

 

   

 

 

 

Income from continuing operations before income taxes

         $ 79      $ 60   
        

 

 

   

 

 

 

 

(A) Inter-segment sales were not material.
Other Income (Expense), Net
Other Income (Expense), Net
M. Other, net, which is included in other income (expense), net, was as follows, in millions:

 

     Three Months Ended  
     March 31,  
     2013      2012  

Income from cash and cash investments

   $ 1       $ 2   

Income from financial investments (Note E)

     3         16   

Other items, net

     3         (3
  

 

 

    

 

 

 

Total other, net

   $ 7       $ 15   
  

 

 

    

 

 

 

Other items, net, included $3 million and $(1) million of currency gains (losses) for the three months ended March 31, 2013 and 2012, respectively.

Earnings Per Common Share
Earnings Per Common Share
N. Reconciliations of the numerators and denominators used in the computations of basic and diluted earnings per common share were as follows, in millions:

 

     Three Months Ended  
     March 31,  
     2013     2012  

Numerator (basic and diluted):

    

Income from continuing operations

   $ 56      $ 42   

Allocation to unvested restricted stock awards

     (1     (1
  

 

 

   

 

 

 

Income from continuing operations attributable to common shareholders

   $ 55      $ 41   

Loss from discontinued operations, net

     (9     (9
  

 

 

   

 

 

 

Net income available to common shareholders

   $ 46      $ 32   
  

 

 

   

 

 

 

Denominator:

    

Basic common shares (based upon weighted average)

     350        349   

Add:

    

Contingent common shares

     —          —     

Stock option dilution

     2        1   
  

 

 

   

 

 

 

Diluted common shares

     352        350   
  

 

 

   

 

 

 

For the three months ended March 31, 2013 and 2012, the Company allocated dividends to the unvested restricted stock awards (participating securities).

Additionally, 15 million and 30 million common shares for the three months ended March 31, 2013 and 2012, respectively, related to stock options were excluded from the computation of diluted earnings per common share due to their antidilutive effect.

In the first three months of 2013, the Company granted 1.6 million shares of long-term stock awards. To offset the dilutive impact of these awards and awards granted in late 2012, the Company repurchased and retired 1.7 million shares of Company common stock, for cash aggregating approximately $35 million. At March 31, 2013, the Company had 22.6 million shares of its common stock remaining under the July 2007 Board of Directors’ repurchase authorization.

On the basis of amounts paid (declared), cash dividends per common share were $.075 ($.075) and $.075 ($.075), respectively, for the three months ended March 31, 2013 and 2012.

Other Commitments and Contingencies
Other Commitments and Contingencies
O. We are subject to claims, charges, litigation and other proceedings in the ordinary course of our business, including those arising from or related to contractual matters, intellectual property, personal injury, environmental matters, product liability, product recalls, construction defect, insurance coverage, personnel and employment disputes and other matters, including class actions. We believe we have adequate defenses in these matters and that the outcome of these matters is not likely to have a material adverse effect on us. However, there is no assurance that we will prevail in these matters, and we could in the future incur judgments, enter into settlements of claims or revise our expectations regarding the outcome of these matters, which could materially impact our results of operations.
Income Taxes
Income Taxes
P. The effective tax rate in the first quarter of 2013 was 18 percent primarily due to a decrease in the valuation allowance resulting from the partial utilization of our U.S. Federal net operating loss carryforward and from a $12 million state income tax benefit on uncertain tax positions due to the expiration of applicable statutes of limitations in various jurisdictions.

As a result of tax audit closings, settlements and expiration of applicable statutes of limitations in various jurisdictions within the next 12 months, the Company anticipates that it is reasonably possible that the liability for uncertain tax positions could be reduced by approximately $3 million.

Accounting Policies (Policies)
Recently Issued Accounting Pronouncements

Recently Issued Accounting Pronouncements. On January 1, 2013, the Company adopted new accounting guidance requiring disclosure of amounts reclassified from accumulated other comprehensive income. The adoption of this new guidance did not have an impact on the Company’s financial position or its results of operations.

Discontinued Operations (Tables)

Selected financial information for the discontinued operations, during the period owned by the Company, was as follows, in millions: 

     Three Months Ended  
     March 31,  
     2013     2012  

Net Sales

   $ 59      $ 89   
  

 

 

   

 

 

 

Operating loss from discontinued operations

   $ (3   $ (11

Impairment of assets

     (10     —     

Loss on disposal of discontinued operations, net

     —          (1
  

 

 

   

 

 

 

Loss before income tax

     (13     (12

Income tax benefit

     (4     (3
  

 

 

   

 

 

 

Loss from discontinued operations

   $ (9   $ (9
  

 

 

   

 

 

The following balance sheet items have been reclassified as held for sale:

 

     March 31,      December 31,  
     2013      2012  

Receivables

   $ 32       $ 32   

Inventories

     64         66   

Prepaid expenses and other

     2         2   

Property and equipment, net

     88         103   
  

 

 

    

 

 

 

Total assets

   $ 186       $ 203   
  

 

 

    

 

 

 

Accounts payable

   $ 31       $ 31   

Accrued liabilities

     12         14   

Deferred income taxes

     —           4   
  

 

 

    

 

 

 

Total liabilities

   $ 43       $ 49   
  

 

 

    

 

 

Goodwill and Other Intangible Assets (Tables)
Changes in Carrying Amount of Goodwill
The changes in the carrying amount of goodwill for the three months ended March 31, 2013, by segment, were as follows, in millions:

 

     Gross Goodwill      Accumulated     Net Goodwill  
     At      Impairment     At  
     Mar. 31, 2013      Losses     Mar. 31, 2013  

Cabinets and Related Products

   $ 240       $ (59   $ 181   

Plumbing Products

     539         (340     199   

Installation and Other Services

     1,806         (762     1,044   

Decorative Architectural Products

     294         (75     219   

Other Specialty Products

     982         (734     248   
  

 

 

    

 

 

   

 

 

 

Total

   $ 3,861       $ (1,970   $ 1,891   
  

 

 

    

 

 

   

 

 

 

 

     Gross Goodwill
At

Dec. 31, 2012
     Accumulated
Impairment
Losses
    Net Goodwill
At

Dec. 31, 2012
     Other(A)     Additions(B)      Net Goodwill
At
Mar. 31, 2013
 

Cabinets and Related Products

   $ 240       $ (59   $ 181       $ —        $ —         $ 181   

Plumbing Products

     544         (340     204         (5     —           199   

Installation and Other Services

     1,806         (762     1,044         —          —           1,044   

Decorative Architectural Products

     294         (75     219         —          —           219   

Other Specialty Products

     980         (734     246         —          2         248   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

   $ 3,864       $ (1,970   $ 1,894       $ (5   $ 2       $ 1,891   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

(A) Other principally includes the effect of foreign currency translation.
(B) Additions include the acquisition of a U.K. door business.
Fair Value of Financial Investments and Liabilities (Tables)
Financial investments included in other assets were as follows, in millions:

 

     March 31,
2013
     December 31,
2012
 

Auction rate securities

   $ 22       $ 22   
  

 

 

    

 

 

 

Total recurring investments

     22         22   
  

 

 

    

 

 

 

Private equity funds

     67         69   

Other investments

     4         4   
  

 

 

    

 

 

 

Total non-recurring investments

     71         73   
  

 

 

    

 

 

 

Total

   $ 93       $ 95   
  

 

 

    

 

 

 

The Company’s investments in available-for-sale securities at March 31, 2013 and December 31, 2012 were as follows, in millions:

 

            Pre-tax         
     Cost Basis      Unrealized
Gains
     Unrealized
Losses
     Recorded
Basis
 

March 31, 2013

   $ 19       $ 3       $ —         $ 22   

December 31, 2012

   $ 19       $ 3       $ —         $ 22   

Financial investments measured at fair value on a recurring basis at each reporting period and the amounts for each level within the fair value hierarchy were as follows, in millions:

 

            Fair Value Measurements Using  
     Mar. 31,
2013
     Quoted
Market
Prices
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Auction rate securities

   $ 22         —           —         $ 22   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 22       $ —         $ —         $ 22   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

            Fair Value Measurements Using  
     Dec. 31,
2012
     Quoted
Market
Prices
(Level 1)
     Significant
Other
Observable
Inputs
(Level 2)
     Significant
Unobservable
Inputs
(Level 3)
 

Auction rate securities

   $ 22       $ —         $ —         $ 22   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 22       $ —         $ —         $ 22   
  

 

 

    

 

 

    

 

 

    

 

 

 

The following table summarizes the changes in Level 3 financial assets measured at fair value on a recurring basis for the three months ended March 31, 2013 and the year ended December 31, 2012, in millions:

 

     March 31, 2013
Auction Rate
Securities
     December 31, 2012
Auction Rate
Securities
 

Fair value at beginning of period

   $ 22       $ 22   

Total losses included in earnings

     —           —     

Unrealized (losses)

     —           —     

Purchases

     —           —     

Settlements

     —           —     

Transfer from Level 3 to Level 2

     —           —     
  

 

 

    

 

 

 

Fair value at period end

   $ 22       $ 22   
  

 

 

    

 

 

 

Income from financial investments net, included in other, net, within other income (expense), net, was as follows, in millions:

 

     Three Months Ended
March  31,
 
     2013      2012  

Realized gains from private equity funds

   $ 3       $ 16   
  

 

 

    

 

 

 

Total income from financial investments

   $ 3       $ 16   
  

 

 

    

 

 

 
Derivative Instruments and Hedging Activities (Tables)

The pre-tax gain (loss) included in the Company’s condensed consolidated statements of operations is as follows, in millions:

 

     Three Months Ended  
     March 31,  
     2013     2012  

Foreign Currency Contracts

    

Exchange Contracts

   $ 7      $ (5

Forward Contracts

     2        (1

Metal Contracts

     (4     7   
  

 

 

   

 

 

 

Total gain

   $ 5      $ 1   
  

 

 

   

 

 

 
The notional amounts being hedged and the fair value of those derivative instruments, on a gross basis, are as follows, in millions:

 

     At March 31, 2013  
     Notional                
     Amount      Assets      Liabilities  

Foreign Currency Contracts

        

Exchange Contracts

   $ 162         

Current assets

      $ 4       $ 1   

Forward Contracts

     68         

Current assets

        1         —     

Metal Contracts

     56         

Current liabilities

        —           4   
     

 

 

    

 

 

 

Total

      $ 5       $ 5   
     

 

 

    

 

 

 

 

     At December 31, 2012  
     Notional                
     Amount      Assets      Liabilities  

Foreign Currency Contracts

        

Exchange Contracts

   $ 172         

Current liabilities

      $ —         $ 5   

Forward Contracts

     76         

Current assets

        1         1   

Metal Contracts

     35         

Current liabilities

        1         2   
     

 

 

    

 

 

 

Total

      $ 2       $ 8   
     

 

 

    

 

 

 

 

Warranty (Tables)
Changes in Warranty Liability
Changes in the Company’s warranty liability were as follows, in millions:

 

     Three Months Ended     Twelve Months Ended  
     March 31, 2013     December 31, 2012  

Balance at January 1

   $ 118      $ 102   

Accruals for warranties issued during the period

     9        42   

Accruals related to pre-existing warranties

     1        16   

Settlements made (in cash or kind) during the period

     (10     (38

Other, net

     —          (4
  

 

 

   

 

 

 

Balance at end of period

   $ 118      $ 118   
  

 

 

   

 

 

 
Stock-Based Compensation (Tables)

Pre-tax compensation expense and the related income tax benefit for these stock-based incentives were as follows, in millions:

 

     Three Months Ended  
     March 31,  
     2013      2012  

Long-term stock awards

   $ 9       $ 8   

Stock options

     5         5   

Phantom stock awards and stock appreciation rights

     3         5   
  

 

 

    

 

 

 

Total

   $ 17       $ 18   
  

 

 

    

 

 

 

Income tax benefit (37 percent tax rate - before valuation allowance)

   $ 6       $ 7   
  

 

 

    

 

 

 

The Company’s long-term stock award activity was as follows, shares in millions:

 

     Three Months Ended  
     March 31,  
     2013      2012  

Unvested stock award shares at January 1

     8         10   

Weighted average grant date fair value

   $ 16       $ 17   

Stock award shares granted

     2         1   

Weighted average grant date fair value

   $ 20       $ 12   

Stock award shares vested

     2         2   

Weighted average grant date fair value

   $ 16       $ 17   

Stock award shares forfeited

     —           —     

Weighted average grant date fair value

   $ 18       $ 18   

Unvested stock award shares at March 31

     8         9   

Weighted average grant date fair value

   $ 17       $ 16   

The Company’s stock option activity was as follows, shares in millions:

 

     Three Months Ended  
     March 31,  
     2013     2012  

Option shares outstanding, January 1

     30        36   

Weighted average exercise price

   $ 21      $ 21   

Option shares granted

     1        1   

Weighted average exercise price

   $ 20      $ 12   

Option shares exercised

     2        —     

Aggregate intrinsic value on date of exercise (A)

   $ 17  million    $ 1  million 

Weighted average exercise price

   $ 11      $ 8   

Option shares forfeited

     —          2   

Weighted average exercise price

   $ 19      $ 18   

Option shares outstanding, March 31

     29        35   

Weighted average exercise price

   $ 22      $ 21   

Weighted average remaining option term (in years)

     4        5   

Option shares vested and expected to vest, March 31

     29        35   

Weighted average exercise price

   $ 22      $ 21   

Aggregate intrinsic value (A)

   $ 82  million    $ 26  million 

Weighted average remaining option term (in years)

     4        5   

Option shares exercisable (vested), March 31

     23        25   

Weighted average exercise price

   $ 24      $ 23   

Aggregate intrinsic value (A)

   $ 45  million    $ 14  million 

Weighted average remaining option term (in years)

     4        4   

 

(A) Aggregate intrinsic value is calculated using the Company’s stock price at each respective date, less the exercise price (grant date price) multiplied by the number of shares.

The weighted average grant date fair value of option shares granted in the period and the assumptions used to estimate those values using a Black-Scholes option pricing model were as follows:

 

     Three Months Ended
March  31,
 
     2013     2012  

Weighted average grant date fair value

   $ 8.33      $ 4.44   

Risk-free interest rate

     1.20     1.10

Dividend yield

     1.47     2.57

Volatility factor

     49.00     51.00

Expected option life

     6 years        6 years   
Employee Retirement Plans (Tables)
Net Periodic Pension Cost for Defined-Benefit Pension Plans
Net periodic pension cost for the Company’s defined-benefit pension plans was as follows, in millions:

 

     Three Months ended March 31,  
     2013      2012  
     Qualified     Non-Qualified      Qualified     Non-Qualified  

Service cost

   $ 1      $ —         $ 2      $ —     

Interest cost

     10        1         10        1   

Expected return on plan assets

     (9     —           (8     —     

Amortization of net loss

     4        1         3        1   
  

 

 

   

 

 

    

 

 

   

 

 

 

Net periodic pension cost

   $ 6      $ 2       $ 7      $ 2   
  

 

 

   

 

 

    

 

 

   

 

 

 
Accumulated Other Comprehensive Income (loss) (Tables)
Reclassifications from Accumulated Other Comprehensive Income (Loss) to Income Statement
The reclassifications from accumulated other comprehensive income (loss) to the income statement were as follows, in millions:

 

     Amount       

Accumulated Other

Comprehensive

Income (Loss)

   Reclassified       
   March 31,       
   2013      2012     

Income Statement Line Item

Amortization of defined benefit pension:

        

Actuarial losses, net

   $ 5       $ 4       Selling, General & Administrative Expense
     —           —         Tax expense
  

 

 

    

 

 

    
   $ 5       $ 4       Net of tax
  

 

 

    

 

 

    

Interest rate swaps

   $ —         $ —         Interest expense
Segment Information (Tables)
Company by Segment and Geographic Area
Information about the Company by segment and geographic area was as follows, in millions:

 

     Three Months Ended March 31,  
     2013      2012      2013     2012  
     Net Sales(A)      Operating Profit (Loss)  

The Company’s operations by segment were:

          

Cabinets and Related Products

   $ 236       $ 228       $ (4   $ (16

Plumbing Products

     762         742         86        97   

Installation and Other Services

     312         278         (4     (14

Decorative Architectural Products

     432         434         89        73   

Other Specialty Products

     134         124         (1     (5
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 1,876       $ 1,806       $ 166      $ 135   
  

 

 

    

 

 

    

 

 

   

 

 

 

The Company’s operations by geographic area were:

          

North America

   $ 1,510       $ 1,431       $ 140      $ 88   

International, principally Europe

     366         375         26        47   
  

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 1,876       $ 1,806         166        135   
  

 

 

    

 

 

      

General corporate expense, net

           (34     (28

Income from litigation settlements

           —          2   
        

 

 

   

 

 

 

Operating profit, as reported

           132        109   

Other income (expense), net

           (53     (49
        

 

 

   

 

 

 

Income from continuing operations before income taxes

         $ 79      $ 60   
        

 

 

   

 

 

 

 

(A) Inter-segment sales were not material.
Other Income (Expense), Net (Tables)
Other, Net, Included in Other Income (Expense), Net
Other, net, which is included in other income (expense), net, was as follows, in millions:

 

     Three Months Ended
March  31,
 
     2013      2012  

Income from cash and cash investments

   $ 1       $ 2   

Income from financial investments (Note E)

     3         16   

Other items, net

     3         (3
  

 

 

    

 

 

 

Total other, net

   $ 7       $ 15   
  

 

 

    

 

 

 
Earnings Per Common Share (Tables)
Numerators and Denominators Used in Computations of Basic and Diluted Earnings Per Common Share
Reconciliations of the numerators and denominators used in the computations of basic and diluted earnings per common share were as follows, in millions:

 

     Three Months Ended
March  31,
 
     2013     2012  

Numerator (basic and diluted):

    

Income from continuing operations

   $ 56      $ 42   

Allocation to unvested restricted stock awards

     (1     (1
  

 

 

   

 

 

 

Income from continuing operations attributable to common shareholders

   $ 55      $ 41   

Loss from discontinued operations, net

     (9     (9
  

 

 

   

 

 

 

Net income available to common shareholders

   $ 46      $ 32   
  

 

 

   

 

 

 

Denominator:

    

Basic common shares (based upon weighted average)

     350        349   

Add:

    

Contingent common shares

     —          —     

Stock option dilution

     2        1   
  

 

 

   

 

 

 

Diluted common shares

     352        350   
  

 

 

   

 

 

 
Discontinued Operations - Financial Information for Discontinued Operations (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Discontinued Operations And Disposal Groups [Abstract]
 
 
Net Sales
$ 59 
$ 89 
Operating loss from discontinued operations
(3)
(11)
Impairment of assets
(10)
 
Loss on disposal of discontinued operations, net
 
(1)
Loss before income tax
(13)
(12)
Income tax benefit
(4)
(3)
Loss from discontinued operations
$ (9)
$ (9)
Discontinued Operations - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Discontinued Operations And Disposal Groups [Abstract]
 
Impairment of assets
$ 10 
Discontinued Operations - Balance Sheet Items Reclassified as Held for Sale (Detail) (Held For Sale [Member], USD $)
In Millions, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Held For Sale [Member]
 
 
Balance Sheet Components [Line Items]
 
 
Receivables
$ 32 
$ 32 
Inventories
64 
66 
Prepaid expenses and other
Property and equipment, net
88 
103 
Total assets
186 
203 
Accounts payable
31 
31 
Accrued liabilities
12 
14 
Deferred income taxes
 
Total liabilities
$ 43 
$ 49 
Goodwill and Other Intangible Assets - Changes in Carrying Amount of Goodwill (Detail) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Goodwill [Line Items]
 
 
Gross Goodwill
$ 3,861 
$ 3,864 
Accumulated Impairment Losses
(1,970)
(1,970)
Net Goodwill
1,891 
1,894 
Other
(5)
 
Additions
 
Net Goodwill
1,891 
1,894 
Cabinets and Related Products [Member]
 
 
Goodwill [Line Items]
 
 
Gross Goodwill
240 
240 
Accumulated Impairment Losses
(59)
(59)
Net Goodwill
181 
181 
Other
   
 
Additions
   
 
Net Goodwill
181 
181 
Plumbing Products [Member]
 
 
Goodwill [Line Items]
 
 
Gross Goodwill
539 
544 
Accumulated Impairment Losses
(340)
(340)
Net Goodwill
199 
204 
Other
(5)
 
Additions
   
 
Net Goodwill
199 
204 
Installation and Other Services [Member]
 
 
Goodwill [Line Items]
 
 
Gross Goodwill
1,806 
1,806 
Accumulated Impairment Losses
(762)
(762)
Net Goodwill
1,044 
1,044 
Other
   
 
Additions
   
 
Net Goodwill
1,044 
1,044 
Decorative Architectural Products [Member]
 
 
Goodwill [Line Items]
 
 
Gross Goodwill
294 
294 
Accumulated Impairment Losses
(75)
(75)
Net Goodwill
219 
219 
Other
   
 
Additions
   
 
Net Goodwill
219 
219 
Other Specialty Products [Member]
 
 
Goodwill [Line Items]
 
 
Gross Goodwill
982 
980 
Accumulated Impairment Losses
(734)
(734)
Net Goodwill
248 
246 
Other
   
 
Additions
 
Net Goodwill
$ 248 
$ 246 
Goodwill and Other Intangible Assets - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Goodwill And Intangible Assets Disclosure [Abstract]
 
 
Other indefinite-lived intangible assets
$ 132 
$ 132 
Carrying value of definite-lived intangible assets
18 
19 
Accumulated amortization
$ 58 
$ 57 
Depreciation and Amortization Expense - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Property Plant And Equipment [Abstract]
 
 
Depreciation and amortization expense, including discontinued operations
$ 49 
$ 55 
Accelerated depreciation
$ 4 
$ 7 
Fair Value of Financial Investments and Liabilities - Financial Investments Included in Other Assets (Detail) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Investments, fair value disclosure
$ 93 
$ 95 
Recurring Investments [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Investments, fair value disclosure
22 
22 
Recurring Investments [Member] |
Auction Rate Securities [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Investments, fair value disclosure
22 
22 
Non-Recurring Investments [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Investments, fair value disclosure
71 
73 
Non-Recurring Investments [Member] |
Private Equity Funds [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Investments, fair value disclosure
67 
69 
Non-Recurring Investments [Member] |
Other Investments [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Investments, fair value disclosure
$ 4 
$ 4 
Fair Value of Financial Investments and Liabilities - Company's Investments in Available-for-Sale Securities (Detail) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Fair Value Disclosures [Abstract]
 
 
Cost Basis
$ 19 
$ 19 
Pre-tax Unrealized Gains
Pre-tax Unrealized Losses
   
   
Recorded Basis
$ 22 
$ 22 
Fair Value of Financial Investments and Liabilities - Recurring Fair Value Measurements (Detail) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Investments, fair value disclosure
$ 93 
$ 95 
Recurring Investments [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Investments, fair value disclosure
22 
22 
Auction Rate Securities [Member] |
Recurring Investments [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Investments, fair value disclosure
22 
22 
Assets at Fair Value (Level 1) [Member] |
Recurring Investments [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Investments, fair value disclosure
   
   
Assets at Fair Value (Level 1) [Member] |
Auction Rate Securities [Member] |
Recurring Investments [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Investments, fair value disclosure
   
   
Assets at Fair Value (Level 2) [Member] |
Recurring Investments [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Investments, fair value disclosure
   
   
Assets at Fair Value (Level 2) [Member] |
Auction Rate Securities [Member] |
Recurring Investments [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Investments, fair value disclosure
   
   
Assets at Fair Value (Level 3) [Member] |
Recurring Investments [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Investments, fair value disclosure
22 
22 
Assets at Fair Value (Level 3) [Member] |
Auction Rate Securities [Member] |
Recurring Investments [Member]
 
 
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
 
 
Investments, fair value disclosure
$ 22 
$ 22 
Fair Value of Financial Investments and Liabilities - Changes in Level 3 Financial Assets Measured at Fair Value on Recurring Basis (Detail) (Auction Rate Securities [Member], USD $)
In Millions, unless otherwise specified
3 Months Ended 12 Months Ended
Mar. 31, 2013
Dec. 31, 2012
Auction Rate Securities [Member]
 
 
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
 
 
Fair value at beginning of period
$ 22 
$ 22 
Total losses included in earnings
   
   
Unrealized (losses)
   
   
Purchases
   
   
Settlements
   
   
Transfer from Level 3 to Level 2
   
   
Fair value at period end
$ 22 
$ 22 
Fair Value of Financial Investments and Liabilities - Income from Financial Investments Net, Included in Other, Net, Within Other Income (Expense), Net (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Schedule of Investments [Line Items]
 
 
Total income from financial investments
$ 3 
$ 16 
Private Equity Funds [Member]
 
 
Schedule of Investments [Line Items]
 
 
Realized gains
$ 3 
$ 16 
Fair Value of Financial Investments and Liabilities - Additional Information (Detail) (USD $)
In Billions, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Fair Value Disclosures [Abstract]
 
 
Estimated market value of long-term and short-term debt
$ 4.0 
$ 4.0 
Aggregate carrying value of long-term and short-term debt
$ 3.6 
$ 3.6 
Derivative Instruments and Hedging Activities - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Derivative Instruments And Hedging Activities Disclosure [Abstract]
 
 
Issued notes
 
$ 400 
Forecasted debt issuance variable rate period
 
3-month LIBOR 
Ineffective portion of the cash flow hedges
   
Loss from the termination of the interest rate swap agreement
21 
23 
Decrease in interest expense due to amortization of net gains on termination of interest rate swap agreement
 
$ 3 
Derivative Instruments and Hedging Activities - Pre-Tax Gain (Loss) (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Derivative [Line Items]
 
 
Total gain
$ 5 
$ 1 
Exchange Contracts [Member]
 
 
Derivative [Line Items]
 
 
Total gain
(5)
Forward Contracts [Member]
 
 
Derivative [Line Items]
 
 
Total gain
(1)
Metals Contracts [Member]
 
 
Derivative [Line Items]
 
 
Total gain
$ (4)
$ 7 
Derivative Instruments and Hedging Activities - Fair Value of Derivative Instruments Presented on Gross Basis (Detail) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2013
Dec. 31, 2012
Fair Values Of Financial Assets And Liabilities Including Derivative Financial Instruments [Line Items]
 
 
Current liabilities
$ 5 
$ 8 
Current assets
Notional Amount
   
 
Exchange Contracts [Member]
 
 
Fair Values Of Financial Assets And Liabilities Including Derivative Financial Instruments [Line Items]
 
 
Current liabilities
   
Assets, Contracts
   
 
Current assets
 
Current liabilities
 
   
Notional Amount
162 
172 
Exchange Contracts [Member] |
Current assets [Member]
 
 
Fair Values Of Financial Assets And Liabilities Including Derivative Financial Instruments [Line Items]
 
 
Current liabilities
 
Notional Amount
   
 
Forward Contracts [Member]
 
 
Fair Values Of Financial Assets And Liabilities Including Derivative Financial Instruments [Line Items]
 
 
Current liabilities
   
Assets, Contracts
   
 
Current assets
Notional Amount
68 
76 
Forward Contracts [Member] |
Current assets [Member]
 
 
Fair Values Of Financial Assets And Liabilities Including Derivative Financial Instruments [Line Items]
 
 
Current liabilities
   
 
Notional Amount
   
 
Metals Contracts [Member]
 
 
Fair Values Of Financial Assets And Liabilities Including Derivative Financial Instruments [Line Items]
 
 
Current liabilities
   
 
Assets, Contracts
   
 
Current liabilities
   
Notional Amount
56 
35 
Metals Contracts [Member] |
Current liabilities [Member]
 
 
Fair Values Of Financial Assets And Liabilities Including Derivative Financial Instruments [Line Items]
 
 
Current liabilities
Notional Amount
   
 
Warranty - Changes in Warranty Liability (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended 12 Months Ended
Mar. 31, 2013
Dec. 31, 2012
Warrant Liability [Abstract]
 
 
Balance at beginning of period
$ 118 
$ 102 
Accruals for warranties issued during the period
42 
Accruals related to pre-existing warranties
16 
Settlements made (in cash or kind) during the period
(10)
(38)
Other, net
 
(4)
Balance at end of period
$ 118 
$ 118 
Debt - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Jun. 21, 2010
Proforma Debt Instrument [Line Items]
 
 
Aggregate amount add back to future non-cash charges
$ 1,250 
$ 1,250 
Credit agreement, maturity date
Mar. 28, 2018 
 
Either rate per annum equal to lower of prime rate Federal Funds effective rate plus half percent plus applicable margin
0.50% 
 
Either rate per annum equal to lower of prime rate Federal Funds effective LIBOR plus one percent plus applicable margin
1.00% 
 
Non-cash charges, including goodwill and other intangible asset impairment charges
250 
 
Debt to total adjusted capitalization ratio
65.00% 
 
Additional borrowing capacity
858 
 
Absorption of reduction to shareholders' equity to remain in compliance with covenant
462 
 
Maximum [Member]
 
 
Proforma Debt Instrument [Line Items]
 
 
Minimum interest coverage ratio
2.5 
 
Minimum [Member]
 
 
Proforma Debt Instrument [Line Items]
 
 
Minimum interest coverage ratio
1.00 
 
Euros Denominated Revolver [Member]
 
 
Proforma Debt Instrument [Line Items]
 
 
Borrowing capacity, maximum
500 
 
Swingline Loans [Member]
 
 
Proforma Debt Instrument [Line Items]
 
 
Borrowing capacity, maximum
150 
 
Letters of Credit [Member]
 
 
Proforma Debt Instrument [Line Items]
 
 
Borrowing capacity, maximum
250 
 
Outstanding and unused Letters of Credit
$ 78 
 
Stock-Based Compensation - Additional Information (Detail) (USD $)
In Millions, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2013
Mar. 31, 2012
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
 
 
Long-term stock awards, including restoration options
1,000,000 
1,000,000 
Total unrecognized compensation expense
$ 17 
$ 29 
Weighted average remaining vesting period in years
2 years 
3 years 
Total market value (at the vesting date) of stock award shares
32 
23 
Stock awards granted subsequent to January 1, 2010 have a vesting period, in years
five 
Five 
Grant and expire date
No Later than 10 years 
No Later than 10 years 
Stock option shares forfeited
 
2,000,000 
Unvested Awards [Member]
 
 
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
 
 
Total unrecognized compensation expense
$ 94 
$ 103 
Weighted average remaining vesting period in years
4 years 
4 years 
Stock Option [Member]
 
 
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
 
 
Stock option shares granted
869,000 
 
Grant date exercise price per share
$ 20 
 
Stock option shares forfeited
453,070 
 
Long-Term Stock Awards [Member]
 
 
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
 
 
Long-term stock awards, including restoration options
1,570,020 
 
Stock-Based Compensation - Company's Long-Term Stock Award Activity (Detail) (USD $)
In Millions, except Per Share data, unless otherwise specified