MASCO CORP /DE/, 10-Q filed on 7/29/2010
Quarterly Report
Document and Entity Information
6 Months Ended
Jun. 30, 2010
Jul. 27, 2010
Jun. 30, 2009
Document and Entity Information [Abstract]
 
 
 
Entity Registrant Name
MASCO CORP /DE/ 
 
 
Entity Central Index Key
0000062996 
 
 
Document Type
10-Q 
 
 
Document Period End Date
2010-06-30 
 
 
Amendment Flag
FALSE 
 
 
Document Fiscal Year Focus
2010 
 
 
Document Fiscal Period Focus
Q2 
 
 
Current Fiscal Year End Date
12/31 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Public Float
 
 
3,338,607,000 
Entity Common Stock, Shares Outstanding (actual number)
 
358,500,000 
 
Condensed Consolidated Balance Sheets (Unaudited) (USD $)
In Millions
6 Months Ended
Jun. 30, 2010
Dec. 31, 2009
Current assets:
 
 
Cash and cash investments
$ 1,384 
$ 1,413 
Receivables
1,157 
983 
Prepaid expenses and other
297 
312 
Inventories:
 
 
Finished goods
453 
405 
Raw material
275 
247 
Work in process
112 
91 
Total Inventories
840 
743 
Total current assets
3,678 
3,451 
Property and equipment, net
1,851 
1,981 
Goodwill
3,077 
3,108 
Other intangible assets, net
283 
290 
Other assets
302 
345 
Total assets
9,191 
9,175 
Current liabilities:
 
 
Notes payable
66 
364 
Accounts payable
729 
578 
Accrued liabilities
823 
839 
Total current liabilities
1,618 
1,781 
Long-term debt
4,038 
3,604 
Deferred income taxes and other
927 
973 
Total liabilities
6,583 
6,358 
Commitments and contingencies
 
 
Masco Corporation's shareholders' equity:
 
 
Common shares, par value $1 per share Authorized shares: 1,400,000,000; issued and outstanding: 2010 - 348,200,000; 2009 - 350,400,000
348 
350 
Preferred shares authorized: 1,000,000; issued and outstanding: 2010 - None; 2009 - None
Paid-in capital
23 
42 
Retained earnings
1,814 
1,871 
Accumulated other comprehensive income
262 
366 
Total Masco Corporation's shareholders' equity
2,447 
2,629 
Noncontrolling interest
161 
188 
Total equity
2,608 
2,817 
Total liabilities and equity
9,191 
9,175 
Cabinets and Related Products [Member]
 
 
Inventories:
 
 
Goodwill
219 
226 
Plumbing Products [Member]
 
 
Inventories:
 
 
Goodwill
183 
207 
Installation and Other Services [Member]
 
 
Inventories:
 
 
Goodwill
1,768 
1,768 
Decorative Architectural Products [Member]
 
 
Inventories:
 
 
Goodwill
294 
294 
Other Specialty Products [Member]
 
 
Inventories:
 
 
Goodwill
$ 613 
$ 613 
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $)
Jun. 30, 2010
Dec. 31, 2009
Masco Corporation's shareholders' equity:
 
 
Common shares, par value
$ 1 
$ 1 
Common shares, shares authorized
1,400,000,000 
1,400,000,000 
Common shares, shares issued
348,200,000 
350,400,000 
Common shares, shares outstanding
348,200,000 
350,400,000 
Preferred shares, shares authorized
1,000,000 
1,000,000 
Preferred shares, shares issued
Preferred shares, shares outstanding
Condensed Consolidated Statements of Income (Unaudited) (USD $)
In Millions, except Per Share data
3 Months Ended
Jun. 30,
6 Months Ended
Jun. 30,
2010
2009
2010
2009
Condensed Consolidated Statements of Income [Abstract]
 
 
 
 
Net sales
$ 2,048 
$ 2,013 
$ 3,900 
$ 3,810 
Cost of sales
1,502 
1,470 
2,862 
2,854 
Gross profit
546 
543 
1,038 
956 
Selling, general and administrative expenses
427 
427 
841 
834 
Charge for defined-benefit plan curtailment
 
 
 
1
Operating profit
119 
116 
197 
114 
Other income (expense), net:
 
 
 
 
Interest expense
(67)
(57)
(125)
(113)
Impairment charge for financial investments
(33)
(7)
(33)
(10)
Other, net
(3)
15 
(1)
15 
Total Other income (expense), net
(103)
(49)
(159)
(108)
Income from continuing operations before income taxes
16 
67 
38 
Income tax expense (benefit)
(8)
22 
Income (loss) from continuing operations
12 
75 
16 
(3)
Loss from discontinued operations, net
 
(12)
 
(8)
Net income (loss)
12 
63 
16 
(11)
Less: Net income attributable to noncontrolling interest
(9)
(8)
(20)
(15)
Net income (loss) attributable to Masco Corporation
55 
(4)
(26)
Basic:
 
 
 
 
Income (loss) from continuing operations
0.01 
0.19 
(0.02)
(0.06)
Loss from discontinued operations, net
 
(0.03)
 
(0.02)
Net income (loss)
0.01 
0.15 
(0.02)
(0.08)
Diluted:
 
 
 
 
Income (loss) from continuing operations
0.01 
0.19 
(0.02)
(0.06)
Loss from discontinued operations, net
 
(0.03)
 
(0.02)
Net income (loss)
$ 0.01 
$ 0.15 
$ (0.02)
$ (0.08)
Amounts attributable to Masco Corporation:
 
 
 
 
Income (loss) from continuing operations
67 
(4)
(18)
Loss from discontinued operations, net
 
(12)
 
(8)
Net income (loss)
55 
(4)
(26)
Private equity funds [Member]
 
 
 
 
Other income (expense), net:
 
 
 
 
Impairment charge for financial investments
(3)
(7)
(3)
(10)
Other investments [Member]
 
 
 
 
Other income (expense), net:
 
 
 
 
Impairment charge for financial investments
(2)
 
(2)
 
Two Private Equity Funds [Member]
 
 
 
 
Other income (expense), net:
 
 
 
 
Impairment charge for financial investments
 
 
(3)
 
Asahi Tec Corporation - preferred stock [Member]
 
 
 
 
Other income (expense), net:
 
 
 
 
Impairment charge for financial investments
(28)
 
(28)
 
Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $)
In Millions
6 Months Ended
Jun. 30,
2010
2009
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
 
 
Cash provided by operations
$ 212 
$ 217 
(Increase) in receivables
(204)
(225)
(Increase) decrease in inventories
(122)
68 
Increase in accounts payable and accrued liabilities, net
181 
50 
Net cash for operating activities
67 
110 
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
 
 
Increase in debt
Payment of debt
(2)
(5)
Issuance of Notes, net of issuance costs
494 
 
Retirement of Notes
(359)
 
Purchase of Company common stock
(45)
(11)
Cash dividends paid
(54)
(112)
Dividends payment to noncontrolling interest
(15)
(16)
Credit Agreement
(9)
 
Net cash from (for) financing activities
12 
(142)
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:
 
 
Capital expenditures
(62)
(50)
Proceeds from disposition of:
 
 
Marketable securities
 
Other financial investments, net
Property and equipment
Acquisition of businesses, net of cash acquired
 
(8)
Other, net
(13)
(17)
Net cash for investing activities
(67)
(61)
Effect of exchange rate changes on cash and cash investments
(41)
(9)
CASH AND CASH INVESTMENTS:
 
 
Decrease for the period
(29)
(102)
At January 1
1,413 
1,028 
At June 30
$ 1,384 
$ 926 
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 June 30, 2010 and the results of operations for the three months and six months ended June 30, 2010 and 2009 and cash flows for the six months ended June 30, 2010 and 2009. The condensed consolidated balance sheet at December 31, 2009 was derived from audited financial statements.
    Certain prior-year amounts have been reclassified to conform to the 2010 presentation in the condensed consolidated financial statements. The results of operations related to 2009 discontinued operations have been separately stated in the accompanying condensed consolidated statements of income for the three months and six months ended June 30, 2009. In the Company’s condensed consolidated statements of cash flows for the six months ended June 30, 2009, cash flows of discontinued operations are not separately classified.
    Recently Issued Accounting Pronouncements
    Effective January 1, 2010, the Company adopted new FASB guidance regarding how a company determines when an entity is insufficiently capitalized or is not controlled through voting and should be consolidated. The adoption of this guidance did not have any impact on the Company’s consolidated financial condition and results of operations.
Discontinued Operations
Discontinued Operations
B.   The Company has accounted for 2009 dispositions as discontinued operations.
    Selected financial information for these discontinued operations was as follows, in millions:
                 
    Three Months Ended     Six Months Ended  
    June 30, 2009     June 30, 2009  
Net sales
  $ 22     $ 44  
 
           
(Loss) from discontinued operations
  $ (4 )   $ (8 )
 
           
(Loss) before income tax
    (4 )     (8 )
Income tax
    (8 )      
 
           
(Loss) from discontinued operations, net
  $ (12 )   $ (8 )
 
           
Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
C.   The changes in the carrying amount of goodwill for the six months ended June 30, 2010, by segment, were as follows, in millions:
                         
    Gross Goodwill     Accumulated     Net Goodwill  
    At     Impairment     at  
    June 30, 2010     Losses     June 30, 2010  
Cabinets and Related Products
  $ 583     $ (364 )   $ 219  
Plumbing Products
    523       (340 )     183  
Installation and Other Services
    1,819       (51 )     1,768  
Decorative Architectural Products
    294             294  
Other Specialty Products
    980       (367 )     613  
 
                 
Total
  $ 4,199     $ (1,122 )   $ 3,077  
 
                 
                                         
    Gross Goodwill     Accumulated     Net Goodwill                
    At     Impairment     at             At  
    Dec. 31, 2009     Losses     Dec. 31, 2009     Other(A)     June 30, 2010  
Cabinets and Related Products
  $ 590     $ (364 )   $ 226     $ (7 )   $ 219  
Plumbing Products
    547       (340 )     207       (24 )     183  
Installation and Other Services
    1,819       (51 )     1,768             1,768  
Decorative Architectural Products
    294             294             294  
Other Specialty Products
    980       (367 )     613             613  
 
                             
Total
  $ 4,230     $ (1,122 )   $ 3,108     $ (31 )   $ 3,077  
 
                             
 
(A)   Other principally includes the effect of foreign currency translation.
    Other indefinite-lived intangible assets were $194 million and $196 million at June 30, 2010 and December 31, 2009, respectively, and principally included registered trademarks. The carrying value of the Company’s definite-lived intangible assets was $89 million (net of accumulated amortization of $69 million) at June 30, 2010 and $94 million (net of accumulated amortization of $67 million) at December 31, 2009, and principally included customer relationships and non-compete agreements.
Depreciation and Amortization Expense
Depreciation and Amortization Expense
D.   Depreciation and amortization expense was $137 million and $128 million, respectively, for the six months ended June 30, 2010 and 2009.
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:
                 
    June 30,     December 31,  
    2010     2009  
Asahi Tec Corporation — preferred stock
  $ 20     $ 71  
Auction rate securities
    22       22  
TriMas Corporation common stock
    28       17  
 
           
Total recurring investments
    70       110  
 
               
Private equity funds
    118       123  
Other investments
    6       9  
 
           
Total non-recurring investments
    124       132  
 
           
Total
  $ 194     $ 242  
 
           
    The Company’s investments in available-for-sale securities at June 30, 2010 and December 31, 2009 were as follows, in millions:
                                 
            Pre-tax    
            Unrealized   Unrealized   Recorded
    Cost Basis   Gains   Losses   Basis
June 30, 2010
  $ 43     $ 27     $     $ 70  
December 31, 2009
  $ 71     $ 39     $     $ 110  
    Recurring Fair Value Measurements. Financial assets and (liabilities) 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  
                    Significant        
            Quoted     Other     Significant  
            Market     Observable     Unobservable  
    June 30,     Prices     Inputs     Inputs  
    2010     (Level 1)     (Level 2)     (Level 3)  
Asahi Tec Corporation:
                               
Preferred stock
  $ 20     $     $ 20     $  
Auction rate securities
    22                   22  
TriMas Corporation
    28       28              
 
                       
Total
  $ 70     $ 28     $ 20     $ 22  
 
                       
                                 
            Fair Value Measurements Using  
                    Significant        
            Quoted     Other     Significant  
            Market     Observable     Unobservable  
    Dec. 31,     Prices     Inputs     Inputs  
    2009     (Level 1)     (Level 2)     (Level 3)  
Asahi Tec Corporation:
                               
Preferred stock
  $ 71     $     $     $ 71  
Auction rate securities
    22                   22  
TriMas Corporation
    17       17              
 
                       
Total
  $ 110     $ 17     $     $ 93  
 
                       
    The Company did not have any transfers between Level 1 and Level 2 financial assets in the first half of 2010 or in the full-year 2009.
    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: expected maturity of auction rate securities, discount rate used to determine the present value of expected cash flows (approximately four percent and six percent at June 30, 2010 and December 31, 2009 31, respectively) and the assumptions for credit defaults, since the auction rate securities are backed by credit default swap agreements.
    During the second quarter of 2010, Asahi Tec approached the Company with an offer to amend the terms of the preferred stock held by the Company. The request was made by Asahi Tec in order to facilitate early negotiations with their bank group for debt that matures in early 2011. The Company and Asahi Tec agreed to amend the preferred stock to include a more favorable conversion feature into common stock and to include a mandatory conversion date of February 28, 2011. The Company agreed to this amendment based on favorable tax benefits related to the Asahi Tec investment. Prior to this amendment, the Company could have settled in cash or common stock in 2017. As a result of the amendment, the Company recognized a $28 million impairment loss based on the current fair value of the preferred stock on an if-converted basis at June 30, 2010. Also, as a result of the amendment, the Company reversed an unrealized gain of $23 million that was previously included in accumulated other comprehensive income. On a quarterly basis, the Asahi Tec Preferred Stock will now be valued based on the trading price of the Asahi Tec common stock (Level 2 input).
    In the past, the preferred stock of Asahi Tec was valued primarily using a discounted cash flow model, because there were previously no observable prices in an active market for the same or similar securities. The significant inputs in the discounted cash flow model previously used to value the Asahi Tec preferred stock included: the present value of future dividends, present value of redemption rights, fair value of conversion rights and the discount rate based on credit spreads for Japanese-issued preferred securities (approximately 600 basis points at December 31, 2009) and other market factors.
    The following table summarizes the changes in Level 3 financial assets measured at fair value on a recurring basis for the six months ended June 30, 2010 and the year ended December 31, 2009, in millions:
                         
    Asahi Tec     Auction Rate        
    Preferred Stock     Securities     Total  
Fair value January 1, 2010
  $ 71     $ 22     $ 93  
Total losses included in earnings
    (28 )           (28 )
Unrealized (losses)
    (23 )           (23 )
Purchases
                 
Settlements
                 
Transfer from Level 3 to Level 2
    (20 )           (20 )
 
                 
Fair value at June 30, 2010
  $     $ 22     $ 22  
 
                 
                         
    Asahi Tec     Auction Rate        
    Preferred Stock     Securities     Total  
Fair value January 1, 2009
  $ 72     $ 22     $ 94  
Total losses included in earnings
                 
Unrealized (losses)
    (1 )           (1 )
Purchases, issuances, settlements
                 
 
                 
Fair value at December 31, 2009
  $ 71     $ 22     $ 93  
 
                 
    Non-Recurring Fair Value Measurements. Financial investments measured at fair value on a non-recurring basis during the period and the amounts for each level within the fair value hierarchy were as follows, in millions:
                                         
            Fair Value Measurements Using        
                    Significant              
            Quoted     Other     Significant        
            Market     Observable     Unobservable     Total  
    June 30,     Prices     Inputs     Inputs     Gains  
    2010     (Level 1)     (Level 2)     (Level 3)     (Losses)  
Private equity funds
  $ 2     $     $     $ 2     $ (3 )
Other private investments
                            (2 )
 
                             
 
  $ 2     $     $     $ 2     $ (5 )
 
                             
                                         
            Fair Value Measurements Using        
                    Significant              
            Quoted     Other     Significant        
            Market     Observable     Unobservable     Total  
    Dec. 31,     Prices     Inputs     Inputs     Gains  
    2009     (Level 1)     (Level 2)     (Level 3)     (Losses)  
Private equity funds
  $ 31     $     $     $ 31     $ (10 )
Other private investments
    3                   3        
 
                             
 
  $ 34     $     $     $ 34     $ (10 )
 
                             
    During the second quarter of 2010, based on information from the fund manager, the Company determined that the decline in the estimated value of two private equity funds (with an aggregate carrying value of $5 million prior to impairment) was other-than-temporary and, accordingly, recognized non-cash, pre-tax impairment charges of $3 million. The remaining private equity investments, with an aggregate carrying value of $116 million at June 30, 2010, were not evaluated for impairment, as there were no indicators of impairment or identified events or changes in circumstances that would have a significant adverse effect on the fair value of the investments. During the second quarter of 2010, the Company also determined that the decline in the estimated value of one private investment was other-than-temporary and, accordingly, recognized a non-cash, pre-tax impairment charge of $2 million. The Company did not have any transfers between Level 1 and Level 2 financial assets in the first six months of 2010 or in the full-year 2009.
    During 2009, the Company determined that the decline in the estimated value of certain private equity funds (with an aggregate carrying value of $41 million prior to impairment) was other-than-temporary and, accordingly, recognized non-cash, pre-tax impairment charges of $10 million for the year ended December 31, 2009. The remaining private equity investments, with an aggregate carrying value of $92 million at December 31, 2009, were not evaluated for impairment, as there were no indicators of impairment or identified events or changes in circumstances that would have a significant adverse effect on the fair value of the investments.
    Income from financial investments, net, for the three and six months ended June 30, 2010 was $1 million.
    Impairment charges for financial investments were as follows, in millions:
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2010     2009     2010     2009  
Impairment charges:
                               
Asahi Tec Preferred Stock
  $ (28 )   $     $ (28 )   $  
Private equity funds
    (3 )     (7 )     (3 )     (10 )
Other private investments
    (2 )           (2 )      
 
                       
Total impairment charges
  $ (33 )   $ (7 )   $ (33 )   $ (10 )
 
                       
    The fair value of the Company’s short-term and long-term fixed-rate debt instruments is based principally upon quoted market prices for the same or similar issues or the current rates available to the Company for debt with similar terms and remaining maturities. The aggregate estimated market value of short-term and long-term debt at June 30, 2010 was approximately $4.0 billion, compared with the aggregate carrying value of $4.1 billion. The aggregate estimated market value of short-term and long-term debt at December 31, 2009 was approximately $3.9 billion, compared with the aggregate carrying value of $4.0 billion.
Derivatives
Derivatives
F.   During 2010 and 2009, the Company entered into foreign currency exchange contracts to hedge currency fluctuations related to intercompany loans denominated in non-functional currencies. At June 30, 2010, the Company had recorded gains of $5 million on the foreign currency exchange contracts, which is partially offset by losses related to the translation of loans and accounts denominated in non-functional currencies. At December 31, 2009, the Company had no recorded asset or liability related to foreign currency exchange contracts. Gains (losses) related to these contracts are recorded in the Company’s consolidated statements of income in other income (expense), net. For the six months ended June 30, 2010 and 2009, the Company had recorded gains (losses) of $5 million and $(3) million, respectively, related to these foreign currency exchange contracts. For the three months ended June 30, 2010 and 2009, the Company had recorded gains (losses) of $1 million and $(2) million, respectively, related to these foreign currency exchange contracts.
    During 2010 and 2009, the Company, including certain European operations, also entered into foreign currency forward contracts to manage a portion of its exposure to currency fluctuations in the European euro and the U.S. dollar. Based upon period-end market prices, the Company had recorded liabilities of $(3) million and $(1) million to reflect contract prices at June 30, 2010 and December 31, 2009, respectively. Gains (losses) related to these contracts are recorded in the Company’s consolidated statements of income in other income (expense), net. For the six months ended June 30, 2010 and 2009, the Company had recorded (losses) of $(2) million and $(1) million, respectively, related to these foreign currency exchange contracts. For the three months ended June 30, 2010 and 2009, the Company had recorded (losses) of $(1) million and $(2) million, respectively, related to these foreign currency exchange contracts.
    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.
    The fair value of these 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:
                 
    Six Months Ended     Twelve Months Ended  
    June 30, 2010     December 31, 2009  
Balance at January 1
  $ 109     $ 119  
Accruals for warranties issued during the period
    17       32  
Accruals related to pre-existing warranties
    1       5  
Settlements made (in cash or kind) during the period
    (18 )     (44 )
Other, net
    (3 )     (3 )
 
           
Balance at end of period
  $ 106     $ 109  
 
           
Debt
Debt
H.   At June 30, 2010 and December 31, 2009, there were outstanding $108 million principal amount at maturity of Zero Coupon Convertible Senior Notes due 2031, with an accreted value of $56 million and $55 million, respectively.
    The Company retired $300 million of floating rate notes on March 12, 2010, the scheduled maturity date.
 
    On March 10, 2010, the Company issued $500 million of 7.125% Notes (“Notes”) due March 15, 2020. The Notes are senior indebtedness and are redeemable at the Company’s option.
 
    During the second quarter of 2010, the Company repurchased $59 million of 5.875% Notes due July 2012, in open-market transactions. The Company paid a premium of $2 million over par value on the purchase of the notes; such expense was included in interest expense.
 
    On June 21, 2010, the Company entered into a Credit Agreement (the “New Credit Agreement”) dated as of June 21, 2010, with a bank group, with an aggregate commitment of $1.25 billion with a maturity date of January 10, 2014. The Company’s 5-Year Revolving Credit Agreement dated as of November 5, 2004, 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 June 30, 2010, the Company had $86 million of 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) 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 of 65 percent, and (B) a minimum interest coverage ratio equal to or greater than (i) 2.25 to 1.0 through the quarter ending on September 30, 2011 and (ii) 2.50 to 1.0 thereafter. The debt to total capitalization ratio allows the add-back, if incurred, of up to the first $500 million of certain non-cash charges, including goodwill and other intangible asset impairment charges, occurring from and after April 1, 2010, that would negatively impact shareholders’ equity.
    Based on the limitations of the debt to total capitalization covenant, at June 30, 2010, the Company had additional borrowing capacity, subject to availability, of up to $1.2 billion. Alternatively, at June 30, 2010, the Company could absorb a reduction to shareholders’ equity of approximately $600 million, and remain in compliance with the debt to total capitalization covenant.
    In order to borrow under the New Credit Agreement, there must not be any default in the Company’s covenants in the 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 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, 2009, 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 June 30, 2010.
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 June 30, 2010, 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     Six Months Ended  
    June 30,     June 30,  
    2010     2009     2010     2009  
Long-term stock awards
  $ 9     $ 13     $ 19     $ 21  
Stock options
    6       8       11       15  
Phantom stock awards and stock appreciation rights
    (4 )     2       (1 )     2  
 
                       
Total
  $ 11     $ 23     $ 29     $ 38  
 
                       
 
                               
Income tax benefit
  $ 4     $ 9     $ 11     $ 14  
 
                       
    In June 2009, the Company recognized $6 million of accelerated stock compensation expense (for previously granted stock awards and options) related to the retirement from full-time employment of the Company’s Executive Chairman of the Board of Directors; he continues to serve as a non-executive, non-employee Chairman of the Board of Directors.
    Long-Term Stock Awards
    Long-term stock awards are granted to key employees and non-employee Directors of the Company and do not cause net share dilution inasmuch as the Company continues the practice of repurchasing and retiring an equal number of shares on the open market. Stock awards granted prior to January 1, 2010 have a typical vesting period of 10 years. Stock awards granted subsequent to January 1, 2010 have a vesting period of 5 years.
    The Company’s long-term stock award activity was as follows, shares in millions:
                 
    Six Months Ended
    June 30,
    2010   2009
Unvested stock award shares at January 1
    9       8  
Weighted average grant date fair value
  $ 21     $ 26  
 
               
Stock award shares granted
    3       2  
Weighted average grant date fair value
  $ 14     $ 8  
 
               
Stock award shares vested
    1       1  
Weighted average grant date fair value
  $ 23     $ 26  
 
               
Stock award shares forfeited
           
Weighted average grant date fair value
  $ 20     $ 26  
 
               
Unvested stock award shares at June 30
    11       9  
Weighted average grant date fair value
  $ 19     $ 22  
    At June 30, 2010 and 2009, there was $145 million and $144 million, respectively, of total unrecognized compensation expense related to unvested stock awards; such awards had a weighted average remaining vesting period of six years and seven years, respectively.
    The total market value (at the vesting date) of stock award shares which vested during the six months ended June 30, 2010 and 2009 was $17 million and $11 million, respectively.
    Stock Options
    Stock options are granted to key employees and non-employee Directors of the Company. The exercise price equals the market price of the 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 5,205,100 of stock option shares in the six months ended June 30, 2010 with a grant date exercise price approximating $14 per share. In the first half of 2010, 3,112,500 stock option shares were forfeited (including options that expired unexercised).
    The Company’s stock option activity was as follows, shares in millions:
                 
    Six Months Ended
    June 30,
    2010   2009
Option shares outstanding, January 1
    36       31  
Weighted average exercise price
  $ 23     $ 25  
 
Option shares granted, including restoration options
    5       6  
Weighted average exercise price
  $ 14     $ 8  
 
Option shares exercised
           
Aggregate intrinsic value on date of exercise (A)
  $ 1  million   $  million
Weighted average exercise price
  $ 8     $  
 
Option shares forfeited
    3       1  
Weighted average exercise price
  $ 23     $ 25  
 
Option shares outstanding, June 30
    38       36  
Weighted average exercise price
  $ 21     $ 23  
Weighted average remaining option term (in years)
    6       6  
 
Option shares vested and expected to vest, June 30
    37       36  
Weighted average exercise price
  $ 21     $ 23  
Aggregate intrinsic value (A)
  $ 14  million   $ 8  million
Weighted average remaining option term (in years)
    6       6  
 
Option shares exercisable (vested), June 30
    22       20  
Weighted average exercise price
  $ 25     $ 26  
Aggregate intrinsic value (A)
  $ 3  million   $  million
Weighted average remaining option term (in years)
    5       5  
 
(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 June 30, 2010 and 2009, there was $56 million and $54 million, respectively, of unrecognized compensation expense (using the Black-Scholes option pricing model) related to unvested stock options; such options had a weighted average vesting period of three years in 2010 and 2009.
    The weighted average grant date fair value of option shares granted and the assumptions used to estimate those values using a Black-Scholes option pricing model, were as follows:
                 
    Six Months Ended
    June 30,
    2010   2009
Weighted average grant date fair value
  $ 5.30     $ 2.23  
Risk-free interest rate
    2.77 %     2.59 %
Dividend yield
    2.17 %     3.73 %
Volatility factor
    46.01 %     39.07 %
Expected option life
  6 years     6 years  
Employee Retirement Plans
Employee Retirement Plans
J.   The Company sponsors qualified defined-benefit or defined-contribution retirement plans for most of its employees. In addition to the Company’s qualified defined-benefit pension plans, the Company has unfunded non-qualified defined-benefit pension plans covering certain employees, which provide for benefits in addition to those provided by the qualified pension plans. Substantially all salaried employees participate in non-contributory defined-contribution retirement plans, to which payments are determined annually by the Organization and Compensation Committee of the Board of Directors.
    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.
 
    Net periodic pension cost for the Company’s defined-benefit pension plans was as follows, in millions:
                                 
    Three Months ended June 30,  
    2010     2009  
    Qualified     Non-Qualified     Qualified     Non-Qualified  
Service cost
  $ 1     $     $ 2     $ 1  
Interest cost
    12       2       8       1  
Expected return on plan assets
    (10 )           (5 )      
Amortization of prior service cost
                       
Recognized curtailment loss
                       
Amortization of net loss
    3             2        
 
                       
Net periodic pension cost
  $ 6     $ 2       7       2  
 
                       
                                 
    Six Months ended June 30,  
    2010     2009  
    Qualified     Non-Qualified     Qualified     Non-Qualified  
Service cost
  $ 2     $     $ 6     $ 1  
Interest cost
    23       4       19       3  
Expected return on plan assets
    (18 )           (13 )      
Amortization of prior service cost
                      1  
Recognized curtailment loss
                3       5  
Amortization of net loss
    5             7        
 
                       
Net periodic pension cost
  $ 12     $ 4     $ 22     $ 10  
 
                       
    Assumptions
 
    Major assumptions used in accounting for the Company’s defined-benefit pension plans were as follows:
                 
    December 31,
    2009   2008
Discount rate for obligations
    5.8 %     6.1 %
Expected return on plan assets
    8.0 %     8.0 %
Discount rate for net periodic pension cost
    6.1 %     6.25 %
    The discount rate for obligations was based upon the expected duration of each defined-benefit pension plan’s liabilities matched to the widely used Citigroup Pension Discount Curve and Liability Index for December 31, 2009. Such rates for the Company’s defined benefit pension plans ranged from 2.60 percent to 6.25 percent, with the most significant portion of the liabilities having a discount rate for obligations of 5.60 percent or higher at December 31, 2009. The decline in the weighted average discount rate to 5.8 percent in 2009 from 6.1 percent in 2008 was principally the result of the variation in long-term rates which were highly volatile at the end of 2008 compared to 2009, for the Citigroup Pension Discount Curve, and the freezing of all future benefit accruals under substantially all of the Company’s domestic qualified and non-qualified defined-benefit plans, which shortened the period of future pension payments. The decrease in the discount rate increased our projected benefit obligation by approximately $29 million.
 
    The Company determined the expected long-term rate of return on plan assets of 8 percent based upon an analysis of expected and historical rates of return of various asset classes utilizing the current and long-term target asset allocation of the plan assets. The projected asset return at December 31, 2009 also considered near term returns, including current market conditions and also that pension assets are long-term in nature. The actual annual rate of return on the Company’s pension plan assets was 3.3 percent and .5 percent for the 10-year periods ended December 31, 2009 and 2008, respectively. Although these rates of return are less than the Company’s current expected long-term rate of return on plan assets, the Company notes that these 10-year periods include two significant declines in the equity markets. Accordingly, the Company believes an 8 percent expected long-term rate of return is reasonable.
    The investment objectives seek to minimize the volatility of the value of the Company’s plan assets relative to pension liabilities and to ensure plan assets are sufficient to pay plan benefits. The Company, based upon discussions with its pension investment advisor, reduced its equity allocation to 70 percent from 80 percent; increased its fixed-income allocation to 25 percent from 10 percent and allocated 5 percent to alternative investments. The revised asset allocation of the investment portfolio was based on discussions with the pension investment advisor with the objective of achieving the Company’s expected rate of return and reducing volatility of asset returns, and considered the freezing of future benefits. The equity portfolios are invested in individual securities or funds that are expected to mirror broad market returns for equity securities. The fixed-income portfolio is invested in corporate bonds, bond index funds or U.S. Treasury securities. The increased allocation to fixed-income securities partially matches the bond-like and long-term nature of the pension liabilities. In 2010, the pension investment advisor recommended that, longer term, the Company should achieve the following targeted asset portfolio: 45 percent equities, 25 percent fixed-income, 15 percent global assets (combination of equity and fixed-income) and 15 percent alternative investments (such as private equity, commodities and hedge funds). This targeted portfolio is expected to yield a long-term rate of return of 8 percent.
 
    The fair value of the Company’s plan assets is subject to risk including significant concentrations of risk in the Company’s plan assets related to equity, interest rate and operating risk. In order to ensure plan assets are sufficient to pay benefits, a portion of plan assets is allocated to equity investments that are expected over time, to earn higher returns with more volatility than fixed-income investments which more closely match pension liabilities. Within equity, risk is mitigated by targeting a portfolio that is broadly diversified by geography, market capitalization, manager mandate size, investment style and process.
 
    In order to minimize asset volatility relative to the liabilities, a portion of plan assets are allocated to fixed-income investments that are exposed to interest rate risk. Rate increases generally will result in a decline in fixed-income assets, while reducing the present value of the liabilities. Conversely, rate decreases will increase fixed income assets, partially offsetting the related increase in the liabilities.
 
    The Company has targeted alternative investments such as hedge funds, private equity funds and commodities that could comprise 15 percent of the pension assets. It is expected that the alternative investments would have a higher rate of return than the targeted return of 8 percent. However, these investments are subject to greater volatility, due to their nature, than a portfolio of equities and fixed-income investments, and would be less liquid than financial instruments that trade on public markets.
 
    Potential events or circumstances that could have a negative effect on estimated fair value include the risks of inadequate diversification and other operating risks. To mitigate these risks, investments are diversified across and within asset classes in support of investment objectives. Policies and practices to address operating risks include ongoing manager oversight, plan and asset class investment guidelines and instructions that are communicated to managers, and periodic compliance and audit reviews to ensure adherence to these policies. In addition, the Company periodically seeks the input of its independent advisor to ensure the investment policy is appropriate.
Accumulated other Comprehensive Income
Accumulated Other Comprehensive Income
K.   The components of accumulated other comprehensive income attributable to Masco Corporation were as follows, in millions:
                 
    June 30, 2010     December 31, 2009  
Cumulative translation adjustments
  $ 446     $ 546  
Unrealized gain on marketable securities, net
    17       25  
Unrecognized prior service cost and net loss, net
    (201 )     (205 )
 
           
Accumulated other comprehensive income
  $ 262     $ 366  
 
           
    The components of accumulated other comprehensive attributable to noncontrolling interest were as follows, in millions:
                 
    June 30, 2010     December 31, 2009  
Cumulative translation adjustments
  $     $ 31  
Unrealized gain on marketable securities, net
           
Unrecognized prior service cost and net loss, net
           
 
           
Accumulated other comprehensive income
  $     $ 31  
 
           
    The Company’s total comprehensive income was as follows, in millions:
                                 
    Three Months Ended     Three Months Ended  
    June 30, 2010     June 30, 2009  
    Attributable to     Noncontrolling     Attributable to     Noncontrolling  
    Masco Corporation     Interest     Masco Corporation     Interest  
Net income
  $ 3     $ 9     $ 55     $ 8  
Other comprehensive income:
                               
Cumulative translation adjustments, net
    (58 )     (17 )     80       15  
Unrealized (loss) gain on marketable securities, net
    (7 )           3        
Prior service cost and net loss, net
    2                    
 
                       
Total comprehensive (loss) income
  $ (60 )   $ (8 )   $ 138     $ 23  
 
                       
                                 
    Six Months Ended     Six Months Ended  
    June 30, 2010     June 30, 2009  
    Attributable to     Noncontrolling     Attributable to     Noncontrolling  
    Masco Corporation     Interest     Masco Corporation     Interest  
Net (loss) income
  $ (4 )   $ 20     $ (26 )   $ 15  
Other comprehensive income:
                               
Cumulative translation adjustments, net
    (100 )     (31 )     12       4  
Unrealized (loss) gain on marketable securities, net
    (8 )           5        
Prior service cost and net loss, net
    4             62        
 
                       
Total comprehensive (loss) income
  $ (108 )   $ (11 )   $ 53     $ 19  
 
                       
    The unrealized (loss) gain on marketable securities, net, is net of income tax benefit of $4 million for both the three months and six months ended June 30, 2010. The unrealized (loss) gain on marketable securities, net, is net of income tax of $3 million for both the three months and six months ended June 30, 2009. The prior service cost and net loss, net, is net of income tax of $1 million and $2 million for the three months and six months ended June 30, 2010, respectively. The prior service cost and net loss, net, is net of income tax of $36 million for the six months ended June 30, 2009.
 
    On the basis of amounts paid (declared), cash dividends per common share were $.075 ($.075) and $.15 ($.15) for the three months and six months ended June 30, 2010, respectively. On the basis of amounts paid (declared), cash dividends per common share were $.075 ($.075) and $.31 ($.15) for the three months and six months ended June 30, 2009, respectively.
Segment Information
Segment Information
L.   Information about the Company by segment and geographic area was as follows, in millions:
                                                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
    2010     2009     2010     2009     2010     2009     2010     2009  
    Net Sales(A)     Operating Profit (Loss)     Net Sales(A)     Operating Profit (Loss)  
The Company’s operations by segment were:
                                                               
Cabinets and Related Products
  $ 400     $ 419     $ (37 )   $ (12 )   $ 803     $ 814     $ (52 )   $ (40 )
Plumbing Products
    682       631       86       74       1,345       1,215       170       109  
Installation and Other Services
    309       312       (23 )     (34 )     582       629       (65 )     (70 )
Decorative Architectural Products
    505       505       109       116       894       891       196       191  
Other Specialty Products
    152       146       11       7       276       261       5        
 
                                               
Total
  $ 2,048     $ 2,013     $ 146     $ 151     $ 3,900     $ 3,810     $ 254     $ 190  
 
                                               
 
The Company’s operations by geographic area were:
                                                               
North America
  $ 1,659     $ 1,630     $ 114     $ 119     $ 3,089     $ 3,064     $ 178     $ 138  
International, principally Europe
    389       383       32       32       811       746       76       52  
 
                                               
Total
  $ 2,048     $ 2,013       146       151     $ 3,900     $ 3,810       254       190  
 
                                                       
 
General corporate expense, net
                    (27 )     (27 )                     (57 )     (60 )
Accelerated stock compensation expense (B)
                          (6 )                           (6 )
(Loss) on corporate fixed assets, net
                          (2 )                           (2 )
Charge for defined-benefit plan curtailment (C)
                                                      (8 )
 
                                                       
Operating profit
                    119       116                       197       114  
Other income (expense), net
                    (103 )     (49 )                     (159 )     (108 )
 
                                                       
Income from continuing operations before income taxes
                  $ 16     $ 67                     $ 38     $ 6  
 
                                                       
 
(A)   Inter-segment sales were not material.
 
(B)   See Note I to the condensed consolidated financial statements.
 
(C)   In March 2009, the Company recognized a curtailment loss related to the plan to freeze all future benefit accruals beginning January 1, 2010 under substantially all of the Company’s domestic qualified and non-qualified defined-benefit pension plans.
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     Six Months Ended  
    June 30,     June 30,  
    2010     2009     2010     2009  
Income from cash and cash investments
  $ 1     $ 1     $ 2     $ 4  
Income from financial investments (Note E)
    1             1        
Other items, net
    (5 )     14       (4 )     11  
 
                       
Total
  $ (3 )   $ 15     $ (1 )   $ 15  
 
                       
    Other items, net, included $5 million and $6 million of currency losses for the three months and six months ended June 30, 2010, respectively. Other items, net, included $11 million and $9 million of currency gains for the three months and six months ended June 30, 2009, respectively.
Earning 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     Six Months Ended  
    June 30,     June 30,  
    2010     2009     2010     2009  
Numerator (basic and diluted):
                               
Income (loss) from continuing operations
  $ 3     $ 67     $ (4 )   $ (18 )
Allocation to unvested restricted stock awards
    (1 )     (2 )     (1 )     (1 )
 
                       
Income (loss) from continuing operations attributable to common shareholders
    2       65       (5 )     (19 )
Income (loss) from discontinued operations, net
          (12 )           (8 )
 
                       
Net income (loss) available to common shareholders
  $ 2     $ 53     $ (5 )   $ (27 )
 
                       
 
                               
Denominator:
                               
Basic common shares (based upon weighted average)
    348       350       349       351  
Add:
                               
Contingent common shares
                       
Stock option dilution
    1                    
 
                       
Diluted common shares
    349       350       349       351  
 
                       
    For the three months and six months ended June 30, 2010 and the six months ended June 30, 2009, the Company allocated dividends to the unvested restricted stock awards (participating securities). For the three months ended June 30, 2009, the Company allocated dividends and income to the unvested restricted stock awards (participating securities).
    At June 30, 2010 and 2009, the Company did not include any common shares related to the Zero Coupon Convertible Senior Notes (“Notes”) in the calculation of diluted earnings per common share, as the price of the Company’s common stock at June 30, 2010 and 2009 did not exceed the equivalent accreted value of the Notes.
    Additionally, 37 million common shares and 38 million common shares, respectively, for the three months and six months ended June 30, 2010 and 36 million common shares for both the three months and six months ended June 30, 2009, respectively, related to stock options were excluded from the computation of diluted earnings per common share due to their antidilutive effect.
    In the first six months of 2010, the Company granted three million shares of long-term stock awards. In the first six months of 2010, the Company also repurchased and retired approximately three million shares of Company common stock, for cash aggregating $45 million to offset the dilutive impact of these long-term stock awards. At June 30, 2010, the Company had 27 million shares of its common stock remaining under the July 2007 Board of Directors repurchase authorization.
Other Commitments and Contingencies
Other Commitments and Contingencies
O.   The Company is subject to lawsuits and pending or asserted claims with respect to matters generally arising in the ordinary course of business.
    As previously disclosed, a lawsuit has been brought against the Company and a number of its insulation installation companies in the federal court in Atlanta, Georgia alleging that certain practices violate provisions of the federal antitrust laws. In February 2009, the federal court in Atlanta certified a class of 377 insulation contractors. Two additional lawsuits, seeking class action status and alleging anticompetitive conduct, were filed against the Company and a number of its insulation suppliers. One of these lawsuits has been dismissed with prejudice and, with respect to the second lawsuit, which was originally filed in northern California and was subsequently transferred to Atlanta, Georgia, the Court has recently administratively stayed the case. The Company is vigorously defending the pending cases. Based upon the advice of its outside counsel, the Company believes that the conduct of the Company and its insulation installation companies, which has been the subject of the above-described lawsuits, has not violated any antitrust laws. The Company is unable at this time to reliably estimate any potential liability which might occur from an adverse judgment. There cannot be any assurance that the Company will ultimately prevail in the remaining lawsuits, or, if unsuccessful, that the ultimate liability would not be material and would not have a material adverse effect on its businesses or the methods used by its insulation installation companies in doing business.
    As previously disclosed, European governmental authorities were investigating possible anticompetitive business practices relating to the plumbing and heating industries in Europe. These investigations involved a number of European companies, including certain of the Company’s European subsidiaries and a number of other large businesses. On May 20, 2010, the Belgium Competition Council announced its decision concerning its investigation of the heating industry. On June 23, 2010 the European Commission announced its decision concerning its investigation of the bathroom faucet and shower enclosure industries. Masco was given complete immunity from both the Belgium Competition Council and the European Commission as a result of Masco’s reporting of infringement and cooperation in each respective investigation.
Income Taxes
Income Taxes
P.   The second quarter of 2010 tax expense includes a $6 million tax benefit on the anticipated tax loss from the abandonment of certain intangible costs due to the Company’s decision to discontinue the manufacture of ready-to-assemble and other non-core in-stock assembled cabinet product lines. The increased tax rate for the first half of 2010 includes the impact of certain plant closure costs and other losses not providing tax benefits in certain jurisdictions combined with the decrease in 2010 pre-tax income.
    During the first half of 2010, the liability on uncertain tax positions including interest and penalties, net of U.S. Federal income tax benefit, increased by $8 million primarily due to changes in the tax environment related to certain activities performed in various jurisdictions that caused a re-measurement of this liability. 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 on uncertain tax positions could be reduced by approximately $12 million.
    Due to the difficulty in estimating the annual effective tax rate in 2009, a discrete calculation was used to report tax expense rather than an estimated annual effective tax rate. The unusual relationship between income tax expense and pre-tax income for the first half of 2009 results primarily from an increase in the valuation allowance on net operating loss carryforwards, losses in certain state and local jurisdictions providing no tax benefit and tax expense on foreign earnings that are not permanently reinvested.
Subsequent Events
Subsequent Events
Q.   As previously announced in February 2010, the Company is combining its Builder Cabinet Group and Retail Cabinet Group to form Masco Cabinetry. In April 2010, Masco Cabinetry decided to discontinue the manufacture of ready-to-assemble and other non-core in-stock assembled cabinet product lines as they are not consistent with Masco Cabinetry’s strategy of growth through brand building and innovation. These product lines had aggregate annual sales of approximately $200 million in 2009. The Company anticipates it will close two manufacturing facilities associated with these products in the first half of 2011. The Company expects to incur approximately $115 million (principally recognized ratably over 10 months) of pre-tax charges related to the anticipated plant closures including approximately $90 million related to non-cash charges principally associated with property, plant and equipment (at June 30, 2010, the Company had incurred approximately $17 million related to accelerated depreciation costs) and approximately $25 million of other cash charges.
    The Company continues to pursue the potential sale of the product line; if a sale occurred, the timing of the charges would change.
Accounting Policies (Policies)
Recently Issued Accounting Pronouncements
    Recently Issued Accounting Pronouncements
    Effective January 1, 2010, the Company adopted new FASB guidance regarding how a company determines when an entity is insufficiently capitalized or is not controlled through voting and should be consolidated. The adoption of this guidance did not have any impact on the Company’s consolidated financial condition and results of operations.
Discontinued Operations (Tables)
Financial information for discontinued operations
                 
    Three Months Ended     Six Months Ended  
    June 30, 2009     June 30, 2009  
Net sales
  $ 22     $ 44  
 
           
(Loss) from discontinued operations
  $ (4 )   $ (8 )
 
           
(Loss) before income tax
    (4 )     (8 )
Income tax
    (8 )      
 
           
(Loss) from discontinued operations, net
  $ (12 )   $ (8 )
 
           
Goodwill and Other Intangible Assets (Tables)
Changes in carrying amount of goodwill
                         
    Gross Goodwill     Accumulated     Net Goodwill  
    At     Impairment     at  
    June 30, 2010     Losses     June 30, 2010  
Cabinets and Related Products
  $ 583     $ (364 )   $ 219  
Plumbing Products
    523       (340 )     183  
Installation and Other Services
    1,819       (51 )     1,768  
Decorative Architectural Products
    294             294  
Other Specialty Products
    980       (367 )     613  
 
                 
Total
  $ 4,199     $ (1,122 )   $ 3,077  
 
                 
                                         
    Gross Goodwill     Accumulated     Net Goodwill                
    At     Impairment     at             At  
    Dec. 31, 2009     Losses     Dec. 31, 2009     Other(A)     June 30, 2010  
Cabinets and Related Products
  $ 590     $ (364 )   $ 226     $ (7 )   $ 219  
Plumbing Products
    547       (340 )     207       (24 )     183  
Installation and Other Services
    1,819       (51 )     1,768             1,768  
Decorative Architectural Products
    294             294             294  
Other Specialty Products
    980       (367 )     613             613  
 
                             
Total
  $ 4,230     $ (1,122 )   $ 3,108     $ (31 )   $ 3,077  
 
                             
 
(A)   Other principally includes the effect of foreign currency translation.
    Other indefinite-lived intangible assets were $194 million and $196 million at June 30, 2010 and December 31, 2009, respectively, and principally included registered trademarks. The carrying value of the Company’s definite-lived intangible assets was $89 million (net of accumulated amortization of $69 million) at June 30, 2010 and $94 million (net of accumulated amortization of $67 million) at December 31, 2009, and principally included customer relationships and non-compete agreements.
Fair Value Of Financial Investments and Liabilities (Tables)
                 
    June 30,     December 31,  
    2010     2009  
Asahi Tec Corporation — preferred stock
  $ 20     $ 71  
Auction rate securities
    22       22  
TriMas Corporation common stock
    28       17  
 
           
Total recurring investments
    70       110  
 
               
Private equity funds
    118       123  
Other investments
    6       9  
 
           
Total non-recurring investments
    124       132  
 
           
Total
  $ 194     $ 242  
 
           
                                 
            Pre-tax    
            Unrealized   Unrealized   Recorded
    Cost Basis   Gains   Losses   Basis
June 30, 2010
  $ 43     $ 27     $     $ 70  
December 31, 2009
  $ 71     $ 39     $     $ 110  
                                 
            Fair Value Measurements Using  
                    Significant        
            Quoted     Other     Significant  
            Market     Observable     Unobservable  
    June 30,     Prices     Inputs     Inputs  
    2010     (Level 1)     (Level 2)     (Level 3)  
Asahi Tec Corporation:
                               
Preferred stock
  $ 20     $     $ 20     $  
Auction rate securities
    22                   22  
TriMas Corporation
    28       28              
 
                       
Total
  $ 70     $ 28     $ 20     $ 22  
 
                       
                                 
            Fair Value Measurements Using  
                    Significant        
            Quoted     Other     Significant  
            Market     Observable     Unobservable  
    Dec. 31,     Prices     Inputs     Inputs  
    2009     (Level 1)     (Level 2)     (Level 3)  
Asahi Tec Corporation:
                               
Preferred stock
  $ 71     $     $     $ 71  
Auction rate securities
    22                   22  
TriMas Corporation
    17       17              
 
                       
Total
  $ 110     $ 17     $     $ 93  
 
                       
                         
    Asahi Tec     Auction Rate        
    Preferred Stock     Securities     Total  
Fair value January 1, 2010
  $ 71     $ 22     $ 93  
Total losses included in earnings
    (28 )           (28 )
Unrealized (losses)
    (23 )           (23 )
Purchases
                 
Settlements
                 
Transfer from Level 3 to Level 2
    (20 )           (20 )
 
                 
Fair value at June 30, 2010
  $     $ 22     $ 22  
 
                 
                         
    Asahi Tec     Auction Rate        
    Preferred Stock     Securities     Total  
Fair value January 1, 2009
  $ 72     $ 22     $ 94  
Total losses included in earnings
                 
Unrealized (losses)
    (1 )           (1 )
Purchases, issuances, settlements
                 
 
                 
Fair value at December 31, 2009
  $ 71     $ 22     $ 93  
 
                 
                                         
            Fair Value Measurements Using        
                    Significant              
            Quoted     Other     Significant        
            Market     Observable     Unobservable     Total  
    June 30,     Prices     Inputs     Inputs     Gains  
    2010     (Level 1)     (Level 2)     (Level 3)     (Losses)  
Private equity funds
  $ 2     $     $     $ 2     $ (3 )
Other private investments
                            (2 )
 
                             
 
  $ 2     $     $     $ 2     $ (5 )
 
                             
                                         
            Fair Value Measurements Using        
                    Significant              
            Quoted     Other     Significant        
            Market     Observable     Unobservable     Total  
    Dec. 31,     Prices     Inputs     Inputs     Gains  
    2009     (Level 1)     (Level 2)     (Level 3)     (Losses)  
Private equity funds
  $ 31     $     $     $ 31     $ (10 )
Other private investments
    3                   3        
 
                             
 
  $ 34     $     $     $ 34     $ (10 )
 
                             
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2010     2009     2010     2009  
Impairment charges:
                               
Asahi Tec Preferred Stock
  $ (28 )   $     $ (28 )   $  
Private equity funds
    (3 )     (7 )     (3 )     (10 )
Other private investments
    (2 )           (2 )      
 
                       
Total impairment charges
  $ (33 )   $ (7 )   $ (33 )   $ (10 )
 
                       
Warranty (Tables)
Warranty liability
                 
    Six Months Ended     Twelve Months Ended  
    June 30, 2010     December 31, 2009  
Balance at January 1
  $ 109     $ 119  
Accruals for warranties issued during the period
    17       32  
Accruals related to pre-existing warranties
    1       5  
Settlements made (in cash or kind) during the period
    (18 )     (44 )
Other, net
    (3 )     (3 )
 
           
Balance at end of period
  $ 106     $ 109  
 
           
Stock-Based Compensation (Tables)
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2010     2009     2010     2009  
Long-term stock awards
  $ 9     $ 13     $ 19     $ 21  
Stock options
    6       8       11       15  
Phantom stock awards and stock appreciation rights
    (4 )     2       (1 )     2  
 
                       
Total
  $ 11     $ 23     $ 29     $ 38  
 
                       
 
                               
Income tax benefit
  $ 4     $ 9     $ 11     $ 14  
 
                       
                 
    Six Months Ended
    June 30,
    2010   2009
Unvested stock award shares at January 1
    9       8  
Weighted average grant date fair value
  $ 21     $ 26  
 
               
Stock award shares granted
    3       2  
Weighted average grant date fair value
  $ 14     $ 8  
 
               
Stock award shares vested
    1       1  
Weighted average grant date fair value
  $ 23     $ 26  
 
               
Stock award shares forfeited
           
Weighted average grant date fair value
  $ 20     $ 26  
 
               
Unvested stock award shares at June 30
    11       9  
Weighted average grant date fair value
  $ 19     $ 22  
                 
    Six Months Ended
    June 30,
    2010   2009
Option shares outstanding, January 1
    36       31  
Weighted average exercise price
  $ 23     $ 25  
 
Option shares granted, including restoration options
    5       6  
Weighted average exercise price
  $ 14     $ 8  
 
Option shares exercised
           
Aggregate intrinsic value on date of exercise (A)
  $ 1  million   $  million
Weighted average exercise price
  $ 8     $  
 
Option shares forfeited
    3       1  
Weighted average exercise price
  $ 23     $ 25  
 
Option shares outstanding, June 30
    38       36  
Weighted average exercise price
  $ 21     $ 23  
Weighted average remaining option term (in years)
    6       6  
 
Option shares vested and expected to vest, June 30
    37       36  
Weighted average exercise price
  $ 21     $ 23  
Aggregate intrinsic value (A)
  $ 14  million   $ 8  million
Weighted average remaining option term (in years)
    6       6  
 
Option shares exercisable (vested), June 30
    22       20  
Weighted average exercise price
  $ 25     $ 26  
Aggregate intrinsic value (A)
  $ 3  million   $  million
Weighted average remaining option term (in years)
    5       5  
 
(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.
                 
    Six Months Ended
    June 30,
    2010   2009
Weighted average grant date fair value
  $ 5.30     $ 2.23  
Risk-free interest rate
    2.77 %     2.59 %
Dividend yield
    2.17 %     3.73 %
Volatility factor
    46.01 %     39.07 %
Expected option life
  6 years     6 years  
Employee Retirement Plans (Tables)
                                 
    Three Months ended June 30,  
    2010     2009  
    Qualified     Non-Qualified     Qualified     Non-Qualified  
Service cost
  $ 1     $     $ 2     $ 1  
Interest cost
    12       2       8       1  
Expected return on plan assets
    (10 )           (5 )      
Amortization of prior service cost
                       
Recognized curtailment loss
                       
Amortization of net loss
    3             2        
 
                       
Net periodic pension cost
  $ 6     $ 2       7       2  
 
                       
                                 
    Six Months ended June 30,  
    2010     2009  
    Qualified     Non-Qualified     Qualified     Non-Qualified  
Service cost
  $ 2     $     $ 6     $ 1  
Interest cost
    23       4       19       3  
Expected return on plan assets
    (18 )           (13 )      
Amortization of prior service cost
                      1  
Recognized curtailment loss
                3       5  
Amortization of net loss
    5             7        
 
                       
Net periodic pension cost
  $ 12     $ 4     $ 22     $ 10  
 
                       
                 
    December 31,
    2009   2008
Discount rate for obligations
    5.8 %     6.1 %
Expected return on plan assets
    8.0 %     8.0 %
Discount rate for net periodic pension cost
    6.1 %     6.25 %
Accumulated Other Comprehensive Income (Tables)
                 
    June 30, 2010     December 31, 2009  
Cumulative translation adjustments
  $ 446     $ 546  
Unrealized gain on marketable securities, net
    17       25  
Unrecognized prior service cost and net loss, net
    (201 )     (205 )
 
           
Accumulated other comprehensive income
  $ 262     $ 366  
 
           
                 
    June 30, 2010     December 31, 2009  
Cumulative translation adjustments
  $     $ 31  
Unrealized gain on marketable securities, net
           
Unrecognized prior service cost and net loss, net
           
 
           
Accumulated other comprehensive income
  $     $ 31  
 
           
                                 
    Three Months Ended     Three Months Ended  
    June 30, 2010     June 30, 2009  
    Attributable to     Noncontrolling     Attributable to     Noncontrolling  
    Masco Corporation     Interest     Masco Corporation     Interest  
Net income
  $ 3     $ 9     $ 55     $ 8  
Other comprehensive income:
                               
Cumulative translation adjustments, net
    (58 )     (17 )     80       15  
Unrealized (loss) gain on marketable securities, net
    (7 )           3        
Prior service cost and net loss, net
    2                    
 
                       
Total comprehensive (loss) income
  $ (60 )   $ (8 )   $ 138     $ 23  
 
                       
                                 
    Six Months Ended     Six Months Ended  
    June 30, 2010     June 30, 2009  
    Attributable to     Noncontrolling     Attributable to     Noncontrolling  
    Masco Corporation     Interest     Masco Corporation     Interest  
Net (loss) income
  $ (4 )   $ 20     $ (26 )   $ 15  
Other comprehensive income:
                               
Cumulative translation adjustments, net
    (100 )     (31 )     12       4  
Unrealized (loss) gain on marketable securities, net
    (8 )           5        
Prior service cost and net loss, net
    4             62        
 
                       
Total comprehensive (loss) income
  $ (108 )   $ (11 )   $ 53     $ 19  
 
                       
Segment Information (Tables)
Company by segment and geographic area
                                                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
    2010     2009     2010     2009     2010     2009     2010     2009  
    Net Sales(A)     Operating Profit (Loss)     Net Sales(A)     Operating Profit (Loss)  
The Company’s operations by segment were:
                                                               
Cabinets and Related Products
  $ 400     $ 419     $ (37 )   $ (12 )   $ 803     $ 814     $ (52 )   $ (40 )
Plumbing Products
    682       631       86       74       1,345       1,215       170       109  
Installation and Other Services
    309       312       (23 )     (34 )     582       629       (65 )     (70 )
Decorative Architectural Products
    505       505       109       116       894       891       196       191  
Other Specialty Products
    152       146       11       7       276       261       5        
 
                                               
Total
  $ 2,048     $ 2,013     $ 146     $ 151     $ 3,900     $ 3,810     $ 254     $ 190  
 
                                               
 
The Company’s operations by geographic area were:
                                                               
North America
  $ 1,659     $ 1,630     $ 114     $ 119     $ 3,089     $ 3,064     $ 178     $ 138  
International, principally Europe
    389       383       32       32       811       746       76       52  
 
                                               
Total
  $ 2,048     $ 2,013       146       151     $ 3,900     $ 3,810       254       190  
 
                                                       
 
General corporate expense, net
                    (27 )     (27 )                     (57 )     (60 )
Accelerated stock compensation expense (B)
                          (6 )                           (6 )
(Loss) on corporate fixed assets, net
                          (2 )                           (2 )
Charge for defined-benefit plan curtailment (C)
                                                      (8 )
 
                                                       
Operating profit
                    119       116                       197       114  
Other income (expense), net
                    (103 )     (49 )                     (159 )     (108 )
 
                                                       
Income from continuing operations before income taxes
                  $ 16     $ 67                     $ 38     $ 6  
 
                                                       
 
(A)   Inter-segment sales were not material.
 
(B)   See Note I to the condensed consolidated financial statements.
 
(C)   In March 2009, the Company recognized a curtailment loss related to the plan to freeze all future benefit accruals beginning January 1, 2010 under substantially all of the Company’s domestic qualified and non-qualified defined-benefit pension plans.
Other Income (Expense), Net (Tables)
Other, net
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2010     2009     2010     2009  
Income from cash and cash investments
  $ 1     $ 1     $ 2     $ 4  
Income from financial investments (Note E)
    1             1        
Other items, net
    (5 )     14       (4 )     11  
 
                       
Total
  $ (3 )   $ 15     $ (1 )   $ 15  
 
                       
Earning Per Common Share (Tables)
Numerators and denominators used in the computations of basic and diluted earnings per common share
                                 
    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2010     2009     2010     2009  
Numerator (basic and diluted):
                               
Income (loss) from continuing operations
  $ 3     $ 67     $ (4 )   $ (18 )
Allocation to unvested restricted stock awards
    (1 )     (2 )     (1 )     (1 )
 
                       
Income (loss) from continuing operations attributable to common shareholders
    2       65       (5 )     (19 )
Income (loss) from discontinued operations, net
          (12 )           (8 )
 
                       
Net income (loss) available to common shareholders
  $ 2     $ 53     $ (5 )   $ (27 )
 
                       
 
                               
Denominator:
                               
Basic common shares (based upon weighted average)
    348       350       349       351  
Add:
                               
Contingent common shares
                       
Stock option dilution
    1                    
 
                       
Diluted common shares
    349       350       349       351  
 
                       
Discontinued Operations (Details) (USD $)
In Millions
3 Months Ended
Jun. 30, 2009
6 Months Ended
Jun. 30, 2009
Financial information for discontinued operations
 
 
Net sales
$ 22 
$ 44 
(Loss) from discontinued operations
(4)
(8)
(Loss) before income tax
(4)
(8)
Income tax
(8)
 
(Loss) from discontinued operations, net
$ (12)
$ (8)
Goodwill and Other Intangible Assets (Details) (USD $)
In Millions
6 Months Ended
Jun. 30, 2010
Dec. 31, 2009
Changes in carrying amount of goodwill
 
 
Gross Goodwill
$ 4,199 
$ 4,230 
Accumulated Impairment Losses
(1,122)
(1,122)
Goodwill
3,077 
3,108 
Other
(31)1
 
Goodwill and Other Intangible Assets (Textuals) [Abstract]
 
 
Other indefinite-lived intangible assets
194 
196 
Carrying value of definite-lived intangible assets
89 
94 
Accumulated amortization
69 
67 
Cabinets and Related Products [Member]
 
 
Changes in carrying amount of goodwill
 
 
Gross Goodwill
583 
590 
Accumulated Impairment Losses
(364)
(364)
Goodwill
219 
226 
Other
(7)1
 
Plumbing Products [Member]
 
 
Changes in carrying amount of goodwill
 
 
Gross Goodwill
523 
547 
Accumulated Impairment Losses
(340)
(340)
Goodwill
183 
207 
Other
(24)1
 
Installation and Other Services [Member]
 
 
Changes in carrying amount of goodwill
 
 
Gross Goodwill
1,819 
1,819 
Accumulated Impairment Losses
(51)
(51)
Goodwill
1,768 
1,768 
Decorative Architectural Products [Member]
 
 
Changes in carrying amount of goodwill
 
 
Gross Goodwill
294 
294 
Accumulated Impairment Losses
Goodwill
294 
294 
Other Specialty Products [Member]
 
 
Changes in carrying amount of goodwill
 
 
Gross Goodwill
980 
980 
Accumulated Impairment Losses
(367)
(367)
Goodwill
$ 613 
$ 613 
Depreciation and Amortization Expense (Details) (USD $)
In Millions
6 Months Ended
Jun. 30,
2010
2009
Depreciation and Amortization Expense (Textuals) [Abstract]
 
 
Depreciation and amortization expense
$ 137 
$ 128 
Fair Value Of Financial Investments and Liabilities (Details)
6 Months Ended
Jun. 30,
3 Months Ended
Jun. 30, 2010
2010
2009
Dec. 31, 2009
Financial investments included in other assets
 
 
 
 
Total recurring investments
70,000,000 
70,000,000 
 
110,000,000 
Total non-recurring investments
124,000,000 
124,000,000 
 
132,000,000 
Total
194,000,000 
194,000,000 
 
242,000,000 
Financial assets and (liabilities) measured at fair value on a recurring basis
 
 
 
 
Fair value on a recurring basis of Financial assets and (liabilities)
70,000,000 
70,000,000 
 
110,000,000 
Changes in Level 3 financial assets measured at fair value on a recurring basis
 
 
 
 
Fair value, Beginning Balance
 
93,000,000 
94,000,000 
94,000,000 
Total losses included in earnings
 
(28,000,000)
 
 
Unrealized (losses)
 
(23,000,000)
 
(1,000,000)
Purchases
 
 
 
 
Settlements
 
 
 
 
Transfer from Level 3 to Level 2
 
(20,000,000)
 
 
Purchases, issuances, settlements
 
 
 
 
Fair value, Ending Balance
22,000,000 
22,000,000 
 
93,000,000 
Impairment charges:
 
 
 
 
Total impairment charges
(33,000,000)
(33,000,000)
(10,000,000)
(10,000,000)
Non-Recurring Fair Value Measurements
 
 
 
 
Fair value on a non-recurring basis of financial investments
2,000,000 
2,000,000 
 
34,000,000 
Impairment charge for financial investments
(33,000,000)
(33,000,000)
(10,000,000)
(10,000,000)
Company's investments in available-for-sale securities
 
 
 
 
Cost Basis
43,000,000 
43,000,000 
 
71,000,000 
Pre-tax Unrealized Gains
 
27,000,000 
 
39,000,000 
Pre-tax Unrealized Losses
 
 
 
 
Recorded Basis
70,000,000 
70,000,000 
 
110,000,000 
Fair Value Of Financial Investments and Liabilities (Textuals) [Abstract]
 
 
 
 
Discount rate used to determine the present value of expected cash flow
0.06 
0.06 
 
0.06 
Credit spread for Japanese issued preferred securities
 
 
 
600 
Reversal of Unrealized gain, included in accumulated other comprehensive income
 
23,000,000 
 
 
Estimated decline in the private equity fund value
 
5,000,000 
 
41,000,000 
Aggregate carrying value of remaining private equity funds
116,000,000 
116,000,000 
 
92,000,000 
Estimated market value of long-term and short-term debt
4,000,000,000 
4,000,000,000 
 
3,900,000,000 
Aggregate carrying value of long-term and short-term debt
4,100,000,000 
4,100,000,000 
 
4,000,000,000 
Net income from financial investments
1,000,000 
1,000,000 
 
 
Quoted Market Prices (Level 1) [Member]
 
 
 
 
Financial investments included in other assets
 
 
 
 
Total recurring investments
28,000,000 
 
 
17,000,000 
Financial assets and (liabilities) measured at fair value on a recurring basis
 
 
 
 
Fair value on a recurring basis of Financial assets and (liabilities)
28,000,000 
 
 
17,000,000 
Quoted Market Prices (Level 1) [Member] | Asahi Tec Corporation - preferred stock [Member]
 
 
 
 
Financial investments included in other assets
 
 
 
 
Total recurring investments
 
 
Financial assets and (liabilities) measured at fair value on a recurring basis
 
 
 
 
Fair value on a recurring basis of Financial assets and (liabilities)
 
 
Quoted Market Prices (Level 1) [Member] | Auction rate securities [Member]
 
 
 
 
Financial investments included in other assets
 
 
 
 
Total recurring investments
 
 
Financial assets and (liabilities) measured at fair value on a recurring basis
 
 
 
 
Fair value on a recurring basis of Financial assets and (liabilities)
 
 
Quoted Market Prices (Level 1) [Member] | TriMas Corporation common stock [Member]
 
 
 
 
Financial investments included in other assets
 
 
 
 
Total recurring investments
28,000,000 
 
 
17,000,000 
Financial assets and (liabilities) measured at fair value on a recurring basis
 
 
 
 
Fair value on a recurring basis of Financial assets and (liabilities)
28,000,000 
 
 
17,000,000 
Significant Other Observable Inputs (Level 2) [Member]
 
 
 
 
Financial investments included in other assets
 
 
 
 
Total recurring investments
20,000,000 
 
 
Financial assets and (liabilities) measured at fair value on a recurring basis
 
 
 
 
Fair value on a recurring basis of Financial assets and (liabilities)
20,000,000 
 
 
Significant Other Observable Inputs (Level 2) [Member] | Asahi Tec Corporation - preferred stock [Member]
 
 
 
 
Financial investments included in other assets
 
 
 
 
Total recurring investments
20,000,000 
 
 
Financial assets and (liabilities) measured at fair value on a recurring basis
 
 
 
 
Fair value on a recurring basis of Financial assets and (liabilities)
20,000,000 
 
 
Significant Other Observable Inputs (Level 2) [Member] | Auction rate securities [Member]
 
 
 
 
Financial investments included in other assets
 
 
 
 
Total recurring investments
 
 
Financial assets and (liabilities) measured at fair value on a recurring basis
 
 
 
 
Fair value on a recurring basis of Financial assets and (liabilities)
 
 
Significant Other Observable Inputs (Level 2) [Member] | TriMas Corporation common stock [Member]
 
 
 
 
Financial investments included in other assets
 
 
 
 
Total recurring investments
 
 
Financial assets and (liabilities) measured at fair value on a recurring basis
 
 
 
 
Fair value on a recurring basis of Financial assets and (liabilities)
 
 
Significant Unobservable Inputs Level 3 [Member]
 
 
 
 
Financial investments included in other assets
 
 
 
 
Total recurring investments
22,000,000 
 
 
93,000,000 
Financial assets and (liabilities) measured at fair value on a recurring basis
 
 
 
 
Fair value on a recurring basis of Financial assets and (liabilities)
22,000,000 
 
 
93,000,000 
Significant Unobservable Inputs Level 3 [Member] | Asahi Tec Corporation - preferred stock [Member]
 
 
 
 
Financial investments included in other assets
 
 
 
 
Total recurring investments
 
 
71,000,000 
Financial assets and (liabilities) measured at fair value on a recurring basis
 
 
 
 
Fair value on a recurring basis of Financial assets and (liabilities)
 
 
71,000,000 
Significant Unobservable Inputs Level 3 [Member] | Auction rate securities [Member]
 
 
 
 
Financial investments included in other assets
 
 
 
 
Total recurring investments
22,000,000 
 
 
22,000,000 
Financial assets and (liabilities) measured at fair value on a recurring basis
 
 
 
 
Fair value on a recurring basis of Financial assets and (liabilities)
22,000,000 
 
 
22,000,000 
Significant Unobservable Inputs Level 3 [Member] | TriMas Corporation common stock [Member]
 
 
 
 
Financial investments included in other assets
 
 
 
 
Total recurring investments
 
 
Financial assets and (liabilities) measured at fair value on a recurring basis
 
 
 
 
Fair value on a recurring basis of Financial assets and (liabilities)
 
 
Private equity funds [Member]
 
 
 
 
Financial investments included in other assets
 
 
 
 
Total non-recurring investments
118,000,000 
118,000,000 
 
123,000,000 
Impairment charges:
 
 
 
 
Total impairment charges
(3,000,000)
(3,000,000)
(10,000,000)
(10,000,000)
Non-Recurring Fair Value Measurements
 
 
 
 
Fair value on a non-recurring basis of financial investments
2,000,000 
2,000,000 
 
31,000,000 
Impairment charge for financial investments
(3,000,000)
(3,000,000)
(10,000,000)
(10,000,000)
Other investments [Member]
 
 
 
 
Financial investments included in other assets
 
 
 
 
Total non-recurring investments
6,000,000 
6,000,000 
 
9,000,000 
Impairment charges:
 
 
 
 
Total impairment charges
(2,000,000)
(2,000,000)
 
 
Non-Recurring Fair Value Measurements
 
 
 
 
Fair value on a non-recurring basis of financial investments
 
3,000,000 
Impairment charge for financial investments
(2,000,000)
(2,000,000)
 
 
Two Private Equity Funds [Member]
 
 
 
 
Impairment charges:
 
 
 
 
Total impairment charges
 
(3,000,000)
 
(10,000,000)
Non-Recurring Fair Value Measurements
 
 
 
 
Impairment charge for financial investments
 
(3,000,000)
 
(10,000,000)
Asahi Tec Corporation - preferred stock [Member]
 
 
 
 
Financial investments included in other assets
 
 
 
 
Total recurring investments
20,000,000 
20,000,000 
 
71,000,000 
Financial assets and (liabilities) measured at fair value on a recurring basis
 
 
 
 
Fair value on a recurring basis of Financial assets and (liabilities)
20,000,000 
20,000,000 
 
71,000,000 
Changes in Level 3 financial assets measured at fair value on a recurring basis
 
 
 
 
Fair value, Beginning Balance
 
71,000,000 
 
72,000,000 
Total losses included in earnings
 
(28,000,000)
 
 
Unrealized (losses)
 
(23,000,000)
 
(1,000,000)
Purchases
 
 
 
 
Settlements
 
 
 
 
Transfer from Level 3 to Level 2
 
(20,000,000)
 
 
Purchases, issuances, settlements
 
 
 
 
Fair value, Ending Balance
 
71,000,000 
Impairment charges:
 
 
 
 
Total impairment charges
(28,000,000)
(28,000,000)
 
 
Non-Recurring Fair Value Measurements
 
 
 
 
Impairment charge for financial investments
(28,000,000)
(28,000,000)
 
 
Auction rate securities [Member]
 
 
 
 
Financial investments included in other assets
 
 
 
 
Total recurring investments
 
22,000,000 
 
22,000,000 
Financial assets and (liabilities) measured at fair value on a recurring basis
 
 
 
 
Fair value on a recurring basis of Financial assets and (liabilities)
 
22,000,000 
 
22,000,000 
Changes in Level 3 financial assets measured at fair value on a recurring basis
 
 
 
 
Fair value, Beginning Balance
 
22,000,000 
 
22,000,000 
Total losses included in earnings
 
 
 
 
Purchases
 
 
 
 
Settlements
 
 
 
 
Purchases, issuances, settlements
 
 
 
 
Fair value, Ending Balance
 
22,000,000 
 
22,000,000 
TriMas Corporation common stock [Member]
 
 
 
 
Financial investments included in other assets
 
 
 
 
Total recurring investments
28,000,000 
 
 
17,000,000 
Financial assets and (liabilities) measured at fair value on a recurring basis
 
 
 
 
Fair value on a recurring basis of Financial assets and (liabilities)
28,000,000 
 
 
17,000,000 
Derivatives (Details)
In Millions
3 Months Ended
Jun. 30,
6 Months Ended
Jun. 30,
2010
2009
2010
2009
Dec. 31, 2009
Derivatives (Textuals) [Abstract]
 
 
 
 
 
Liabilities related to foreign currency forward contracts from European operations
(3)
 
(3)
 
(1)
Gains (losses) related to these foreign currency forward contracts recorded in the Company consolidated statements of income
(2)
(3)
 
Intercompany Loans [Member]
 
 
 
 
 
Derivatives (Textuals) [Abstract]
 
 
 
 
 
Gains on the foreign currency exchange contracts
 
 
 
 
Gains (losses) related to these foreign currency forward contracts recorded in the Company consolidated statements of income
(1)
(2)
(2)
(1)
 
Warranty (Details) (USD $)
In Millions
6 Months Ended
Jun. 30, 2010
Dec. 31, 2009
Warranty liability
 
 
Balance at January 1
$ 109 
$ 119 
Accruals for warranties issued during the period
17 
32 
Accruals related to pre-existing warranties
Settlements made (in cash or kind) during the period
(18)
(44)
Other, net
(3)
(3)
Balance at end of period
$ 106 
$ 109 
Debt (Details)
3 Months Ended
Sep. 30, 2011
6 Months Ended
Jun. 30, 2010
Jun. 21, 2010
Mar. 12, 2010
Mar. 10, 2010
Dec. 31, 2009
Mar. 10, 2010
3 Months Ended
Jun. 30, 2010
Long-term Debt, Unclassified [Abstract]
 
 
 
 
 
 
 
 
Issued notes
 
 
 
 
500,000,000 
 
 
 
Company repurchased Notes in open-market transactions
 
 
 
 
 
 
 
59,000,000 
Debt (Textuals) [Abstract]
 
 
 
 
 
 
 
 
Principal amount of Zero Coupon Convertible Senior Notes
 
108,000,000 
 
 
 
108,000,000 
 
 
Accreted value, Principal amount of Zero Coupon Convertible Senior Notes
 
56,000,000 
 
 
 
55,000,000 
 
 
Retirement of floating rate notes
 
 
 
300,000,000 
 
 
 
 
Interest on notes
 
 
 
 
 
 
0.07125 
0.05875 
Aggregate commitment under Credit Agreement
 
 
1,250,000,000 
 
 
 
 
 
Terminated credit agreement
 
 
1,250,000,000 
 
 
 
 
 
Revolving credit agreement maturity period
 
 
 
 
 
 
 
Effective interest rate under credit agreement
 
either a rate per annum equal to the lower of prime rate, the Federal Funds effective rate plus 0.50% or LIBOR plus 1.0%; plus an applicable margin 
 
 
 
 
 
 
Maximum debt to total capitalization ratio, in percent
 
0.65 
 
 
 
 
 
 
Minimum interest coverage ratio
equal to or greater than 2.25 to 1.0 
 
 
 
 
 
 
 
Minimum interest coverage ratio after period
2.50 to 1.0 
 
 
 
 
 
 
 
Maximum non cash charges can be added back
 
500,000,000 
 
 
 
 
 
 
Additional borrowing capacity
 
1,200,000,000 
 
 
 
 
 
 
Absorption of reduction to shareholders' equity to remain in compliance with covenant
 
600,000,000 
 
 
 
 
 
 
Financial covenants
 
 
 
 
 
 
 
Premium paid on purchase of the notes over par value
 
2,000,000 
 
 
 
 
 
 
Stock-Based Compensation (Details) (USD $)
Share data in Millions, except Per Share data, unless otherwise specified
3 Months Ended
Jun. 30,
6 Months Ended
Jun. 30,
2010
2009
2010
2009
Pre-tax compensation expense and related income tax benefit for stock -based incentives
 
 
 
 
Long-term stock awards
$ 9,000,000 
$ 13,000,000 
$ 19,000,000 
$ 21,000,000 
Stock options
6,000,000 
8,000,000 
11,000,000 
15,000,000 
Phantom stock awards and stock appreciation rights
(4,000,000)
2,000,000 
(1,000,000)
2,000,000 
Total
11,000,000 
23,000,000 
29,000,000 
38,000,000 
Income tax benefit
4,000,000 
9,000,000 
11,000,000 
14,000,000 
Company's long-term stock award activity
 
 
 
 
Unvested stock award shares at January 1
 
 
Weighted average grant date fair value
 
 
21 
26 
Stock award shares granted
 
 
Weighted average grant date fair value
 
 
14 
Stock award shares vested
 
 
Weighted average grant date fair value
 
 
23 
26 
Stock award shares forfeited
 
 
Weighted average grant date fair value
 
 
20 
26 
Unvested stock award shares at June 30
11 
11 
Weighted average grant date fair value
19 
22 
19 
22 
Companys stock option activity
 
 
 
 
Option shares outstanding, January 1