Masco Corporation 2011 Annual Report

Masco Corporation 

2011 Annual Report

SCAN IT 

On the Cover 

To explore our brands, visit Masco’s newly -designed corporate 

website at www.masco.com or scan with any smart phone the 

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MASCO CORPORATION is one of the 

world’s largest manufacturers of brandname 

products for the home improvement 

and new home construction segments. 

The Company is also a leading provider of a 

variety of installed products and services, 

including insulation, for homebuilders. 

As of December 31, 2011, the Company 

had approximately 31,000 employees and 

approximately 80 manufacturing facilities.

March 2012 

To Our Shareholders 

In 2011, we took considerable steps 

to position Masco for a profitable 

future. We made substantial progress 

toward many of our goals and implemented 

strategic initiatives to ensure 

future growth, even in this challenging 

environment. Most importantly, 

we strengthened our connection 

with the consumer. By driving our 

well-known leading brands, we are 

gaining or maintaining share in most 

of our major product categories. We 

have successfully leveraged our key 

brands by introducing products to 

expand our market leadership, such as 

extending our popular Peerless ® and 

Delta ® brands to additional product 

categories, including tubs, shower 

surrounds, bathing systems and bath 

hardware. 

We also continued to take aggressive 

action in managing our cost structure 

and improving productivity. By driving 

sustainable lean principles throughout 

the organization, from the factory 

floor to the business office, we have 

reduced waste and increased efficiencies. 

And while we are still challenged 

by commodity cost pressures and 

volatility, in 2011 we successfully 

offset hundreds 

of millions of dollars in increased 

commodity costs through supply 

chain savings and pricing actions. Even 

with our efforts to reduce costs and 

increase revenue, we did not improve 

performance as quickly as anticipated. 

During 2011, we marked the completion 

of several major rationalization 

activities including business consolidations, 

plant closures, headcount 

reductions, system implementations 

and other initiatives. The major restructuring 

of our North American 

Cabinet and Installation businesses 

is behind us. Since 2006, we have 

closed or idled nine of our cabinet 

plants, consolidated over 125 of 

our installation branches and began 

major initiatives to reduce costs 

and increase revenue. And, while we 

incurred costs and charges related to 

these activities during 2011 and 2010, 

we believe we have better positioned 

these businesses for the current 

environment and have improved our 

operating leverage to outperform as 

the housing market recovers. 

Looking forward, our goal is to 

drive long-term profitable 

growth in each of our product 

categories by investing in 

By driving our well-known leading brands, 

we are gaining or maintaining share in most 

of our major product categories. 

Richard A. Manoogian 

Chairman of the Board 

1 

Timothy Wadhams 

President and CEO

By embracing social media, we are staying 

connected to the consumer, constantly building their recognition, 

knowledge and engagement with our brands. 

innovation and programs that inspire 

brand loyalty and, we believe, will 

result in increased sales. In our Plumbing 

segment, we are leveraging our 

brand equity to expand internationally 

and through product adjacencies. In 

our Decorative Architectural Products 

category, we are executing on 

growth opportunities by enhancing 

our core products, further developing 

our program for painting professionals 

and exploring international expansion. 

Throughout all of our product categories, 

we are embracing social media 

to stay connected to the consumer, 

constantly building their recognition, 

knowledge and engagement with our 

brands by enhancing their experience 

with our products and services and 

simplifying their purchase process. 

We head into 2012 with cautious 

optimism. Late in 2011, we began 

to experience improved operational 

trends and we are off to a solid start 

in 2012 with an upward sales trend in 

both January and February. The economic 

environment in North America 

now appears to be more resilient and 

improving trends in both consumer 

confidence and remodeler sentiment 

bode well for improvement as the 

year progresses. Existing home sales 

are also showing a consistent, although 

slow, upward trend. However, 

we remain concerned about general 

economic conditions in the United 

Kingdom and Europe. 

We are focused on achieving our 2012 

strategic initiatives, which include 

leveraging our brands, reducing our 

costs, improving our Installation and 

Cabinet businesses and strengthening 

our balance sheet. And, the Masco 

Business System – our framework 

to consistently develop and execute 

strategies to win – continues to build, 

strengthen and improve our planning 

process and core capabilities. Combining 

these initiatives with our marketleading 

brands, broad distribution, 

strong financial position and new 

product introductions, we believe we 

are positioned for improved results 

in 2012. 

We take this opportunity to thank 

our employees for continuing to 

connect with the consumer, share 

best practices and deliver new products 

that consumers want and value. 

Masco employees, our greatest global 

asset, are working hard to increase 

our competitiveness and create 

long-term growth. 




President and Chief Executive Officer 

2

2011 Profile 

CABINETS 

AND RELATED 

PRODUCTS 

Net sales: $1.2 billion 

We are one of the largest manufacturers of kitchen and bath 

cabinetry. This segment includes assembled and ready-toassemble 

(in Europe)kitchen and bath cabinets, kitchen countertops, 

home office workstations, entertainment centers, 

storage products, bookcases, and kitchen utility products. 

17% of total net sales 

PLUMBING 

PRODUCTS 



We have broad channel access globally through our premier 

plumbing products brands. We are a world leader in manufacturing 

plumbing products, including faucets, plumbing fittings 

and valves, showerheads and hand showers, bathtubs and 

shower enclosures, and spas. 

INSTALL ATION 

AND OTHER 

SERVICES 



This segment includes the sale, installation and distribution 

of insulation, as well as other building products. We are one 

of the largest providers of a variety of installed products for 

homebuilders across the United States and we also provide 

services related to improved energy efficiency for residential 

retrofit. 

DECORATIVE 

ARCHITECTURAL 

PRODUCTS 


We are one of the largest suppliers of architectural paint and 

exterior wood care products to the United States and Canadian 

do-it-yourself channel. This segment also includes cabinet, 

door, window and other hardware. 


OTHER SPECIALTY 

PRODUCTS 



We are one of the leading manufacturers of vinyl and fiberglass 

windows, principally in the western United States. This segment 

includes windows, window frame components and patio 

doors, both in the United States and United Kingdom. This 

segment also includes staple gun tackers, staplers and other 

fastening tools. 

3

CONNECTING WITH 

THE CONSUMER 

Given the changes in how our customers 

shop today and how they will 

shop in the future, we are continually 

evolving our eBusiness strategies. 

eBusiness is not only a shift in 

communication but a shift in the 

way that consumers experience our 

brands. With our deep understanding 

of who our customers are and what 

they need, we are utilizing eBusiness 

to simplify the end-to-end user experience, 

driving greater loyalty to our 

brands. 

For all our brands, web 

presence continues 

to play a major role 

in consumer/brand relationships by 

increasing the availability of product 

and purchase information and by 

providing a forum for consumers to 

speak directly to us. Watkins recently 

launched a new Hot Spring ® Spas 

website that has an enhanced dealer 

locator tool which gives retailers the 

ability to differentiate from local competition 

by showcasing their businesses. 

Masco Cabinetry’s Merillat ® 

brand added a Professionals section 

to its website, creating a platform 

for communication with kitchen and 

bath industry trade professionals. 

And, BrassCraft Manufacturing 

introduced a new Spanishlanguage 

site 

eBusiness drives greater 

loyalty to our brands. 

to accommodate the growth it is experiencing 

across the United States. 

With mobile devices and applications 

positioned to evolve into the 

leading digital channel for customer 

engagement, we are incorporating 

new technology into the variety of 

services we offer the consumer. Behr 

recently enhanced its ColorSmart by 

BEHR mobile application and introduced 

the mobile application for use 

with an iPad ® tablet and other mobile 

devices. By the end of 2011, over 

230,000 consumers 

had downloaded the 

application, driving enhanced 

engagement 

with the brand. And, 

the Merillat cabinetry mobile site has 

a direct dial feature that is accessible 

from its dealer locator page and an 

application that allows you to easily 

send detailed product specifications 

directly to an e-mail account. 

Our business units are facilitating 

dialogue and gaining important feedback 

from the consumer through 

social commerce. The KraftMaid ® 

By Design blog features leading professionals 

from across the industry 

who serve as guest bloggers 

and provide exclusive insight on the 

latest trends, educate professionals, 

inspire homeowners and ignite creativity. 

Through Twitter, Milgard is 

iPad ® is a trademark of Apple, Inc. 

4 

www.behr.com

www.kraftmaid.com 

providing information on energy-efficient windows, 

sharing current product promotions and 

teaching the consumer how to care for their 

windows. And, several of our business units are 

utilizing Facebook pages not only to target specific 

audiences but to conduct affordable and 

extensive panel research. 

EXPANDING INTERNATIONALLY 

Even 110 years after it was founded, Hansgrohe, 

our German manufacturer of plumbing products, 

continues to drive worldwide growth. In the 

early 1990s, with a reputation as a leader in the 

German sanitation sector and a majority of its 

sales in Germany, Hansgrohe developed a business 

model to expand its international presence. 

One of Hansgrohe’s goals was to expand its 

international brand presence into all four of the 

BRIC markets – Brazil, Russia, India and China. In 

September 2011, Hansgrohe entered the last of 

the BRIC markets by opening a branch office in 

Brazil. 

Today, with global brand equity, Hansgrohe 

is an award-winning leader in both the design 

and innovation of plumbing products. With 

subsidiaries now in more than 35 countries, 

80 percent of its current sales are from outside 

Germany. Hansgrohe products can be found 

in prominent projects worldwide such as on 

the Queen Mary II cruise ship; in Terminal 5 of 

London’s Heathrow Airport; in the tallest manmade 

structure ever built, the Burj Khalifa in 

Dubai, and in the Chancellor’s office in Berlin. 

During the past two decades, Hansgrohe has 

implemented its systematic internationalization 

plan and emerged as one of the few global 

players in the sanitation sector. This successful 

business model is now being utilized by other 

Masco business units, including Delta Faucet 

Company, through geographic expansion of its 

current product line, and Behr Process, which 

is also pursuing international growth in 

emerging markets. 

LEADING BY RECOGNITION 

• The new Milgard ® Essence Series ® 

wood windows was awarded a Crystal 

Achievement Award from Window & 

Door Magazine as the most innovative 

window by a large manufacturer. 

• Delta Faucet Company was named 

2011 WaterSense ® Manufacturer 

Partner of the Year by the U.S. Environmental 

Protection Agency for its 

ongoing commitment to promoting 

advancements in water efficiency. 

• Behr was recognized by The Home 

Depot as Supplier of the Year for 

department 24 (paint) in both the 

United States and Canada. 

• Brasstech, Delta and Masco Bath 

were honored with ADEX (Award for 

Design Excellence) awards, one of the 

most prestigious awards programs for 

the design of furniture, fixtures and 

finishes marketed to the design trade. 

WaterSense ® is a trademark of the U.S. Environmental 

Protection Agency. 

5

www.deltafaucet.com 

DRIVING LEAN PRINCIPLES 

One of the five core capabilities of 

the Masco Business System, lean 

initiatives provide the currency that 

allows us to reinvest and grow our 

business. By driving lean beyond the 

factory floor, we are creating an 

enterprise-wide lean culture — a 

mindset that differentiates value 

from waste in all aspects of our 

business. 

We have a number of projects underway 

to improve our business 

processes. Since 2008, Delta Faucet 

teams have conducted nearly 200 3P 

(Production, Preparation, Process) 

events that have not only resulted in 

substantial savings but have reduced 

start-up costs and improved quality 

and ship date compliance. 

Mirolin Industries also 

recently used 3P to 

minimize capital expenditures 

by avoiding 

waste in new 

processes and 

manufacturing 

layouts prior to 

the opening of its new facility. 

In addition, a number of our 

business units are using Value 

Management, a methodology 

to optimize product value 

to customers via product 

design changes and procurement 

improvements, 

based upon customer 

insights. Value Management 

initiatives have 

been used to achieve 

savings, maintain a 

competitive edge 

and enable growth. 

www.hansgrohe.com 

IMPACTING OUR COMMUNITY 

AND THE ENVIRONMENT 

Being a good corporate citizen is an 

integral part of our culture. As part 

of our commitment to good environmental 

stewardship, our goal is to 

develop sustainable products and 

reduce energy usage and waste. In addition, 

we strive to improve the lives 

of others by serving those in need 

in the communities where our companies 

and employees reside. Both 

our business units and our corporate 

office reach out through in-kind product 

and cash donations. In addition, 

our employees engage in numerous 

hours of volunteer service. While we 

were involved in a variety of activities 

throughout 2011, we are particularly 

proud of the following efforts: 

• The Masco Corporation Foundation, 

in partnership with Masco 

Corporation and Masco business 

units, awarded $500,000 in grants 

and product donations to support 

veteran-related services and initiatives 

across the U.S. 

• Masco Asia, through Masco’s Liberty 

Hardware business unit, provided a 

grant to the Sandu County Education 

Bureau of Guizhou to improve 

an educational facility in a remote, 

poverty-stricken area of southwest 

China. The newly-constructed 

school, named the Masco School of 

Hope, opened in the fall of 2011. The 

new 36,000-square-foot facility can 

accommodate up to 90 students. 

6

Statements 

RESPONSIBILITY FOR FINANCIAL STATEMENTS 

Management is responsible for the fairness and integrity of the Company’s 

consolidated financial statements. In order to meet this responsibility, management 

maintains formal policies and procedures that are consistent with 

high standards of accounting and administrative practices, which are regularly 

communicated within the organization. In addition, management maintains a 

program of internal auditing within the Company to examine and evaluate the 

adequacy and effectiveness of established internal controls related to Company 

policies, procedures and objectives. 

The report of the Company’s Independent Registered Public Accounting Firm 

(included in the accompanying Form 10-K) states their opinion on the Company’s 

consolidated financial statements and the effectiveness of internal 

controls over financial reporting, based on audits conducted in accordance 

with the standards of the Public Company Accounting Oversight Board (U.S.). 

The Audit Committee of the Board of Directors meets periodically with both 

management and the Independent Registered Public Accounting Firm to provide 

oversight with respect to the Company’s financial reporting process and 

system of internal controls. 

FORWARD-LOOKING STATEMENTS 

Statements contained in this Annual Report to Shareholders that reflect 

our views about our future performance constitute “forward-looking statements” 

under the Private Securities Litigation Reform Act of 1995. Forwardlooking 

statements can be identified by words such as “believe,” “anticipate,” 

“appear,” “may,” “should,” “will,” “forecast,” “intend,” “plan,” “estimate,” “expect,” 

“assume,” “seek,” and similar references to future periods. These views involve 

risks and uncertainties that are difficult to predict and, accordingly, our actual 

results may differ materially from the results discussed in our forward-looking 

statements. We caution you against relying on any of these forward-looking 

statements. Our future performance may be affected by our reliance on new 

home construction and home improvement, our reliance on key customers, 

the cost and availability of raw materials, shifts in consumer preferences 

and purchasing practices, and our ability to achieve cost savings through the 

Masco Business System, business rationalizations and other initiatives. These 

and other factors are discussed in detail in Item 1A, “Risk Factors” in our Annual 

Report on Form 10-K, as well as in our Quarterly Reports on Form 10-Q and 

in other filings we make with the Securities and Exchange Commission. Our 

forward-looking statements in this Annual Report speak only as of the date 

of this Annual Report. Factors or events that could cause our actual results 

to differ may emerge from time to time, and it is not possible for us to predict 

all of them. We undertake no obligation to update publicly any forward-looking 

statements as a result of new information, future events or otherwise. 

7

Directors and Corporate Officers 

BOARD OF DIRECTORS 

Dennis W. Archer 1, 3 

Chairman and Chief Executive Officer 

Dennis W. Archer PLLC and 

Chairman Emeritus 

Dickinson Wright PLLC 

Thomas G. Denomme 1, 3 

Retired Vice Chairman and 

Chief Administrative Officer 

Chrysler Corporation 

Anthony F. Earley, Jr. 1, 2 

Chairman, Chief Executive Officer 

and President 

PG&E Corporation 

1, 2, 3 

Verne G. Istock 

Retired Chairman and President 

Bank One Corporation 

J. Michael Losh 1, 2 

Retired Chief Financial Officer 

and Executive Vice President 

General Motors Corporation 




1, 2, 3 

Lisa A. Payne 

Vice Chairman, Chief Financial Officer 

and Director 

Taubman Centers, Inc. 

Mary Ann Van Lokeren 2, 3 

Retired Chairman and Chief Executive Officer 

Krey Distributing Company 




1 

Member, Audit Committee 

2 

Member, Organization and 

Compensation Committee 

3 

Member, Corporate Governance and 

Nominating Committee 

CORPORATE OFFICERS 

Keith J. Allman 

Group President 

David F. Brown 

Chief Procurement Officer and 

Vice President–Supply Chain 

Maria C. Duey 

Vice President–Investor Relations 

and Communications 

Charles F. Greenwood 

Vice President–Human Resources 

Timothy J. LaRouere 

Vice President–Finance, North America Builder 

John P. Lindow 

Vice President–Controller 

Karen R. Mendelsohn 

Vice President–Sales and Marketing 

Timothy J. Monteith 

Vice President and Chief Information Officer 

Sharon J. Rothwell 

Vice President–Corporate Affairs 

Jai Shah 

Vice President–Finance, North America 

Retail/Wholesale 

John G. Sznewajs 

Vice President, Treasurer and 

Chief Financial Officer 

Jerry Volas 


Thomas Voss 

Group President and President–Masco Europe 



Gregory D. Wittrock 

Vice President, General Counsel and Secretary 

W. Timothy Yaggi 


Gary L. Yezbick 

Vice President–Innovation and Sustainability 

8

UNITED STATES SECURITIES AND EXCHANGE COMMISSION 

Washington, DC 20549 

FORM 10-K 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF 

THE SECURITIES EXCHANGE ACT OF 1934 

For the Fiscal Year Ended December 31, 2011 Commission File Number 1-5794 

MASCO CORPORATION 

(Exact name of Registrant as Specified in its Charter) 

Delaware 38-1794485 

(State of Incorporation) 

(I.R.S. Employer Identification No.) 

21001 Van Born Road, Taylor, Michigan 48180 

(Address of Principal Executive Offices) 

(Zip Code) 

Registrant’s telephone number, including area code: 313-274-7400 

Securities Registered Pursuant to Section 12(b) of the Act: 

Name of Each Exchange 

Title of Each Class 

On Which Registered 

Common Stock, $1.00 par value 

New York Stock Exchange, Inc. 

Securities Registered Pursuant to Section 12(g) of the Act: 

None 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities 

Act. Yes Í No ‘ 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the 

Act. Yes ‘ No Í 

Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the 

Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for 

the past 90 days. Yes Í No ‘ 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 

every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the 

preceding 12 months (or such shorter period that the registrant was required to submit and post such 

files). Yes Í No ‘ 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, 

and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated 

by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ‘ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a 

smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting 

company” in Rule 12b-2 of the Exchange Act. (Check one): 

Large accelerated filer Í Accelerated filer ‘ Non-accelerated filer ‘ Smaller reporting company ‘ 

(Do not check if a smaller reporting company) 

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

Act). Yes ‘ No Í 

The aggregate market value of the Registrant’s Common Stock held by non-affiliates of the Registrant on June 30, 2011 

(based on the closing sale price of $12.03 of the Registrant’s Common Stock, as reported by the New York Stock 

Exchange on such date) was approximately $4,179,174,000. 

Number of shares outstanding of the Registrant’s Common Stock at January 31, 2012: 

357,294,300 shares of Common Stock, par value $1.00 per share 

DOCUMENTS INCORPORATED BY REFERENCE 

Portions of the Registrant’s definitive Proxy Statement to be filed for its 2012 Annual Meeting of Stockholders are 

incorporated by reference into Part III of this Form 10-K.

Item 


2011 Annual Report on Form 10-K 

TABLE OF CONTENTS 

PART I 

1. Business ................................................................... 2 

1A. Risk Factors ................................................................. 8 

1B. Unresolved Staff Comments ................................................... 13 

2. Properties .................................................................. 14 

3. Legal Proceedings ........................................................... 14 

4. [Removed and Reserved.] ..................................................... 14 

PART II 

5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer 

Purchases of Equity Securities ................................................. 15 

6. Selected Financial Data ....................................................... 17 

7. Management’s Discussion and Analysis of Financial Condition and Results of 

Operations .................................................................. 18 

7A. Quantitative and Qualitative Disclosures About Market Risk .......................... 41 

8. Financial Statements and Supplementary Data .................................... 42 

9. Changes in and Disagreements with Accountants on Accounting and Financial 

Disclosure .................................................................. 90 

9A. Controls and Procedures ...................................................... 90 

9B. Other Information ............................................................ 90 

PART III 

10. Directors, Executive Officers and Corporate Governance ............................ 91 

11. Executive Compensation ...................................................... 91 

12. Security Ownership of Certain Beneficial Owners and Management and Related 

Stockholder Matters .......................................................... 91 

13. Certain Relationships and Related Transactions, and Director Independence ........... 91 

14. Principal Accounting Fees and Services .......................................... 91 

PART IV 

15. Exhibits and Financial Statement Schedule ....................................... 91 

Signatures .................................................................. 93 

Page 

1

PART I 

Item 1. Business. 

Masco Corporation manufactures, distributes and installs home improvement and building 

products, with emphasis on brand-name consumer products and services holding leadership positions 

in their markets. We are among the largest manufacturers in North America of a number of home 

improvement and building products, including faucets, cabinets, architectural coatings and windows, 

and we are one of the largest installers of insulation for the new home construction market. We provide 

broad product offerings in a variety of styles and price points and distribute products through multiple 

channels, including directly to homebuilders and wholesale and retail channels. Approximately 

76 percent of our 2011 sales were generated by our North American operations. 

In 2011, we experienced increased commodity costs while the economy continued to experience 

declining home values, lack of job creation and depressed consumer confidence, hindering a housing 

recovery, all of which impacted our performance. Notwithstanding this challenging environment, we 

continued to take actions designed to increase our market share in our major product categories, 

strengthen our brands, invest in product innovation and introduce new products. We have done this 

while continuing to rationalize our business operations and manage our cost structure. We believe our 

strategy has improved our business execution and has positioned us well for a recovery in our 

markets. 

We have taken many actions to increase our market share and strengthen our brands and 

businesses. We are gaining share in the U.S. with our DELTA ® , PEERLESS ® , BRIZO ® , HOT 

SPRING ® and CALDERA ® brands. We are also extending the Delta and Peerless brands to additional 

product categories, including tub and shower bathing systems and bath hardware, and are pursuing 

international opportunities for these brands. In 2011, we achieved year-over-year overall share gains in 

our Installation and Other Services segment and we also completed the implementation of a new 

Enterprise Resource Planning (“ERP”) system in this segment. Behr increased its brand share across 

all DIY architectural coatings categories, and is also pursuing international opportunities. Milgard 

Manufacturing continued to gain share in the western United States, and the U.K. Window Group is 

gaining share in its markets in the United Kingdom. 

We are focused on enhancing customer experience through new product development and 

product innovation. In 2011, Delta Faucet Company launched its innovative TOUCH 2 O ® technology for 

lavatory faucets. Behr introduced a new low-VOC formula in its core PREMIUM PLUS ® paint line and 

also launched the KILZ ® PRO-X coatings line program at The Home Depot. Masco Cabinetry 

introduced a countertop product for the kitchen and an integrated bathroom vanity countertop solution. 

Arrow Fastener has introduced several new products to enhance their core product line including the 

T50 ELITE tool line, which is gaining share with domestic and international retailers. 

We believe our commitment to developing innovative products and building our brands is 

demonstrated by the recognition we received in 2011. KraftMaid cabinetry ranked “Highest in 

Customer Satisfaction with Cabinets” in the J.D. Power and Associates 2011 U.S. Kitchen Cabinet 

Satisfaction Study SM . Delta Faucet was named WaterSense ® Partner of the Year by the Environmental 

Protection Agency in recognition of its ongoing commitment to promoting advancements in water 

efficiency. Hansgrohe again received the prestigious Product Design Award from the Federal Republic 

of Germany. Behr was recognized by The Home Depot as “2011 Partner of the Year Department 24 – 

Paint” in the U.S. and in Canada, and Behr products again achieved #1 rankings in a leading consumer 

study. The Kilz brand ranked highest among paint brands for the second year in a row based on a 

2011 Harris poll. MILGARD ® ESSENCE SERIES ® windows received the 2011 Crystal Achievement 

Award for Most Innovative New Window for a Large Manufacturer from Window & Door, a trade 

magazine. The MILGARD ® TUSCANY ® SERIES windows and doors with the SMARTTOUCH ® 

technology was named winner of the 2011 Smart Choice Award by the 50+ Housing Council, a group 

2

focused on the needs of the aging population in Southern California. Builder, a leading magazine for 

the residential construction industry, named Milgard Windows and Doors as the Brand Leader in 

Overall Vinyl Quality in its 2012 Brand Use Study, marking the seventh time Milgard products have 

been recognized. Lastly, the HOT SPRING ARIA ® spa received the “Best Buy” distinction from 

Consumers Digest. 

Since the economic downturn, we have taken significant actions designed to rationalize our 

business operations, manage our cost structure and improve our business processes. We have 

successfully managed our cash position, resulting in approximately $1.7 billion of cash at 

December 31, 2011. Over the last several years, we have closed 28 facilities and reduced headcount 

by over 30,000, enabling us to achieve a significant reduction in our fixed costs. We have improved our 

global supply chain by leveraging our size to realize purchasing cost savings, simplify the purchasing 

process, and coordinate logistical operations. At several of our businesses, we have implemented new 

ERP systems to improve the operations of our businesses, including customer service and inventory 

management and reduce costs. We are also implementing lean principles and production process 

studies to reduce production costs and improve efficiencies. Our Retail and Builder Cabinet businesses 

have been integrated, achieving profit and process improvements as a result of integration savings, 

lean and sourcing activities and spending reductions. 

In 2011, we took additional actions designed to manage our costs, including additional plant 

closures and divestitures, further reducing our headcount. We also commenced the integration of our 

WELLHOME ® business into our Masco Contractor Services (“MCS”) group to enhance MCS’s sales 

and marketing capability and further expand our retrofit insulation business. Finally, we completed the 

common architecture program for the MERILLAT ® and QUALITY CABINETS TM brands at Masco 

Cabinetry and completed the exit of our ready-to-assemble product line in North America. 

We believe that our actions have managed our businesses successfully through the economic 

crisis and subsequent recession of recent years. We also believe that our actions have strengthened 

our businesses and that we are ready to meet the economic challenges that will come with growth out 

of the recession in all of our markets. 

Our Business Segments 

We report our financial results in five business segments aggregated by similarity in products and 

services. The following table sets forth the contribution of our segments to net sales and operating 

(loss) profit for the three years ended December 31, 2011, 2010 and 2009. Additional financial 

information concerning our operations by segment and by geographic regions, as well as general 

corporate expense, net, as of and for the three years ended December 31, 2011, is set forth in Note O 

to our consolidated financial statements included in Item 8 of this Report. 

(In Millions) 

Net Sales(1) 

2011 2010 2009 

Cabinets and Related Products ................... $1,231 $1,464 $1,674 

Plumbing Products ............................. 2,913 2,692 2,564 

Installation and Other Services ................... 1,077 1,041 1,121 

Decorative Architectural Products ................. 1,670 1,693 1,714 

Other Specialty Products ........................ 576 596 584 

Total ....................................... $7,467 $7,486 $7,657 

3

Operating (Loss) Profit (1)(2)(3)(4) 

2011 2010 2009 

Cabinets and Related Products ................. $(206) $(250) $ (64) 

Plumbing Products ........................... 322 331 237 

Installation and Other Services ................. (79) (798) (116) 

Decorative Architectural Products ............... 196 345 375 

Other Specialty Products ...................... (401) 19 (199) 

Total ..................................... $(168) $(353) $ 233 

(1) Amounts exclude discontinued operations. 

(2) Operating (loss) profit is before general corporate expense, net, charge for defined-benefit plan 

curtailment, accelerated stock compensation expense, and loss on corporate fixed assets, net. 

(3) Operating (loss) profit is before charges of $9 million regarding the 2011 litigation settlements in 

the Cabinets and Related Products and the Other Specialty Products segments. Operating (loss) 

profit is before a charge of $7 million regarding the 2009 litigation settlement in the Cabinets and 

Related Products segment. 

(4) Operating (loss) profit includes impairment charges for goodwill and other intangible assets as 

follows: For 2011 – Cabinets and Related Products – $44 million; Plumbing Products – $1 million; 

Decorative Architectural Products – $75 million; and Other Specialty Products – $374 million. For 

2010 – Plumbing Products – $1 million; and Installation and Other Services – $697 million. For 

2009 – Plumbing Products – $39 million; and Other Specialty Products – $223 million. 

All of our operating segments, except the Plumbing Products segment, normally experience 

stronger sales during the second and third calendar quarters, corresponding with the peak season for 

new home construction and repair and remodel activity. 

Cabinets and Related Products 

In North America, we manufacture and sell value-priced, stock and semi-custom assembled 

cabinetry for kitchen, bath, storage, home office and home entertainment applications in a broad range 

of styles and price points to address consumer preferences. We have also expanded our product 

offerings in this segment to include the manufacture and sale of kitchen countertops, as well as an 

integrated bathroom vanity and countertop solution. In Europe, we manufacture and sell assembled 

and ready-to-assemble kitchen, bath, storage, home office and home entertainment cabinetry. These 

products are sold in the United States and in Europe under a number of trademarks including 

KRAFTMAID ® , TVILUM ® and WOODGATE ® primarily to dealers and home centers, and under the 

MERILLAT ® , MOORES and QUALITY CABINETS brands primarily to distributors and 

homebuilders for both the home improvement and new home construction markets. Cabinet sales are 

significantly affected by levels of activity in both new home construction and retail consumer spending, 

particularly spending for major kitchen and bathroom renovation projects. A significant portion of our 

sales for the home improvement market are made through home center retailers. 

New home construction has declined over 70 percent during the last six years, and this segment 

has been particularly affected by this downturn. This segment has also been negatively affected by a 

downturn in the repair and remodel market, particularly by consumers deferring expenditures for 

big-ticket items. In response, we have closed several manufacturing plants in this segment, and in 

2011 we idled two additional facilities and completed the exit of our North American ready-to-assemble 

cabinet product line. Additionally, we continue to be focused on improving cabinet production 

efficiencies at lower volumes. We completed the common architecture platform for our MERILLAT ® 

and QUALITY CABINETS brands in 2011, which we believe will enhance our manufacturing 

flexibility. Lastly, we have completed the integration of our Builder Cabinet Group and Retail Cabinet 

Group to form Masco Cabinetry, and we are beginning to realize cost savings from the integration. 

4

The cabinet manufacturing industry in the United States and Europe is highly competitive, with 

several large competitors and numerous local and regional competitors. In 2011, we experienced 

greater promotional pricing activity in this segment, which impacts the segment’s results of operations. 

In addition to price, we believe that competition in this industry is based largely on product quality, 

responsiveness to customer needs, product features and selection. Our significant North American 

competitors include American Woodmark Corporation and Fortune Brands Home & Security, Inc. 

Plumbing Products 

The businesses in our Plumbing Products segment sell a wide variety of faucet and showering 

devices that are manufactured by or for us. The majority of our plumbing products are sold in North 

America and Europe under the brand names DELTA ® , PEERLESS ® , HANSGROHE ® , AXOR ® , 

BRIZO ® , BRASSTECH ® , BRISTAN tm , GINGER ® , NEWPORT BRASS ® , ALSONS ® and PLUMB 

SHOP ® . Our products include single-handle and double-handle faucets, showerheads, handheld 

showers and valves, which are sold to major retail accounts and to wholesalers and distributors who, in 

turn, sell our products to plumbers, building contractors, remodelers, smaller retailers and others. 

We believe that our plumbing products are among the leaders in sales in the North American and 

European markets, with American Standard, Kohler, Moen and Pfister as major brand competitors. We 

also have several European competitors, primarily in Germany, including Friedrich Grohe. We face 

significant competition from private label products (including house brands sold by certain of our 

customers). Many of the faucet and showering products with which our products compete are 

manufactured in Asia. The businesses in our Plumbing Products segment source products from Asia 

and manufacture products in the United States, Europe and Asia. 

Other plumbing products manufactured and sold by us include products branded as AQUA 

GLASS ® , MIROLIN ® , AMERICAN SHOWER & BATH and Innovex ® acrylic and gelcoat tub and 

shower systems, bath and shower enclosure units, shower trays and laundry tubs, which are sold 

primarily to wholesale plumbing distributors and home center retailers for the North American home 

improvement and new home construction markets. Our spas are manufactured and sold under HOT 

SPRING ® , CALDERA ® and other trademarks directly to independent dealers. Major competitors 

include Kohler, Lasco, Maax and Jacuzzi. We sell HÜPPE ® shower enclosures through wholesale 

channels primarily in Western Europe. HERITAGE ceramic and acrylic bath fixtures and faucets are 

principally sold in the United Kingdom directly to selected retailers. 

Also included in the Plumbing Products segment are brass and copper plumbing system 

components and other plumbing specialties, which are sold to plumbing, heating and hardware 

wholesalers and to home center retailers, hardware stores, building supply outlets and other mass 

merchandisers. These products are marketed in North America for the wholesale trade under the 

BRASSCRAFT ® and BRASSTECH ® trademarks and for the “do-it-yourself” market under the MASTER 

PLUMBER ® and PLUMB SHOP ® trademarks, and are also sold under private label. 

In addition to price, we believe that competition in our Plumbing Products markets is based largely 

on brand reputation, product quality, product innovation and features, and breadth of product offering. 

A substantial portion of our plumbing products contain brass, the major components of which are 

copper and zinc. We have encountered price volatility for brass, brass components and any 

components containing copper and zinc; therefore, we have implemented a hedging strategy to 

minimize the impact of this volatility. Legislation enacted in California, Vermont and Maryland 

mandates new standards for acceptable lead content in plumbing products sold in those states. 

Federal legislation mandating a national standard for lead content in plumbing products will become 

effective in January 2014. Faucet and water supply valve manufacturers, including our plumbing 

product companies, will be required to obtain adequate supplies of lead-free brass or suitable 

alternative materials for continued production of faucets and certain of our plumbing products. Over the 

5

last several years, our Delta Faucet business introduced the DIAMOND SEAL TECHNOLOGY, 

which reduces the number of potential leak points in a faucet, simplifies installation and satisfies 

legislation regarding the acceptable lead content in plumbing products. 

Installation and Other Services 

Our Installation and Other Services segment sells installed building products and distributes 

building products primarily to the new home construction market, and, to a lesser extent, the retrofit 

and commercial construction markets, throughout the United States. In addition to insulation, we sell 

installed gutters, after-paint products, fireplaces and garage doors. The installation and distribution of 

insulation comprised approximately nine percent of our consolidated net sales in 2011, 2010 and 2009. 

Installed building products are supplied primarily to custom and production homebuilders by our 

network of branches located across the United States. Distributed products include insulation, 

insulation accessories, gutters, fireplaces and roofing. Distributed products are sold primarily to 

contractors and dealers (including lumber yards) from distribution centers in various parts of the 

United States. 

In order to respond to the significant decrease in demand in the new home construction industry 

over the past several years, we have implemented various cost savings initiatives, including the 

consolidation and closure of approximately 110 branch locations. This rationalization has been 

accomplished while maintaining our strategic presence in most of the top 100 Metropolitan Statistical 

Areas in the United States. In addition, we have de-emphasized the installation of certain 

non-insulation building products that are not core to our service offering, including windows and paint. 

In 2011, we announced the decision to divest four non-core businesses in this segment that offered 

commercial drywall installation, millwork and framing services. We also completed the implementation 

of an ERP system, which we anticipate will enable us to achieve future efficiencies through the 

automation of manual processes and to provide superior customer service to our customers. 

Also in response to the depressed new home construction market, we have expanded our ability 

to serve the residential retrofit and light commercial markets. Within the Installation and Other Services 

segment, we have several initiatives related to improved residential energy efficiency, including retrofit 

installation services (primarily insulation) delivered directly to homeowners, as well as through retailers 

and dealer outlets. 

In addition to price, we believe that competition in this industry is based largely on customer 

service and the quality of installation service. We believe that we are the largest national provider of 

installed insulation in the new home construction industry in the United States. Our competitors include 

several regional contractors, as well as numerous local contractors and lumber yards. We believe that 

our capabilities and financial resources are substantial compared to regional and local contractors. 

Decorative Architectural Products 

We produce architectural coatings including paints, primers, specialty paint products, stains and 

waterproofing products. The products are sold in the United States, Canada, China, Mexico and South 

America under the brand names BEHR ® , KILZ ® and BEHR EXPRESSIONS ® to “do-it-yourself” and 

professional customers through home centers, paint stores and other retailers. Net sales of 

architectural coatings comprised approximately 20 percent of our consolidated net sales in 2011, 2010 

and 2009. Competitors in the architectural coatings market include large national and international 

brands such as Benjamin Moore, Glidden, Olympic, Sherwin-Williams, Valspar and Zinsser, as well as 

many regional and other national brands. In addition to price, we believe that competition in this 

industry is based largely on product quality, technology and product innovation, customer service and 

brand reputation. Recently our competitors have begun to offer combined paint and primer products 

similar to Behr’s PREMIUM PLUS ULTRA paint, which we introduced in 2009. 

6

Our BEHR products are sold through The Home Depot, the segment’s and our largest customer. 

The paint departments at The Home Depot stores include the Behr color center and computer kiosk 

with the COLOR SMART BY BEHR ® computerized color-matching system that enables consumers to 

select and coordinate their paint-color selection. The loss of this segment’s sales to The Home Depot 

would have a material adverse effect on this segment’s business and on our consolidated business as 

a whole. 

Titanium dioxide is a major ingredient in the manufacture of paint. The industry continues to 

experience cost increases for titanium dioxide as a result of surges in global demand and production 

capacity limitations, which has impacted our operating results in this segment. Petroleum products are 

also used in the manufacture of architectural coatings. Significant increases in the cost of crude oil and 

natural gas lead to higher raw material costs (e.g., for resins, solvents and packaging, as well as 

titanium dioxide), which can adversely affect the segment’s results of operations. 

Our Decorative Architectural Products segment also includes LIBERTY ® and BRAINERD ® 

branded cabinet, door, window and other hardware, which is manufactured for us and sold to home 

centers, other retailers, original equipment manufacturers and wholesale markets. Key competitors in 

North America include Amerock, Top Knobs, Direct Import, Hickory Hardware and Stanley Black & 

Decker. Decorative bath hardware and shower accessories are sold under the brand names DELTA ® , 

FRANKLIN BRASS ® and DECOR BATHWARE ® to distributors, home centers and other retailers. 

Competitors include Moen and Gatco. 

Other Specialty Products 

We manufacture and sell vinyl, fiberglass and aluminum windows and patio doors under the 

MILGARD ® brand name to the home improvement and new home construction markets, principally in 

the western United States. MILGARD products are sold primarily through dealers and, to a lesser 

extent, directly to production and custom homebuilders and through lumber yards and home centers. In 

late 2010, Milgard Manufacturing introduced the ESSENCE SERIES wood windows and doors, 

which combines a wood interior with a fiberglass exterior. This segment’s competitors in North America 

include national brands, such as Jeld-Wen, Simonton, Pella and Andersen, and numerous regional 

brands. In 2011, we closed four plants in this segment. 

In the United Kingdom, we manufacture and sell windows, related products and components 

under several brand names including GRIFFIN, CAMBRIAN, PREMIER and DURAFLEX. 

Sales are primarily through dealers and wholesalers to the repair and remodeling markets, although 

our DURAFLEX products are also sold to other window fabricators. United Kingdom competitors 

include many small and mid-sized firms and a few large, vertically integrated competitors. In addition to 

price, we believe that competition in this industry is based largely on customer service and product 

quality. 

We manufacture and sell a complete line of manual and electric staple gun tackers, staples and 

other fastening tools under the brand names ARROW ® and POWERSHOT ® . We sell these products 

through various distribution channels including home centers and other retailers and wholesalers. Our 

principal North American competitor in this product line is Stanley Black & Decker. 

Additional Information 

• We hold United States and foreign patents, patent applications, licenses, trademarks, trade 

names, trade secrets and proprietary manufacturing processes. As a manufacturer and 

distributor of brand name products, we view our trademarks and other intellectual property 

rights as important, but do not believe that there is any reasonable likelihood of a loss of such 

rights that would have a material adverse effect on our present business as a whole. 

7

• We are subject to laws and regulations relating to the protection of the environment. In addition 

to our responsibilities for environmental remediation, our businesses are subject to other 

requirements regarding protection of the environment and worker health and safety. Our 

businesses are subject to requirements relating to the emission of volatile organic compounds 

which may impact our sourcing of particleboard, require that we install special equipment in 

manufacturing facilities or that we reformulate paint products. As described above, our 

Plumbing Products segment is subject to restrictions on lead content in some of its products. 

Compliance with such laws and regulations could significantly affect product performance as 

well as our production costs. We monitor applicable laws and regulations relating to the 

protection of the environment, climate disruption and worker health and safety, and incur 

ongoing expense relating to compliance. We do not expect compliance with the federal, state 

and local regulations relating to the discharge of materials into the environment, or otherwise 

relating to the protection of the environment and worker health and safety, will result in material 

capital expenditures or have a material adverse effect on our earnings or competitive position. 

• We do not consider backlog orders to be material. 

• At December 31, 2011, we employed approximately 31,000 people. Satisfactory relations have 

generally prevailed between us and our employees. 

Available Information 

Our website is www.masco.com. Our periodic reports and all amendments to those reports 

required to be filed or furnished pursuant to Section 13(a) or Section 15(d) of the Securities Exchange 

Act of 1934 are available free of charge through our website as soon as reasonably practicable after 

those reports are electronically filed with or furnished to the Securities and Exchange Commission. 

This Report is being posted on our website concurrently with its filing with the Securities and Exchange 

Commission. Material contained on our website is not incorporated by reference into this Report. 

Item 1A. Risk Factors. 

There are a number of business risks and uncertainties that could affect our business. These risks 

and uncertainties could cause our actual results to differ from past performance or expected results. 

We consider the following risks and uncertainties to be most relevant to our specific business activities. 

Additional risks and uncertainties not presently known to us, or that we currently believe to be 

immaterial, also may adversely impact our business, financial condition and results of operations. 

A significant portion of our business relies on home improvement and new home construction 

activity levels, both of which are experiencing a prolonged and substantial downturn. 

A significant portion of our business relies on home improvement (including repair and remodel) 

and new home construction activity levels, principally in North America and Europe. The current 

economic decline has adversely affected our home improvement businesses. Continued low levels of 

consumer confidence, high levels of unemployment, and the downward pressure on home prices have 

limited consumers’ discretionary spending and have made consumers reluctant to make additional 

investments in existing homes, including large kitchen and bath remodeling projects. The increasing 

number of households with negative equity in their homes, and more conservative residential lending 

practices for home equity loans that are often used to finance repairs and remodeling, are limiting the 

ability of consumers to finance home improvements. Additionally, sales of existing homes, which 

significantly impact our home improvement business, have decreased significantly in the past few 

years. 

New home construction, which is cyclical in nature, is experiencing a prolonged and substantial 

downturn marked by continued softness in the demand for new homes, an oversupply of existing 

8

homes on the market and more stringent standards for homebuyers seeking financing. The oversupply 

of existing homes held for sale is exacerbated by slower household formation growth rates, the 

significant number of short sales and home mortgage foreclosures, as well as uncertainties in the 

home foreclosure process, all of which continue to contribute to the downward pressure on home 

prices. Further, the expiration or scaling back of homebuyer tax credits and other government 

programs has also negatively impacted home sales. It is uncertain when, and to what extent, these 

trends and factors might reverse or improve. 

Although we believe that the long-term outlook for home improvement and new home construction 

is favorable, we cannot predict the type, timing or strength of a recovery in these areas. The large 

number of borrowers who remain at risk of potentially losing their homes through foreclosures or short 

sales, coupled with the voluntary and involuntary halts of foreclosure proceedings by lenders due to 

legal challenges, could prolong the downturn in home improvement and new home construction 

activity. Prolonged depressed activity levels in consumer spending for home improvements and new 

home construction will continue to adversely affect our results of operations and our financial position 

and may disproportionately affect our business segments that are most heavily dependent on new 

home construction and large consumer investments in home remodeling projects. 

The prolonged economic downturn could result in our taking additional significant non-cash 

charges, which may reduce our financial resources and flexibility and could negatively affect 

our earnings and reduce shareholders’ equity. 

We have recorded significant goodwill and other intangible assets related to prior business 

combinations on our balance sheet. The valuation of these assets is largely dependent upon the 

expectations for future performance of our businesses. In recent years, we have recorded significant 

non-cash impairment charges for financial investments and goodwill and other intangible assets. We 

have also recorded a valuation allowance related to our deferred tax assets. A further decline in the 

expectation of our future performance, or a further deterioration in expectations regarding the timing 

and the extent of the recovery of the new home construction and home improvement segments, may 

cause us to recognize additional non-cash, pre-tax impairment charges for goodwill and other 

indefinite-lived intangible assets or other long-lived assets, which are not determinable at this time. If 

the value of goodwill or other intangible assets is impaired, our earnings and shareholders’ equity 

would be adversely affected. 

Further, our credit agreement contains financial covenants we must comply with, including 

covenants regarding limits on our debt to total capitalization ratio. If we are required to record 

additional non-cash impairment charges, which would reduce our shareholders’ equity, our borrowing 

capacity under our credit agreement may be limited. We recently amended our credit agreement to 

allow for the add-back to shareholders’ equity for impairment charges we have taken. There can be no 

assurance that we would be able to further amend the credit agreement in the future or that alternative 

financing would be available on acceptable terms and at acceptable rates, or that we would be 

permitted to obtain alternative financing under the terms of our existing financing arrangements. 

If we do not maintain strong brands, develop new products or respond to changing consumer 

preferences and purchasing practices, our results could be adversely affected. 

Our competitive advantage is due, in part, to our ability to maintain our strong brands and to 

develop and introduce innovative new and improved products. We have increased our focus on 

investment in brand building and brand awareness, as well as new product development and product 

innovation. The uncertainties associated with developing and introducing new and improved products, 

such as gauging changing consumer preferences and successfully developing, manufacturing, 

marketing and selling new or improved products may impact the success of our new product 

introductions. If our new products do not gain widespread market acceptance, we could lose market 

share, which could negatively impact our operating results. 

9

Further, the volatile and challenging economic environment of recent years has caused shifts in 

consumer preferences and purchasing practices and changes in the business models and strategies of 

our customers. For example, the size of new homes has decreased, and demand has increased for 

multi-family housing units such as apartments and condominiums, which are often smaller than singlefamily 

housing units. The effect of these trends has resulted in smaller kitchens and smaller and fewer 

bathrooms, each with fewer cabinets and faucets, as well as the use of less insulation. Such shifts, 

which may or may not be long-term, have altered the quantity, type and prices of products demanded 

by the end-consumer and our customers. Additionally, consumers are increasingly using the internet 

and mobile technology to research home improvement products and enhance their purchasing 

experience for these products. If we do not timely and effectively identify and respond to these 

changing consumer preferences and purchasing practices, our relationships with our customers could 

be harmed, the demand for our products could be reduced and our market share could be negatively 

affected. 

Our response to the prolonged economic downturn has been to continue our focus on 

implementation of cost-savings initiatives, which have been costly and may not be effective. 

During the current downturn in home improvement and new home construction, we have focused 

on cost-saving initiatives, including rationalizing our businesses, particularly the consolidation of our 

cabinet businesses, as well as plant closures, headcount reductions, and system implementations. 

The consolidation of our cabinet businesses has involved the integration of multiple manufacturing 

processes and information technology platforms, which has been complex, time-consuming and 

expensive. If we cannot successfully implement this consolidation or our other cost-savings initiatives, 

or if it becomes more expensive to make future cost-savings changes, we may not fully achieve the 

anticipated benefits from these initiatives. Further, if we do not effectively balance our focus on cost 

savings with the need to maintain a strong sales presence for our brands, we could lose market share. 

In the future, we will need to continually evaluate our productivity to assess opportunities to reduce 

costs, and we may incur additional costs and charges relating to further cost-savings initiatives. 

However, gaining additional efficiencies may become increasingly difficult over time. If the eventual 

recovery of our markets is fast-paced and robust, we may not be able to replace our reduced 

manufacturing and installation capacity in a timely fashion and our ability to respond to increased 

demand could be limited, which could result in lost market share and, ultimately, could negatively 

impact our operating results. 

We rely on key customers and may encounter conflicts within and between our distribution 

channels. 

The size and importance of individual customers to our businesses has increased as customers in 

our major distribution channels have consolidated or exited the business. Larger customers can make 

significant changes in their volume of purchases and can otherwise significantly affect the prices we 

receive for our products and services, our costs of doing business with them and the terms and 

conditions on which we do business. Sales of our home improvement and building products to home 

centers are substantial. In 2011, sales to our largest customer, The Home Depot, were $2.0 billion 

(approximately 27 percent of our consolidated net sales). Lowe’s is our second largest customer. In 

2011, our sales to Lowe’s were less than ten percent of our consolidated net sales. Although 

homebuilders, dealers and other retailers represent other channels of distribution for our products and 

services, the loss of a substantial portion of our sales to The Home Depot or the loss of our sales to 

Lowe’s would have a material adverse effect on our business. 

As some of our customers expand their markets and their targeted customers, conflicts between 

our existing distribution channels have and will continue to occur. In addition, we may undermine the 

business relationships we have with customers who purchase our products through traditional 

wholesale channels as we increase the amount of business we transact directly with our customers. In 

10

addition, our large retail customers are increasingly requesting product exclusivity, which may affect 

our ability to offer products to other customers and may diminish our ability to leverage economies of 

scale. 

Our principal markets are highly competitive. 

The major geographic markets for our products and services are highly competitive. Competition is 

further intensified during economic downturns. Home centers are increasing their purchases of 

products directly from low-cost overseas suppliers for sale as private label and house brand 

merchandise. Additionally, home centers, which have historically concentrated their sales efforts on 

retail consumers and remodelers, are increasingly turning their marketing efforts directly toward 

professional contractors and installers. We believe that competition in our industries is based on price, 

product and service quality, brand reputation, customer service and product features and innovation. 

In addition to the challenges we have faced as a result of the economic downturn, our ability to 

maintain our competitive positions in our markets and to grow our businesses depends to a large 

extent upon successfully maintaining our relationships with major customers, implementing growth 

strategies in our existing markets and entering new geographic markets, including successful 

penetration of international markets, capitalizing on and strengthening our brand names, managing our 

cost structure, accommodating shorter life-cycles for our products and product development and 

innovation. 

Increased commodity costs and limited availability of commodities could affect our operating 

results. 

We buy various commodities to manufacture our products, including, among others, wood, brass 

(made of copper and zinc), titanium dioxide and resins. Fluctuations in the availability and prices of 

these commodities could increase our costs to manufacture our products. Further, increases in energy 

costs not only increase our production costs, but also the cost to transport our products, each of which 

could negatively affect our financial condition and operating results. 

It has been, and likely will continue to be, difficult for us to pass on to customers cost increases to 

cover our increased commodity and production costs. Our existing arrangements with customers, 

competitive considerations and customer resistance to price increases may delay or make us unable to 

adjust selling prices. If we are not able to increase the prices of our products or achieve cost savings to 

offset increased commodity and production costs, our financial condition and operating results could be 

negatively impacted. If we are able to increase our selling prices, sustained price increases for our 

products may lead to sales declines and loss of market share, particularly if our competitors do not 

increase their prices. When commodity prices decline, we may receive pressure from our customers to 

reduce prices for our products and services. 

To reduce the price volatility associated with certain anticipated commodity purchases, we use 

derivative instruments, including commodity futures and swaps. We may incur net substantial costs as 

part of our strategy to hedge against price volatility of certain commodities we purchase and we may 

make commitments to purchase these commodities at prices that subsequently exceed their market 

prices, which could adversely affect our financial condition and operating results. 

We are dependent on third-party suppliers and manufacturers, and the loss of a key supplier or 

manufacturer could negatively affect our operating results. 

Our ability to offer a wide variety of products depends on our ability to obtain an adequate supply 

of products and components from manufacturers and other suppliers. We rely heavily or, in certain 

cases, exclusively, on outside suppliers for some of our products and key components. Failure by our 

suppliers to provide us quality products on commercially reasonable terms, and to comply with legal 

requirements for business practices, could have a material adverse effect on our financial condition or 

11

operating results. Although these products and components are generally obtainable in sufficient 

quantities from other sources, resourcing them to another supplier could take time and could involve 

significant costs. Accordingly, the loss of a key supplier, or a substantial decrease in the availability of 

products or components from our suppliers, could disrupt our business and adversely impact our 

operating results. 

Further, we manufacture products in Asia and source products and components from third parties 

in Asia. The distances involved in these arrangements, together with differences in business practices, 

shipping and delivery requirements, the limited number of suppliers, and laws and regulations, have 

increased the difficulty of managing our supply chain, the complexity of our supply chain logistics and 

the potential for interruptions in our production scheduling. If we are unable to effectively manage our 

supply chain, our operating results could be negatively affected. 

International political, monetary, economic and social developments affect our business. 

Over 20 percent of our sales are made outside of North America (principally in Europe) and are 

transacted in currencies other than U.S. dollars (principally the euro and the British pound sterling). 

Increased international sales make up an important part of our future strategic plans. In addition, we 

manufacture products in Asia and source products and components from third parties in Asia. Our 

international business faces risks associated with changes in political, monetary, economic and social 

environments, labor conditions and practices, the laws, regulations and policies of foreign 

governments, cultural differences and differences in enforcement of contract and intellectual property 

rights. U.S. laws affecting activities of U.S. companies doing business abroad, including tax laws and 

laws regulating various business practices, also impact our international business. Our international 

operating results may be influenced, when compared to our North American results, in part by relative 

economic conditions in the European markets, including uncertainty regarding the European sovereign 

debt crisis, and competitive pricing pressures on certain products. The financial reporting of our 

consolidated operating results is affected by fluctuations in currency exchange rates, which may 

present challenges in comparing operating performance from period to period and in forecasting future 

performance. 

We have financial commitments and investments in financial assets, including assets that are 

not readily marketable and involve financial risk. 

We continue to reduce our investment in private equity funds. Since there is no active trading 

market for investments in private equity funds, they are for the most part illiquid. These investments, by 

their nature, can also have a relatively higher degree of business risk, including financial leverage, than 

other financial investments. Future changes in market conditions, the future performance of the 

underlying investments or new information provided by private equity fund managers could affect the 

recorded values of such investments or the amounts realized upon liquidation. In addition, we have 

commitments that require us to contribute additional capital to these private equity funds upon receipt 

of a capital call from the private equity fund. 

Claims and litigation could be costly. 

We are, from time to time, involved in various claims, litigation matters and regulatory proceedings 

that arise in the ordinary course of our business and which could have a material adverse effect on us. 

These matters may include contract disputes, automobile liability and other personal injury claims, 

warranty disputes, environmental claims or proceedings, other tort claims, employment and tax matters 

and other proceedings and litigation, including class actions. 

We are subject to product safety regulations, recalls and direct claims for product liability that can 

result in significant liability and, regardless of the ultimate outcome, can be costly to defend or manage. 

Also, we increasingly rely on other manufacturers to provide us with products or components for 

12

products that we sell. Due to the difficulty of controlling the quality of products or components sourced 

from other manufacturers, we are exposed to risks relating to the quality of such products and to 

limitations on our recourse against such suppliers. 

We have also experienced class action lawsuits in recent years predicated upon claims for 

antitrust violations, product liability and wage and hour issues. We have generally denied liability and 

have vigorously defended these cases. Due to their scope and complexity, however, these lawsuits are 

particularly costly to resolve and significant exposures have been alleged. 

Increasingly, our homebuilder customers are subject to construction defect and home warranty 

claims in the ordinary course of their business. Our contractual arrangements with these customers 

may include our agreement to defend and indemnify them against various liabilities caused by our 

negligence. These claims, often asserted several years after completion of construction, can result in 

complex lawsuits or claims against the homebuilders and many of their subcontractors, including us, 

and may require us to incur defense and indemnity costs even when our products or services are not 

the principal basis for the claims. 

Although we intend to defend all claims and litigation matters vigorously, given the inherently 

unpredictable nature of claims and litigation, we cannot predict with certainty the outcome or effect of 

any claim or litigation matter. 

We maintain insurance against some, but not all, of these risks of loss resulting from claims and 

litigation. We may elect not to obtain insurance if we believe the cost of available insurance is 

excessive relative to the risks presented. The levels of insurance we maintain may not be adequate to 

fully cover any and all losses or liabilities. If any significant accident, judgment, claim or other event is 

not fully insured or indemnified against, it could have a material adverse impact on our business, 

financial condition and results of operations. 

See Note S to the consolidated financial statements included in Item 8 of this Report for additional 

information about litigation involving our businesses. 

Government and industry responses to environmental and health and safety concerns could 

impact our capital expenditures and operating results. 

We are subject to U.S. and foreign government regulations pertaining to health and safety 

(including protection of employees and consumers), climate disruption and environmental issues. In 

addition to complying with current requirements and requirements that will become effective at a future 

date, even more stringent requirements could be imposed on our industries in the future. Additionally, 

some of our products must be certified by industry organizations. Compliance with these regulations 

and industry standards may require us to alter our manufacturing and installation processes and our 

sourcing, which could adversely impact our competitive position. Further, if we do not effectively and 

timely comply with such regulations and industry standards, our operating results could be negatively 

affected. 

The long-term performance of our businesses relies on our ability to attract, develop and retain 

talented personnel. 

To be successful, we must attract, develop and retain highly qualified and talented personnel and, 

as we consider entering new international markets, skilled personnel familiar with these markets. We 

compete for employees with a broad range of employers in many different industries, including large 

multinational firms, and we invest significant resources in recruiting, developing, motivating and 

retaining them. The failure to attract, develop, motivate and retain key employees could negatively 

affect our competitive position and our operating results. 

Item 1B. Unresolved Staff Comments. 

None. 

13

Item 2. Properties. 

The table below lists our principal North American properties for segments other than Installation 

and Other Services. 

Business Segment 

Manufacturing 

Warehouse and 

Distribution 

Cabinets and Related Products ................. 12 13 

Plumbing Products ........................... 23 6 

Decorative Architectural Products ............... 8 8 

Other Specialty Products ...................... 10 6 

Totals .................................... 53 33 

Most of our North American facilities range from single warehouse buildings to complex 

manufacturing facilities. We own most of our North American manufacturing facilities, none of which 

are subject to significant encumbrances. A substantial number of our warehouse and distribution 

facilities are leased. 

Our Installation and Other Services segment operates approximately 188 installation branch 

locations and approximately 70 distribution centers in the United States, most of which are leased. 

The table below lists our principal properties outside of North America. 

Business Segment 

Manufacturing 

Warehouse and 

Distribution 

Cabinets and Related Products ................. 5 11 

Plumbing Products ........................... 13 27 

Decorative Architectural Products ............... — — 

Other Specialty Products ...................... 7 1 

Totals .................................... 25 39 

Most of our international facilities are located in China, Denmark, Germany and the 

United Kingdom. We generally own our international manufacturing facilities, none of which are subject 

to significant encumbrances. A substantial number of our international warehouse and distribution 

facilities are leased. 

Our corporate headquarters are located in Taylor, Michigan and are owned by us. We own an 

additional building near our corporate headquarters that is used by our corporate research and 

development department. 

Each of our operating divisions assesses the manufacturing, distribution and other facilities 

needed to meet its operating requirements. Our buildings, machinery and equipment have been 

generally well maintained and are in good operating condition. We believe our facilities have sufficient 

capacity and are adequate for our production and distribution requirements. 

Item 3. Legal Proceedings. 

Information regarding legal proceedings involving us is set forth in Note S to our consolidated 

financial statements included in Item 8 of this Report and is incorporated herein by reference. 

Item 4. [Removed and Reserved.] 

14

PART II 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer 

Purchases of Equity Securities. 

The New York Stock Exchange is the principal market on which our common stock is traded. The 

following table indicates the high and low sales prices of our common stock as reported by the New 

York Stock Exchange and the cash dividends declared per common share for the periods indicated: 

Market Price 

Quarter High Low 

Dividends 

Declared 

2011 

Fourth ............................ $10.71 $ 6.60 $.075 

Third ............................. 12.50 6.78 .075 

Second ........................... 14.43 11.73 .075 

First .............................. 15.03 12.41 .075 

Total ............................ $ .30 

2010 

Fourth ............................ $13.54 $10.46 $.075 

Third ............................. 12.05 9.94 .075 

Second ........................... 18.78 10.74 .075 

First .............................. 15.75 12.76 .075 

Total ............................ $ .30 

On January 31, 2012, there were approximately 5,350 holders of record of our common stock. 

We expect that our practice of paying quarterly dividends on our common stock will continue, 

although the payment of future dividends is at the discretion of our Board of Directors and will depend 

upon our earnings, capital requirements, financial condition and other factors. 

Equity Compensation Plan Information 

We grant equity under our 2005 Long Term Stock Incentive Plan (the “Plan”). The following table 

sets forth information as of December 31, 2011 concerning the Plan, which was approved by our 

stockholders. We do not have any equity compensation plans that are not approved by stockholders. 

Plan Category 

Number of 

Securities to be 

Issued Upon 

Exercise of 

Outstanding 

Options, Warrants 

and Rights 

Weighted-Average 

Exercise Price of 

Outstanding Options, 

Warrants and Rights 

Number of Securities 

Remaining Available for 

Future Issuance Under 

Equity Compensation 

Plans 

(Excluding Securities 

Reflected in the 

First Column) 

Equity compensation 

plans approved by 

stockholders ....... 36,305,607 $20.93 8,318,400 

The remaining information required by this Item will be contained in our definitive Proxy Statement 

for our 2012 Annual Meeting of Stockholders, to be filed on or before April 29, 2012, and such 

information is incorporated herein by reference. 

15

Performance Graph 

The table below compares the cumulative total shareholder return on our common stock with the 

cumulative total return of (i) the Standard & Poor’s 500 Composite Stock Index (“S&P 500 Index”), 

(ii) The Standard & Poor’s Industrials Index (“S&P Industrials Index”) and (iii) the Standard & Poor’s 

Consumer Durables & Apparel Index (“S&P Consumer Durables & Apparel Index”), from December 31, 

2006 through December 31, 2011, when the closing price of our common stock was $10.48. The graph 

assumes investments of $100 on December 31, 2006 in our common stock and in each of the three 

indices and the reinvestment of dividends. 

PERFORMANCE GRAPH 

$200 

$150 

Masco 

S&P 500 Index 

S&P Industrials Index 

S&P Consumer Durables & Apparel Index 

INDEXED VALUE 

$100 

$50 

$0 

2006 

2007 

2008 

2009 

2010 2011 

The table below sets forth the value, as of December 31 for each of the years indicated, of a $100 

investment made on December 31, 2006 in each of our common stock, the S&P 500 Index, the S&P 

Industrials Index and the S&P Consumer Durables & Apparel Index and includes the reinvestment of 

dividends. 

2007 2008 2009 2010 2011 

Masco $ 75.39 $42.06 $53.92 $ 50.60 $ 43.09 

S&P 500 Index $105.48 $66.93 $84.28 $ 96.78 $ 98.81 

S&P Industrials Index $111.99 $67.86 $81.56 $103.08 $102.47 

S&P Consumer Durables & Apparel Index $ 79.60 $52.88 $72.07 $ 94.08 $101.33 

In July 2007, our Board of Directors authorized the purchase of up to 50 million shares of our 

common stock in open-market transactions or otherwise. At December 31, 2011, we had remaining 

authorization to repurchase up to 25 million shares. During 2011, we repurchased and retired two 

million shares of our common stock, for cash aggregating $30 million to offset the dilutive impact of the 

2011 grant of two million shares of long-term stock awards. We have not purchased any shares since 

April 2011. 

16

Item 6. Selected Financial Data. 

Dollars in Millions (Except Per Common Share Data) 

2011 2010 2009 2008 2007 

Net Sales (1) ................................... $7,467 $ 7,486 $7,657 $9,338 $11,251 

Operating (loss) profit (1)(2)(3)(4)(5)(6) ............. $ (295) $ (463) $ 70 $ 149 $ 1,052 

(Loss) income from continuing operations attributable 

to Masco Corporation (1)(2)(3)(4)(5)(6)(7) ......... $ (465) $(1,022) $ (130) $ (329) $ 496 

Per share of common stock: 

(Loss) income from continuing operations: 

Basic ..................................... $(1.34) $ (2.94) $ (.38) $ (.95) $ 1.31 

Diluted .................................... $(1.34) $ (2.94) $ (.38) $ (.95) $ 1.31 

Dividends declared ............................ $ .30 $ .30 $ .30 $ .93 $ .92 

Dividends paid ............................... $ .30 $ .30 $ .46 $ .925 $ .91 

At December 31: 

Total assets .................................. $7,297 $ 8,140 $9,175 $9,483 $10,907 

Long-term debt ............................... 3,222 4,032 3,604 3,915 3,966 

Shareholders’ equity ........................... 742 1,582 2,817 2,981 4,142 

(1) Amounts exclude discontinued operations. 

(2) The year 2011 includes non-cash impairment charges for goodwill and other intangible assets 

aggregating $335 million after tax ($494 million pre-tax). 

(3) The year 2010 includes non-cash impairment charges for goodwill and other intangible assets 

aggregating $586 million after tax ($698 million pre-tax). The year 2010 also includes a valuation 

allowance on U.S. deferred tax assets of $372 million. 

(4) The year 2009 includes non-cash impairment charges for goodwill aggregating $180 million after 

tax ($262 million pre-tax). 





(7) (Loss) income from continuing operations excludes income from noncontrolling interest of $42 

million, $41 million, $38 million, $39 million and $37 million in 2011, 2010, 2009, 2008 and 2007, 

respectively. 

17

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of 

Operations. 

The financial and business analysis below provides information which we believe is relevant to an 

assessment and understanding of our consolidated financial position, results of operations and cash 

flows. This financial and business analysis should be read in conjunction with the consolidated financial 

statements and related notes. 

The following discussion and certain other sections of this Report contain statements reflecting our 

views about our future performance and constitute “forward-looking statements” under the Private 

Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such 

as “anticipate,” “intend,” “plan,” “believe,” “estimate,” “expect,” “assume,” “seek,” “appear,” “may,” 

“should,” “will,” “forecast” and similar references to future periods. These views involve risks and 

uncertainties that are difficult to predict and, accordingly, our actual results may differ materially from 

the results discussed in such forward-looking statements. We caution you against relying on any of 

these forward-looking statements. In addition to the various factors included in the “Executive Level 

Overview,” “Critical Accounting Policies and Estimates” and “Outlook for the Company” sections, our 

future performance may be affected by our reliance on new home construction and home 

improvement, our reliance on key customers, the cost and availability of raw materials, shifts in 

consumer preferences and purchasing practices, and our ability to achieve cost savings through 

business rationalizations and other initiatives. These and other factors are discussed in detail in 

Item 1A “Risk “Factors” of this Report. Any forward-looking statement made by us in this Report 

speaks only as of the date on which it was made. Factors or events that could cause our actual results 

to differ may emerge from time to time, and it is not possible for us to predict all of them. Unless 

required by law, we undertake no obligation to update publicly any forward-looking statements as a 

result of new information, future events or otherwise. 

Executive Level Overview 

We manufacture, distribute and install home improvement and building products. These products 

are sold to the home improvement and new home construction markets through mass merchandisers, 

hardware stores, home centers, homebuilders, distributors and other outlets for consumers and 

contractors and direct to the consumer. 

2011 Results. The following is a summary of the significant factors affecting us in 2011: Our 

Cabinets and Related Products segment continues to be negatively affected by softness in the new 

home construction market and increased competitive market conditions in the repair and remodel 

market. Further, the Cabinets and Related Products segment continued to incur costs and charges 

related to the integration of our North American cabinet manufacturers that began in 2010 and other 

plant closures and consolidations, including the exit of certain product lines. This segment also 

incurred goodwill impairment charges related to our ready-to-assemble cabinet manufacturer in 

Europe. Our Plumbing Products segment continues to realize increased sales volume and selling 

prices, offset by increased commodity costs and a less favorable product mix. The Installation and 

Other Services segment was positively affected by increased distribution sales, increased selling 

prices and increased retrofit and commercial sales, which partially offset decreases in sales volume 

related to the new home construction market. We also decided to divest certain operations in the 

Installation and Other Services segment that are not core to our long-term growth strategy; such 

operations have been classified as discontinued operations. The Decorative Architectural Products 

segment was negatively affected by lower sales volume of paints and stains due to increasingly 

competitive market conditions and increased commodity costs; this segment also incurred goodwill 

impairment charges related to the builders’ hardware business unit and rationalization costs related to 

the exit of a builders’ hardware product line. Our Other Specialty Products segment was negatively 

impacted by lower sales volume due to continuing weakness in our markets and increased business 

rationalization costs related to the closure of several facilities. 

18

In 2011, we experienced increased commodity costs, and the economy continued to experience a 

further decline in home values, lack of job creation and depressed consumer confidence, hindering a 

housing recovery, all of which negatively impacted our performance. During 2011 we continued to take 

actions to further reduce our cost structure, including closing several branch locations in the Installation 

and Other Services segment, closing several manufacturing facilities related to our North American 

window manufacturer, closing one manufacturing facility related to our European ready-to-assemble 

cabinet manufacturer, one facility related to our North American cabinet manufacturer and continued to 

integrate our North American cabinet manufacturers. We incurred costs and charges related to these 

and other actions of $121 million. We believe that these actions, together with actions taken over the 

last several years, have positioned us well for the current environment and for the recovery in our 

markets. 

Critical Accounting Policies and Estimates 

Our discussion and analysis of our financial condition and results of operations are based upon 

our consolidated financial statements, which have been prepared in accordance with accounting 

principles generally accepted in the United States of America (“GAAP”). The preparation of these 

financial statements requires us to make certain estimates and assumptions that affect the reported 

amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the date of the 

financial statements and the reported amounts of revenues and expenses during the reporting periods. 

We regularly review our estimates and assumptions, which are based upon historical experience, as 

well as current economic conditions and various other factors that we believe to be reasonable under 

the circumstances, the results of which form the basis for making judgments about the carrying values 

of certain assets and liabilities that are not readily apparent from other sources. Actual results may 

differ from these estimates and assumptions. 

We believe that the following critical accounting policies are affected by significant judgments and 

estimates used in the preparation of our consolidated financial statements. 

Revenue Recognition and Receivables 

We recognize revenue as title to products and risk of loss is transferred to customers or when 

services are rendered. We record revenue for unbilled services performed based upon estimates of 

material and labor incurred in the Installation and Other Services segment; such amounts are recorded 

in Receivables. We record estimated reductions to revenue for customer programs and incentive 

offerings, including special pricing and co-operative advertising arrangements, promotions and other 

volume-based incentives. We maintain allowances for doubtful accounts receivable for estimated 

losses resulting from the inability of customers to make required payments. In addition, we monitor our 

customer receivable balances and the credit worthiness of our customers on an on-going basis. During 

downturns in our markets, declines in the financial condition and creditworthiness of customers impact 

the credit risk of the receivables involved and we have incurred bad debt expense related to customer 

defaults. Our bad debt expense was $12 million, $18 million and $34 million for the years ended 

December 31, 2011, 2010 and 2009, respectively. 

Inventories 

We record inventories at the lower of cost or net realizable value, with expense estimates made 

for obsolescence or unsaleable inventory equal to the difference between the recorded cost of 

inventories and their estimated market value based upon assumptions about future demand and 

market conditions. On an on-going basis, we monitor these estimates and record adjustments for 

differences between estimates and actual experience. Historically, actual results have not significantly 

deviated from those determined using these estimates. 

19

Financial Investments 

We follow accounting guidance that defines fair value, establishes a framework for measuring fair 

value and expands disclosures about fair value measurements for our financial investments and 

liabilities. This guidance defines fair value as “the price that would be received to sell an asset or paid 

to transfer a liability in an orderly transaction between market participants at the measurement date.” 

Further, it defines a fair value hierarchy, as follows: Level 1 inputs as quoted prices in active markets 

for identical assets or liabilities; Level 2 inputs as observable inputs other than Level 1 prices, such as 

quoted market prices for similar assets or liabilities or other inputs that are observable or can be 

corroborated by market data; and Level 3 inputs as unobservable inputs that are supported by little or 

no market activity and that are financial instruments whose value is determined using pricing models or 

instruments for which the determination of fair value requires significant management judgment or 

estimation. 

If applicable, we record investments in available-for-sale securities at fair value, and unrealized 

gains or losses (that are deemed to be temporary) are recognized, net of tax effect, through 

shareholders’ equity, as a component of other comprehensive income in our consolidated balance 

sheet. During 2011 and 2010, we sold all of our shares of our investment in TriMas common stock for 

cash of $43 million and $10 million, respectively. 

In the past, we have invested excess cash in auction rate securities. Auction rate securities are 

investment securities that have interest rates which are reset every 7, 28 or 35 days. At December 31, 

2011, our investment in auction rate securities was $22 million; we have not increased our investment 

in auction rate securities since 2007. The fair value of auction rate securities is estimated, on a 

recurring basis, using a discounted cash flow model (Level 3 input). If we changed the discount rate 

used in the fair value estimate by 75 basis points, the value of the auction rate securities would change 

by approximately $1 million. 

We have maintained investments in a number of private equity funds, which aggregated $86 

million at December 31, 2011. We carry our investments in private equity funds and other private 

investments at cost. It is not practicable for us to estimate a fair value for private equity funds and other 

private investments because there are no quoted market prices, and sufficient information is not readily 

available for us to utilize a valuation model to determine the fair value for each fund. These 

investments are evaluated, on a non-recurring basis, for potential other-than-temporary impairment 

when impairment indicators are present, or when an event or change in circumstances has occurred, 

that may have a significant adverse effect on the fair value of the investment. Due to the significant 

unobservable inputs, the fair value measurements used to evaluate impairment are a Level 3 input. 

Impairment indicators we consider include the following: whether there has been a significant 

deterioration in earnings performance, asset quality or business prospects; a significant adverse 

change in the regulatory, economic or technological environment; a significant adverse change in the 

general market condition or geographic area in which the investment operates; industry and sector 

performance; current equity and credit market conditions; and any bona fide offers to purchase the 

investment for less than the carrying value. We also consider specific adverse conditions related to the 

financial health of and business outlook for the fund, including industry and sector performance. The 

significant assumptions utilized in analyzing a fund for potential other-than-temporary impairment 

include current economic conditions, market analysis for specific funds and performance indicators in 

residential and commercial construction, bio-technology, health care and information technology 

sectors in which the applicable funds’ investments operate. 

At December 31, 2011, we have investments in 17 venture capital funds, with an aggregate 

carrying value of $17 million. The venture capital funds invest in start-up or smaller, early-stage 

established businesses, principally in the information technology, bio-technology and health care 

sectors. At December 31, 2011, we also have investments in 22 buyout funds, with an aggregate 

carrying value of $69 million. The buyout funds invest in later-stage, established businesses and no 

buyout fund has a concentration in a particular sector. 

20

Since there is no active trading market for these investments, they are for the most part illiquid. 

These investments, by their nature, can also have a relatively higher degree of business risk, including 

financial leverage, than other financial investments. The timing of distributions from the funds, which 

depends on particular events related to the underlying investments, as well as the funds’ schedules for 

making distributions and their needs for cash, can be difficult to predict. As a result, the amount of 

income we record from these investments can vary substantially from quarter to quarter. Future 

changes in market conditions, the future performance of the underlying investments or new information 

provided by private equity fund managers could affect the recorded values of these investments and 

the amounts realized upon liquidation. 

We record an impairment charge to earnings when an investment has experienced a decline in fair 

value that is deemed to be other-than-temporary. 

Goodwill and Other Intangible Assets 

We record the excess of purchase cost over the fair value of net tangible assets of acquired 

companies as goodwill or other identifiable intangible assets. In the fourth quarter of each year, or as 

events occur or circumstances change that would more likely than not reduce the fair value of a 

reporting unit below its carrying amount, we complete the impairment testing of goodwill utilizing a 

discounted cash flow method. We selected the discounted cash flow methodology because we believe 

that it is comparable to what would be used by other market participants. We have defined our 

reporting units and completed the impairment testing of goodwill at the operating segment level, as 

defined by accounting guidance. Our operating segments are reporting units that engage in business 

activities for which discrete financial information, including five-year forecasts, is available. 

Determining market values using a discounted cash flow method requires us to make significant 

estimates and assumptions, including long-term projections of cash flows, market conditions and 

appropriate discount rates. Our judgments are based upon historical experience, current market 

trends, consultations with external valuation specialists and other information. While we believe that 

the estimates and assumptions underlying the valuation methodology are reasonable, different 

estimates and assumptions could result in different outcomes. In estimating future cash flows, we rely 

on internally generated five-year forecasts for sales and operating profits, including capital 

expenditures, and generally a one to three percent long-term assumed annual growth rate of cash 

flows for periods after the five-year forecast. We generally develop these forecasts based upon, among 

other things, recent sales data for existing products, planned timing of new product launches, 

estimated housing starts and repair and remodeling estimates for existing homes. 

In 2011, we utilized estimated housing starts, from independent industry sources, growing from 

current levels to 1.5 million units in 2016 (terminal growth year) and operating profit margins improving 

to approximate historical levels for those business units by 2016 (terminal growth year). We utilize our 

weighted average cost of capital of approximately seven percent as the basis to determine the discount 

rate to apply to the estimated future cash flows. In 2011, due to market conditions and based upon our 

assessment of the risks impacting each of our businesses, we applied a risk premium to increase the 

discount rate to a range of ten percent to 15 percent for most of our reporting units. 

In the fourth quarter of 2011, we estimated that future discounted cash flows projected for most of 

our reporting units were greater than the carrying values. Any increases in estimated discounted cash 

flows would have no effect on the reported value of goodwill. 

If the carrying amount of a reporting unit exceeds its fair value, we measure the possible goodwill 

impairment based upon an allocation of the estimate of fair value of the reporting unit to all of the 

underlying assets and liabilities of the reporting unit, including any previously unrecognized intangible 

assets (Step Two Analysis). The excess of the fair value of a reporting unit over the amounts assigned 

to its assets and liabilities is the implied fair value of goodwill. An impairment loss is recognized to the 

extent that a reporting unit’s recorded goodwill exceeds the implied fair value of goodwill. 

21

In 2011, we recognized non-cash, pre-tax impairment charges for goodwill aggregating $486 

million ($330 million, after tax). The pre-tax impairment charge of $44 million in the Cabinets and 

Related Products segment relates to our European ready-to-assemble cabinet manufacturer and 

reflects the continued declining demand for certain products, as well as decreased operating margins. 

The pre-tax impairment charge of $75 million in the Decorative Architectural Products segment relates 

to our builders’ hardware business and reflects increasing competitive conditions for this business. The 

pre-tax impairment charge of $367 million in the Other Specialty Products segment relates to our North 

American window and door business. The charge reflects the continuing weak level of new home 

construction activity in the western U.S. in 2011, the reduced levels of repair and remodel activity and 

the expectation that the recovery in these segments will be modestly slower than previously 

anticipated. 

A ten percent decrease in the estimated fair value of our reporting units at December 31, 2011 

would not have resulted in any additional analysis of goodwill impairment for any additional business 

unit. 

We review our other indefinite-lived intangible assets for impairment annually, in the fourth quarter, 

or as events occur or circumstances change that indicate the assets may be impaired without regard to 

the reporting unit. We consider the implications of both external (e.g., market growth, competition and 

local economic conditions) and internal (e.g., product sales and expected product growth) factors and 

their potential impact on cash flows related to the intangible asset in both the near- and long-term. In 

2011, we recognized non-cash, pre-tax impairment charges for other indefinite-lived intangible assets 

of $8 million ($5 million, after tax) attributable to our Plumbing Products segment ($1 million), and our 

Other Specialty Products segment ($7 million). 

Intangible assets with finite useful lives are amortized using the straight-line method over their 

estimated useful lives. We evaluate the remaining useful lives of amortizable identifiable intangible 

assets at each reporting period to determine whether events and circumstances warrant a revision to 

the remaining periods of amortization. 

Stock-Based Compensation 

Our 2005 Long Term Stock Incentive Plan (the “2005 Plan”) provides for the issuance of stockbased 

incentives in various forms to employees and non-employee Directors. At December 31, 2011, 

outstanding stock-based incentives were in the form of long-term stock awards, stock options, phantom 

stock awards and stock appreciation rights. 

Long-Term Stock Awards 

We grant long-term stock awards to key employees and non-employee Directors and do not cause 

net share dilution inasmuch as we continue the practice of repurchasing and retiring an equal number 

of shares on the open market. We measure compensation expense for stock awards at the market 

price of our common stock at the grant date. There was $107 million (ten million common shares) of 

total unrecognized compensation expense related to unvested stock awards at December 31, 2011, 

which was included as a reduction of common stock and paid-in capital. Effective January 1, 2010, the 

vesting period for stock awards awarded after January 1, 2010 is five years. For stock awards granted 

prior to January 1, 2006, we recognize this expense over the vesting period of the stock awards, 

typically five to ten years, or for executive grantees that are, or will become, retirement-eligible during 

the vesting period, we recognize the expense over five years or immediately upon a grantee’s 

retirement. Effective January 1, 2006, we recognize this expense ratably over the shorter of the vesting 

period of the stock awards, typically five to ten years (except for stock awards held by grantees age 66 

or older, which vest over five years), or the length of time until the grantee becomes retirement-eligible 

at age 65. Pre-tax compensation expense for the annual vesting of long-term stock awards was $39 

million for 2011. 

22

Stock Options 

We grant stock options to key employees. The exercise price equals the market price of our 

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 ten years after 

the grant date. 

We measure compensation expense for stock options using a Black-Scholes option pricing model. 

We recognize this compensation expense ratably over the shorter of the vesting period of the stock 

options, typically five years, or the length of time until the grantee becomes retirement-eligible at age 

65. Pre-tax compensation expense for stock options was $21 million for 2011. 

We estimated the fair value of stock options at the grant date using a Black-Scholes option pricing 

model with the following assumptions for 2011: risk-free interest rate – 2.69%, dividend yield – 2.35%, 

volatility factor – 49.03% and expected option life – six years. For expense calculation purposes, the 

weighted average grant-date fair value of option shares granted in 2011 was $5.07 per option share. 

If we increased our assumptions for the risk-free interest rate and the volatility factor by 50 

percent, the expense related to the fair value of stock options granted in 2011 would increase by 42 

percent. If we lowered our assumptions for the risk-free interest rate and the volatility factor by 50 

percent, the expense related to the fair value of stock options granted in 2011 would decrease by 53 

percent. 

Employee Retirement Plans 

Effective January 1, 2010, we froze all future benefit accruals under substantially all of our 

domestic qualified and non-qualified defined-benefit pension plans. As a result of this action, the 

liabilities for these plans were remeasured; in addition, certain assumptions appropriate for on-going 

plans (e.g., turnover, mortality and compensation increases) have been modified or eliminated for the 

remeasurement. 

Accounting for defined-benefit pension plans involves estimating the cost of benefits to be 

provided in the future, based upon vested years of service, and attributing those costs over the time 

period each employee works. We develop our pension costs and obligations from actuarial valuations. 

Inherent in these valuations are key assumptions regarding inflation, expected return on plan assets, 

mortality rates and discount rates for obligations and expenses. We consider current market 

conditions, including changes in interest rates, in selecting these assumptions. Changes in 

assumptions used could result in changes to reported pension costs and obligations within our 

consolidated financial statements. 

In December 2011, we decreased our discount rate for obligations to an average of 4.40 percent 

from 5.30 percent. The discount rate for obligations is based upon the expected duration of each 

defined-benefit pension plan’s liabilities matched to the December 31, 2011 Towers Watson Rate Link 

curve. The discount rates we use for our defined-benefit pension plans ranged from 2.00 percent to 

5.50 percent, with the most significant portion of the liabilities having a discount rate for obligations of 

4.20 percent or higher. The assumed asset return was primarily 7.25 percent, reflecting the expected 

long-term return on plan assets. 

Our net underfunded amount for our qualified defined-benefit pension plans, which is the 

difference between the projected benefit obligation and plan assets, increased to $439 million at 

December 31, 2011 from $359 million at December 31, 2010, primarily due to lower rates of return in 

the bond market in 2011. In accordance with accounting guidance, the underfunded amount has been 

recognized on our consolidated balance sheets at December 31, 2011 and 2010. Qualified domestic 

pension plan assets in 2011 had a net loss of approximately two percent compared to average gains of 

one percent for the corporate funds universe within the Independent Consultant Cooperative. 

23

Our projected benefit obligation for our unfunded non-qualified defined-benefit pension plans was 

$174 million at December 31, 2011 compared with $163 million at December 31, 2010. This unfunded 

amount has been recognized on our consolidated balance sheets at December 31, 2011 and 2010. 

At December 31, 2011, we reported a net liability of $613 million, of which $174 million was related 

to our non-qualified, supplemental retirement plans, which are not subject to the funding requirements 

of the Pension Protection Act of 2006. In accordance with the Pension Protection Act, the Adjusted 

Funding Target Attainment Percentage (“AFTAP”) for the various defined-benefit pension plans ranges 

from 56 percent to 80 percent. At December 31, 2011, we had one plan that offered accelerated 

benefits (i.e., lump sum distributions) and the AFTAP for that plan is less than 80 percent; therefore, 

the plan is prohibited from allowing participants to receive any lump sum distribution in excess of 50 

percent of the benefit value. In addition, plan amendments increasing benefits or liabilities for that plan 

are also prohibited. 

We expect pension expense for our qualified defined-benefit pension plans to be $26 million in 

2012 compared with $23 million in 2011. If we assumed that the future return on plan assets was 

one-half percent lower than the assumed asset return and the discount rate decreased by 50 basis 

points, the 2012 pension expense would increase by $3 million. We expect pension expense for our 

non-qualified defined-benefit pension plans to be $9 million in 2012 compared with $9 million in 2011. 

We anticipate that we will be required to contribute approximately $60 million to $70 million in 

2012 to our qualified and non-qualified defined-benefit plans. 

Income Taxes 

The accounting guidance for income taxes requires that the future realization of deferred tax 

assets depends on the existence of sufficient taxable income in future periods. Possible sources of 

taxable income include taxable income in carryback periods, the future reversal of existing taxable 

temporary differences recorded as a deferred tax liability, tax-planning strategies that generate future 

income or gains in excess of anticipated losses in the carryforward period and projected future taxable 

income. 

If, based upon all available evidence, both positive and negative, it is more likely than not (more 

than 50 percent likely) such deferred tax assets will not be realized, a valuation allowance is recorded. 

Significant weight is given to positive and negative evidence that is objectively verifiable. A company’s 

three-year cumulative loss position is significant negative evidence in considering whether deferred tax 

assets are realizable and the accounting guidance restricts the amount of reliance the Company can 

place on projected taxable income to support the recovery of the deferred tax assets. 

In the fourth quarter of 2010, we recorded a $372 million valuation allowance against our U.S. 

Federal deferred tax assets as a non-cash charge to income tax expense. In reaching this conclusion, 

we considered the weaker retail sales of certain of our building products and the slower than 

anticipated recovery in the U.S. housing market which led to U.S. operating losses and significant U.S. 

goodwill impairment charges, that primarily occurred in the fourth quarter of 2010, causing us to be in a 

three-year cumulative U.S. loss position. These factors negatively impact our ability to utilize 

tax-planning strategies that included the potential sale of certain non-core operating assets to support 

the realization of our U.S. Federal deferred tax assets, since current year losses are heavily weighted 

in determining if sufficient income would exist in the carryforward period to realize the benefit of the 

strategies. 

During 2011, objective and verifiable negative evidence, such as continued U.S. operating losses 

and significant U.S. goodwill impairment charges, continued to outweigh positive evidence. As a result, 

we recorded an $89 million increase in the valuation allowance related to our U.S. Federal deferred tax 

assets as a non-cash charge to income tax expense. 

24

Recording the valuation allowance does not restrict our ability to utilize the future deductions and 

net operating losses associated with the deferred tax assets assuming taxable income is recognized in 

future periods. 

A rebound in the U.S. housing market from the current historic lows and retail sales of building 

products improving from their current levels should have a positive impact on our operating results in 

the U.S. A return to sustained profitability in the U.S. should result in objective positive evidence 

thereby warranting the potential reversal of all or a portion of the valuation allowance. 

The $156 million and $228 million of deferred tax assets at December 31, 2011 and 2010, 

respectively, for which there is no valuation allowance recorded, are anticipated to be realized through 

the future reversal of existing taxable temporary differences recorded as deferred tax liabilities. 

Should we determine that we would not be able to realize our remaining deferred tax assets in the 

future, an adjustment to the valuation allowance would be recorded in the period such determination is 

made. The need to maintain a valuation allowance against deferred tax assets may cause greater 

volatility in our effective tax rate. 

The current accounting guidance allows the recognition of only those income tax positions that 

have a greater than 50 percent likelihood of being sustained upon examination by the taxing 

authorities. We believe that there is an increased potential for volatility in our effective tax rate because 

this threshold allows changes in the income tax environment and the inherent complexities of income 

tax law in a substantial number of jurisdictions to affect the computation of our liability for uncertain tax 

positions to a greater extent. 

While we believe we have adequately provided for our uncertain tax positions, amounts asserted 

by taxing authorities could vary from our liability for uncertain tax positions. Accordingly, additional 

provisions for tax-related matters, including interest and penalties, could be recorded in income tax 

expense in the period revised estimates are made or the underlying matters are settled or otherwise 

resolved. 

Other Commitments and Contingencies 

Certain of our products and product finishes and services are covered by a warranty to be free 

from defects in material and workmanship for periods ranging from one year to the life of the product. 

At the time of sale, we accrue a warranty liability for estimated costs to provide products, parts or 

services to repair or replace products in satisfaction of warranty obligations. Our estimate of costs to 

service our warranty obligations is based upon historical experience and expectations of future 

conditions. To the extent that we experience any changes in warranty claim activity or costs associated 

with servicing those claims, our warranty liability is adjusted accordingly. 

The majority of our business is at the consumer retail level through home centers and major 

retailers. A consumer may return a product to a retail outlet that is a warranty return. However, certain 

retail outlets do not distinguish between warranty and other types of returns when they claim a return 

deduction from us. Our revenue recognition policy takes into account this type of return when 

recognizing revenue, and we record deductions at the time of sale. 

We are subject to lawsuits and pending or asserted claims in the ordinary course of our business. 

Liabilities and costs associated with these matters require estimates and judgments based upon our 

professional knowledge and experience and that of our legal counsel. When estimates of our exposure 

for lawsuits and pending or asserted claims meet the criteria for recognition under accounting 

guidance, amounts are recorded as charges to earnings. The ultimate resolution of these exposures 

may differ due to subsequent developments. See Note S to our consolidated financial statements for 

information regarding certain of our legal proceedings. 

25

Corporate Development Strategy 

Our current business strategy includes the rationalization of our business units, including 

consolidations, and increasing synergies among our business units. Going forward, we expect to 

maintain a balanced growth strategy with emphasis on cash flow, organic growth with fewer 

acquisitions and growth through new product development and greenfield locations related to certain 

Installation and Other Services businesses. As part of our strategic planning, we continue to review all 

of our businesses to determine which businesses may not be core to our long-term growth strategy. 

During 2011, we determined that several business units in the Installation and Other Services 

segment were no longer core to our long-term growth strategy. These businesses were related to 

commercial drywall installation, millwork and framing; accordingly, we have embarked on a plan of 

disposition for these businesses and have accounted for these businesses as discontinued operations 

in 2011. In late 2011, we acquired a small manufacturer of hot tubs in the Plumbing Products segment. 

See Note B to the consolidated financial statements for more information. 

Liquidity and Capital Resources 

Historically, we have largely funded our growth through cash provided by our operations, longterm 

bank debt and the issuance of notes in the financial markets, and by the issuance of our common 

stock, including issuances for certain mergers and acquisitions. 

Maintaining high levels of liquidity and focusing on cash generation are among our financial 

strategies; such strategies have resulted in cash of approximately $1.7 billion at December 31, 2011. 

Our total debt as a percent of total capitalization was 84 percent and 72 percent at December 31, 2011 

and 2010, respectively. 

On June 21, 2010, we entered into a Credit Agreement (the “Credit Agreement”) with a bank 

group, with an aggregate commitment of $1.25 billion with a maturity date of January 10, 2014. The 

Credit Agreement provides for an unsecured revolving credit facility available to us and one of our 

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. We 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 our borrowing capacity. At December 31, 2011, we had $92 million of 

outstanding and unused Letters of Credit, reducing our borrowing capacity by such amount. 

Our revolving credit loans bear interest under the Credit Agreement, at our 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 thenapplicable 

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. 

In order to borrow under the Credit Agreement, we must not be in default of our covenants under 

the Credit Agreement (i.e., in addition to the debt to total capitalization covenant and a financial 

covenant, we must meet a minimum adjusted interest coverage ratio, principally limitations on 

subsidiary debt, negative pledge restrictions, legal compliance requirements and maintenance of 

properties and insurance) and our representations and warranties in the Credit Agreement must be 

true in all material respects (i.e., no material adverse change or litigation likely to result in a material 

adverse change, no material ERISA or environmental non-compliance and no material tax deficiency). 

We were in compliance with all covenants and we had no borrowings at December 31, 2011. 

On February 11, 2011, we entered into an amendment (deemed to be effective and applicable as 

of December 31, 2010) of the Credit Agreement (the “Amendment”). The Amendment provided for the 

26

add-back to shareholders’ equity in our debt to capitalization covenant of (i) certain non-cash charges 

(including impairment charges for financial investments and goodwill and other intangible assets) and 

(ii) changes to the valuation allowance on our deferred tax assets included in income tax expense, 

each taken in 2010, which aggregated $986 million after tax. The Amendment also permitted us to 

add-back, if incurred, up to $350 million in the aggregate of future non-cash charges subsequent to 

December 31, 2010. 

Based on the limitations of the debt to total capitalization covenant (before the Second 

Amendment discussed below), at December 31, 2011, we had additional borrowing capacity, subject to 

availability, of up to $178 million. Alternatively, at December 31, 2011, we could absorb a reduction to 

shareholders’ equity of approximately $96 million, and remain in compliance with the debt to total 

capitalization covenant. 

On February 13, 2012, we entered into another amendment (deemed to be effective and 

applicable as of December 31, 2011) of the Credit Agreement (the “Second Amendment”). The Second 

Amendment provides for the add-back to shareholders’ equity in our debt to capitalization covenant of 

(i) certain non-cash charges (including impairment charges for financial investments and goodwill and 

other intangible assets) and (ii) changes to the valuation allowance on our deferred tax assets included 

in income tax expense, each taken in 2010 and 2011, which aggregate $1.6 billion after tax. The 

Second Amendment also permits us to add-back, if incurred, up to $250 million in the aggregate of 

future non-cash charges subsequent to December 31, 2011. The Second Amendment also revised the 

permitted ratio of consolidated EBITDA to the consolidated interest expense to 2.25 to 1.00 through 

December 31, 2012, increasing to 2.50 to 1.00 with respect to each quarter thereafter. 

Taking the Second Amendment into account, at December 31, 2011, we had additional borrowing 

capacity, subject to availability, of up to $630 million. Alternatively, at December 31, 2011, we could 

absorb a reduction to shareholders’ equity of approximately $340 million and remain in compliance with 

the debt to total capitalization covenant. 

We have $791 million of fixed-rate debt due July 15, 2012 (“Notes”) with an interest rate of 

5.875%. We plan to re-finance a portion of the Notes in 2012 and, therefore, we have entered into 

forward interest rate swap agreements to hedge the volatility in interest payments associated with this 

planned debt issuance. The interest rate swaps are intended to cover a notional amount of $400 

million; we anticipate that we will redeem the remaining Notes for cash. 

We had cash and cash investments of approximately $1.7 billion at December 31, 2011, 

principally as a result of strong cash flows from operations. Our cash and cash investments consist of 

overnight interest bearing money market demand and time deposit accounts, money market mutual 

funds containing government securities and treasury obligations. While we attempt to diversify these 

investments in a prudent manner to minimize risk, it is possible that future changes in the financial 

markets could affect the security or availability of these investments. 

Of the $1.7 billion of cash and cash investments we held at both December 31, 2011 and 2010, 

$551 million and $493 million, respectively, is held in our foreign subsidiaries. If these funds were 

needed for our operations in the U.S., their repatriation into the U.S. may result in additional U.S. 

income taxes or foreign withholding taxes. The amount of such taxes is dependent on the income tax 

laws and circumstances at the time of distribution. 

We have maintained investments in available-for-sale and marketable securities and a number of 

private equity funds, principally as part of our tax planning strategies, as any gains enhance the 

utilization of any current and future capital tax losses. We determined that the longer maturity of private 

equity funds would be advantageous and complement our investment in more liquid available-for-sale 

and marketable securities to balance risk. Since we have significantly reduced our capital tax losses in 

part by generating capital gains from investments and other sources, we have and will continue to 

reduce our investments in long-term financial assets. 

27

We utilize derivative and hedging instruments to manage our exposure to currency fluctuations, 

primarily related to the European euro and the U.S. dollar; commodity cost fluctuations, primarily zinc 

and copper; and interest rate fluctuations, primarily related to our anticipated debt issuance in 2012. 

We review our hedging program, derivative positions and overall risk management on a regular basis. 

During 2011, we paid a quarterly dividend of $.075 per common share. 

Our working capital ratio was 1.5 to 1 and 2.3 to 1 at December 31, 2011 and 2010, respectively. 

The decline in the working capital ratio is primarily due to the classification to current liabilities of $791 

million of 5.875% Notes due July 2012. 

Cash Flows 

Significant sources and (uses) of cash in the past three years are summarized as follows, in 

millions: 

2011 2010 2009 

Net cash from operating activities ........................... $239 $465 $705 

Retirement of notes ....................................... (58) (359) — 

Issuance of notes, net of issuance costs ...................... — 494 — 

Proceeds from disposition of: 

Businesses, net of cash disposed ......................... — — 8 

Property and equipment ................................. 24 18 23 

Proceeds from financial investments, net ..................... 94 42 11 

Tax benefit from stock-based compensation .................. — 4 7 

Cash dividends paid ...................................... (107) (108) (166) 

Capital expenditures ...................................... (151) (137) (125) 

Purchase of Company common stock ........................ (30) (45) (11) 

Decrease in debt, net ..................................... (5) (2) (11) 

Dividends paid to noncontrolling interest ...................... (18) (15) (16) 

Acquisition of businesses, net of cash acquired ................ (10) — (8) 

Effect of exchange rates on cash and cash investments ......... (18) (14) (5) 

Other, net ............................................... (19) (41) (27) 

Cash (decrease) increase .......................... $ (59) $ 302 $ 385 

Our cash and cash investments decreased $59 million to $1,656 million at December 31, 2011, 

from $1,715 million at December 31, 2010. 

Net cash provided by operations of $239 million consisted primarily of net (loss) adjusted for 

non-cash and certain other items, including depreciation and amortization expense of $263 million, a 

$494 million charge for the impairment of goodwill and other intangible assets, a $(112) million net 

change in deferred taxes, a $86 million charge for the impairment of assets related to discontinued 

operations and other non-cash items, including stock-based compensation expense and amortization 

expense related to in-store displays. 

We continue to emphasize balance sheet management, including working capital management 

and cash flow generation. Days sales in accounts receivable were 47 days at both December 31, 2011 

and 2010, and days sales in inventories were 52 days at December 31, 2011 and 49 days at 

December 31, 2010. Accounts payable days were 63 days at December 31, 2011 and 51 days at 

December 31, 2010; the increase in payable days is due to our improved management of accounts 

payable. Working capital (defined as accounts receivable and inventories less accounts payable) as a 

percent of sales was 12.2 percent at December 31, 2011 and 13.4 percent at December 31, 2010; 

such improvement was primarily due to improved accounts payable management. 

28

Net cash used for financing activities was $219 million, and included cash outflows of $107 million 

for cash dividends paid, $63 million for the net payment of debt and $30 million for the acquisition of 

our common stock to offset the dilutive impact of long-term stock awards granted in 2011. 

At December 31, 2011, we had remaining authorization from our Board of Directors to repurchase 

up to an additional 25 million shares of our common stock in open-market transactions or otherwise. 

We believe that our present cash balance and cash flows from operations are sufficient to fund our 

near-term working capital and other investment needs. We believe that our longer-term working capital 

and other general corporate requirements will be satisfied through cash flows from operations and, to 

the extent necessary, from bank borrowings and future financial market activities. Consistent with past 

practice, we anticipate repurchasing shares in 2012 to offset any dilution from long-term stock awards 

granted or stock options exercised as part of our compensation programs. 

Net cash used for investing activities was $61 million, and included $151 million for capital 

expenditures. Cash provided by investing activities included primarily $24 million of net proceeds from 

the disposition of property and equipment and $94 million from the net sale of financial investments. 

We invest in automating our manufacturing operations to increase our productivity, improve 

customer service and support new product innovation. Capital expenditures for 2011 were $151 

million, compared with $137 million for 2010 and $125 million for 2009; for 2012, capital expenditures, 

excluding any potential 2012 acquisitions, are expected to be approximately $180 million. Depreciation 

and amortization expense for 2011 totaled $263 million, compared with $279 million for 2010 and $254 

million for 2009; for 2012, depreciation and amortization expense, excluding any potential 2012 

acquisitions, is expected to be approximately $219 million. Amortization expense totaled $17 million, 

$18 million and $17 million in 2011, 2010 and 2009, respectively. 

Costs of environmental responsibilities and compliance with existing environmental laws and 

regulations have not had, nor do we expect them to have, a material effect on our capital expenditures, 

financial position or results of operations. 

Consolidated Results of Operations 

We report our financial results in accordance with generally accepted accounting principles 

(“GAAP”) in the United States. However, we believe that certain non-GAAP performance measures 

and ratios, used in managing the business, may provide users of this financial information with 

additional meaningful comparisons between current results and results in prior periods. Non-GAAP 

performance measures and ratios should be viewed in addition to, and not as an alternative for, our 

reported results. 

Sales and Operations 

Net sales for 2011 were $7.5 billion, relatively flat with 2010. Excluding results from acquisitions 

and the effect of currency translation, net sales decreased one percent compared with 2010. The 

following table reconciles reported net sales to net sales excluding acquisitions and the effect of 

currency translation, in millions: 

Twelve Months 

Ended December 31 

2011 2010 

Net sales, as reported ................................................... $7,467 $7,486 

– Acquisitions ........................................................ — — 

Net sales, excluding acquisitions .......................................... 7,467 7,486 

– Currency translation ................................................. (88) — 

Net sales, excluding acquisitions and the effect of currency .................... $7,379 $7,486 

29

Net sales for 2011 were adversely affected by lower sales volume of installed products, cabinets, 

paints and stains, builders’ hardware and windows, which, in aggregate, reduced sales by 

approximately three percent compared to 2010. Net sales for 2011 were also adversely affected by the 

planned exit of certain cabinet product lines, which reduced sales by approximately two percent 

compared to 2010. Such declines were partially offset by selling price increases, primarily related to 

plumbing products and paints and stains, which increased sales by approximately three percent. A 

weaker U.S. dollar increased sales by one percent compared to 2010. 

Net sales for 2010 were adversely affected by lower sales volume of installed products and 

cabinets, which, in aggregate, reduced sales by approximately three percent compared to 2009. Net 

sales for 2010 were also negatively affected by lower sales volume of builders’ hardware and North 

American plumbing products, which reduced net sales by approximately one percent compared to 

2009. Such declines were partially offset by a more favorable product mix of plumbing products and 

paints and stains, which increased sales by approximately one percent compared to 2009. Net sales 

volume in 2010 of our International plumbing products and windows increased in local currencies and 

increased consolidated net sales by approximately one percent compared to 2009. A stronger U.S. 

dollar decreased sales by one percent compared to 2009. 

Our gross profit margins were 23.9 percent, 24.5 percent and 26.3 percent in 2011, 2010 and 

2009, respectively. The decrease in the 2011 gross profit margin reflects lower sales volume and a 

less favorable relationship between selling prices and commodity costs. Such decreases were partially 

offset by the benefits associated with business rationalizations and other cost savings initiatives. 

Selling, general and administrative expenses as a percent of sales were 21.2 percent in 2011 

compared with 21.3 percent in 2010 and 21.9 percent in 2009. Selling, general and administrative 

expenses as a percent of sales in 2011 reflect increased expenses related to growth initiatives, offset 

by lower business rationalization expenses and the benefits associated with such expenses. Selling, 

general and administrative expenses as a percent of sales in 2010 reflect lower sales volume, 

increased advertising expenses related to new product introductions and increased system 

implementation costs. 

Operating (loss) profit in 2011, 2010 and 2009 includes $121 million, $208 million and $94 million, 

respectively, of costs and charges related to business rationalizations and other cost savings 

initiatives. Operating (loss) profit in 2011, 2010 and 2009 includes $494 million, $698 million and $262 

million, respectively, of impairment charges for goodwill and other intangible assets. Operating (loss) 

profit in 2011 and 2009 includes $9 million and $7 million, respectively, of charges for litigation 

settlements. Operating (loss) profit margins, as reported, were (4.0) percent, (6.2) percent and 0.9 

percent in 2011, 2010 and 2009, respectively. Operating profit margins, excluding the items above, 

were 4.4 percent, 5.9 percent and 5.7 percent in 2011, 2010 and 2009, respectively. 

Operating margins in 2011 were negatively affected by a less favorable relationship between 

selling prices and commodity costs, a less favorable product mix and increased expenses related to 

growth initiatives. Such decreases more than offset lower business rationalization costs and the 

benefits associated with such expenses. 

Operating margins in 2010 were positively affected by the benefits associated with business 

rationalizations and other cost savings initiatives, which more than offset the negative effect of lower 

sales volume and the less favorable relationship between selling prices and commodity costs. 

Other Income (Expense), Net 

During 2011, we recognized gains of $41 million related to the sale of TriMas common stock. We 

also recognized gains of $32 million related to distributions from private equity funds. 

Other, net, for 2011 also included realized foreign currency losses of $5 million and other 

miscellaneous items. 

30

During 2010, we recognized non-cash, pre-tax impairment charges aggregating $34 million related 

to financial investments ($28 million related to Asahi Tec preferred stock and $6 million related to 

private equity funds and other private investments). 

Other, net, for 2010 included $9 million of income from financial investments, net. Other, net, for 

2010 also included realized foreign currency losses of $2 million and other miscellaneous items. 

During 2009, we recognized non-cash, pre-tax impairment charges aggregating $10 million for our 

investments in private equity funds. 

Other, net, for 2009 included $3 million of income from financial investments, net. Other, net, for 

2009 also included realized foreign currency gains of $17 million and other miscellaneous items. 

Interest expense was $254 million, $251 million and $225 million in 2011, 2010 and 2009, 

respectively. The increase in interest expense in 2011 and 2010 is primarily due to the issuance of 

$500 million of 7.125% notes in March 2010. 

(Loss) Income and (Loss) Earnings Per Common Share from Continuing Operations 

(Attributable to Masco Corporation) 

(Loss) and diluted (loss) per common share from continuing operations for 2011 were $(465) 

million and $(1.34) per common share, respectively. (Loss) and diluted (loss) per common share from 

continuing operations for 2010 were $(1,022) million and $(2.94) per common share, respectively. 

(Loss) and diluted (loss) per common share from continuing operations for 2009 were $(130) million 

and $(.38) per common share, respectively. (Loss) from continuing operations for 2011 included 

non-cash, pre-tax impairment charges for goodwill and other intangible assets of $494 million ($335 

million or $.96 per common share, after tax). (Loss) from continuing operations for 2010 included 

non-cash, pre-tax impairment charges for goodwill and other intangible assets of $698 million ($586 

million or $1.68 per common share, after tax). (Loss) from continuing operations for 2009 included 

non-cash, pre-tax impairment charges for goodwill of $262 million ($180 million or $.51 per common 

share, after tax). 

Our effective tax rate for the loss from continuing operations was a 10 percent tax benefit, a 32 

percent tax expense, and a 32 percent tax benefit in 2011, 2010 and 2009, respectively. Compared to 

our normalized effective tax rate of 36 percent, the variance in the effective tax rate in 2011 and 2010 

is due primarily to changes in the U.S. Federal valuation allowance, reversal of an accrual for uncertain 

tax positions and goodwill impairment charges providing no tax benefit. 

In the fourth quarter of 2010, we recorded a $372 million valuation allowance against our U.S. 

Federal deferred tax assets as a non-cash charge to income tax expense. In reaching this conclusion, 

we considered the weaker retail sales of certain of our building products and the slower than 

anticipated recovery in the U.S. housing market which led to U.S. operating losses and significant U.S. 

goodwill impairment charges, that primarily occurred in the fourth quarter of 2010, causing us to be in a 

three-year cumulative U.S. loss position. These factors negatively impact our ability to utilize previously 

identified tax-planning strategies that included the potential sale of certain non-core operating assets to 

support the realization of our U.S. Federal deferred tax assets, since current year losses are heavily 

weighted in determining if sufficient income would exist in the carryfoward period to realize the benefits 

of the strategies. 

Outlook for the Company 

Although we continue to be concerned about foreclosure activity and access to financing, housing 

starts improved in 2011 to 607,000 units. We are cautiously optimistic about the economic trends in 

2012. We believe the major restructuring activities in our Installation and Other Services segment and 

in our North American cabinet operations have been completed. 

31

We are focused on achieving our 2012 strategic initiatives, which include leveraging our brands, 

reducing our costs, improving our Installation and Cabinet segments and strengthening our balance 

sheet. We believe these initiatives, coupled with the actions we have taken over the past several years, 

should position us for improved results in 2012 even in a flat housing market, and continue to believe 

that we will outperform as the housing market recovers. 

We believe and are confident that the long-term fundamentals for the new home construction and 

home improvement markets continue to be positive. We believe that our strong financial position, 

together with our current strategy of investing in leadership brands, including KRAFTMAID and 

MERILLAT cabinets, DELTA and HANSGROHE faucets, BEHR paint and MILGARD windows, our 

continued focus on innovation and our commitment to lean principles, will allow us to drive long-term 

growth and create value for our shareholders. 

32

Business Segment and Geographic Area Results 

The following table sets forth our net sales and operating profit (loss) information by business 

segment and geographic area, dollars in millions. 

2011 2010 2009 


vs. 

2010 

Percent 

Change 

Net Sales: 

Cabinets and Related Products .............................. $1,231 $1,464 $1,674 (16)% (13)% 

Plumbing Products ......................................... 2,913 2,692 2,564 8 % 5 % 

Installation and Other Services ............................... 1,077 1,041 1,121 3 % (7)% 

Decorative Architectural Products ............................ 1,670 1,693 1,714 (1)% (1)% 

Other Specialty Products .................................... 576 596 584 (3)% 2 % 

2010 

vs. 

2009 

Total ................................................ $7,467 $7,486 $7,657 — % (2)% 

North America ............................................. $5,669 $5,823 $6,000 (3)% (3)% 

International, principally Europe .............................. 1,798 1,663 1,657 8 % — % 

Total ................................................ $7,467 $7,486 $7,657 — % (2)% 

2011 2011(B) 2010 2010(B) 2009 2009(B) 

Operating Profit (Loss): (A) 

Cabinets and Related Products ...................... $(206) $(162) $(250) $(250) $ (64) $ (64) 

Plumbing Products ................................ 322 323 331 332 237 276 

Installation and Other Services ...................... (79) (79) (798) (101) (116) (116) 

Decorative Architectural Products .................... 196 271 345 345 375 375 

Other Specialty Products ........................... (401) (27) 19 19 (199) 24 

Total ........................................ $(168) $ 326 $(353) $ 345 $ 233 $495 

North America .................................... $(259) $ 191 $(507) $191 $108 $331 

International, principally Europe ..................... 91 135 154 154 125 164 

Total ........................................ (168) 326 (353) 345 233 495 

General corporate expense, net ..................... (118) (118) (110) (110) (140) (140) 

Charge for defined-benefit curtailment ................ — — — — (8) (8) 

Charge for litigation settlements ..................... (9) (9) — — (7) (7) 

Accelerated stock compensation expense ............. — — — — (6) (6) 

Loss on corporate fixed assets, net .................. — — — — (2) (2) 

Total operating profit (loss) ........................... $(295) $ 199 $(463) $ 235 $ 70 $332 

2011 2011(B) 2010 2010(B) 2009 2009(B) 

Operating Profit (Loss) Margin: (A) 

Cabinets and Related Products ...................... (16.7)% (13.2)% (17.1)% (17.1)% (3.8)% (3.8)% 

Plumbing Products ................................ 11.1 % 11.1 % 12.3 % 12.3 % 9.2 % 10.8 % 

Installation and Other Services ...................... (7.3)% (7.3)% (76.7)% (9.7)% (10.3)%(10.3)% 

Decorative Architectural Products .................... 11.7 % 16.2 % 20.4 % 20.4 % 21.9 % 21.9 % 

Other Specialty Products ........................... (69.6)% (4.7)% 3.2 % 3.2 % (34.1)% 4.1 % 

North America .................................... (4.6)% 3.4 % (8.7)% 3.3 % 1.8 % 5.5 % 

International, principally Europe ..................... 5.1% 7.5% 9.3% 9.3% 7.5% 9.9% 

Total ........................................ (2.2)% 4.4 % (4.7)% 4.6 % 3.0 % 6.5 % 

Total operating profit (loss) margin, as reported ......... (4.0)% N/A (6.2)% N/A .9 % N/A 

(A) 

(B) 

Before general corporate expense, net, charge for defined-benefit plan curtailment, charge for litigation settlements, 

accelerated stock compensation expense, and loss on corporate fixed assets, net; see Note O to the consolidated 

financial statements. 

Excluding impairment charges for goodwill and other intangible assets. The 2011 impairment charges for goodwill 

and other intangible assets were as follows: Cabinets and Related Products – $44 million; Plumbing Products – $1 

million; Decorative Architectural Products – $75 million; and Other Specialty Products – $374 million. The 2010 

impairment charges for goodwill and other intangible assets were as follows: Plumbing Products – $1 million; and 

Installation and other Services – $697 million. The 2009 impairment charges for goodwill were as follows: Plumbing 

Products – $39 million; and Other Specialty Products – $223 million. 

33

Business Segment Results Discussion 

Changes in operating profit margins in the following Business Segment and Geographic Area 

Results discussion exclude general corporate expense, net, charge for defined-benefit plan 

curtailment, charge for litigation settlements, accelerated stock compensation expense, loss on 

corporate fixed assets, net, and impairment charges for goodwill and other intangible assets in 2011, 

2010 and 2009. 

Business Rationalizations and Other Initiatives 

Over the past several years, we have been focused on the strategic rationalization of our 

businesses, including business consolidations, plant closures, headcount reductions, system 

implementations and other cost savings initiatives. For the years ended December 31, 2011, 2010 and 

2009, we incurred net pre-tax costs and charges related to these initiatives of $121 million, $208 million 

and $94 million, respectively. 

During 2011, our North American cabinet business continued to incur costs and charges of $24 

million related to the exit of its ready-to-assemble product line and $6 million related to the integration 

of its facilities. Our European manufacturer of ready to assemble cabinetry also incurred costs and 

charges of $9 million related to the closure of one manufacturing facility and the severance related to 

further headcount reductions. Our Installation and Other Services segment incurred costs and charges 

of $4 million related to the closure of several locations and further headcount reductions. Our builders’ 

hardware business in the Decorative Architectural Products segment incurred costs and charges of $9 

million related to the exit of a product line. Our North American window manufacturer incurred costs 

and charges of $30 million related to the closure of several manufacturing facilities. 

In 2010, we took several actions within the Cabinets and Related Products segment to rationalize 

our North American manufacturers, including closing plants, exiting product lines and integrating our 

Builder and Retail Cabinet Groups. We incurred costs and charges of $171 million in 2010 related to 

these actions. 

In the fourth quarter of 2011, we decided to dispose of several non-core businesses in the 

Installation and Other Services segment. These businesses were related to commercial drywall 

installation, millwork and framing, and have been classified as discontinued operations for all periods. 

Based on current plans, we anticipate costs and charges related to our business rationalizations 

and other initiatives to approximate $20 million in 2012. We continue to evaluate our businesses and 

may implement additional rationalization programs based on changes in our markets which could result 

in further costs and charges. 

Cabinets and Related Products 

Sales 

Net sales of Cabinets and Related Products decreased in 2011 primarily due to lower sales 

volumes of North American cabinets, which reduced sales by approximately four percent compared to 

2010. Sales in this segment in 2011 were also negatively affected by the planned exit of North 

American ready-to-assemble and other non-core in-stock assembled cabinet product lines, particle 

board and door product lines, which reduced sales by approximately 11 percent compared to 2010. 

Sales were also negatively affected by lower sales volume of International cabinets, which reduced 

sales in this segment by approximately two percent compared to 2010. A weaker U.S. dollar increased 

sales by one percent in 2011 compared to 2010. 

Net sales in this segment decreased in 2010 primarily due to lower sales volumes of North 

American cabinets, which reduced sales by approximately six percent compared to 2009. Sales in this 

segment in 2010 were also negatively affected by the planned exit of ready-to-assemble and other 

34

non-core in-stock assembled cabinet product lines, particle board and door product lines, which 

reduced sales by approximately four percent compared to 2009. Sales were also negatively affected by 

lower sales volume of International cabinets, which reduced sales in this segment by approximately 

three percent compared to 2009. A stronger U.S. dollar decreased sales by one percent in 2010 

compared to 2009. 

Net sales in this segment in 2009 were negatively affected by a decline in sales volume in the new 

home construction and retail markets, as well as a less favorable product mix. 

Operating Results 

Operating margins in the Cabinets and Related Products segment in 2011 were positively affected 

by lower business rationalization expenses and the benefits associated with such expenses, including 

benefits related to the integration of the North American cabinet businesses. Such increases were 

partially offset by a less favorable relationship between selling prices and commodity costs, aggressive 

promotional activity and lower sales volume and the related under-absorption of fixed costs. 

Operating margins in this segment in 2010 were negatively affected by lower sales volume and the 

related under-absorption of fixed costs, which reduced operating profit margins by approximately three 

percentage points. Operating profit margins in this segment in 2010 were also negatively affected by 

increased business rationalization expenses and a less favorable relationship between selling prices 

and commodity costs; such decreases more than offset the benefits associated with business 

rationalizations and other cost savings initiatives. 

Operating margins in this segment in 2009 were negatively affected by lower sales volume in the 

new home construction and retail markets and the related under-absorption of fixed costs, as well as a 

less favorable product mix which, on a combined basis, reduced operating profit margins by 

approximately three percentage points compared to 2008. In 2009, operating profit margins in this 

segment were also negatively affected by increased plant closure and system implementation costs 

which were partially offset by the improved relationship between selling prices and commodity costs 

and the benefits associated with business rationalizations and other cost savings initiatives. 

Plumbing Products 

Sales 

Net sales of Plumbing Products increased in 2011 primarily due to increased selling prices, which 

increased sales by approximately three percent compared to 2010. Sales were also positively affected 

by increased sales volume in North America and International, which, in aggregate, increased sales by 

approximately three percent compared to 2010. A weaker U.S. dollar increased sales by two percent in 

2011 compared to 2010. 

Net sales in this segment increased in 2010 primarily due to a more favorable product mix to North 

American retailers and wholesalers, which increased sales by approximately two percent compared to 

2009. Sales were also positively affected by increased selling prices, which increased sales by 

approximately two percent compared to 2009. In local currencies, sales of International operations 

increased sales in this segment by approximately three percent compared to 2009. Such increases 

were partially offset by lower sales volume to North American retailers and wholesalers, which reduced 

sales by one percent compared to 2009. A stronger U.S. dollar decreased sales by one percent in 

2010 compared to 2009. 

Net sales in this segment in 2009 were negatively affected by lower sales volume to North 

American retailers and wholesalers. Reflecting the weakened global economy, net sales in this 

segment in 2009 were also negatively impacted by lower local currency sales volume of International 

operations. 

35


Operating margins in the Plumbing Products segment in 2011 were negatively affected by a less 

favorable relationship between selling prices and commodity costs, a less favorable product mix and 

increased expenses related to growth initiatives which offset the benefits associated with business 

rationalizations and other cost savings initiatives. 

Operating margins in this segment in 2010 were positively affected by a more favorable product 

mix and the positive relationship between selling prices and commodity costs and the benefits 

associated with business rationalizations and other cost savings initiatives. 

Operating margins in this segment in 2009 were positively affected by the improved relationship 

between selling prices and commodity costs, as well as a more favorable product mix and the benefits 

associated with business rationalizations and other cost savings initiatives. 

Installation and Other Services 

Sales 

Net sales in the Installation and Other Services segment increased in 2011 primarily due to 

increased distribution sales, increased selling prices and increased retrofit and commercial sales. Such 

increases were partially offset by lower sales volume of installed products related to a continued 

decline in the new home construction market, the downward trend in the size and content of new 

houses in early 2011 and the increased multi-family construction; we gained share in single-family 

construction. 

Net sales in this segment decreased in 2010 primarily due to lower sales volume related to 

reduced share in the new home construction market. Sales in this segment were also negatively 

affected by a downward trend in the size and content of new houses being constructed by our builder 

customers. 

Net sales in this segment in 2009 were negatively affected by significantly lower sales volume 

related to the decline in the new home construction market, as well as lower selling prices. 


Operating margins in the Installation and Other Services segment in 2011 were positively affected 

by increased sales volume, the benefits associated with business rationalizations and other cost 

savings initiatives and a more favorable relationship between selling prices and commodity costs. 

Operating margins in this segment in 2010 were negatively affected by lower sales volume in the 

new home construction market and the related under-absorption of fixed costs, as well as a less 

favorable relationship between selling prices and commodity costs. Such declines were partially offset 

by the benefits associated with business rationalization and other cost savings initiatives and lower 

system implementation costs in 2010. 

Operating margins in this segment in 2009 were negatively affected by lower sales volume and the 

related under-absorption of fixed costs, selling price decreases and increased system implementation 

costs in 2009. 

Decorative Architectural Products 

Sales 

Net sales of Decorative Architectural Products decreased in 2011, primarily due to lower sales 

volume of paints and stains and builders’ hardware. Such declines in 2011 were partially offset by 

increased selling prices of paints and stains. 

Net sales in this segment decreased in 2010, primarily due to lower sales volume of builders’ 

hardware and lower selling prices of paints and stains. Such declines in 2010 were partially offset by a 

more favorable product mix of paints and stains, related to new product introductions. 

36

Net sales in this segment 2009 were positively affected by increased sales volume of paints and 

stains, which offset lower sales volume of builders’ hardware. 


Operating margins in the Decorative Architectural Products segment in 2011 were negatively 

affected by a less favorable relationship between selling prices and commodity costs related to paints 

and stains and increased expenses related to growth initiatives. This segment was also negatively 

affected by increased business rationalization expenses related to the exit of a builders’ hardware 

product line. 

Operating margins in this segment in 2010 were negatively affected by a less favorable 

relationship between selling prices and commodity costs related to paints and stains, as well as lower 

sales volume of builders’ hardware. Such declines more than offset the benefit of a more favorable 

product mix of paints and stains, related to new product introductions. 

Operating margins in this segment in 2009 were positively affected by increased sales volume of 

paints and stains, which more than offset lower sales volume of builders’ hardware. The operating 

profit margins in this segment in 2009 also benefited from the improved relationship between selling 

prices and commodity costs related to paints and stains and builders’ hardware, as well as lower 

program costs related to builders’ hardware. 

Other Specialty Products 

Sales 

Net sales of Other Specialty Products decreased in 2011 primarily due to lower sales volume of 

windows in North America (due to the expiration of the energy tax credit in 2010) and the U.K., partially 

offset by increased selling prices and increased sales related to new product introductions and 

geographic expansion. A weaker U.S. dollar increased sales in this segment by one percent compared 

to 2010. 

Net sales in this segment increased in 2010 primarily due to increased sales volume of windows in 

North America, principally related to the energy-savings tax credit, which expired at the end of 2010, 

which increased sales in this segment by approximately one percent compared to 2009. Net sales 

were also positively affected by increased sales volume of staple gun tackers and other fastening tools, 

which increased sales in this segment by approximately one percent compared to 2009. 

Net sales in this segment in 2009 were negatively affected by lower sales volume of windows, 

selling price decreases and a less favorable product mix. 


Operating margins in the Other Specialty Products segment in 2011 were negatively affected by 

increased business rationalization expenses, lower sales volume and increased product launch and 

geographic expansion costs. Such decreases offset a more favorable relationship between selling 

prices and commodity costs and the benefits associated with business rationalizations and other cost 

savings initiatives. 

Operating margins in the Other Specialty Products segment in 2010 reflect the negative effect of a 

less favorable relationship between selling prices and commodity costs and a less favorable windows 

product mix. Such declines offset the benefits associated with business rationalizations and other cost 

savings initiatives. 

Operating margins in this segment in 2009 reflect the benefits associated with business 

rationalizations and other cost savings initiatives which offset the negative effect of lower sales volume 

of windows and staple gun tackers and other fastening tools and the related under-absorption of fixed 

costs, as well as a less favorable product mix. 

37

Geographic Area Results Discussion 

North America 

Sales 

North American net sales in 2011 were negatively impacted by lower sales volume of cabinets, 

including the planned exit of certain product lines, paints and stains, builders’ hardware and windows, 

which, in the aggregate, decreased sales by approximately six percent compared to 2010. Such 

declines were partially offset by increased selling prices of plumbing products and paints and stains, 

which increased sales by approximately three percent compared to 2010. 

North American net sales in 2010 were negatively impacted by lower sales volume of installation 

and other services, cabinets, plumbing products, and builders’ hardware, which, in the aggregate, 

decreased sales by approximately four percent compared to 2009. Such declines were partially offset 

by a more favorable product mix of plumbing products and paints and stains, which increased sales by 

approximately one percent compared to 2009. 

North American net sales in 2009 were negatively affected by lower sales volume of installation 

and other services, cabinets and windows in the new home construction market. In addition, North 

American net sales in 2009 were negatively affected by lower retail sales volume of cabinets, plumbing 

products, builder’s hardware and staple gun tackers and other fastening tools. 


Operating margins from North American operations in 2011 were positively affected by lower 

business rationalization expenses and the benefits associated with business rationalization and other 

cost savings initiatives, which increased operating margins by two percentage points. Such increases 

offset the negative impact of lower sales volume and the related under-absorption of fixed costs and a 

less favorable relationship between selling prices and commodity costs which, in the aggregate, 

decreased operating profit margins by one percentage point in 2011 compared to 2010. 

Operating margins from North American operations in 2010 were negatively affected by lower 

sales volume and the related under-absorption of fixed costs and a less favorable relationship between 

selling prices and commodity costs, which decreased operating profit margins by two percentage 

points in 2010 compared to 2009. Operating margins were also negatively affected by increased 

business rationalization costs and charges in 2010 compared to 2009. 

Operating margins from North American operations in 2009 were negatively affected by sales 

volume declines and the related under-absorption of fixed costs, selling price decreases and a less 

favorable product mix in new home construction markets, which decreased operating profit margins by 

one percentage point in 2009 compared to 2008. Operating margins were also negatively affected by 

increased rationalization costs and charges in 2009 compared to 2008. Such declines were partially 

offset by the improved relationship between selling prices and commodity costs for cabinets, plumbing 

products and paints and stains, as well as the benefits associated with business rationalizations and 

other cost savings initiatives. 

International, Principally Europe 

Sales 

Net sales from International operations increased in local currencies by approximately three 

percent compared to 2010, primarily due to increased sales volume and increased selling prices of 

International plumbing products, offset by lower sales volume of International cabinets. A weaker U.S. 

dollar increased International net sales by five percent in 2011 compared to 2010. 

38

Net sales from International operations increased in local currencies in 2010 by approximately five 

percent compared to 2009, primarily due to increased sales volume and increased selling prices of 

International plumbing products and windows, offset by lower sales volume of International cabinets. A 

stronger U.S. dollar decreased International net sales by five percent in 2010 compared to 2009. 

Net sales from International operations decreased in 2009 primarily due to lower sales volume of 

plumbing products and cabinets; such declines in 2009 were partially offset by selling price increases. 


Operating profit margins from International operations in 2011 were negatively affected by a less 

favorable product mix and a less favorable relationship between selling prices and commodity costs, 

partially offset by the benefits associated with business rationalizations and other cost savings 

initiatives. 

Operating profit margins from International operations in 2010 were negatively affected by a less 

favorable product mix, partially offset by the benefits associated with business rationalizations and 

other cost savings initiatives. 

Operating profit margins in 2009 were positively affected by the improved relationship between 

selling prices and commodity costs, as well as the benefits associated with business rationalizations 

and other cost savings initiatives. 

Other Matters 

Commitments and Contingencies 

Litigation 

Information regarding our legal proceedings is set forth in Note S to the consolidated financial 

statements, which is incorporated herein by reference. 

Other Commitments 

With respect to our investments in private equity funds, we had, at December 31, 2011, 

commitments to contribute up to $25 million of additional capital to such funds, representing our 

aggregate capital commitment to such funds less capital contributions made to date. We are 

contractually obligated to make additional capital contributions to these private equity funds upon 

receipt of a capital call from the private equity fund. We have no control over when or if the capital calls 

will occur. Capital calls are funded in cash and generally result in an increase in the carrying value of 

our investment in the private equity fund when paid. 

We enter into contracts, which include reasonable and customary indemnifications that are 

standard for the industries in which we operate. Such indemnifications include claims made against 

builders by homeowners for issues relating to our products and workmanship. In conjunction with 

divestitures and other transactions, we occasionally provide reasonable and customary 

indemnifications relating to various items, including: the enforceability of trademarks; legal and 

environmental issues; and provisions for sales returns. We have never had to pay a material amount 

related to these indemnifications, and we evaluate the probability that amounts may be incurred and 

we appropriately record an estimated liability when probable. 

39

Contractual Obligations 

The following table provides payment obligations related to current contracts at December 31, 

2011, in millions: 

Less 

than 1 

Year 

2-3 

Years 

Payments Due by Period 

4-5 

Years 

More 

than 5 

Years Other(D) Total 

Debt (A) .................................. $ 803 $201 $1,502 $1,519 $— $4,025 

Interest (A) ................................ 228 386 325 721 — 1,660 

Operating leases ........................... 68 79 53 63 — 263 

Currently payable income taxes .............. 18 — — — — 18 

Private equity funds (B) ..................... 13 12 — — — 25 

Purchase commitments (C) .................. 238 10 — — — 248 

Uncertain tax positions, including interest and 

penalties (D) ............................ 1 — — — 80 81 

Total ................................. $1,369 $688 $1,880 $2,303 $80 $6,320 

(A) We assumed that all debt would be held to maturity. 

(B) There is no schedule for the capital commitments to the private equity funds; such allocation was 

estimated. 

(C) Excludes contracts that do not require volume commitments and open or pending purchase 

orders. 

(D) Due to the high degree of uncertainty regarding the timing of future cash outflows associated with 

uncertain tax positions, we are unable to make a reasonable estimate for the period beyond the 

next year in which cash settlements may occur with applicable tax authorities. 

Refer to Footnote M of our financial statements for defined-benefit plan obligations. 

Recently Issued Accounting Pronouncements. Effective January 1, 2011, we adopted new 

accounting guidance which addresses how to determine whether a sales arrangement involves 

multiple deliverables or contains more than one unit of accounting, and how the sales arrangement 

consideration should be allocated among the separate units of accounting. We evaluated this new 

guidance and the adoption did not have an impact on our financial position or our results of operations. 

In June 2011, new accounting guidance was issued regarding the presentation and disclosure of 

comprehensive income. The new guidance will require presentation of other comprehensive income 

items in our consolidated statement of income; such items will no longer be included in the statement 

of shareholders’ equity. The new guidance will be effective for us January 1, 2012. The new guidance 

will also require additional disclosure for reclassification of items from other comprehensive income to 

our statement of income; however, this requirement has been delayed. We do not expect this guidance 

to have a material impact on our financial condition or our results of operations. 

In September 2011, new accounting guidance was issued regarding impairment testing of 

goodwill. The new guidance would allow us to make a qualitative determination regarding potential 

goodwill impairment before performing the quantitative impairment test. The new guidance will be 

effective for us January 1, 2012. We do not anticipate utilizing the qualitative provisions of the new 

guidance. 

40

Item 7A. Quantitative and Qualitative Disclosures about Market Risk. 

We have considered the provisions of accounting guidance regarding disclosure of accounting 

policies for derivative financial instruments and derivative commodity instruments, and disclosure of 

quantitative and qualitative information about market risk inherent in derivative financial instruments, 

other financial instruments and derivative commodity instruments. 

We are exposed to the impact of changes in interest rates, foreign currency exchange rates and 

commodity costs in the normal course of business and to market price fluctuations related to our 

financial investments. We have involvement with derivative financial instruments and use such 

instruments to the extent necessary to manage exposure to foreign currency fluctuations and 

commodity fluctuations. See Note F to the consolidated financial statements for additional information 

regarding our derivative instruments. 

At December 31, 2011, we had entered into foreign currency forward contracts to manage 

exposure to currency fluctuations related primarily to the European euro and the U.S. dollar, several 

metals contracts to manage our exposure to increases in the price of copper and zinc and interest rate 

swap agreements to hedge the volatility in interest payments associated with our expected debt 

issuance in 2012. 

At December 31, 2011, we performed sensitivity analyses to assess the potential loss in the fair 

values of market risk sensitive instruments resulting from a hypothetical change of 10 percent in 

foreign currency exchange rates, a 10 percent decline in the market value of our long-term 

investments, a 10 percent change in commodity costs, or a 10 percent change in interest rates. Based 

upon the analyses performed, such changes would not be expected to materially affect our 

consolidated financial position, results of operations or cash flows. 

41

Item 8. Financial Statements and Supplementary Data 

Management’s Report on Internal Control Over Financial Reporting 

The management of Masco Corporation is responsible for establishing and maintaining adequate 

internal control over financial reporting. Masco Corporation’s internal control over financial reporting is 

a process designed to provide reasonable assurance regarding the reliability of financial reporting and 

the preparation of financial statements for external purposes in accordance with accounting principles 

generally accepted in the United States of America. 

The management of Masco Corporation assessed the effectiveness of the Company’s internal 

control over financial reporting as of December 31, 2011 using the criteria set forth by the Committee 

of Sponsoring Organizations of the Treadway Commission (COSO) in “Internal Control — Integrated 

Framework.” Based on this assessment, management has determined that the Company’s internal 

control over financial reporting was effective as of December 31, 2011. 

PricewaterhouseCoopers LLP, an independent registered public accounting firm, performed an 

audit of the Company’s consolidated financial statements and of the effectiveness of Masco 

Corporation’s internal control over financial reporting as of December 31, 2011. Their report expressed 

an unqualified opinion on the effectiveness of Masco Corporation’s internal control over financial 

reporting as of December 31, 2011 and expressed an unqualified opinion on the Company’s 2011 

consolidated financial statements. This report appears under Item 8. Financial Statements and 

Supplementary Data under the heading Report of Independent Registered Public Accounting Firm. 

42

To the Board of Directors and Shareholders 

of Masco Corporation: 

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a) 

(1) present fairly, in all material respects, the financial position of Masco Corporation and its 

subsidiaries at December 31, 2011 and 2010, and the results of their operations and their cash flows 

for each of the three years in the period ended December 31, 2011 in conformity with accounting 

principles generally accepted in the United States of America. In addition, in our opinion, the financial 

statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material 

respects, the information set forth therein when read in conjunction with the related consolidated 

financial statements. Also in our opinion, the Company maintained, in all material respects, effective 

internal control over financial reporting as of December 31, 2011, based on criteria established in 

Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the 

Treadway Commission (COSO). The Company’s management is responsible for these financial 

statements and financial statement schedule, for maintaining effective internal control over financial 

reporting and for its assessment of the effectiveness of internal control over financial reporting, 

included in Management’s Report on Internal Control over Financial Reporting appearing under Item 8. 

Our responsibility is to express opinions on these financial statements, on the financial statement 

schedule, and on the Company’s internal control over financial reporting based on our integrated 

audits. We conducted our audits in accordance with the standards of the Public Company Accounting 

Oversight Board (United States). Those standards require that we plan and perform the audits to 

obtain reasonable assurance about whether the financial statements are free of material misstatement 

and whether effective internal control over financial reporting was maintained in all material respects. 

Our audits of the financial statements included examining, on a test basis, evidence supporting the 

amounts and disclosures in the financial statements, assessing the accounting principles used and 

significant estimates made by management, and evaluating the overall financial statement 

presentation. Our audit of internal control over financial reporting included obtaining an understanding 

of internal control over financial reporting, assessing the risk that a material weakness exists, and 

testing and evaluating the design and operating effectiveness of internal control based on the 

assessed risk. Our audits also included performing such other procedures as we considered necessary 

in the circumstances. We believe that our audits provide a reasonable basis for our opinions. 

A company’s internal control over financial reporting is a process designed to provide reasonable 

assurance regarding the reliability of financial reporting and the preparation of financial statements for 

external purposes in accordance with generally accepted accounting principles. A company’s internal 

control over financial reporting includes those policies and procedures that (i) pertain to the 

maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and 

dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are 

recorded as necessary to permit preparation of financial statements in accordance with generally 

accepted accounting principles, and that receipts and expenditures of the company are being made 

only in accordance with authorizations of management and directors of the company; and (iii) provide 

reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or 

disposition of the company’s assets that could have a material effect on the financial statements. 

Because of its inherent limitations, internal control over financial reporting may not prevent or 

detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject 

to the risk that controls may become inadequate because of changes in conditions, or that the degree 

of compliance with the policies or procedures may deteriorate. 

PricewaterhouseCoopers LLP 

Detroit, Michigan 

February 21, 2012 

43

MASCO CORPORATION and Consolidated Subsidiaries 

CONSOLIDATED BALANCE SHEETS 

at December 31, 2011 and 2010 

(In Millions, Except Share Data) 


ASSETS 

Current Assets: 

Cash and cash investments ............................................. $1,656 $1,715 

Receivables .......................................................... 914 888 

Inventories ........................................................... 769 732 

Prepaid expenses and other ............................................. 70 129 

Assets held for sale .................................................... 20 — 

Total current assets ................................................ 3,429 3,464 

Property and equipment, net .............................................. 1,567 1,737 

Goodwill ............................................................... 1,891 2,383 

Other intangible assets, net ............................................... 196 269 

Other assets ............................................................ 209 287 

Assets held for sale ...................................................... 5 — 

Total Assets ...................................................... $7,297 $8,140 

LIABILITIES and EQUITY 

Current Liabilities: 

Accounts payable ..................................................... $ 770 $ 602 

Notes payable ........................................................ 803 66 

Accrued liabilities ...................................................... 782 819 

Liabilities held for sale .................................................. 8 — 

Total current liabilities .............................................. 2,363 1,487 

Long-term debt ......................................................... 3,222 4,032 

Deferred income taxes and other ........................................... 970 1,039 

Total Liabilities .................................................... 6,555 6,558 

Commitments and contingencies 

Equity: 

Masco Corporation’s shareholders’ equity Common shares authorized: 

1,400,000,000; issued and outstanding: 2011 – 347,900,000; 2010 – 

348,600,000 .......................................................... 348 349 

Preferred shares authorized: 1,000,000; issued and outstanding: 2011 and 2010 – 

None .............................................................. — — 

Paid-in capital ......................................................... 65 42 

Retained earnings ..................................................... 38 720 

Accumulated other comprehensive income ................................. 76 273 

Total Masco Corporation’s shareholders’ equity ......................... 527 1,384 

Noncontrolling interest .................................................. 215 198 

Total Equity ....................................................... 742 1,582 

Total Liabilities and Equity ........................................... $7,297 $8,140 

See notes to consolidated financial statements. 

44


CONSOLIDATED STATEMENTS OF INCOME 

for the years ended December 31, 2011, 2010 and 2009 

(In Millions, Except Per Common Share Data) 

2011 2010 2009 

Net sales ...................................................... $7,467 $ 7,486 $7,657 

Cost of sales ................................................... 5,683 5,653 5,647 

Gross profit ............................................... 1,784 1,833 2,010 

Selling, general and administrative expenses ......................... 1,585 1,598 1,678 

Impairment charges for goodwill and other intangible assets ............ 494 698 262 

Operating (loss) profit ...................................... (295) (463) 70 

Other income (expense), net: 

Interest expense .............................................. (254) (251) (225) 

Impairment charges for financial investments ....................... — (34) (10) 

Other, net .................................................... 77 7 29 

(177) (278) (206) 

Loss from continuing operations before income taxes ............ (472) (741) (136) 

Income tax (benefit) expense ...................................... (49) 240 (44) 

Loss from continuing operations .............................. (423) (981) (92) 

Loss from discontinued operations, net .............................. (110) (21) (53) 

Net loss ................................................. (533) (1,002) (145) 

Less: Net income attributable to noncontrolling interest ................ 42 41 38 

Net loss attributable to Masco Corporation ..................... $ (575) $(1,043) $ (183) 

Loss per common share attributable to Masco Corporation: 

Basic: 

Loss from continuing operations ............................... $(1.34) $ (2.94) $ (.38) 

Loss from discontinued operations, net .......................... (.32) (.06) (.15) 

Net loss ................................................... $(1.66) $ (3.00) $ (.53) 

Diluted: 

Loss from continuing operations ............................... $(1.34) $ (2.94) $ (.38) 

Loss from discontinued operations, net .......................... (.32) (.06) (.15) 

Net loss ................................................... $(1.66) $ (3.00) $ (.53) 

Amounts attributable to Masco Corporation: 

Loss from continuing operations ............................... $ (465) $(1,022) $ (130) 

Loss from discontinued operations, net .......................... (110) (21) (53) 

Net loss ................................................. $ (575) $(1,043) $ (183) 


45


CONSOLIDATED STATEMENTS OF CASH FLOWS 


(In Millions) 

2011 2010 2009 

CASH FLOWS FROM (FOR) OPERATING ACTIVITIES: 

Net loss ..................................................... $ (533) $(1,002) $ (145) 

Depreciation and amortization ................................... 263 279 254 

Deferred income taxes ......................................... (112) 168 (83) 

Loss on disposition of businesses, net ............................ — — 40 

(Gain) on disposition of investments, net .......................... (71) (8) (2) 

Impairment charges: 

Financial investments ........................................ — 34 10 

Goodwill and other intangible assets ............................ 494 698 262 

Long-lived assets ............................................ — 67 — 

Discontinued operations ...................................... 86 23 — 

Stock-based compensation ..................................... 61 62 69 

Other items, net ............................................... 53 29 58 

(Increase) decrease in receivables ............................... (60) 80 20 

(Increase) decrease in inventories ................................ (54) 2 198 

Increase (decrease) in accounts payable and accrued liabilities, net .... 112 33 24 

Net cash from operating activities ........................... 239 465 705 

CASH FLOWS FROM (FOR) FINANCING ACTIVITIES: 

Increase in debt ............................................... 4 4 3 

Payment of debt .............................................. (9) (6) (14) 

Issuance of notes, net of issuance costs ........................... — 494 — 

Credit Agreement costs ........................................ (1) (9) — 

Retirement of notes ............................................ (58) (359) — 

Purchase of Company common stock ............................. (30) (45) (11) 

Tax benefit from stock-based compensation ....................... — 4 7 

Dividends paid to noncontrolling interest ........................... (18) (15) (16) 

Cash dividends paid ........................................... (107) (108) (166) 

Net cash for financing activities ............................ (219) (40) (197) 

CASH FLOWS FROM (FOR) INVESTING ACTIVITIES: 

Capital expenditures ........................................... (151) (137) (125) 

Acquisition of businesses, net of cash acquired ..................... (10) — (8) 

Proceeds from disposition of: 

Marketable securities ........................................ 49 22 5 

Businesses, net of cash disposed .............................. — — 8 

Property and equipment ...................................... 24 18 23 

Other financial investments, net ................................ 45 20 6 

Other, net .................................................... (18) (32) (27) 

Net cash for investing activities ............................. (61) (109) (118) 

Effect of exchange rate changes on cash and cash investments ......... (18) (14) (5) 

CASH AND CASH INVESTMENTS: 

(Decrease) increase for the year ................................. (59) 302 385 

At January 1 ................................................. 1,715 1,413 1,028 

At December 31 .............................................. $1,656 $ 1,715 $1,413 


46


CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY 


Total 

Common 

Shares 

($1 par value) 

Paid-In 

Capital 

Retained 

Earnings 

(In Millions, Except Per Share Data) 

Accumulated 

Other 

Comprehensive Noncontrolling 

Income 

Interest 

Balance, January 1, 2009 ................... $2,981 $351 $ — $ 2,162 $ 308 $160 

Net (loss) income .......................... (145) (183) 38 

Cumulative translation adjustments ............ 28 22 6 

Unrealized gain on marketable securities, net of 

income tax of $13 ........................ 22 22 

Unrecognized prior service cost and net loss, net 

of income tax benefit of $20 ................ 14 14 

Total comprehensive loss ................ (81) 

Shares issued ............................. 1 2 (1) 

Shares retired: 

Repurchased ............................ (11) (2) (9) 

Surrendered (non-cash) ................... (5) (1) (4) 

Cash dividends declared .................... (108) (108) 

Dividends paid to noncontrolling interest ........ (16) (16) 

Stock-based compensation .................. 56 56 

Balance, December 31, 2009 ................ $2,817 $350 $ 42 $ 1,871 $ 366 $188 

Net (loss) income .......................... (1,002) (1,043) 41 

Cumulative translation adjustments ............ (57) (41) (16) 


income tax of $— ........................ 1 1 


of income tax of $— ...................... (53) (53) 

Total comprehensive loss ................ (1,111) 

Shares issued ............................. — 2 (2) 


Repurchased ............................ (45) (3) (42) 

Surrendered (non-cash) ................... (6) (6) 




Balance, December 31, 2010 ................ $1,582 $349 $ 42 $ 720 $ 273 $198 

Net (loss) income .......................... (533) (575) 42 

Cumulative translation adjustments ............ (30) (23) (7) 


income tax of $— ........................ (38) (38) 

Unrealized (loss) on interest rate swaps, Net of 

income tax of $— ........................ (23) (23) 


of income tax of $5 ....................... (113) (113) 

Total comprehensive loss ................ (737) 

Shares issued ............................. — 2 (2) 


Repurchased ............................ (30) (2) (28) 

Surrendered (non-cash) ................... (8) (1) (7) 




Balance, December 31, 2011 ................ $ 742 $348 $ 65 $ 38 $ 76 $215 


47


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

A. ACCOUNTING POLICIES 

Principles of Consolidation. The consolidated financial statements include the accounts of 

Masco Corporation and all majority-owned subsidiaries. All significant intercompany transactions have 

been eliminated. The Company consolidates the assets, liabilities and results of operations of variable 

interest entities, for which the Company is the primary beneficiary. 

Use of Estimates and Assumptions in the Preparation of Financial Statements. The 

preparation of financial statements in conformity with accounting principles generally accepted in the 

United States of America requires the Company to make certain estimates and assumptions that affect 

the reported amounts of assets and liabilities and disclosure of any contingent assets and liabilities at 

the date of the financial statements and the reported amounts of revenues and expenses during the 

reporting period. Actual results may differ from these estimates and assumptions. 

Revenue Recognition. The Company recognizes revenue as title to products and risk of loss is 

transferred to customers or when services are rendered, net of applicable provisions for discounts, 

returns and allowances. The Company records revenue for unbilled services performed based upon 

estimates of material and labor incurred in the Installation and Other Services segment; such amounts 

are recorded in Receivables. Amounts billed for shipping and handling are included in net sales, while 

costs incurred for shipping and handling are included in cost of sales. 

Customer Promotion Costs. The Company records estimated reductions to revenue for 

customer programs and incentive offerings, including special pricing and co-operative advertising 

arrangements, promotions and other volume-based incentives. In-store displays that are owned by the 

Company and used to market the Company’s products are included in other assets in the consolidated 

balance sheets and are amortized using the straight-line method over the expected useful life of three 

years; related amortization expense is classified as a selling expense in the consolidated statements of 

income. 

Foreign Currency. The financial statements of the Company’s foreign subsidiaries are 

measured using the local currency as the functional currency. Assets and liabilities of these 

subsidiaries are translated at exchange rates as of the balance sheet date. Revenues and expenses 

are translated at average exchange rates in effect during the year. The resulting cumulative translation 

adjustments have been recorded in the accumulated other comprehensive income component of 

shareholders’ equity. Realized foreign currency transaction gains and losses are included in the 

consolidated statements of income in other income (expense), net. 

Cash and Cash Investments. The Company considers all highly liquid investments with an 

initial maturity of three months or less to be cash and cash investments. 

Receivables. The Company does significant business with a number of customers, including 

certain home centers and homebuilders. The Company monitors its exposure for credit losses on its 

customer receivable balances and the credit worthiness of its customers on an on-going basis and 

records related allowances for doubtful accounts. Allowances are estimated based upon specific 

customer balances, where a risk of default has been identified, and also include a provision for 

non-customer specific defaults based upon historical collection, return and write-off activity. During 

downturns in the Company’s markets, declines in the financial condition and creditworthiness of 

customers impacts the credit risk of the receivables involved and the Company has incurred additional 

bad debt expense related to customer defaults. A separate allowance is recorded for customer 

incentive rebates and is generally based upon sales activity. Receivables are presented net of certain 

allowances (including allowances for doubtful accounts) of $61 million and $65 million at December 31, 

48


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 

A. ACCOUNTING POLICIES (Continued) 

2011 and 2010, respectively. Receivables include unbilled revenue related to the Installation and Other 

Services segment of $17 million and $12 million at December 31, 2011 and 2010, respectively. 

Property and Equipment. Property and equipment, including significant betterments to existing 

facilities, are recorded at cost. Upon retirement or disposal, the cost and accumulated depreciation are 

removed from the accounts and any gain or loss is included in the consolidated statements of income. 

Maintenance and repair costs are charged against earnings as incurred. 

The Company reviews its property and equipment as an event occurs or circumstances change 

that would more likely than not reduce the fair value of the property and equipment below the carrying 

amount. If the carrying amount of property and equipment is not recoverable from its undiscounted 

cash flows, then the Company would recognize an impairment loss for the difference between the 

carrying amount and the current fair value. Further, the Company evaluates the remaining useful lives 

of property and equipment at each reporting period to determine whether events and circumstances 

warrant a revision to the remaining depreciation periods. 

Depreciation. Depreciation expense is computed principally using the straight-line method over 

the estimated useful lives of the assets. Annual depreciation rates are as follows: buildings and land 

improvements, 2 to 10 percent, and machinery and equipment, 5 to 33 percent. Depreciation expense 

was $246 million, $261 million and $237 million in 2011, 2010 and 2009, respectively. 

Goodwill and Other Intangible Assets. The Company performs its annual impairment testing 

of goodwill in the fourth quarter of each year, or as events occur or circumstances change that would 

more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company 

has defined its reporting units and completed the impairment testing of goodwill at the operating 

segment level. The Company’s operating segments are reporting units that engage in business 

activities, for which discrete financial information, including five-year forecasts, are available. The 

Company compares the fair value of the reporting units to the carrying value of the reporting units for 

goodwill impairment testing. Fair value is determined using a discounted cash flow method, which 

includes significant unobservable inputs (Level 3 inputs). 

Determining market values using a discounted cash flow method requires the Company to make 

significant estimates and assumptions, including long-term projections of cash flows, market conditions 

and appropriate discount rates. The Company’s judgments are based upon historical experience, 

current market trends, consultations with external valuation specialists and other information. In 

estimating future cash flows, the Company relies on internally generated five-year forecasts for sales 

and operating profits, including capital expenditures, and generally a one to three percent long-term 

assumed annual growth rate of cash flows for periods after the five-year forecast. The Company 

utilizes its weighted average cost of capital of approximately seven percent as the basis to determine 

the discount rate to apply to the estimated future cash flows. In recent years, due to market conditions, 

the Company increased the discount rate to a range of ten percent to 15 percent for most of its 

reporting units. The Company records an impairment to goodwill (adjusting the value to the estimated 

fair value) if the book value exceeds the estimated fair value, on a non-recurring basis. 

The Company reviews its other indefinite-lived intangible assets for impairment annually in the 

fourth quarter of each year, or as events occur or circumstances change that indicate the assets may 

be impaired without regard to the reporting unit. The Company considers the implications of both 

external (e.g., market growth, competition and local economic conditions) and internal (e.g., product 

sales and expected product growth) factors and their potential impact on cash flows related to the 

intangible asset in both the near- and long-term. 

49



A. ACCOUNTING POLICIES (Continued) 

Intangible assets with finite useful lives are amortized using the straight-line method over their 

estimated useful lives. The Company evaluates the remaining useful lives of amortizable intangible 

assets at each reporting period to determine whether events and circumstances warrant a revision to 

the remaining periods of amortization. See Note H for additional information regarding Goodwill and 

Other Intangible Assets. 

Fair Value Accounting. The Company follows accounting guidance for its financial investments 

and liabilities which defines fair value, establishes a framework for measuring fair value and prescribes 

disclosures about fair value measurements. The Company also follows this guidance for its 

non-financial investments and liabilities. 

The fair value of financial investments and liabilities is determined at each balance sheet date and 

future declines in market conditions, the future performance of the underlying investments or new 

information could affect the recorded values of the Company’s investments in marketable securities, 

private equity funds and other private investments. 

The Company uses derivative financial instruments to manage certain exposure to fluctuations in 

earnings and cash flows resulting from changes in foreign currency exchange rates, commodity costs 

and interest rate exposures. Derivative financial instruments are recorded in the consolidated balance 

sheets as either an asset or liability measured at fair value. For each derivative financial instrument 

that is designated and qualifies as a fair-value hedge, the gain or loss on the derivative instrument, as 

well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in 

determining current earnings during the period of the change in fair values. For derivative instruments 

not designated as hedging instruments, the gain or loss is recognized in determining current earnings 

during the period of the change in fair value. 

Warranty. At the time of sale, the Company accrues a warranty liability for estimated costs to 

provide products, parts or services to repair or replace products in satisfaction of warranty obligations. 

The Company’s estimate of costs to service its warranty obligations is based upon historical 

experience and expectations of future conditions. 

A majority of the Company’s business is at the consumer retail level through home centers and 

major retailers. A consumer may return a product to a retail outlet that is a warranty return. However, 

certain retail outlets do not distinguish between warranty and other types of returns when they claim a 

return deduction from the Company. The Company’s revenue recognition policy takes into account this 

type of return when recognizing revenue, and deductions are recorded at the time of sale. 

Product Liability. The Company provides for expenses associated with product liability 

obligations when such amounts are probable and can be reasonably estimated. The accruals are 

adjusted as new information develops or circumstances change that would affect the estimated liability. 

Stock-Based Compensation. The Company measures compensation expense for stock 

awards at the market price of the Company’s common stock at the grant date. Effective January 1, 

2006, such expense is being recognized ratably over the shorter of the vesting period of the stock 

awards, typically 5 to 10 years (except for stock awards held by grantees age 66 or older, which vest 

over five years), or the length of time until the grantee becomes retirement-eligible at age 65. For stock 

awards granted prior to January 1, 2006, such expense is being recognized over the vesting period of 

the stock awards, typically 10 years, or for executive grantees that are, or will become, retirementeligible 

during the vesting period, the expense is being recognized over five years or immediately upon 

a grantee’s retirement. 

50



A. ACCOUNTING POLICIES (Concluded) 

The Company measures compensation expense for stock options using a Black-Scholes option 

pricing model. Such expense is being recognized ratably over the shorter of the vesting period of the 

stock options, typically five years, or the length of time until the grantee becomes retirement-eligible at 

age 65. The Company utilizes the shortcut method to determine the tax windfall pool associated with 

stock options. 

Noncontrolling Interest. The Company owns 68 percent of Hansgrohe AG at both 

December 31, 2011 and 2010. The aggregate noncontrolling interest, net of dividends, at 

December 31, 2011 and 2010 has been recorded as a component of equity on the Company’s 

consolidated balance sheets. 

Interest and Penalties on Uncertain Tax Positions. 

penalties on its uncertain tax positions in income tax expense. 

The Company records interest and 

Reclassifications. Certain prior-year amounts have been reclassified to conform to the 2011 

presentation in the consolidated financial statements. In the Company’s consolidated statements of 

cash flows, the cash flows from discontinued operations are not separately classified. 

Recently Issued Accounting Pronouncements. Effective January 1, 2011, the Company 

adopted new accounting guidance which addresses how to determine whether a sales arrangement 

involves multiple deliverables or contains more than one unit of accounting, and how the sales 

arrangement consideration should be allocated among the separate units of accounting. The Company 

evaluated this new guidance and the adoption did not have an impact on the Company’s financial 

position or its results of operations. 

In June 2011, new accounting guidance was issued regarding the presentation and disclosure of 

comprehensive income. The new guidance will require presentation of other comprehensive income 

items in the Company’s consolidated statement of income; such items will no longer be included in the 

statement of shareholders’ equity. The new guidance will be effective for the Company January 1, 

2012. The new guidance will also require additional disclosure for reclassification of items from other 

comprehensive income to the Company’s statement of income; however, this requirement has been 

delayed. The Company does not expect this guidance to have a material impact on the Company’s 

financial condition or its results of operations. 

In September 2011, new accounting guidance was issued regarding impairment testing of 

goodwill. The new guidance would allow the Company to make a qualitative determination regarding 

potential goodwill impairment before performing the quantitative impairment test. The new guidance 

will be effective for the Company January 1, 2012. The Company does not currently anticipate utilizing 

the qualitative provisions of the new guidance. 

B. DISCONTINUED OPERATIONS 

The presentation of discontinued operations includes components of the Company that the 

Company intends to sell, which comprises operations and cash flows that can be clearly distinguished 

from the rest of the Company. The Company has accounted for the business units identified in 2011 

and those which were sold in 2009 as discontinued operations. 

During 2011, the Company determined that several businesses in the Installation and Other 

Services segment were not core to the Company’s long-term growth strategy. These businesses 

provide commercial drywall installation, millwork and framing services; accordingly, the Company has 

embarked on a plan of sale for these businesses. 

51



B. DISCONTINUED OPERATIONS (Concluded) 

During 2009, the Company sold several business units that were not core to the Company’s longterm 

growth strategy. 

Losses from these 2011 and 2009 discontinued operations were included in loss from 

discontinued operations, net, in the consolidated statements of income. 

Selected financial information for the discontinued operations during the period owned by the 

Company, were as follows, in millions: 

2011 2010 2009 

Net sales ........................................................... $ 93 $106 $201 

Loss from discontinued operations ...................................... $ (22) $ (13) $ (25) 

Impairment of assets held for sale ...................................... (86) (23) — 

Loss on disposal of discontinued operations, net .......................... (3) — (40) 

Loss before income tax ............................................. (111) (36) (65) 

Income tax benefit ................................................... 1 15 12 

Loss from discontinued operations, net ................................ $(110) $ (21) $ (53) 

Included in loss on disposal of discontinued operations, net in 2011 is the impairment of indefinite 

and definite-lived intangible assets of $56 million, the impairment of goodwill of $13 million and the 

impairment of fixed and other assets of $17 million. Also included in the loss on disposal of 

discontinued operations, net in 2011 is $3 million expense reflecting the adjustment of certain assets 

related to businesses disposed in prior years. 

Included in income tax benefit was $6 million related to (loss) from discontinued operations in 

2009. 

The income tax benefit recorded in 2010 relates primarily to the allocation of an income tax benefit 

to impairment charges on goodwill and other indefinite-lived intangible assets of certain discontinued 

operations. 

The unusual relationship between income taxes and (loss) before income taxes in 2011 and 2009 

resulted primarily from certain losses providing no current tax benefit. 

Also during 2011, the Company decided to exit a product line in builders’ hardware in the 

Decorative Architectural Products segment with net sales of $1 million and an operating loss of $15 

million in 2011 (including $8 million to write-down inventory related to satisfaction of contractual 

obligations); this business will be included in continuing operations through the date of disposal. 

C. ACQUISITIONS 

In late 2011, the Company acquired a small manufacturer of hot tubs in the Plumbing Products 

segment; this business allows the Company to expand its spa offering into additional price point 

categories. During 2009, the Company acquired a small business in the Plumbing Products segment; 

this business allows the Company to expand into a developing market and had annual sales of $11 

million. 

The results of all acquisitions are included in the consolidated financial statements from the 

respective dates of acquisition. 

52



C. ACQUISITIONS (Concluded) 

The total net cash purchase price of these acquisitions was $10 million and $6 million, 

respectively, in 2011 and 2009. 

Certain purchase agreements provided for the payment of additional consideration in cash, 

contingent upon whether certain conditions are met, including the operating performance of the 

acquired business. At December 31, 2011 and 2010, there was no outstanding contingent 

consideration. 

D. INVENTORIES 

(In Millions) 

At December 31 


Finished goods ........................................... $390 $393 

Raw material ............................................. 280 246 

Work in process .......................................... 99 93 

Total .................................................. $769 $732 

Inventories, which include purchased parts, materials, direct labor and applied manufacturing 

overhead, are stated at the lower of cost or net realizable value, with cost determined by use of the 

first-in, first-out method. 

E. FAIR VALUE OF FINANCIAL INVESTMENTS AND LIABILITIES 

Accounting Policy. The Company follows accounting guidance that defines fair value, 

establishes a framework for measuring fair value and prescribes disclosures about fair value 

measurements for its financial investments and liabilities. The guidance defines fair value as “the price 

that would be received to sell an asset or paid to transfer a liability in an orderly transaction between 

market participants at the measurement date.” Further, it defines a fair value hierarchy, as follows: 

Level 1 inputs as quoted prices in active markets for identical assets or liabilities; Level 2 inputs as 

observable inputs other than Level 1 prices, such as quoted market prices for similar assets or 

liabilities or other inputs that are observable or can be corroborated by market data; and Level 3 inputs 

as unobservable inputs that are supported by little or no market activity and that are financial 

instruments whose value is determined using pricing models or instruments for which the determination 

of fair value requires significant management judgment or estimation. 

Financial investments that are available to be traded on readily accessible stock exchanges 

(domestic or foreign) are considered to have active markets and have been valued using Level 1 

inputs. Financial investments that are not available to be traded on a public market or have limited 

secondary markets, or contain provisions that limit the ability to sell the investment are considered to 

have inactive markets and have been valued using Level 2 or 3 inputs. The Company incorporated 

credit risk into the valuations of financial investments by estimating the likelihood of non-performance 

by the counterparty to the applicable transactions. The estimate included the length of time relative to 

the contract, financial condition of the counterparty and current market conditions. The criteria for 

determining if a market was active or inactive were based on the individual facts and circumstances. 

Financial Investments. The Company has maintained investments in available-for-sale 

securities and a number of private equity funds and other private investments, principally as part of its 

tax planning strategies, as any gains enhance the utilization of any current and future tax capital 

losses. 

53



E. FAIR VALUE OF FINANCIAL INVESTMENTS AND LIABILITIES (Continued) 

Financial investments included in other assets were as follows, in millions: 



Auction rate securities ...................................... $ 22 $ 22 

TriMas Corporation common stock ............................ — 40 

Total recurring investments ................................ 22 62 

Private equity funds ........................................ 86 106 

Other investments ......................................... 4 6 

Total non-recurring investments ............................ 90 112 

Total ................................................ $112 $174 

The Company’s investments in available-for-sale securities at December 31, 2011 and 2010 were 

as follows, in millions: 

Cost Basis 

Unrealized 

Gains 

Pre-tax 

Unrealized 

Losses 

Recorded 

Basis 

December 31, 2011 ..... $19 $ 3 $— $22 

December 31, 2010 ..... $22 $40 $— $62 

The Company’s investments in private equity funds and other private investments are carried at 

cost. At December 31, 2011, the Company has investments in 17 venture capital funds, with an 

aggregate carrying value of $17 million. The venture capital funds invest in start-up or smaller, earlystage 

established businesses, principally in the information technology, bio-technology and health care 

sectors. At December 31, 2011, the Company also has investments in 22 buyout funds, with an 

aggregate carrying value of $69 million. The buyout funds invest in later-stage, established businesses 

and no buyout fund has a concentration in a particular sector. 

Recurring Fair Value Measurements. For financial investments measured at fair value on a 

recurring basis at each reporting period, the unrealized gains or losses (that are deemed to be 

temporary) are recognized, net of tax effect, through shareholders’ equity, as a component of other 

comprehensive income. Realized gains and losses and charges for other-than-temporary impairments 

are included in determining net income, with related purchase costs based upon specific identification. 

For marketable securities, the Company reviews, on a recurring basis, industry analyst reports, 

key ratios and statistics, market analyses and other factors for each investment to determine if an 

unrealized loss is other-than-temporary. 

In the past, the Company invested excess cash in auction rate securities. Auction rate securities 

are investment securities that have interest rates which are reset every 7, 28 or 35 days. The fair 

values 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 and assumptions for credit 

defaults, since the auction rate securities are backed by credit default swap agreements. 

54




During 2010, 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. 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. During the last six months of 2010, 

the Company converted all its holdings of Asahi Tec preferred stock into common stock which was 

sold, in its entirety, in open market transactions. The Company realized cash proceeds of $11 million 

and realized losses aggregating $8 million in 2010. As a result of the disposition of the Asahi Tec 

common stock, the Company received a tax refund of $16 million in 2011 relating to the utilization of a 

loss carryback to offset taxes paid on prior capital gains. 

During 2011 and 2010, the Company sold 1,974,000 shares and 481,000 shares, respectively, of 

its investment in TriMas common stock for cash of $43 million and $10 million, respectively; at 

December 31, 2011, the Company does not own any shares of TriMas common stock. 

Non-Recurring Fair Value Measurements. It is not practicable for the Company to estimate a 

fair value for private equity funds and other private investments because there are no quoted market 

prices, and sufficient information is not readily available for the Company to utilize a valuation model to 

determine the fair value for each fund. These investments are evaluated, on a non-recurring basis, for 

potential other-than-temporary impairment when impairment indicators are present, or when an event 

or change in circumstances has occurred, that may have a significant adverse effect on the fair value 

of the investment. 

Impairment indicators the Company considers include the following: whether there has been a 

significant deterioration in earnings performance, asset quality or business prospects; a significant 

adverse change in the regulatory, economic or technological environment; a significant adverse 

change in the general market condition or geographic area in which the investment operates; industry 

and sector performance; current equity and credit market conditions; and any bona fide offers to 

purchase the investment for less than the carrying value. The Company also considers specific 

adverse conditions related to the financial health of and business outlook for the fund, including 

industry and sector performance. The significant assumptions utilized in analyzing a fund for potential 

other-than-temporary impairment include current economic conditions, market analysis for specific 

funds and performance indicators in the residential and commercial construction, bio-technology, 

health care and information technology sectors in which the applicable funds’ investments operate. 

Since there is no active trading market for these investments, they are for the most part illiquid. These 

investments, by their nature, can also have a relatively higher degree of business risk, including 

financial leverage, than other financial investments. Future changes in market conditions, the future 

performance of the underlying investments or new information provided by private equity fund 

managers could affect the recorded values of such investments and the amounts realized upon 

liquidation. Due to the significant unobservable inputs, the fair value measurements used to evaluate 

impairment are a Level 3 input. 

55




Recurring Fair Value Measurements. Financial investments 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: 

Dec. 31, 


Quoted 

Market 

Prices 

(Level 1) 

Fair Value Measurements Using 

Significant 

Other 

Observable 

Inputs 

(Level 2) 

Significant 

Unobservable 

Inputs 

(Level 3) 

Auction rate securities .................. $22 $— $— $22 

Total ............................... $22 $— $— $22 

Dec. 31, 

2010 

Quoted 

Market 

Prices 

(Level 1) 


Significant 

Other 

Observable 

Inputs 

(Level 2) 

Significant 

Unobservable 

Inputs 

(Level 3) 

TriMas Corporation ..................... $40 $40 $— $— 

Auction rate securities .................. 22 — — 22 

Total ............................... $62 $40 $— $22 

The following table summarizes the changes in Level 3 financial investments measured at fair 

value on a recurring basis for the years ended December 31, 2011 and 2010, in millions: 

Auction Rate 

Securities 

Fair value January 1, 2011 ............................................ $22 

Total losses included in earnings ..................................... 

Unrealized losses ................................................. — 

Purchases, issuances, settlements ................................... — 

Transfers from Level 3 to Level 2 .................................... — 

Fair value at December 31, 2011 ...................................... $22 

Asahi Tec 

Preferred Stock 

Auction Rate 

Securities 

Fair value January 1, 2010 ....................... $71 $22 $93 

Total losses included in earnings ................ (28) — (28) 

Unrealized losses ............................ (23) — (23) 

Purchases, issuances, settlements .............. — — — 

Transfers from Level 3 to Level 2 ................ (20) — (20) 

Fair value at December 31, 2010 .................. $ — $22 $22 

Total 

56




Non-Recurring Fair Value Measurements. During 2011, there were not any financial 

investments measured on a non-recurring basis. Financial investments measured at fair value on a 

non-recurring basis during 2010 and the amounts for each level within the fair value hierarchy were as 

follows, in millions: 

Dec. 31, 

2010 

Quoted 

Market 

Prices 

(Level 1) 


Significant 

Other 

Observable 

Unobservable 

Inputs 

(Level 2) 

Significant 

Total 

Inputs 

(Level 3) 

Gains 

(Losses) 

Private equity funds ............ $ 2 $— $— $ 2 $(4) 

Other private investments ....... — — — — (2) 

$ 2 $— $— $ 2 $(6) 

None of the Company’s investments in private equity funds, for which fair value was determined, 

had unrealized losses in 2011 or 2010. 

The remaining private equity investments in 2010 with an aggregate carrying value of $104 million, 

were not reviewed 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 

investment. 

Realized Gains (Losses) and Impairment Charges. The Company did not have any transfers 

between Level 1 and Level 2 financial assets in 2011 or 2010. During 2010, based on information from 

the fund manager, the Company determined that the decline in the estimated value of three private 

equity funds (with an aggregate carrying value of $6 million prior to impairment) was other-thantemporary 

and, accordingly, recognized non-cash, pre-tax impairment charges of $4 million. During 

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. 

During 2009, the Company determined that the decline in the estimated value of five private equity 

funds, with an aggregate carrying value of $41 million prior to impairment, was other-than-temporary. 

Accordingly, for the year ended December 31, 2009, the Company recognized non-cash, pre-tax 

impairment charges of $10 million. 

57



E. FAIR VALUE OF FINANCIAL INVESTMENTS AND LIABILITIES (Concluded) 

Income from financial investments, net, included in other, net, within other income (expense), net, 

and impairment charges for financial investments were as follows, in millions: 

2011 2010 2009 

Realized gains from marketable securities ........................ $41 $10 $ — 

Realized losses from marketable securities ....................... — (8) — 

Dividend income from marketable securities ...................... — — — 

Income from other investments, net ............................. 32 7 3 

Dividend income from other investments ......................... — — — 

Income from financial investments, net ....................... $73 $ 9 $ 3 

Impairment charges: 

Asahi Tec ................................................ $— $(28) $ — 

Private equity funds ........................................ — (4) (10) 

Other private investments ................................... — (2) — 

TriMas Corporation ......................................... — — — 

Marketable securities ....................................... — — — 

Total impairment charges .................................. $— $(34) $(10) 

The impairment charges related to the Company’s financial investments recognized during 2010 

and 2009 were based upon then-current estimates for the fair value of certain financial investments; 

such estimates could change in the near-term based upon future events and circumstances. 

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 December 31, 2011 was approximately $4.0 billion, compared with 

the aggregate carrying value of $4.0 billion. The aggregate estimated market value of short-term and 

long-term debt at December 31, 2010 was approximately $4.2 billion, compared with the aggregate 

carrying value of $4.1 billion. 

F. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES 

The Company is exposed to global market risk as part of its normal daily business activities. To 

manage these risks, the Company enters into various derivative contracts. These contracts include 

interest rate swap agreements, foreign currency exchange contracts and contracts intended to hedge 

the Company’s exposure to copper and zinc. The Company reviews its hedging program, derivative 

positions and overall risk management on a regular basis. 

Interest Rate Swap Agreements. In August of 2011, the Company entered into new interest 

rate swap agreements to hedge the volatility in interest payments associated with an expected debt 

issuance in 2012. These interest rate swaps are designed as cash flow hedges and effectively fix 

interest rates on the forecasted debt issuance to variable rates based on 3-month LIBOR. The average 

fixed rate on the interest rate swaps is 2.8%. At December 31, 2011, the interest rate swap 

agreements covered a notional amount of $400 million, which the Company expects to issue in 

connection with the maturity of the Company’s $791 million 5.875% fixed-rate debt due July 15, 2012. 

At December 31, 2011, the interest rate swaps are considered 100 percent effective; therefore, the 

market valuation of $23 million is recorded in other comprehensive income in the Company’s statement 

of shareholders’ equity with a corresponding increase to accrued other in the Company’s condensed 

consolidated balance sheet at December 31, 2011. 

58



F. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Continued) 

In 2011, 2010 and 2009, the Company recognized a decrease in interest expense of $10 million, 

$11 million and $10 million, respectively, related to the amortization of gains resulting from the 

terminations (in 2008 and 2004) of two interest rate swap agreements. 

Foreign Currency Contracts. The Company’s net cash inflows and outflows exposed to the risk 

of changes in foreign currency exchange rates arise from the sale of products in countries other than 

the manufacturing source, foreign currency denominated supplier payments, debt and other payables, 

and investments in subsidiaries. To mitigate this risk during 2011 and 2010, the Company, including 

certain European operations, entered into foreign currency forward contracts and foreign currency 

exchange contracts. 

Gains (losses) related to foreign currency forward and exchange contracts are recorded in the 

Company’s consolidated statements of income in other income (expense), net. In the event that the 

counterparties fail to meet the terms of the foreign currency forward contracts, the Company’s 

exposure is limited to the aggregate foreign currency rate differential with such institutions. 

Metals Contracts. During 2011 and 2010, the Company entered into several contracts to 

manage its exposure to increases in the price of copper and zinc. Gains (losses) related to these 

contracts are recorded in the Company’s consolidated statements of income in cost of goods sold. 

The pre-tax (loss) gain included in the Company’s consolidated statements of income is as 

follows, in millions: 

Twelve Months Ended December 31, 

2011 2010 2009 

Foreign Currency Contracts 

Exchange Contracts .............................. $ 3 $ 3 $(12) 

Forward Contracts ................................ 3 (2) (3) 

Metal Contracts .................................... (7) 7 — 

Total (loss) gain .................................. $ (1) $ 8 $(15) 

59



F. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Concluded) 

The Company presents its net derivatives due to the right of offset by its counterparties under 

master netting arrangements in current assets or accrued liabilities in the consolidated balance sheet. 

The notional amounts being hedged and the fair value of those derivative instruments, on a gross 

basis, is as follows, in millions: 

At December 31, 2011 

Notional 

Amount Assets Liabilities 

Foreign exchange contracts 

Exchange Contracts ................................. $108 

Current assets .................................... $ 8 $— 

Foreign Forward Contracts ........................... 76 

Current assets .................................... 1 — 

Current liabilities .................................. 1 2 

Metal Contracts ...................................... 67 

Current assets .................................... 2 — 

Current liabilities .................................. — 4 

Total ............................................ $251 $12 $ 6 

At December 31, 2010 

Notional 

Amount Assets Liabilities 

Foreign exchange contracts 

Exchange Contracts ................................. $ 94 

Current assets .................................... $— $ 4 

Foreign Contracts ................................... 47 

Current liabilities .................................. — 3 

Metal Contracts ...................................... 22 

Current assets .................................... 8 1 

Total ............................................ $163 $ 8 $ 8 

The fair value of all metal and foreign currency derivative contracts is estimated on a recurring 

basis, quarterly, using Level 2 inputs (significant other observable inputs). 

60



G. PROPERTY AND EQUIPMENT 

(In Millions) 



Land and improvements ......................... $ 183 $ 190 

Buildings ...................................... 1,004 1,030 

Machinery and equipment ........................ 2,159 2,419 

3,346 3,639 

Less: Accumulated depreciation ................... 1,779 1,902 

Total ........................................ $1,567 $1,737 

The Company leases certain equipment and plant facilities under noncancellable operating leases. 

Rental expense recorded in the consolidated statements of income totaled approximately $103 million, 

$111 million and $135 million during 2011, 2010 and 2009, respectively. Future minimum lease 

payments at December 31, 2011 were approximately as follows: 2012 – $68 million; 2013 – $47 

million; 2014 – $32 million; 2015 – $21 million; and 2016 and beyond – $95 million. 

The Company leases operating facilities from certain related parties, primarily former owners (and 

in certain cases, current management personnel) of companies acquired. The Company recorded 

rental expense to such related parties of approximately $5 million, $6 million and $8 million in 2011, 

2010 and 2009, respectively. 

As a result of its business rationalization activities over the last several years, at December 31, 

2011 and 2010, the Company is holding several facilities for sale, within the Cabinets and Related 

Products segment and the Other Specialty Products segment. At December 31, 2011, the net book 

value of those facilities is approximately $49 million and approximates fair value. Fair value was 

estimated using a market approach, considering the estimated fair values for the other comparable 

buildings in the areas where the facilities are located, Level 3 inputs. 

61



H. GOODWILL AND OTHER INTANGIBLE ASSETS 

The changes in the carrying amount of goodwill for 2011 and 2010, by segment, were as follows, 

in millions: 

Gross Goodwill 

At December 31, 


Accumulated 

Impairment 

Losses 

Net Goodwill 



Cabinets and Related Products ..................... $ 589 $ (408) $ 181 

Plumbing Products ................................ 541 (340) 201 

Installation and Other Services ...................... 1,806 (762) 1,044 

Decorative Architectural Products ................... 294 (75) 219 

Other Specialty Products ........................... 980 (734) 246 

Total ......................................... $4,210 $2,319 $1,891 

Gross 

Goodwill At 

December 31, 

2010 

Accumulated 

Impairment 

Losses 

Net Goodwill 

At 

December 31, 

2010 Additions(A) Operations(B) 

Discontinued 

Pre-tax 

Impairment 

Charge 

Other(C) 

Net Goodwill 

At 

December 31, 


Cabinets and Related 

Products ............... $ 587 $ (364) $ 223 $— $ — $ (44) $ 2 $ 181 

Plumbing Products ........ 536 (340) 196 9 — — (4) 201 

Installation and Other 

Services ............... 1,819 (762) 1,057 — (13) — — 1,044 

Decorative Architectural 

Products ............... 294 — 294 — — (75) — 219 

Other Specialty Products . . . 980 (367) 613 — — (367) — 246 

Total .................. $4,216 $(1,833) $2,383 $ 9 $(13) $(486) $(2) $1,891 

Gross 

Goodwill At 

December 31, 

2009 

Accumulated 

Impairment 

Losses 

Net Goodwill 

At 

December 31, 

2009 Additions(A) Operations(B) 

Discontinued 

Pre-tax 

Impairment 

Charge 

Other(C) 

Net Goodwill 

At 

December 31, 

2010 


Products ............... $ 590 $ (364) $ 226 $— $ — $ — $ (3) $ 223 

Plumbing Products ........ 547 (340) 207 — — — (11) 196 


Services ............... 1,819 (51) 1,768 — (14) (697) — 1,057 


Products ............... 294 — 294 — — — — 294 

Other Specialty Products . . . 980 (367) 613 — — — — 613 

Total .................. $4,230 $(1,122) $3,108 $— $(14) $(697) $(14) $2,383 

(A) Additions include acquisitions. 

(B) During 2011, the Company reclassified the goodwill related to the business units held for sale. 

Subsequent to the reclassification, the Company recognized a charge for those business units 

expected to be divested at a loss; the charge included a write-down of goodwill of $13 million. In 

2010, the Company recognized pre-tax impairment charges of $711 million related to the 

Installation and Other Services segment; during 2011, the Company allocated $14 million of the 

pre-tax impairment charge to the discontinued operations. 

(C) Other principally includes the effect of foreign currency translation and purchase price adjustments 

related to prior-year acquisitions. 

62



H. GOODWILL AND OTHER INTANGIBLE ASSETS (Concluded) 

In the fourth quarters of 2011 and 2010, the Company completed its annual impairment testing of 

goodwill and other indefinite-lived intangible assets. During the third quarter of 2011, the Company 

assessed the goodwill related to the Installation and Other Services segment and determined no 

impairment was necessary at September 30, 2011. 

The impairment tests in 2011 and 2010 indicated that goodwill recorded for certain of the 

Company’s reporting units was impaired. The Company recognized the non-cash, pre-tax impairment 

charges, in continuing operations, for goodwill of $486 million ($330 million, after tax) and $697 million 

($586 million, after tax) for 2011 and 2010, respectively. In 2011, the pre-tax impairment charge in the 

Cabinets and Related Products segment relates to the European ready-to-assemble cabinet 

manufacturer and reflects the declining demand for certain products, as well as decreased operating 

margins. The pre-tax impairment charge in the Decorative Architectural Products segment relates to 

the builders’ hardware business and reflects increasing competitive conditions for that business. The 

pre-tax impairment charge in the Other Specialty Products segment relates to the North American 

window and door business and reflects the continuing weak level of new home construction activity in 

the western U.S., the reduced levels of repair and remodel activity and the expectation that recovery in 

these segments will be modestly slower than anticipated. In 2010, the pre-tax impairment charge in the 

Installation and Other Services segment reflects the Company’s expectation that the recovery in the 

new home construction market will be modestly slower than previously anticipated. The Company then 

assessed the long-lived assets associated with these business units and determined no impairment 

was necessary at December 31, 2011. 

Other indefinite-lived intangible assets were $174 million and $185 million at December 31, 2011 

and 2010, respectively, and principally included registered trademarks. In 2011, the impairment test 

indicated that the registered trademark for a North American business unit in the Other Specialty 

Products segment and the registered trademark for a North American business unit in the Plumbing 

Products segment were impaired due to changes in the long-term outlook for the business units. The 

Company recognized non-cash, pre-tax impairment charges for other indefinite-lived intangible assets 

of $8 million ($5 million, after tax) in 2011. In 2010, the Company recognized non-cash, pre-tax 

impairment charges for other indefinite-lived intangible assets of $10 million ($6 million after tax) 

related to the Installation and Other Services segment ($9 million pre-tax) and the Plumbing Products 

segment ($1 million pre-tax). During 2011, the Company allocated $9 million of the pre-tax impairment 

charge from the Installation and Other Services segment to discontinued operations. 

The carrying value of the Company’s definite-lived intangible assets was $22 million at 

December 31, 2011 (net of accumulated amortization of $54 million) and $84 million at December 31, 

2010 (net of accumulated amortization of $75 million) and principally included customer relationships 

and non-compete agreements, with a weighted average amortization period of 15 years in both 2011 

and 2010. The change in definite-lived intangible assets is due to the classification of such assets 

related to business units held for sale. Subsequent to the classification, the Company recognized a 

charge for those business units expected to be divested at a loss; the charge included a write-down of 

$56 million for indefinite and definite-lived intangible assets. Amortization expense related to the 

definite-lived intangible assets of continuing operations was $6 million in each of 2011, 2010 and 2009. 

At December 31, 2011, amortization expense related to the definite-lived intangible assets during 

each of the next five years was as follows: 2012 – $6 million; 2013 – $4 million; 2014 – $4 million; 2015 

– $2 million; and 2016 – $2 million. 

63



I. OTHER ASSETS 

(In Millions) 



Financial investments (Note E) ....................... $112 $174 

In-store displays, net ............................... 34 43 

Debenture expense ................................ 28 34 

Notes receivable ................................... 1 2 

Other ............................................ 34 34 

Total ........................................... $209 $287 

In-store displays are amortized using the straight-line method over the expected useful life of three 

years; the Company recognized amortization expense related to in-store displays of $24 million, $33 

million and $44 million in 2011, 2010 and 2009, respectively. Cash spent for displays was $17 million, 

$32 million and $26 million in 2011, 2010 and 2009, respectively. 

J. ACCRUED LIABILITIES 

(In Millions) 



Insurance ......................................... $163 $176 

Salaries, wages and commissions .................... 144 177 

Warranty (Note S) .................................. 102 107 

Advertising and sales promotion ...................... 83 90 

Interest ........................................... 78 78 

Employee retirement plans .......................... 32 43 

Property, payroll and other taxes ...................... 28 32 

Derivative instruments (Note F) ....................... 27 — 

Dividends payable ................................. 27 27 

Litigation ......................................... 14 5 

Plant closures ..................................... 3 4 

.Other ............................................ 81 80 

Total ........................................... $782 $819 

64



K. DEBT 

(In Millions) 



Notes and debentures: 

5.875%, due July 15, 2012 ..................... $ 791 $ 791 

7.125%, due Aug. 15, 2013 ..................... 200 200 

4.8%, due June 15, 2015 ....................... 500 500 

6.125%, due Oct. 3, 2016 ...................... 1,000 1,000 

5.85%, due Mar. 15, 2017 ...................... 300 300 

6.625%, due Apr. 15, 2018 ..................... 114 114 

7.125%, due Mar. 15, 2020 ..................... 500 500 

7.75%, due Aug. 1, 2029 ....................... 296 296 

6.5%, due Aug. 15, 2032 ....................... 300 300 

Zero Coupon Convertible Senior Notes due 2031 

(accreted value) ............................ — 57 

Other ......................................... 24 40 

4,025 4,098 

Less: Current portion ............................ 803 66 

Total Long-term debt .......................... $3,222 $4,032 

All of the notes and debentures above are senior indebtedness and, other than the 6.625% notes 

due 2018 and the 7.75% notes due 2029, are redeemable at the Company’s option. 

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. 

The Company retired $300 million of floating rate notes on March 12, 2010, the scheduled maturity 

date. 

During 2010, the Company repurchased $59 million of 5.875% Notes due July 2012, in openmarket 

transactions. The Company paid a premium of $2 million over par value on the purchase of the 

notes; this cost was included in interest expense. 

In July 2001, the Company issued $1.9 billion principal amount at maturity of Zero Coupon 

Convertible Senior Notes due 2031 (“Old Notes”), resulting in gross proceeds of $750 million. 

During 2011, holders of $108.1 million principal amount at maturity with an accreted value of $58.1 

million of Notes required the Company to repurchase the Notes for cash of $57.9 million; the remaining 

Notes were retired. At December 31, 2011, no principal amount at maturity of Zero Coupon Convertible 

Senior Notes due 2031 (“Notes”) was outstanding. 

On June 21, 2010, the Company entered into a Credit Agreement (the “Credit Agreement”) 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, was 

terminated at that time. On February 11, 2011, the Company entered into an amendment (deemed to 

be effective and applicable as of December 31, 2010) of the Credit Agreement with its bank group (the 

“Amendment”). The Amendment provided for the add-back to shareholders’ equity in the Company’s 

65



K. DEBT (Continued) 

debt to capitalization covenant of (i) certain non-cash charges (including impairment charges for 

financial investments and goodwill and other intangible assets) and (ii) changes to the valuation 

allowance on the Company’s deferred tax assets included in income tax expense, each taken in 2010, 

which aggregate $986 million after tax. The Amendment also permitted the Company to add-back, if 

incurred, up to $350 million in the aggregate of future non-cash charges beginning January 1, 2011. 

The 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 December 31, 

2011, the Company had $92 million of outstanding and unused Letters of Credit, reducing the 

Company’s borrowing capacity by such amount. 

The Credit Agreement contains financial covenants requiring the Company to maintain (A) a 

maximum debt to total adjusted capitalization ratio of 65 percent, and (B) a minimum adjusted 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. 

Revolving credit loans bear interest under the 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. 

Based on the limitations of the debt to total capitalization covenant (before the amendment 

discussed below), at December 31, 2011, the Company had additional borrowing capacity, subject to 

availability, of up to $178 million. Alternatively, at December 31, 2011, the Company could absorb a 

reduction to shareholders’ equity of approximately $96 million, and remain in compliance with the debt 

to total capitalization covenant. 

In order to borrow under the 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). 

At December 31, 2011 and 2010, the Company was in compliance with the requirements of the 

New Credit Agreement and the Amended Five-Year Revolving Credit Agreement, as applicable. 

There were no borrowings under the Credit Agreement and the Amended Five-Year Revolving 

Credit Agreement at December 31, 2011 and 2010, as applicable. 

At December 31, 2011, the maturities of long-term debt during each of the next five years were as 

follows: 2012 – $803 million; 2013 – $201 million; 2014 – $1 million; 2015 – $501 million; and 2016 – 

$1 billion. 

66



K. DEBT (Concluded) 

Interest paid was $254 million, $241 million and $226 million in 2011, 2010 and 2009, respectively. 

Subsequent Events. In January 2012, the Company repurchased $46 million of 5.875% Notes 

due July 2012 in open-market transactions. The Company paid a premium of approximately $1 million 

on the purchase of the Notes. 

On February 13, 2012, the Company entered into an amendment (deemed to be effective and 

applicable as of December 31, 2011) of the Credit Agreement (the “Second Amendment”). The Second 

Amendment provides for the add-back to shareholders’ equity in the Company’s debt to capitalization 

covenant of (i) certain non-cash charges (including impairment charges for financial investments and 

goodwill and other intangible assets) and (ii) changes to the valuation allowance on the Company’s 

deferred tax assets included in income tax expense, each taken in 2010 and 2011, which aggregate 

$1.6 billion after tax. The Second Amendment also permits the Company to add-back, if incurred, up to 

$250 million in the aggregate of future non-cash charges subsequent to December 31, 2011. The 

Second Amendment also revised the permitted ratio of consolidated EBITDA to consolidated interest 

expense to 2.25 to 1.00 through December 31, 2012, increasing to 2.50 to 1.00 with respect to each 

quarter thereafter. 

Taking the Second Amendment into account, at December 31, 2011, the Company had additional 

borrowing capacity, subject to availability, of up to $630 million. Alternatively, at December 31, 2011, 

the Company could absorb a reduction to shareholders’ equity of approximately $340 million, and 

remain in compliance with the debt to total capitalization covenant. 

L. STOCK-BASED COMPENSATION 

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 December 31, 2011, 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 (income) and the income tax benefit related to these stock-based 

incentives were as follows, in millions: 

2011 2010 2009 

Long-term stock awards ....................................... $39 $37 $37 

Stock options ................................................ 21 22 25 

Phantom stock awards and stock appreciation rights ................ 1 3 7 

Total ..................................................... $61 $62 $69 

Income tax benefit (before valuation allowance) .................... $23 $23 $26 

In 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. 

At December 31, 2011, a total of 8,318,400 shares of Company common stock were available 

under the 2005 Plan for the granting of stock options and other long-term stock incentive awards. 

67



L. STOCK-BASED COMPENSATION (Continued) 

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. 

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

2011 2010 2009 

Unvested stock award shares at January 1 ........................ 10 9 8 

Weighted average grant date fair value ......................... $19 $21 $26 

Stock award shares granted .................................. 2 3 2 

Weighted average grant date fair value ......................... $13 $14 $ 8 

Stock award shares vested ................................... 2 2 1 


Stock award shares forfeited .................................. — — — 


Unvested stock award shares at December 31 ..................... 10 10 9 


At December 31, 2011, 2010 and 2009, there was $107 million, $127 million and $126 million, 

respectively, of unrecognized compensation expense related to unvested stock awards; such awards 

had a weighted average remaining vesting period of four years for 2011 and five years for 2010 and 

2009. 

The total market value (at the vesting date) of stock award shares which vested during 2011, 2010 

and 2009 was $28 million, $22 million and $16 million, respectively. 

Stock Options. Stock options are granted to key employees of the Company. The exercise price 

equals the market price of the Company’s common stock at the grant date. These options generally 

become exercisable (vest ratably) over five years beginning on the first anniversary from the date of 

grant and expire no later than 10 years after the grant date. The 2005 Plan does not permit the 

granting of restoration stock options, except for restoration options resulting from options previously 

granted under the 1991 Plan. Restoration stock options become exercisable six months from the date 

of grant. 

The Company granted 2,412,500 of stock option shares, including restoration stock option shares, 

during 2011 with a grant date exercise price range of $9 to $13 per share. During 2011, 3,032,900 

stock option shares were forfeited (including options that expired unexercised). 

68



L. STOCK-BASED COMPENSATION (Continued) 

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

2011 2010 2009 

Option shares outstanding, January 1 ............... 37 36 31 

Weighted average exercise price ................. $ 21 $ 23 $ 25 

Option shares granted, including restoration options . . . 2 5 6 


Option shares exercised .......................... — — — 

Aggregate intrinsic value on date of exercise (A) .... $ 1million $ 1 million $ — million 

Weighted average exercise price ................. $ 8 $ 8 $ — 

Option shares forfeited ........................... 3 4 1 


Option shares outstanding, December 31 ............ 36 37 36 


Weighted average remaining option term (in 

years) ..................................... 5 6 6 

Option shares vested and expected to vest, 

December 31 ................................. 36 37 36 


Aggregate intrinsic value (A) .................... $12million $23 million $ 31 million 


years) ..................................... 5 6 6 

Option shares exercisable (vested), December 31 ..... 24 22 21 


Aggregate intrinsic value (A) .................... $ 4million $ 4 million $ — million 


years) ..................................... 4 4 4 

(A) Aggregate intrinsic value is calculated using the Company’s stock price at each respective date, 

less the exercise price (grant date price) multiplied by the number of shares. 

At December 31, 2011, 2010 and 2009, there was $33 million, $45 million and $41 million, 

respectively, of unrecognized compensation expense (using the Black-Scholes option pricing model at 

the grant date) related to unvested stock options; such options had a weighted average remaining 

vesting period of three years. 

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, was as follows: 

2011 2010 2009 

Weighted average grant date fair value ........ $ 5.07 $ 5.30 $ 2.28 

Risk-free interest rate ...................... 2.69% 2.76% 2.60% 

Dividend yield ............................. 2.35% 2.17% 3.70% 

Volatility factor ............................ 49.03% 46.03% 39.18% 

Expected option life ........................ 6years 6 years 6 years 

69



L. STOCK-BASED COMPENSATION (Concluded) 

The following table summarizes information for stock option shares outstanding and exercisable at 

December 31, 2011, shares in millions: 

Range of 

Prices 

Option Shares Outstanding 

Number of 

Shares 

Weighted 

Average 

Remaining 

Option 

Term 

Weighted 

Average 

Exercise 

Price 

Option Shares Exercisable 

Number of 

Shares 

Weighted 

Average 

Exercise 

Price 

$ 8-23 20 7 Years $14 9 $16 

$24-28 6 3 Years $27 6 $27 

$29-32 10 4 Years $30 9 $30 

$33-38 — 3 Years $34 — $34 

$ 8-38 36 5 Years $21 24 $25 

Phantom Stock Awards and Stock Appreciation Rights (“SARs”). 

phantom stock awards and SARs to certain non-U.S. employees. 

The Company grants 

Phantom stock awards are linked to the value of the Company’s common stock on the date of 

grant and are settled in cash upon vesting, typically over 5 to 10 years. The Company accounts for 

phantom stock awards as liability-based awards; the compensation expense is initially measured as 

the market price of the Company’s common stock at the grant date and is recognized over the vesting 

period. The liability is remeasured and adjusted at the end of each reporting period until the awards are 

fully-vested and paid to the employees. The Company recognized expense of $2 million, $2 million and 

$3 million related to the valuation of phantom stock awards for 2011, 2010 and 2009, respectively. In 

2011, 2010 and 2009, the Company granted 349,550 shares, 299,650 shares and 318,920 shares, 

respectively, of phantom stock awards with an aggregate fair value of $4 million, $4 million and $3 

million, respectively, and paid $2 million, $1 million and $1 million of cash in 2011, 2010 and 2009, 

respectively, to settle phantom stock awards. 

SARs are linked to the value of the Company’s common stock on the date of grant and are settled 

in cash upon exercise. The Company accounts for SARs using the fair value method, which requires 

outstanding SARs to be classified as liability-based awards and valued using a Black-Scholes option 

pricing model at the grant date; such fair value is recognized as compensation expense over the 

vesting period, typically five years. The liability is remeasured and adjusted at the end of each reporting 

period until the SARs are exercised and payment is made to the employees or the SARs expire. The 

Company recognized expense (income) of $(1) million, $1 million and $4 million related to the valuation 

of SARs for 2011, 2010 and 2009, respectively. During 2011, the Company did not grant any SARs. 

During 2010 and 2009, the Company granted SARs for 429,300 shares and 438,200 shares, 

respectively, with an aggregate fair value of $2 million and $1 million in 2010 and 2009, respectively. 

Information related to phantom stock awards and SARs was as follows, in millions: 

Phantom Stock 

Awards 


Stock Appreciation 

Rights At 

December 31, 

2011 2010 2011 2010 

Accrued compensation cost liability .......... $7 $6 $3 $5 

Unrecognized compensation cost ........... $4 $5 $1 $2 

Equivalent common shares ................ 1 1 2 2 

70



M. EMPLOYEE RETIREMENT PLANS 

The Company sponsors qualified defined-benefit and 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. Aggregate charges to earnings under the Company’s defined-benefit and definedcontribution 

retirement plans were $34 million and $31 million in 2011, $34 million and $47 million in 

2010 and $59 million and $35 million in 2009, respectively. 

In addition, the Company participates in 20 regional multi-employer pension plans, principally 

related to building trades; none of the plans are considered significant. The aggregate expense 

recognized through contributions by the Company to these plans was approximately $3 million, $3 

million and $4 million in 2011, 2010 and 2009, respectively. 

In March 2009, based on management’s recommendation, the Board of Directors approved a plan 

to freeze all future benefit accruals under substantially all of the Company’s domestic qualified and 

non-qualified defined-benefit pension plans. The freeze was effective January 1, 2010. As a result of 

this action, the liabilities for the plans impacted by the freeze were remeasured and the Company 

recognized a curtailment charge of $8 million in the first quarter of 2009. 

71



M. EMPLOYEE RETIREMENT PLANS (Continued) 

Changes in the projected benefit obligation and fair value of plan assets, and the funded status of 

the Company’s defined-benefit pension plans were as follows, in millions: 


Qualified Non-Qualified Qualified Non-Qualified 

Changes in projected benefit obligation: 

Projected benefit obligation at January 1 ........ $868 $163 $806 $152 

Service cost ............................... 2 — 3 — 

Interest cost ............................... 44 8 45 9 

Participant contributions ..................... — — 1 — 

Actuarial loss (gain), net ..................... 70 13 61 12 

Foreign currency exchange .................. (2) — (10) — 

Recognized curtailment loss .................. — — (1) — 

Benefit payments ........................... (39) (10) (37) (10) 

Projected benefit obligation at December 31 . . . $ 943 $ 174 $ 868 $ 163 

Changes in fair value of plan assets: 

Fair value of plan assets at January 1 .......... $509 $ — $474 $ — 

Actual return on plan assets .................. (1) — 46 — 

Foreign currency exchange .................. — — (3) — 

Company contributions ...................... 38 10 31 10 

Participant contributions ..................... — — 1 — 

Expenses, other ............................ (3) — (3) — 

Benefit payments ........................... (39) (10) (37) (10) 

Fair value of plan assets at December 31 ..... $504 $ — $509 $ — 

Funded status at December 31: ............... $(439) $(174) $(359) $(163) 

Amounts in the Company’s consolidated balance sheets were as follows, in millions: 

At December 31, 2011 At December 31, 2010 


Accrued liabilities ................... $ (3) $ (12) $ (3) $ (11) 

Deferred income taxes and other ....... (436) (162) (356) (152) 

Total net liability ................... $(439) $(174) $(359) $(163) 

72




Amounts in accumulated other comprehensive income before income taxes were as follows, in 

millions: 

At December 31, 2011 At December 31, 2010 


Net loss ........................... $424 $43 $326 $31 

Net transition obligation .............. 1 — 1 — 

Net prior service cost ................ (1) — (1) — 

Total ............................ $424 $43 $326 $31 

Information for defined-benefit pension plans with an accumulated benefit obligation in excess of 

plan assets was as follows, in millions: 




Projected benefit obligation ........... $943 $174 $868 $163 

Accumulated benefit obligation ........ $941 $174 $866 $163 

Fair value of plan assets .............. $504 $ — $509 $ — 

The projected benefit obligation was in excess of plan assets for all of the Company’s qualified 

defined-benefit pension plans at December 31, 2011 and 2010. 

Net periodic pension cost for the Company’s defined-benefit pension plans was as follows, in 

millions: 

2011 2010 2009 

Qualified Non-Qualified Qualified Non-Qualified Qualified Non-Qualified 

Service cost ............... $ 2 $— $ 3 $— $ 9 $ 1 

Interest cost ............... 44 8 45 9 45 9 

Expected return on plan 

assets .................. (33) — (34) — (29) — 

Recognized prior service 

cost .................... — — (1) — — — 

Recognized curtailment 

loss .................... — — — — 3 5 

Recognized net loss ........ 10 1 10 — 12 — 

Net periodic pension cost . . $ 23 $ 9 $ 23 $ 9 $ 40 $15 

The Company expects to recognize $16 million of pre-tax net loss from accumulated other 

comprehensive income into net periodic pension cost in 2012 related to its defined-benefit pension 

plans. 

73




Plan Assets. The Company’s qualified defined-benefit pension plan weighted average asset 

allocation, which is based upon fair value, was as follows: 



Equity securities ......................................... 44% 54% 

Debt securities ........................................... 39% 31% 

Other .................................................. 17% 15% 

Total ................................................. 100% 100% 

Plan assets included 1.2 million shares for each of the years, of Company common stock valued 

at $12 million and $14 million at December 31, 2011 and 2010, respectively. 

The Company’s qualified defined-benefit pension plans have adopted accounting guidance that 

defines fair value, establishes a framework for measuring fair value and prescribes disclosures about 

fair value measurements. Accounting guidance defines fair value as “the price that would be received 

to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the 

measurement date.” 

Following is a description of the valuation methodologies used for assets measured at fair value. 

There have been no changes in the methodologies used at December 31, 2011. 

Common and preferred stocks, debt securities, government securities and short-term and other 

investments: Valued at the closing price reported on the active market on which the individual 

securities are traded. 

Limited Partnerships: Valued based on an estimated fair value. There is no active trading market 

for these investments and they are for the most part illiquid. Due to the significant unobservable inputs, 

the fair value measurements are a Level 3 input. 

Common Collective Trust Fund: Valued based on a unit value basis, which approximates fair 

value as of December 31, 2011 and 2010, respectively. Such basis is determined by reference to the 

respective fund’s underlying assets, which are primarily marketable equity and fixed income securities. 

There are no unfunded commitments or other restrictions associated with this fund. 

The methods described above may produce a fair value calculation that may not be indicative of 

net realizable value or reflective of future fair values. Furthermore, while the Company believes its 

valuation methods are appropriate and consistent with other market participants, the use of different 

methodologies or assumptions to determine the fair value of certain financial instruments could result 

in a different fair value measurement at the reporting date. 

74




The following table sets forth by level, within the fair value hierarchy, the qualified defined-benefit 

pension plan assets at fair value as of December 31, 2011 and 2010, in millions. 

Assets at Fair Value as of December 31, 


Level 1 Level 2 Level 3 Total 

Common and preferred stocks ..................... $173 $ 47 $— $220 

Limited Partnerships ............................. — — 67 67 

Corporate debt securities ......................... — 72 1 73 

Government and other debt securities ............... 62 61 1 124 

Common collective trust Fund ...................... — 7 — 7 

Short-term and other investments .................. — — 13 13 

Total assets at fairvalue ........................... $235 $187 $82 $504 

Assets at Fair Value as of December 31, 

2010 

Level 1 Level 2 Level 3 Total 

Common and preferred stocks ..................... $258 $ 19 $— $277 

Limited Partnerships ............................. — — 64 64 

Corporate debt securities ......................... 30 — — 30 

Government and other debt securities ............... 61 57 — 118 

Common collective trust fund ...................... — 7 — 7 

Short-term and other investments .................. 4 — 9 13 

Total assets at fair value .......................... $353 $ 83 $73 $509 

The table below sets forth a summary of changes in the fair value of the qualified defined-benefit 

pension plan level 3 assets for the year ended December 31, 2011, in millions. 

Year Ended 

December 31, 


Year Ended 

December 31, 

2010 

Balance, beginning of year .............................. $73 $52 

Purchases, sales, issuancesand settlements (net) ........... 9 21 

Unrealized losses ...................................... — — 

Balance, end of year ................................... 82 73 

Assumptions. Major assumptions used in accounting for the Company’s defined-benefit 

pension plans were as follows: 

December 31 

2011 2010 2009 

Discount rate for obligations .............................. 4.40% 5.30% 5.80% 

Expected return on plan assets ........................... 7.25% 7.25% 8.00% 

Rate of compensation increase ........................... —% 1.00% 2.00% 

Discount rate for net periodic pension cost .................. 5.30% 5.80% 6.10% 

75




The discount rate for obligations for 2011 and 2010 was based upon the expected duration of 

each defined-benefit pension plan’s liabilities matched to the December 31, 2011 and 2010 Towers 

Watson Rate Link Curve. At December 31, 2011, such rates for the Company’s defined-benefit 

pension plans ranged from 2.00 percent to 5.50 percent, with the most significant portion of the 

liabilities having a discount rate for obligations of 4.20 percent or higher. At December 31, 2010, such 

rates for the Company’s defined-benefit pension plans ranged from 2.30 percent to 5.55 percent, with 

the most significant portion of the liabilities having a discount rate for obligations of 5.0 percent or 

higher. The decline in the weighted average discount rate to 4.40 percent over the last several years 

was principally the result of lower long-term interest rates in the bond markets. The discount rate for 

obligations for 2009 was based upon the expected duration of each defined-benefit plan’s liabilities 

matched to the widely used Citigroup Pension Discount Curve and Liability index for December 31, 

2009. The weighted average discount rates were also affected by the freezing of all future benefit 

accruals for substantially all of the Company’s domestic qualified and non-qualified defined-benefit 

plans, which shortened the period of future payments. 

For 2011 and 2010, the Company determined the expected long-term rate of return on plan assets 

of 7.25 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 both December 31, 2011 and 2010 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 3.2 percent and 4.3 percent for the 10-year periods 

ended December 31, 2011 and 2010, 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 a 7.25 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. In 

2010, the Company and its pension investment advisor concluded that 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). The Company achieved its targeted asset portfolio in 

2011. The revised asset allocation of the investment portfolio was developed 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. 

It is expected that the alternative investments would have a higher rate of return than the targeted 

overall long-term return of 7.25 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. This portfolio is expected to yield a long-term 

rate of return of 7.25 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 

76



M. EMPLOYEE RETIREMENT PLANS (Concluded) 

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. 

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. 

Other. The Company sponsors certain post-retirement benefit plans that provide medical, dental 

and life insurance coverage for eligible retirees and dependents in the United States based upon age 

and length of service. The aggregate present value of the unfunded accumulated post-retirement 

benefit obligation was $14 million and $13 million at December 31, 2011 and 2010, respectively. 

Cash Flows. At December 31, 2011, the Company expected to contribute approximately $50 

million to its qualified defined-benefit pension plans to meet ERISA requirements in 2012. The 

Company also expected to pay benefits of $8 million and $11 million to participants of its foreign and 

non-qualified (domestic) defined-benefit pension plans, respectively, in 2012. 

At December 31, 2011, the benefits expected to be paid in each of the next five years, and in 

aggregate for the five years thereafter, relating to the Company’s defined-benefit pension plans, were 

as follows, in millions: 

Qualified 

Plans 

Non-Qualified 

Plans 

2012 .......................................... $ 42 $11 

2013 .......................................... $ 43 $12 

2014 .......................................... $ 44 $12 

2015 .......................................... $ 46 $12 

2016 .......................................... $ 46 $12 

2017-2021 ....................................... $255 $58 

N. SHAREHOLDERS’ EQUITY 

In July 2007, the Company’s Board of Directors authorized the repurchase for retirement of up to 

50 million shares of the Company’s common stock in open-market transactions or otherwise. At 

December 31, 2011, the Company had remaining authorization to repurchase up to 25 million shares. 

During 2011, the Company repurchased and retired two million shares of Company common stock, for 

cash aggregating $30 million to offset the dilutive impact of the 2011 grant of two million shares of 

long-term stock awards. The Company repurchased and retired three million common shares in 2010 

and two million common shares in 2009 for cash aggregating $45 million and $11 million in 2010 and 

2009, respectively. 

77



N. SHAREHOLDERS’ EQUITY (Concluded) 

On the basis of amounts paid (declared), cash dividends per common share were $.30 ($.30) in 

2011, $.30 ($.30) in 2010 and $.46 ($.30) in 2009, respectively. In 2009, the Company decreased its 

quarterly cash dividend to $.075 per common share from $.235 per common share. 

Accumulated Other Comprehensive (Loss) Income. The components of accumulated other 

comprehensive income attributable to Masco Corporation were as follows, in millions: 



Cumulative translation adjustments .......................... $482 $505 

Unrealized (loss) gain on marketable securities, net ............ (12) 26 

Unrealized (loss) on interest rate swaps ...................... (23) — 

Unrecognized prior service cost and net loss, net .............. (371) (258) 

Accumulated other comprehensive income .................. $ 76 $273 

The unrealized (loss) gain on marketable securities, net, is reported net of income tax expense of 

$14 million at both December 31, 2011 and 2010. The unrecognized prior service cost and net loss, 

net, is reported net of income tax benefit of $100 million and $105 million at December 31, 2011 and 

2010, respectively. 

O. SEGMENT INFORMATION 

The Company’s reportable segments are as follows: 

Cabinets and Related Products – principally includes assembled and ready-to-assemble 

kitchen and bath cabinets; home office workstations; entertainment centers; storage products; 

bookcases; and kitchen utility products. 

Plumbing Products – principally includes faucets; plumbing fittings and valves; showerheads 

and hand showers; bathtubs and shower enclosures; and spas. 

Installation and Other Services – principally includes the sale, installation and distribution of 

insulation and other building products. 

Decorative Architectural Products – principally includes paints and stains; and cabinet, 

door, window and other hardware. 

Other Specialty Products – principally includes windows, window frame components and 

patio doors; staple gun tackers, staples and other fastening tools. 

The above products and services are sold to the home improvement and new home construction 

markets through mass merchandisers, hardware stores, home centers, builders, distributors and other 

outlets for consumers and contractors. 

The Company’s operations are principally located in North America and Europe. The Company’s 

country of domicile is the United States of America. 

Corporate assets consist primarily of real property, equipment, cash and cash investments and 

other investments. 

78



O. SEGMENT INFORMATION (Continued) 

The Company’s segments are based upon similarities in products and services and represent the 

aggregation of operating units, for which financial information is regularly evaluated by the Company’s 

corporate operating executives in determining resource allocation and assessing performance and is 

periodically reviewed by the Board of Directors. Accounting policies for the segments are the same as 

those for the Company. The Company primarily evaluates performance based upon operating profit 

(loss) and, other than general corporate expense, allocates specific corporate overhead to each 

segment. The evaluation of segment operating profit also excludes the charge for defined-benefit plan 

curtailment, the charge for litigation settlements, the accelerated stock compensation expense and the 

(loss) on corporate fixed assets, net. 

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

Net Sales(1)(2)(3)(4)(5) Operating (Loss) Profit(5)(6) Assets at December 31(11)(12) 

2011 2010 2009 2011 2010 2009 2011 2010 2009 

The Company’s operations by 

segment were: 


Products .............. $1,231 $1,464 $1,674 $(206) $(250) $ (64) $1,009 $1,108 $1,382 

Plumbing Products ........ 2,913 2,692 2,564 322 331 237 1,959 1,866 1,815 


Services .............. 1,077 1,041 1,121 (79) (798) (116) 1,427 1,537 2,339 


Products .............. 1,670 1,693 1,714 196 345 375 770 851 871 

Other Specialty Products . . 576 596 584 (401) 19 (199) 768 1,182 1,197 

Total .............. $7,467 $7,486 $7,657 $(168) $(353) $ 233 $5,933 $6,544 $7,604 

The Company’s operations by 

geographic area were: 

North America ........... $5,669 $5,823 $6,000 $(259) $(507) $ 108 $4,441 $5,063 $6,113 

International, principally 

Europe ............... 1,798 1,663 1,657 91 154 125 1,492 1,481 1,491 

Total, as above ..... $7,467 $7,486 $7,657 (168) (353) 233 5,933 6,544 7,604 

General corporate expense, net (7) ................ (118) (110) (140) 

Charge for defined-benefit curtailment (8) ........... — — (8) 

Charge for litigation settlements (9) ................ (9) — (7) 

Accelerated stock compensation expense (10) ...... — — (6) 

Loss on corporate fixed assets, net ................ — — (2) 

Operating (loss) profit, as reported ................ (295) (463) 70 

Other income (expense), net ..................... (177) (278) (206) 

Loss from continuing operations before income 

taxes ....................................... $(472) $(741) $(136) 

Corporate assets ............................... 1,339 1,596 1,571 

Assets held for sale ............................. 25 — — 

Total assets ............................ $7,297 $8,140 $9,175 

79



O. SEGMENT INFORMATION (Continued) 

Depreciation and 

Property Additions(5) Amortization(5) 

2011 2010 2009 2011 2010 2009 

The Company’s operations by segment were: 

Cabinets and Related Products ................... $ 26 $ 34 $ 30 $ 78 $112 $ 84 

Plumbing Products ............................. 85 65 47 68 63 70 

Installation and Other Services .................... 9 6 29 32 33 28 

Decorative Architectural Products ................. 8 9 7 15 18 18 

Other Specialty Products ........................ 17 18 7 48 26 28 

145 132 120 241 252 228 

Unallocated amounts, principally related to corporate 

assets ...................................... 6 4 1 16 20 17 

Total ..................................... $151 $136 $121 $257 $272 $245 

(1) Included in net sales were export sales from the U.S. of $241 million, $246 million and $277 

million in 2011, 2010 and 2009, respectively. 

(2) Intra-company sales between segments represented approximately two percent of net sales in 

2011 and 2010 and three percent of net sales in 2009. 

(3) Included in net sales were sales to one customer of $1,984 million, $1,993 million and $2,053 

million in 2011, 2010 and 2009, respectively. Such net sales were included in the following 

segments: Cabinets and Related Products, Plumbing Products, Decorative Architectural Products 

and Other Specialty Products. 

(4) Net sales from the Company’s operations in the U.S. were $5,394 million, $5,618 million and 

$5,952 million in 2011, 2010 and 2009, respectively. 

(5) Net sales, operating (loss) profit, property additions and depreciation and amortization expense for 

2011, 2010 and 2009 excluded the results of businesses reported as discontinued operations in 

2011, 2010 and 2009. 

(6) Included in segment operating (loss) profit for 2011 were impairment charges for goodwill and 

other intangible assets as follows: Cabinets and Related Products – $44 million; Plumbing 

Products – $1 million; Decorative Architectural Products – $75 million; and Other Specialty 

Products – $374 million. Included in segment operating (loss) profit for 2010 were impairment 

charges for goodwill and other intangible assets as follows: Plumbing Products – $1 million; and 

Installation and Other Services – $697 million. Included in segment operating profit (loss) for 2009 

were impairment charges for goodwill as follows: Plumbing Products – $39 million; and Other 

Specialty Products – $223 million. 

(7) General corporate expense, net included those expenses not specifically attributable to the 

Company’s segments. 

(8) During 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. See Note M to the consolidated financial 

statements. 

(9) The charge for litigation settlement in 2011 relates to business units in the Cabinets and Related 

Products and the Other Specialty Products segments. The charge for litigation settlement in 2009 

relates to a business unit in the Cabinets and Related Products segment. 

80



O. SEGMENT INFORMATION (Concluded) 

(10) See Note L to the consolidated financial statements. 

(11) Long-lived assets of the Company’s operations in the U.S. and Europe were $2,964 million and 

$565 million, $3,684 million and $617 million, and $4,628 million and $690 million at December 31, 

2011, 2010 and 2009, respectively. 

(12) Segment assets for 2011 excluded the assets of businesses reported as discontinued operations 

in the respective years. 

P. OTHER INCOME (EXPENSE), NET 

Other, net, which is included in other income (expense), net, was as follows, in millions: 

2011 2010 2009 

Income from cash and cash investments .......................... $ 8 $6 $ 7 

Other interest income ......................................... 1 1 2 

Income from financial investments, net (Note E) .................... 73 9 3 

Other items, net .............................................. (5) (9) 17 

Total other, net ............................................. $77 $7 $29 

Other items, net, included realized foreign currency transaction gains (losses) of $(5) million, $(2) 

million and $17 million in 2011, 2010 and 2009, respectively, as well as other miscellaneous items. 

81



Q. INCOME TAXES 

(In Millions) 

2011 2010 2009 

(Loss) income from continuing operations before income taxes: 

U.S. ................................................. $(575) $(928) $(286) 

Foreign ............................................... 103 187 150 

$(472) $(741) $(136) 

Income tax (benefit) expense on (loss) income from continuing 

operations: 

Currently payable: 

U.S. Federal ......................................... $ — $ (24) $ (21) 

State and local ....................................... (1) 22 12 

Foreign ............................................. 63 59 45 

Deferred: 

U.S. Federal ......................................... (103) 190 (67) 

State and local ....................................... — (7) (2) 

Foreign ............................................. (8) — (11) 

$ (49) $ 240 $ (44) 

Deferred tax assets at December 31: 

Receivables ........................................... $ 14 $ 15 

Inventories ............................................ 28 35 

Other assets, principally stock-based compensation .......... 121 119 

Accrued liabilities ....................................... 141 143 

Long-term liabilities ..................................... 260 227 

Net operating loss carryforward ........................... 260 136 

Capital loss carryforward ................................ — 3 

Tax credit carryforward .................................. 20 12 

844 690 

Valuation allowance .................................... (688) (462) 

156 228 

Deferred tax liabilities at December 31: 

Property and equipment ................................. 178 223 

Intangibles ............................................ 192 323 

Other ................................................ 25 29 

395 575 

Net deferred tax liability at December 31 ..................... $239 $347 

At December 31, 2011 and 2010, the net deferred tax liability consisted of net short-term deferred 

tax assets included in prepaid expenses and other of $11 million and $50 million, respectively, and net 

long-term deferred tax liabilities included in deferred income taxes and other of $250 million and $397 

million, respectively. 

82



Q. INCOME TAXES (Continued) 

The current portion of the 2011 state and local income tax benefit includes a $10 million tax benefit 

from the reversal of an accrual for uncertain tax positions resulting primarily from the expiration of 

applicable statutes of limitations. The deferred portion of the 2011 state and local taxes includes a $31 

million non-cash charge to income tax expense resulting from a change in the valuation allowance 

against state and local deferred tax assets. 

The accounting guidance for income taxes requires that the future realization of deferred tax 

assets depends on the existence of sufficient taxable income in future periods. Possible sources of 

taxable income include taxable income in carryback periods, the future reversal of existing taxable 

temporary differences recorded as a deferred tax liability, tax-planning strategies that generate future 

income or gains in excess of anticipated losses in the carryforward period and projected future taxable 

income. 

If, based upon all available evidence, both positive and negative, it is more likely than not (more 

than 50 percent likely) such deferred tax assets will not be realized, a valuation allowance is recorded. 

Significant weight is given to positive and negative evidence that is objectively verifiable. A company’s 

three-year cumulative loss position is significant negative evidence in considering whether deferred tax 

assets are realizable and the accounting guidance restricts the amount of reliance the Company can 

place on projected taxable income to support the recovery of the deferred tax assets. 

In the fourth quarter of 2010, the Company recorded a $372 million valuation allowance against its 

U.S. Federal deferred tax assets as a non-cash charge to income tax expense. In reaching this 

conclusion, the Company considered the weaker retail sales of certain of its building products and the 

slower than anticipated recovery in the U.S. housing market which led to U.S. operating losses and 

significant U.S. goodwill impairment charges, that primarily occurred in the fourth quarter of 2010, 

causing the Company to be in a three-year cumulative U.S. loss position. These factors negatively 

impacted the Company’s ability to utilize tax-planning strategies that included the potential sale of 

certain non-core operating assets to support the realization of its U.S. Federal deferred tax assets, 

since current year losses are heavily weighted in determining if sufficient income would exist in the 

carryforward period to realize the benefit of the strategies. 

During 2011, objective and verifiable negative evidence, such as continued U.S. operating losses 

and significant U.S. goodwill impairment charges, continued to outweigh positive evidence. As a result, 

the Company recorded an $89 million increase in the valuation allowance against its U.S. Federal 

deferred tax assets as a non-cash charge to income tax expense. 

Recording the valuation allowance does not restrict the Company’s ability to utilize the future 

deductions and net operating losses associated with the deferred tax assets assuming taxable income 

is recognized in future periods. 

A rebound in the U.S. housing market from the current historic lows and retail sales of building 

products improving from their current levels should have a positive impact on the Company’s operating 

results in the U.S. A return to sustained profitability in the U.S. should result in objective positive 

evidence thereby warranting the potential reversal of all or a portion of the valuation allowance. 

The $156 million and $228 million of deferred tax assets at December 31, 2011 and 2010, 

respectively, for which there is no valuation allowance recorded, is anticipated to be realized through 

the future reversal of existing taxable temporary differences recorded as deferred tax liabilities. 

Of the deferred tax asset related to the net operating loss and tax credit carryforwards at 

December 31, 2011 and 2010, $269 million and $143 million will expire between 2020 and 2031 and 

$11 million and $5 million is unlimited, respectively. 

83



Q. INCOME TAXES (Continued) 

The tax benefit from certain stock-based compensation is not recognized as a deferred tax asset 

until the tax deduction reduces cash taxes. Accordingly, as of December 31, 2011, the Company has 

not recorded a $13 million deferred tax asset on additional net operating losses that, when realized, will 

be recorded to paid-in capital. 

A tax provision has not been provided at December 31, 2011 for U.S. income taxes or additional 

foreign withholding taxes on approximately $74 million of undistributed earnings of certain foreign 

subsidiaries that are considered to be permanently reinvested. It is not practicable to determine the 

amount of deferred tax liability on such earnings as the actual U.S. tax would depend on income tax 

laws and circumstances at the time of distribution. 

A reconciliation of the U.S. Federal statutory tax rate to the income tax (benefit) expense on (loss) 

income from continuing operations was as follows: 

2011 2010 2009 

U.S. Federal statutory tax rate – (benefit) .................. (35)% (35)% (35)% 

State and local taxes, net of U.S. Federal tax benefit ........ — 1 5 

Higher (lower) taxes on foreign earnings .................. 1 (1) (12) 

Foreign uncertain tax positions .......................... — — (6) 

Change in U.S. and foreign taxes on distributed and 

undistributed foreign earnings, including the impact of 

foreign tax credit .................................... — — 6 

Goodwill impairment charges providing no tax benefit ........ 6 18 11 

U.S. Federal valuation allowance ........................ 19 50 — 

Other, net ........................................... (1) (1) (1) 

Effective tax rate – (benefit) expense ................... (10)% 32 % (32)% 

Income taxes paid were $43 million, $47 million and $25 million in 2011, 2010 and 2009, 

respectively. 

84



Q. INCOME TAXES (Concluded) 

A reconciliation of the beginning and ending liability for uncertain tax positions, including related 

interest and penalties, is as follows: 

(In millions) 

Uncertain 

Tax Positions 

Interest and 

Penalties 

Balance at January 1, 2010 .................... $65 $21 $86 

Current year tax positions: 

Additions ................................. 6 6 

Prior year tax positions: 

Additions ............................... 18 18 

Reductions .............................. (5) (5) 

Settlements with tax authorities ............... (3) (1) (4) 

Lapse of applicable statute of limitations ....... (10) (10) 

Interest and penalties recognized in income tax 

expense ................................ 3 3 

Balance at December 31, 2010 ................. $71 $23 $94 

Current year tax positions: 

Additions ............................... 6 6 

Reductions .............................. (1) (1) 

Prior year tax positions: 

Additions ............................... 6 6 

Reductions .............................. (1) (1) 

Settlements with tax authorities ............... (4) (2) (6) 

Lapse of applicable statute of limitations ....... (16) (16) 

Interest and penalties recognized in income tax 

expense ................................ (1) (1) 

Balance at December 31, 2011 ................. $61 $20 $81 

If recognized, $40 million and $47 million of the liability for uncertain tax positions at December 31, 

2011 and 2010, respectively, net of any U.S. Federal tax benefit, would impact the Company’s effective 

tax rate. 

At December 31, 2011 and 2010, $86 and $97 million of the total liability for uncertain tax 

positions, including related interest and penalties, is recorded in deferred income taxes and other, $1 

and $5 million is recorded in accrued liabilities and $6 and $8 million is recorded in other assets, 

respectively. 

The Company files income tax returns in the U.S. Federal jurisdiction, and various local, state and 

foreign jurisdictions. The Company continues to participate in the Compliance Assurance Program 

(“CAP”). CAP is a real-time audit of the U.S. Federal income tax return that allows the Internal 

Revenue Service (“IRS”), working in conjunction with the Company, to determine tax return compliance 

with the U.S. Federal tax law prior to filing the return. This program provides the Company with greater 

certainty about its tax liability for a given year within months, rather than years, of filing its annual tax 

return and greatly reduces the need for recording a liability for U.S. Federal uncertain tax positions. 

The IRS has completed their examination of the Company’s consolidated U.S. Federal tax returns 

through 2010. With few exceptions, the Company is no longer subject to state or foreign income tax 

examinations on filed returns for years before 2000. 

As a result of tax audit closings, settlements and the expiration of applicable statutes of limitations 

in various jurisdictions within the next 12 months, the Company anticipates that it is reasonably 

possible the liability for uncertain tax positions could be reduced by approximately $10 million. 

85 

Total



R. EARNINGS PER COMMON SHARE 

Reconciliations of the numerators and denominators used in the computations of basic and diluted 

earnings per common share were as follows, in millions: 

2011 2010 2009 

Numerator (basic and diluted): 

Loss from continuing operations ......................... $(465) $(1,022) $(130) 

Allocation to unvested restricted stock awards ............. (3) (3) (3) 

Loss from continuing operations attributable to common 

shareholders ....................................... (468) (1,025) (133) 

Loss from discontinued operations, net ................... (110) (21) (53) 

Net loss available to common shareholders ................ $(578) $(1,046) $(186) 

Denominator: 

Basic common shares (based on weighted average) ........ 348 349 351 

Add: 

Contingent common shares ........................... — — — 

Stock option dilution ................................. — — — 

Diluted common shares .................................. 348 349 351 

The Company follows accounting guidance regarding determining whether instruments granted in 

share-based payment transactions are participating securities. This accounting guidance clarifies that 

share-based payment awards that entitle their holders to receive non-forfeitable dividends prior to 

vesting should be considered participating securities. The Company has granted restricted stock 

awards that contain non-forfeitable rights to dividends on unvested shares; such unvested restricted 

stock awards are considered participating securities. As participating securities, the unvested shares 

are required to be included in the calculation of the Company’s basic earnings per common share, 

using the “two-class method.” The two-class method of computing earnings per common share is an 

allocation method that calculates earnings per share for each class of common stock and participating 

security according to dividends declared and participation rights in undistributed earnings. Unvested 

restricted stock awards were previously included in the Company’s diluted share calculation using the 

treasury stock method. For the years ended December 31, 2011, 2010 and 2009, the Company 

allocated dividends to the unvested restricted stock awards (participating securities). 

At December 31, 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 December 31, 2010 and 2009 did not exceed 

the equivalent accreted value of the Notes. 

Additionally, 36 million common shares, 37 million common shares and 36 million common shares 

for 2011, 2010 and 2009, respectively, related to stock options were excluded from the computation of 

diluted earnings per common share due to their antidilutive effect. 

Common shares outstanding included on the Company’s balance sheet and for the calculation of 

earnings per common share do not include unvested stock awards (10 million common shares at both 

December 31, 2011 and 2010); shares outstanding for legal requirements included all common shares 

that have voting rights (including unvested stock awards). 

86



S. OTHER COMMITMENTS AND CONTINGENCIES 

Litigation. 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 was brought against the Company and a number of its 

insulation installation companies alleging that certain of their practices violated provisions of the federal 

antitrust laws. The case was filed in October 2004 in the United States District Court for the Northern 

District of Georgia by Columbus Drywall & Insulation, Inc., Leo Jones Insulation, Inc., Southland 

Insulators, Inc., Southland Insulators of Maryland, Inc. d/b/a Devere Insulation, Southland Insulators of 

Delaware LLC d/b/a Delmarva Insulation, and Whitson Insulation Company of Grand Rapids, Inc. 

against the Company, its subsidiaries Masco Contractors Services Group Corp., Masco Contractor 

Services Central, Inc. (“MCS Central”) and Masco Contractor Services East, Inc., and several 

insulation manufacturers (the “Columbus Drywall case”). In February 2009, the court certified a class of 

377 insulation contractors. A trial date in this case has been scheduled for July 2012. Another suit filed 

in March 2003 in the United States District Court for the Northern District of Georgia by Wilson 

Insulation Company, Wilson Insulation of Augusta, Inc. and The Wilson Insulation Group, Inc. against 

the Company, Masco Contractor Services, Inc., and MCS Central that alleged anticompetitive conduct. 

This case has been removed from the court’s active docket. In March 2007, Albert Von Der Werth and 

Valerie Good filed suit in the United States District Court for the Northern District of California against 

the Company, its subsidiary Masco Contractor Services, and several insulation manufacturers seeking 

class action status and alleging anticompetitive conduct. This case was subsequently transferred to the 

United States District Court for the Northern District of Georgia and has been administratively stayed 

by the court. An additional suit, which was filed in September 2005 and alleged anticompetitive 

conduct, was dismissed with prejudice in December 2006. 

The Company is vigorously defending the Columbus Drywall case. Based upon the advice of its 

outside counsel, the Company believes that the conduct of the Company and its insulation installation 

companies, which is 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 these 

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. 

Warranty. Certain of the Company’s products and product finishes and services are covered by 

a warranty to be free from defects in material and workmanship for periods ranging from one year to 

the life of the product. At the time of sale, the Company accrues a warranty liability for estimated costs 

to provide products, parts or services to repair or replace products in satisfaction of warranty 

obligations. The Company’s estimate of costs to service its warranty obligations is based upon 

historical experience and expectations of future conditions. To the extent that the Company 

experiences any changes in warranty claim activity or costs associated with servicing those claims, its 

warranty liability is adjusted accordingly. 

87



S. OTHER COMMITMENTS AND CONTINGENCIES (Concluded) 

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


Balance at January 1 .............................................. $107 $109 

Accruals for warranties issued during the year ........................ 28 42 

Accruals related to pre-existing warranties ........................... 8 (4) 

Settlements made (in cash or kind) during the year .................... (38) (37) 

Other, net (including currency translation) ........................... (3) (3) 

Balance at December 31 ........................................... $102 $107 

Investments. With respect to the Company’s investments in private equity funds, the Company 

had, at December 31, 2011, commitments to contribute up to $25 million of additional capital to such 

funds representing the Company’s aggregate capital commitment to such funds less capital 

contributions made to date. The Company is contractually obligated to make additional capital 

contributions to certain of its private equity funds upon receipt of a capital call from the private equity 

fund. The Company has no control over when or if the capital calls will occur. Capital calls are funded 

in cash and generally result in an increase in the carrying value of the Company’s investment in the 

private equity fund when paid. 

Other Matters. The Company enters into contracts, which include reasonable and customary 

indemnifications that are standard for the industries in which it operates. Such indemnifications include 

customer claims against builders for issues relating to the Company’s products and workmanship. In 

conjunction with divestitures and other transactions, the Company occasionally provides reasonable 

and customary indemnifications relating to various items including: the enforceability of trademarks; 

legal and environmental issues; provisions for sales returns; and asset valuations. The Company has 

never had to pay a material amount related to these indemnifications and evaluates the probability that 

amounts may be incurred and appropriately records an estimated liability when probable. 

88



T. INTERIM FINANCIAL INFORMATION (UNAUDITED) 

(In Millions, Except Per Common Share Data) 

Quarters Ended 

Total 

Year December 31 September 30 June 30 March 31 


Net sales .............................. $7,467 $ 1,738 $1,978 $1,998 $1,753 

Gross profit ............................ $1,784 $ 332 $ 495 $ 532 $ 425 

(Loss) income from continuing operations .... $ (465) $ (494) $ 56 $ 14 $ (41) 

Net (loss) income ....................... $ (575) $ (573) $ 36 $ 8 $ (46) 

(Loss) earnings per common share: 

Basic: 

(Loss) income from continuing 

operations ........................ $ (1.34) $ (1.42) $ .16 $ .04 $ (.12) 

Net (loss) income .................... $ (1.66) $ (1.65) $ .10 $ .02 $ (.13) 

Diluted: 


operations ........................ $ (1.34) $ (1.42) $ .16 $ .04 $ (.12) 

Net (loss) income .................... $ (1.66) $ (1.65) $ .10 $ .02 $ (.13) 

2010 

Net sales .............................. $7,486 $ 1,716 $1,933 $2,018 $1,819 

Gross profit ............................ $1,833 $ 309 $ 492 $ 543 $ 489 

(Loss) income from continuing operations .... $(1,022) $(1,020) $ — $ 4 $ (6) 

Net (loss) income ....................... $(1,043) $(1,034) $ (5) $ 3 $ (7) 

(Loss) earnings per common share: 

Basic: 


operations ........................ $ (2.94) $ (2.92) $ — $ .01 $ (.02) 

Net (loss) income .................... $ (3.00) $ (2.96) $ (.02) $ .01 $ (.02) 

Diluted: 


operations ........................ $ (2.94) $ (2.92) $ — $ .01 $ (.02) 

Net (loss) income .................... $ (3.00) $ (2.96) $ (.02) $ .01 $ (.02) 

(Loss) earnings per common share amounts for the four quarters of 2011 and 2010 may not total 

to the earnings per common share amounts for the years ended December 31, 2011 and 2010 due to 

the allocation of income to unvested stock awards. 

Fourth quarter 2011 loss from continuing operations and net loss include non-cash impairment 

charges for goodwill and other intangible assets of $335 million after tax ($494 million pre-tax). Income 

(loss) from continuing operations and net (loss) income include after-tax gains from financial 

investments of $11 million ($17 million pre-tax), $21 million ($33 million pre-tax), $13 million ($19 

million pre-tax) and $3 million ($4 million pre-tax) in the first, second, third and fourth quarters, 

respectively. 

Fourth quarter 2010 loss from continuing operations and net loss include non-cash impairment 

charges for goodwill and other intangible assets of $586 million after tax ($698 million pre-tax). Fourth 

quarter 2010 loss from continuing operations and net loss include a valuation allowance on net U.S. 

deferred tax assets of $372 million. Income (loss) from continuing operations and net (loss) income 

include after-tax impairment charges for financial investments of $21 million ($33 million pre-tax) and 

$— million ($1 million pre-tax) in the second and fourth quarters of 2010, respectively. 

89

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial 

Disclosure. 

Not applicable. 

Item 9A. Controls and Procedures. 

(a) Evaluation of Disclosure Controls and Procedures. 

The Company, with the participation of the Chief Executive Officer and Chief Financial Officer, 

conducted an evaluation of its disclosure controls and procedures as required by Exchange Act Rules 

13a-15(b) and 15d-15(b) as of December 31, 2011. Based on this evaluation, the Company’s 

management, including the Chief Executive Officer and Chief Financial Officer, concluded that the 

Company’s disclosure controls and procedures were effective. 

(b) Management’s Report on Internal Control over Financial Reporting. 

Management’s report on the Company’s internal control over financial reporting (as such term is 

defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) is included in this Report under 

Item 8. Financial Statements and Supplementary Data, under the heading, “Management’s Report on 

Internal Control over Financial Reporting” and is incorporated herein by reference. The report of our 

independent registered public accounting firm is also included under Item 8, under the heading, 

“Report of Independent Registered Public Accounting Firm” and is incorporated herein by reference. 

(c) Changes in Internal Control over Financial Reporting. 

In connection with the evaluation of the Company’s “internal control over financial reporting” that 

occurred during the quarter ended December 31, 2011, which is required under the Securities 

Exchange Act of 1934 by paragraph (d) of Exchange Rules 13a-15 or 15d-15 (as defined in paragraph 

(f) of Rule 13a-15), management determined that there was no change that materially affected or is 

reasonably likely to materially affect internal control over financial reporting. 

Item 9B. Other Information. 

Not applicable. 

90

PART III 

Item 10. Directors, Executive Officers and Corporate Governance. 

Our Code of Business Ethics applies to all employees, officers and directors including our 

Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer, and is posted 

on our website at www.masco.com. Other information required by this Item will be contained in our 

definitive Proxy Statement for the 2012 Annual Meeting of Stockholders, to be filed on or before 

April 29, 2012, and such information is incorporated herein by reference. 

Item 11. Executive Compensation. 

Information required by this Item will be contained in our definitive Proxy Statement for the 2012 

Annual Meeting of Stockholders, to be filed on or before April 29, 2012, and such information is 

incorporated herein by reference. 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related 

Stockholder Matters. 




Item 13. Certain Relationships and Related Transactions, and Director Independence. 




Item 14. Principal Accountant Fees and Services. 




PART IV 

Item 15. Exhibits and Financial Statement Schedules. 

(a) Listing of Documents. 

(1) Financial Statements. Our consolidated financial statements included in Item 8 hereof, as 

required at December 31, 2011 and 2010, and for the years ended December 31, 2011, 

2010 and 2009, consist of the following: 

Consolidated Balance Sheets .......................... 44 

Consolidated Statements of Income ..................... 45 

Consolidated Statements of Cash Flows ................. 46 

Consolidated Statements of Shareholders’ Equity ......... 47 

Notes to Consolidated Financial Statements .............. 48 

91

(2) Financial Statement Schedule. 

(i) Our Financial Statement Schedule appended hereto, as required for the years ended 

December 31, 2011, 2010 and 2009, consists of the following: 

II. Valuation and Qualifying Accounts 

(3) Exhibits. 

See separate Exhibit Index beginning on page 95. 

92

SIGNATURES 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the 

Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly 

authorized. 



By: /S/ JOHN G. SZNEWAJS 


Vice President, Treasurer and Chief 

Financial Officer 

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed 

below by the following persons on behalf of the Registrant and in the capacities and on the date 

indicated. 

Principal Executive Officer: 

/S/ 

TIMOTHY WADHAMS 


President, Chief Executive Officer 

and Director 

Principal Financial Officer: 

/S/ 

JOHN G. SZNEWAJS 


Principal Accounting Officer: 

/S/ 

/S/ 

JOHN P. LINDOW 

John P. Lindow 

DENNIS W. ARCHER 

Dennis W. Archer 

/S/ THOMAS G. DENOMME 

Thomas G. Denomme 

/S/ ANTHONY F. EARLEY, JR. 

Anthony F. Earley, Jr. 

/S/ 

/S/ 

/S/ 

/S/ 

VERNE G. ISTOCK 

Verne G. Istock 

J. MICHAEL LOSH 

J. Michael Losh 

RICHARD A. MANOOGIAN 


/S/ 

LISA A. PAYNE 

Lisa A. Payne 

MARY ANN VAN LOKEREN 

Mary Ann Van Lokeren 

Vice President, Treasurer and 

Chief Financial Officer 

Vice President – Controller 

Director 

Director 

Director 

Director 

Director 

Chairman 

Director 

Director 

⎫ 

⎪ 

⎬ 

⎪ 

⎪⎭ 


93


SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS 


(In Millions) 

Column A Column B Column C Column D Column E 

Additions 

Description 

Balance at 

Beginning 

of Period 

Charged to 

Costs and 

Expenses 

Charged 

to Other 

Accounts 

Deductions 

Balance at 

End of 

Period 

Allowance for doubtful accounts, deducted 

from accounts receivable in the balance 

sheet: 

2011 ................................ $ 65 $ 8 $— $(12)(b) $ 61 

2010 ................................ $ 75 $ 16 $— (a) $(26)(b) $ 65 

2009 ................................ $ 75 $ 30 $(1)(a) $(29)(b) $ 75 

Valuation Allowance on deferred tax assets: 

2011 ................................ $462 $178 $48 (c) $ — $688 

2010 ................................ $ 43 $400 $19 (c) $ — $462 

2009 ................................ $ 15 $ 28 $— $ — $ 43 

(a) 

(b) 

(c) 

Allowance of companies acquired and companies disposed of, net. 

Deductions, representing uncollectible accounts written off, less recoveries of accounts written off 

in prior years. 

Valuation allowance on deferred tax assets recorded in other comprehensive income. 

94

EXHIBIT INDEX 

Incorporated By Reference 

Exhibit 

No. Exhibit Description Form Exhibit 

3.i Restated Certificate of Incorporation of 

Masco Corporation and amendments thereto. 

3.ii Bylaws of Masco Corporation, as Amended 

and Restated June 2, 2007. 

4.a.i Indenture dated as of December 1, 1982 

between Masco Corporation and Bank of 

New York Trust Company, N.A., as 

successor trustee under agreement originally 

with Morgan Guaranty Trust Company of 

New York, as Trustee and Directors’ 

resolutions establishing Masco Corporation’s: 

Filing 

Date 

2010 10-K 3.i 02/18/2011 

(i) 7 1 ⁄8% Debentures Due August 15, 2008 10-K 4.a.i(i) 02/17/2009 

2013; 

(ii) 6.625% Debentures Due April 15, 2008 10-K 4.a.i(ii) 02/17/2009 

2018; and 

(iii) 7 3 ⁄4% Debentures Due August 1, 2029. 2009 10-K 4.a.i(iii) 02/16/2010 

4.a.ii Supplemental Indenture dated as of July 26, 

1994 between Masco Corporation and Bank 

of New York Trust Company, N.A., as 


with The First National Bank of Chicago, as 

Trustee. 

2009 10-K 4.a.iii 02/16/2010 

4.b.i Indenture dated as of February 12, 2001 

between Masco Corporation and Bank of 

New York Trust Company, N.A., as 


with Bank One Trust Company, National 

Association, as Trustee and Directors’ 

Resolutions establishing Masco 

Corporation’s: 

4.b.ii 

Filed 

Herewith 

(i) 5 7 ⁄8% Notes Due July 15, 2012; 2007 10-K 4.b.i(i) 02/22/2008 

(ii) 6 1 ⁄2% Notes Due August 15, 2032; 2007 10-K 4.b.i(ii) 02/22/2008 

(iii) 4.80% Notes Due June 15, 2015; 2010 10-K 4.b.i(iii) 02/18/2011 

(iv) 6.125% Notes Due October 3, 2016; X 

(v) 5.85% Notes Due 2017; and X 

(vi) 7.125% Notes Due 2020. 2010 10-K 4.b.i(vi) 02/18/2011 

Supplemental Indenture dated as of 

X 

November 30, 2006 to the Indenture dated 

February 12, 2001 by and between Masco 

Corporation and Bank of New York Trust 

Corporation N.A., as Trustee. 

X 

X 

X 

95


Exhibit 


Filing 

Date 

Filed 

Herewith 

4.c.i Credit Agreement dated as of June 21, 2010 

by and among Masco Corporation and 

Masco Europe S.à.r.l. as borrowers, the 

banks party thereto, as lenders, JPMorgan 

Chase Bank, N.A. as Administrative Agent, 

Citibank, N.A. as Syndication Agent and 

Royal Bank of Canada, Wells Fargo Bank, 

N.A. and Deutsche Bank AG New York 

Branch as Co-Documentation Agents and 

J.P. Morgan Securities Inc. and Citigroup 

Global Markets Inc. as Joint Bookrunners 

and Joint Lead Arrangers. 

4.c.ii Amendment No. 1 dated as of February 11, 

2011 to Credit Agreement dated June 21, 

2010 by and among Masco Corporation and 

Masco Europe S.à.r.l as borrowers, the 

financial institutions party thereto, and 

JPMorgan Chase Bank, N.A. 

8-K 4.1 06/25/2010 

10-Q 4 04/28/2011 

Note 1:Other instruments, notes or extracts from agreements defining the rights of holders of 

long-term debt of Masco Corporation or its subsidiaries have not been filed since (i) in 

each case the total amount of long-term debt permitted thereunder does not exceed 

10 percent of Masco Corporation’s consolidated assets, and (ii) such instruments, notes 

and extracts will be furnished by Masco Corporation to the Securities and Exchange 

Commission upon request. 

Note 2:Exhibits 10.a through 10.j constitute the management contracts and executive 

compensatory plans or arrangements in which certain of the Directors and executive 

officers of the Company participate. 

10.a Masco Corporation 1991 Long Term Stock 

X 

Incentive Plan (as amended and restated 

October 26, 2006): 

(i) Forms of Restricted Stock Award 

Agreement 

(A) for awards prior to January 1, 2009 10-K 10.a.(i)(A) 02/16/2010 

2005 and 

(B) for awards on and after 

2009 10-K 10.a.(i)(B) 02/16/2010 

January 1, 2005; 

(ii) Form of Restoration Stock Option; 2009 10-K 10.a(ii) 02/16/2010 

(iii) Form of Stock Option Grant; 2009 10-K 10.a(iii) 02/16/2010 

(iv) Form of Stock Option Grant for Non- 2009 10-K 10.a(iv) 02/16/2010 

Employee Directors; and 

(v) Form of Amendment to Award 

Agreements. 

2010 10-K 10.a(v) 02/18/2011 

96


Exhibit 


Filing 

Date 

Filed 

Herewith 

10.b.i 

Masco Corporation 2005 Long Term Stock 

Incentive Plan (Amended and Restated 

May 11, 2010): 

2010 10-K 10.b.i 02/18/2011 

(i) Form of Restricted Stock Award; 2010 10-K 10.b.i(i) 02/18/2011 

(ii) Form of Stock Option Grant; 2010 10-K 10.b.i(ii) 02/18/2011 

10.b.ii 

10.b.iii 

(iii) Form of Restoration Stock Option; 

and 

(iv) Form of Stock Option Grant for Non- 

Employee Directors. 

Non-Employee Directors Equity Program 

under Masco’s 2005 Long Term Stock 

Incentive Plan (Amended October 2010): 

(i) Form of Restricted Stock Award 

Agreement. 

Non-Employee Directors Equity Program 

under Masco’s 2005 Long Term Stock 

Incentive Plan (for awards prior to October 

2010): 


Agreement; and 

(ii) Form of Stock Option Grant 

Agreement. 

10.c Forms of Masco Corporation Supplemental 

Executive Retirement and Disability Plan 

and amendments thereto: 

(i) William T. Anderson (includes 

amendment freezing benefit 

accruals) 

(ii) 

Donald J. DeMarie (includes 


accruals) 

2010 10-K 10.b.i(iii) 02/18/2011 

2010 10-K 10.b.i(iv) 02/18/2011 

10-Q 10 10/28/2010 

2007 10-K 10.b.ii(i) 02/22/2008 

2007 10-K 10.b.iii 02/22/2008 

2007 10-K 10.b.ii(i) 02/22/2008 

2007 10-K 10.b.ii(ii) 02/22/2008 

2010 10-K 10.c(i) 02/18/2011 

2010 10-K 10.c(ii) 02/18/2011 

(iii) Richard A. Manoogian 2010 10-K 10.c(iii) 02/18/2011 

(iv) John G. Sznewajs (includes 


accruals) 

2010 10-K 10.c(iv) 02/18/2011 

(v) 

Timothy Wadhams (includes 


accruals) 

10.d Masco Corporation 1997 Non-Employee 

Directors Stock 

Plan (as amended and restated 

October 27, 2005): 


Agreement; 

97 

2010 10-K 10.c(v) 02/18/2011 

2010 10-K 10.d 02/18/2011 

2010 10-K 10.d(i) 02/18/2011


Exhibit 


Filing 

Date 

Filed 

Herewith 

(ii) Form of Stock Option Grant; and 2010 10-K 10.d(ii) 02/18/2011 

(iii) Form of Amendment to Award 

2010 10-K 10.d(iii) 02/18/2011 

Agreements. 

10.e Other compensatory arrangements for 

X 

executive officers. 

10.f Compensation of Non-employee Directors. X 

10.g Masco Corporation 2004 Restricted Stock 2009 10-K 10.f 02/16/2010 

Award Program. 

10.h Masco Corporation Retirement Benefit 

Restoration Plan effective January 1, 1995 

(as amended and restated 

December 22, 2010). 

2010 10-K 10.g 02/18/2011 

10.i Letter Agreement dated June 29, 2009 

between Richard A. Manoogian and Masco 

Corporation. 

10-Q 10 07/30/2009 

10.j Non-Compete, Non-Disclosure, Non- 

Disparagement, Release and Consulting 

Agreement and related Letter Agreement 

effective January 1, 2012 between Masco 

Corporation and Donald J. DeMarie, Jr. 

12 Computation of Ratio of Earnings to 

Combined Fixed Charges and Preferred 

Stock Dividends. 

X 

X 

21 List of Subsidiaries. X 

23 Consent of Independent Registered Public 

Accounting Firm relating to Masco 

Corporation’s Consolidated Financial 

Statements and Financial Statement 

Schedule. 

31.a Certification by Chief Executive Officer 

required by Rule 13a-14(a)/15d-14(a). 

31.b Certification by Chief Financial Officer 

required by Rule 13a-14(a)/15d-14(a). 

32 Certifications required by Rule 13a-14(b) or 

Rule 15d-14(b) and Section 1350 of 

Chapter 63 of Title 18 of the United States 

Code. 

X 

X 

X 

X 

100 XBRL-Related Documents. X 

101 Interactive Date File. X 

The Company will furnish to its stockholders a copy of any of the above exhibits not 

included herein upon the written request of such stockholder and the payment to the Company 

of the reasonable expenses incurred by the Company in furnishing such copy or copies. 

98

Exhibit 12 


Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends 

(Dollars in Millions) 

Year Ended December 31, 

2011 2010 2009 2008 2007 2006 

Earnings Before Income Taxes, Preferred Stock 

Dividends and Fixed Charges: 

(Loss) income from continuing operations before income 

taxes and cumulative effect of accounting change, 

net........................................... $(472) $(741) $(136) $(134) $ 867 $ 891 

Deduct equity in undistributed (earnings) of fiftypercent-or- 

less-owned companies ................ — — — (1) (2) (1) 

Add interest on indebtedness, net ................... 250 249 224 228 258 241 

Add amortization of debt expense ................... 7 7 5 4 5 4 

Add estimated interest factor for rentals .............. 33 36 44 51 55 52 

Earnings before income taxes, minority interest, 

cumulative effect of accounting change, net, fixed 

charges and preferred stock dividends ............. $(182) $(449) $ 137 $ 148 $1,183 $1,187 

Fixed Charges: 

Interest on indebtedness ........................... $249 $246 $221 $228 $ 259 $ 241 

Amortization of debt expense ....................... 7 7 5 4 5 4 

Estimated interest factor for rentals .................. 33 36 44 51 55 52 

Total fixed charges ............................... $289 $289 $270 $283 $ 319 $ 297 

Preferred stock dividends(a) ........................ $ — $ — $ — $ — $ — $ — 

Combined fixed charges and preferred stock 

dividends ..................................... $289 $289 $270 $283 $ 319 $ 297 

Ratio of earnings to fixed charges ..................... (0.6) (1.6) 0.5 0.5 3.7 4.0 

Ratio of earnings to combined fixed charges and preferred 

stock dividends .................................. (0.6) (1.6) 0.5 0.5 3.7 4.0 

Ratio of earnings to combined fixed charges and preferred 

stock dividends excluding certain items(b) ............ 1.1 0.9 1.5 2.4 4.2 5.4 

(a) 

(b) 

Represents amount of income before provision for income taxes required to meet the preferred 

stock dividend requirements of the Company. 

Excludes the 2011 non-cash, pre-tax impairment charge for goodwill and other intangible assets of 

$494 million and litigation expense of $9 million; the 2010 non-cash, pre-tax impairment charge for 

goodwill and other intangible assets of $698 million and non-cash, pre-tax impairment charge for 

financial investments of $34 million; the 2009 non-cash, pre-tax impairment charge for goodwill of 

$262 million; non-cash, pre-tax impairment charge for financial investments of $10 million and 

litigation expense of $7 million; 2008 non-cash, pre-tax impairment charge for goodwill and other 

intangible assets of $467 million, financial investments of $58 million and litigation expense of $9 

million; 2007 non-cash, pre-tax impairment charges for goodwill and other intangible assets of 

$119 million and the non-cash, pre-tax charge for financial investments of $22 million; 2006 

non-cash, pre-tax impairment charges for goodwill and financial investments of $317 million and 

$101 million, respectively, and the pre-tax income related to the Behr litigation settlement of 

$1 million.

Information for Shareholders 

EXECUTIVE OFFICES 


21001 Van Born Road 

Taylor, MI 48180-1340 

Phone: 313-274-7400, Fax: 313-792-4177 

INDEPENDENT REGISTERED 

PUBLIC ACCOUNTING FIRM 

PricewaterhouseCoopers LLP 

PricewaterhouseCoopers Plaza 

1900 St. Antoine 

Detroit, MI 48226-2263 

STOCK EXCHANGE INFORMATION 

Masco Corporation’s common stock is traded 

on the New York Stock Exchange under the 

symbol MAS. 

INTERNET CONTACT 

Current information about Masco Corporation 

can be found by visiting our Web site at www. 

masco.com or you may contact us via e-mail at 

webmaster@mascohq.com. 

INVESTOR RELATIONS CONTACT 

Additional information about the Company is 

available without charge to shareholders who 

direct a request to: 

Maria C. Duey 

Vice President–Investor Relations 

and Communications 



Taylor, MI 48180-1340 

ANNUAL MEETING OF SHAREHOLDERS 

The 2012 Annual Meeting of Shareholders of 

Masco Corporation will be held at the executive 

offices of the Company on May 8, 2012 at 

10:00 a.m., E.D.T. 

MascoCorp 


MascoCorp 

MascoCareers 

TRANSFER AGENT, REGISTRAR AND 

DIVIDEND DISBURSING AGENT 

Answers to many of your shareholder questions 

and requests for forms are available by 

visiting the BNY Mellon Shareowner Services 

Web site at: 

www.bnymellon.com/shareowner/isd. 

Send Certificates For Transfer to: 

BNY Mellon Shareowner Services 

P.O. Box 358015 

Pittsburgh, PA 15252-8015 

Dividend Reinvestment Plan: 

Masco Corporation has appointed BNY Mellon 

Shareowner Services to serve as agent for its 

Dividend Reinvestment Plan. All inquiries regarding 

the Plan should be sent to: 


c/o BNY Mellon Shareowner Services 

P.O. Box 358035 


Shareholder inquiries regarding lost certificates 

should be directed to: 


P.O. Box 358317 


Duplicate mailings and other inquiries: 

Multiple shareholders residing at one address 

and holding shares through a bank or broker 

may receive only one Annual Report and Proxy 

Statement. This “householding” procedure 

reduces duplicate mailings and Company expenses. 

Shareholders who wish to opt out 

of householding should contact their bank or 

broker. 

Shares owned by one person, but held in different 

forms of the same name, may result in 

duplicate mailings of shareholder information at 

added expense to the Company. Please notify 

BNY Mellon Shareowner Services to eliminate 

such duplication. 

General inquiries and address changes should be 

directed as follows: 


480 Washington Blvd. 

Jersey City, NJ 07310-1900 

Phone: 866-230-0666 (in the U.S.) 

201-680-6685 (outside of the U.S.) 

800-231-5469 (hearing impaired–TTD phone) 

E-Mail Address: shrrelations@bnymellon.com



Taylor, Michigan 48180

Masco Corporation 2011 Annual Report

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