XML 58 R8.htm IDEA: XBRL DOCUMENT
v2.4.0.8

ACCOUNTING POLICIES | 12 Months Ended
--- | ---
Dec. 31, 2013
ACCOUNTING POLICIES |
ACCOUNTING POLICIES | 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 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 to five years; related amortization expense is classified as a selling expense in the consolidated statements of operations. 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 operations 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. Short-Term Bank Deposits. The Company invests a portion of its foreign excess cash in short-term bank deposits. These highly liquid investments have original maturities between three and twelve months and are valued at cost, which approximates fair value at December 31, 2013 and December 31, 2012. These short-term bank deposits are classified in the current assets section of the Company's consolidated balance sheets, and interest income related to short-term bank deposits is recorded in the Company's consolidated statement of operations in other income (expense), net. 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 $57 million and $71 million at December 31, 2013 and 2012, respectively. Receivables include unbilled revenue related to the Installation and Other Services segment of $24 million and $18 million at December 31, 2013 and 2012, 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 operations. 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 $175 million, $192 million and $234 million in 2013, 2012 and 2011, respectively. Such depreciation expense included accelerated depreciation of $13 million (primarily in the Cabinets and Related Products and Plumbing Products segments), $28 million (primarily in the Cabinets and Related Products and Plumbing Products segments) and $52 million (primarily in the Cabinets and Related Products and Other Specialty Products segment) in 2013, 2012 and 2011, 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 10 percent as the basis to determine the discount rate to apply to the estimated future cash flows. Our weighted average cost of capital increased in 2013 due to improving market conditions and an increased stock price. In 2013 and 2012, due to improving market conditions, the Company increased the discount rate to a range of 11.5 percent to 13.5 percent in 2013 for most of its reporting units compared to a range of 11 percent to 13 percent in 2012. The Company records an impairment to goodwill (adjusting the value to the estimated fair value) if the book value exceeds the estimated fair value. 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. 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, netted by counterparty, where the right of offset exists. 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 the estimated cost 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 the information available and includes a number of factors such as the warranty coverage, the warranty period, historical experience specific to the nature, frequency and average cost to service the claim, along with product manufacturing metrics and industry and demographic trends. Certain factors and related assumptions in determining our warranty liability involve judgments and estimates and are sensitive to changes in the aforementioned factors. The Company believes that the warranty accrual is appropriate; however, actual claims incurred could differ from the original estimates thereby requiring adjustments to previously established accruals. 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. Such expense is recognized ratably over the shorter of the vesting period of the stock awards, typically 5 to 10 years, or the length of time until the grantee becomes retirement-eligible at age 65. The Company measures compensation expense for stock options using a Black-Scholes option pricing model. Such expense is 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 SE at both December 31, 2013 and 2012. The aggregate noncontrolling interest, net of dividends, at December 31, 2013 and 2012 has been recorded as a component of equity on the Company's consolidated balance sheets. Interest and Penalties on Uncertain Tax Positions. The Company records interest and penalties on its uncertain tax positions in income tax expense. Reclassifications. Certain prior-year amounts have been reclassified to conform to the 2013 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. Revision of Previously Issued Financial Statements. During the third quarter ended September 30, 2013, the Company identified an error related to the classification of cash and cash investments. Foreign short-term bank deposits with terms ranging from three months to twelve months were incorrectly classified as cash and cash investments rather than short-term bank deposits. Historic periods are revised, as detailed below, in our future filings. These classification errors were not considered material to any prior period financial statements. The following table presents the impact of the revisions on the Company's previously issued consolidated balance sheets (in millions).
Balance Sheet December 31, 2012 |  | As Reported |  | As Revised |
--- | --- | --- | --- | --- | ---
Cash and cash investments |  | $ | 1,351 |  | $ | 1,040 |
Short-term bank deposits |  |  | — |  |  | 311 |
Total current assets |  | $ | 3,217 |  | $ | 3,217 |
Balance Sheet December 31, 2011 |  | As Reported |  | As Revised |
--- | --- | --- | --- | --- | ---
Cash and cash investments |  | $ | 1,656 |  | $ | 1,353 |
Short-term bank deposits |  |  | — |  |  | 303 |
Total current assets |  | $ | 3,429 |  | $ | 3,429 |
This revision had no effect on our consolidated results of operations. The following table presents the impact of the revisions on the Company's previously issued consolidated statement of cash flows (in millions).
Cash Flows December 31, 2012 |  | As Reported |  | As Revised |
--- | --- | --- | --- | --- | ---
Net cash (for) investing activities |  | $ | (27 | ) | $ | (29 | )
Effect of exchange rate changes on cash and cash investments |  | $ | 17 |  | $ | 11 |
Decrease in cash and cash investments |  | $ | (305 | ) | $ | (313 | )
Cash Flows December 31, 2011 |  | As Reported |  | As Revised |
--- | --- | --- | --- | --- | ---
Net cash (for) investing activities |  | $ | (61 | ) | $ | (84 | )
Effect of exchange rate changes on cash and cash investments |  | $ | (18 | ) | $ | (8 | )
Decrease in cash and cash investments |  | $ | (59 | ) | $ | (72 | )
Cash Flows December 31, 2010 |  | As Reported |  | As Revised |
--- | --- | --- | --- | --- | ---
Net cash (for) investing activities |  | $ | (109 | ) | $ | (244 | )
Effect of exchange rate changes on cash and cash investments |  | $ | (14 | ) | $ | (7 | )
Increase in cash and cash investments |  | $ | 302 |  | $ | 174 |
The following table presents the impact of the revisions on the Company's previously issued consolidated balance sheets and statements of cash flows (all cash flow figures are year-to-date, in millions).
|  | Mar. 31, 2012 |  | June 30, 2012 |  | Sep. 30, 2012 |  | Mar. 31, 2013 |  | June 30, 2013 |
--- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | ---
Cash and cash investments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
As reported |  | $ | 1,788 |  | $ | 1,853 |  | $ | 1,166 |  | $ | 1,032 |  | $ | 1,223 |
As revised |  | $ | 1,491 |  | $ | 1,612 |  | $ | 889 |  | $ | 828 |  | $ | 1,028 |
Short-term bank deposits |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
As reported |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
As revised |  | $ | 297 |  | $ | 241 |  | $ | 277 |  | $ | 204 |  | $ | 195 |
Net cash (for) from investing activities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
As reported |  | $ | (2 | ) | $ | (15 | ) | $ | (42 | ) | $ | (30 | ) | $ | (51 | )
As revised |  | $ | 10 |  | $ | 37 |  | $ | (17 | ) | $ | 70 |  | $ | 62 |
The revisions did not significantly impact the effect of exchange rate changes on cash and cash investments in each quarter above. These changes will be reflected in the revised statements of cash flows, in future filings. Recently Issued Accounting Pronouncements. On January 1, 2013, the Company adopted new accounting guidance requiring disclosure of amounts reclassified from accumulated other comprehensive income. The adoption of this new guidance did not have an impact on the Company's financial position or its results of operations.

X
- Details
Name: | us-gaap_AccountingPoliciesAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for all significant accounting policies of the reporting entity. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6367646&loc=d3e18780-107790 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6367646&loc=d3e18726-107790 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section 50 -Paragraph 6 -URI http://asc.fasb.org/extlink&oid=6367646&loc=d3e18861-107790 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6367646&loc=d3e18743-107790 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6367646&loc=d3e18854-107790 + Details
Name: | us-gaap_SignificantAccountingPoliciesTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration