MASCO CORP /DE/, 10-Q filed on 4/25/2017
Quarterly Report
Document and Entity Information
3 Months Ended
Mar. 31, 2017
Document and Entity Information [Abstract]
 
Entity Registrant Name
MASCO CORP /DE/ 
Entity Central Index Key
0000062996 
Current Fiscal Year End Date
--12-31 
Entity Filer Category
Large Accelerated Filer 
Document Type
10-Q 
Document Period End Date
Mar. 31, 2017 
Document Fiscal Year Focus
2017 
Document Fiscal Period Focus
Q1 
Amendment Flag
false 
Entity Common Stock, Shares Outstanding (in shares)
319,362,898 
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Current assets:
 
 
Cash and cash investments
$ 689 
$ 990 
Short-term bank deposits
194 
201 
Receivables
1,144 
917 
Prepaid expenses and other
105 
114 
Inventories:
 
 
Finished goods
463 
366 
Raw material
263 
254 
Work in process
100 
92 
Total
826 
712 
Total current assets
2,958 
2,934 
Property and equipment, net
1,074 
1,060 
Goodwill
835 
832 
Other intangible assets, net
154 
154 
Other assets
118 
157 
Total assets
5,139 
5,137 
Current liabilities:
 
 
Accounts payable
903 
800 
Notes payable
3 
2 
Accrued liabilities
518 
658 
Total current liabilities
1,424 
1,460 
Long-term debt
2,996 
2,995 
Other liabilities
778 
785 
Total liabilities
5,198 
5,240 
Commitments and contingencies (Note M)
   
   
Masco Corporation’s shareholders’ equity:
 
 
Common shares, par value $1 per share Authorized shares: 1,400,000,000; Issued and outstanding: 2017 – 316,100,000; 2016 – 318,000,000
316 
318 
Preferred shares authorized: 1,000,000; Issued and outstanding: 2017 and 2016 – None
0 
0 
Paid-in capital
0 
0 
Retained deficit
(370)
(381)
Accumulated other comprehensive loss
(214)
(235)
Total Masco Corporation’s shareholders’ deficit
(268)
(298)
Noncontrolling interest
209 
195 
Total equity
(59)
(103)
Total liabilities and equity
$ 5,139 
$ 5,137 
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) (USD $)
Mar. 31, 2017
Dec. 31, 2016
Statement of Financial Position [Abstract]
 
 
Common share, par value (in dollars per share)
$ 1 
$ 1 
Common shares, shares authorized (in shares)
1,400,000,000 
1,400,000,000 
Common shares, shares issued (in shares)
316,100,000 
318,000,000 
Common shares, shares outstanding (in shares)
316,100,000 
318,000,000 
Preferred shares, shares authorized (in shares)
1,000,000 
1,000,000 
Preferred shares, shares issued (in shares)
0 
0 
Preferred shares, shares outstanding (in shares)
0 
0 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Income Statement [Abstract]
 
 
Net sales
$ 1,777 
$ 1,720 
Cost of sales
1,169 
1,151 
Gross profit
608 
569 
Selling, general and administrative expenses
355 
335 
Operating profit
253 
234 
Other income (expense), net:
 
 
Interest expense
(43)
(56)
Other, net
3 
(1)
Total other income (expense), net
(40)
(57)
Income before income taxes
213 
177 
Income tax expense
63 
58 
Net income
150 
119 
Less: Net income attributable to noncontrolling interest
10 
10 
Net income attributable to Masco Corporation
$ 140 
$ 109 
Basic:
 
 
Net income (in dollars per share)
$ 0.44 
$ 0.33 
Diluted:
 
 
Net income (in dollars per share)
$ 0.43 
$ 0.32 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Statement of Comprehensive Income [Abstract]
 
 
Net income
$ 150 
$ 119 
Less: Net income attributable to noncontrolling interest
10 
10 
Net income attributable to Masco Corporation
140 
109 
Other comprehensive income (loss), net of tax
 
 
Cumulative translation adjustment
21 
24 
Pension and other post-retirement benefits
4 
3 
Other comprehensive income
25 
27 
Less: Other comprehensive income attributable to noncontrolling interest
4 
7 
Other comprehensive income attributable to Masco Corporation
21 
20 
Total comprehensive income
175 
146 
Less: Total comprehensive income attributable to the noncontrolling interest
14 
17 
Total comprehensive income attributable to Masco Corporation
$ 161 
$ 129 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
CASH FLOWS FROM (FOR) OPERATING ACTIVITIES:
 
 
Cash provided by operations
$ 253 
$ 219 
Increase in receivables
(237)
(198)
Increase in inventories
(109)
(63)
Decrease in accounts payable and accrued liabilities, net
(56)
(28)
Net cash for operating activities
(149)
(70)
CASH FLOWS FROM (FOR) FINANCING ACTIVITIES:
 
 
Purchase of Company common stock
(87)
(86)
Cash dividends paid
(32)
(32)
Issuance of notes, net of issuance costs
0 
889 
Issuance of Company common stock
0 
1 
Employee withholding taxes paid on stock-based compensation
(14)
(19)
Decrease in debt, net
0 
(2)
Net cash (for) from financing activities
(133)
751 
CASH FLOWS FROM (FOR) INVESTING ACTIVITIES:
 
 
Capital expenditures
(37)
(37)
Proceeds from disposition of:
 
 
Short-term bank deposits
11 
60 
Other financial investments
3 
0 
Property and equipment
6 
0 
Other, net
(9)
(3)
Net cash (for) from investing activities
(26)
20 
Effect of exchange rate changes on cash and cash investments
7 
6 
CASH AND CASH INVESTMENTS:
 
 
(Decrease) increase for the period
(301)
707 
At January 1
990 
1,468 
At March 31
$ 689 
$ 2,175 
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (USD $)
In Millions, unless otherwise specified
Total
Common Shares ($1 par value)
Paid-In Capital
Retained Deficit
Accumulated Other Comprehensive Loss
Noncontrolling Interest
Balance at Dec. 31, 2015
$ 58 
$ 330 
$ 0 
$ (300)
$ (165)
$ 193 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
Total comprehensive income
146 
 
 
109 
20 
17 
Shares issued
(6)
2 
(8)
 
 
 
Shares retired:
 
 
 
 
 
 
Repurchased
(86)
(3)
(7)
(76)
 
 
Surrendered (non-cash)
(11)
   
 
(11)
 
 
Cash dividends declared
(32)
 
 
(32)
 
 
Stock-based compensation
15 
 
15 
 
 
 
Balance at Mar. 31, 2016
84 
329 
0 
(310)
(145)
210 
Balance at Dec. 31, 2016
(103)
318 
0 
(381)
(235)
195 
Increase (Decrease) in Stockholders' Equity
 
 
 
 
 
 
Total comprehensive income
175 
 
 
140 
21 
14 
Shares issued
(1)
1 
(2)
 
 
 
Shares retired:
 
 
 
 
 
 
Repurchased
(92)
(3)
(5)
(84)
 
 
Surrendered (non-cash)
(13)
 
 
(13)
 
 
Cash dividends declared
(32)
 
 
(32)
 
 
Stock-based compensation
7 
 
7 
 
 
 
Balance at Mar. 31, 2017
$ (59)
$ 316 
$ 0 
$ (370)
$ (214)
$ 209 
Accounting Policies
Accounting Policies
ACCOUNTING POLICIES
 
In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments, of a normal recurring nature, necessary to present fairly our financial position as at March 31, 2017, and our results of operations, comprehensive income (loss), cash flows and changes in shareholders' equity for the three-month period ended March 31, 2017 and 2016. The condensed consolidated balance sheet at December 31, 2016 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.
 
Reclassification. Certain prior year amounts have been reclassified to conform to the 2017 presentation in the condensed consolidated financial statements. 
 
Recently Adopted Accounting Pronouncements. In July 2015, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2015-11, "Inventory (Topic 330): Simplifying the Measurement of Inventory," which requires that inventory within the scope of the guidance be measured at the lower of cost and net realizable value, as opposed to the lower of cost or market. We adopted ASU 2015-11 on January 1, 2017. The adoption of the new standard did not have an impact on our financial position or results of operations.

In March 2016, the FASB issued ASU 2016-09, “Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting,” which requires the tax effects related to share-based payments to be recorded through the income statement, simplifies the accounting requirements for forfeitures and employers' tax withholding requirements, and modifies the presentation of certain items on the statement of cash flows. We adopted ASU 2016-09 on January 1, 2017, using the retrospective options for reclassifying excess tax benefit from stock-based compensation and employee withholding taxes paid on stock-based compensation within our statement of cash flows. The adoption of the remaining requirements did not have an impact on our financial position or results of operation. As a result of this adoption, we increased cash flows from (for) operating activities and decreased cash flows from (for) financing activities by $30 million for the three-month period ended March 31, 2016. For full year 2016 and 2015, we currently estimate increasing cash flows from (for) operating activities and decreasing cash flows from (for) financing activities by $62 million and $111 million, respectively. Subsequent to adoption, tax effects related to employee share-based payments will be recorded to income tax expense, thus increasing the volatility in our effective tax rate.

In January 2017, the FASB issued ASU 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which removes Step 2 of the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. We early adopted ASU 2017-04 effective January 1, 2017. The adoption of the new standard did not have an impact on our financial position or results of operations.

Recently Issued Accounting Pronouncements.  In May 2014, FASB issued a new standard for revenue recognition, Accounting Standards Codification ("ASC") 606. The purpose of ASC 606 is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability across industries. The standard allows for either a full retrospective or modified retrospective method of adoption. We are finalizing our assessment of the impact of the adoption; however, currently, we do not expect the adoption will have a material impact on our financial position or results of operations. We currently anticipate adopting this standard on its effective date, January 1, 2018, under the full retrospective method of adoption. We have not experienced significant issues in our implementation process and we do not anticipate significant changes to our accounting policies.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities,” which primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. ASU 2016-01 is effective for us for annual periods beginning January 1, 2018. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations.
    
In February 2016, the FASB issued a new standard for leases, ASC 842, which changes the accounting model for identifying and accounting for leases. ASC 842 is effective for us for annual periods beginning January 1, 2019 and requires retrospective application. We expect this standard to increase our total assets and total liabilities; however, we are currently evaluating the magnitude of the impact the adoption of this new standard will have on our financial position and results of operations.
    
    

A. ACCOUNTING POLICIES (Concluded)

In March 2017, the FASB issued ASU 2017-07, "Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," which modifies the presentation of net periodic pension and post-retirement benefit cost ("net benefit cost") in the income statement and the components eligible for capitalization as assets. ASC 2017-07 is effective for us for annual periods beginning January 1, 2018. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations; however, we expect the impact to be limited to the reclassification of non-service cost components of net benefit cost from operating profit to other income (expense), net, within our results of operations.
Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets
GOODWILL AND OTHER INTANGIBLE ASSETS
 
The changes in the carrying amount of goodwill for the three-month period ended March 31, 2017, by segment, were as follows, in millions: 
 
Gross Goodwill At March 31, 2017
 
Accumulated
Impairment
Losses
 
Net Goodwill At March 31, 2017
Plumbing Products
$
522

 
$
(340
)
 
$
182

Decorative Architectural Products
294

 
(75
)
 
219

Cabinetry Products
240

 
(59
)
 
181

Windows and Other Specialty Products
987

 
(734
)
 
253

Total
$
2,043

 
$
(1,208
)
 
$
835

 
Gross Goodwill At December 31, 2016
 
Accumulated
Impairment
Losses
 
Net Goodwill At December 31, 2016
 
Other(A)
 
Net Goodwill At March 31, 2017
Plumbing Products
$
519

 
$
(340
)
 
$
179

 
$
3

 
$
182

Decorative Architectural Products
294

 
(75
)
 
219

 
—

 
219

Cabinetry Products
240

 
(59
)
 
181

 
—

 
181

Windows and Other Specialty Products
987

 
(734
)
 
253

 
—

 
253

Total
$
2,040

 
$
(1,208
)
 
$
832

 
$
3

 
$
835

 
 
(A)    Other principally includes the effect of foreign currency translation.
 
The carrying value of our other indefinite-lived intangible assets was $136 million at both March 31, 2017 and December 31, 2016, and principally included registered trademarks. The carrying value of our definite-lived intangible assets was $18 million at both March 31, 2017 and December 31, 2016 (net of accumulated amortization of $8 million and $16 million, respectively), and principally included customer relationships.
Depreciation and Amortization
Depreciation and Amortization
DEPRECIATION AND AMORTIZATION
 
Depreciation and amortization expense was $31 million and $32 million for the three-month periods ended March 31, 2017 and 2016, respectively.
Derivative Instruments and Hedging Activities
Derivative Instruments and Hedging Activities
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
 
We are exposed to global market risk as part of our normal daily business activities.  To manage these risks, we enter into various derivative contracts.  These contracts may include interest rate swap agreements, foreign currency contracts and metals contracts. We review our hedging program, derivative positions and overall risk management on a regular basis.
 
Interest Rate Swap Agreements.  In 2012, in connection with the issuance of $400 million of debt, we terminated the interest rate swap hedge relationships that we had entered into in 2011.  These interest rate swaps were designated as cash flow hedges and effectively fixed interest rates on the forecasted debt issuance to variable rates based on 3-month LIBOR.  Upon termination, the ineffective portion of the cash flow hedges of an approximately $2 million loss was recognized in our consolidated statement of operations in other, net.  The remaining loss of approximately $23 million from the termination of these swaps is being amortized as an increase to interest expense over the remaining term of the debt, through March 2022. At March 31, 2017, the balance remaining in accumulated other comprehensive loss was $12 million (pre-tax).
D. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Concluded)

Foreign Currency Contracts.  Our 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, we, including certain of our European operations, enter into foreign currency forward contracts and foreign currency exchange contracts.
    
Gains (losses) related to foreign currency forward and exchange contracts are recorded in our condensed consolidated statements of operations in other income (expense), net.  In the event that the counterparties fail to meet the terms of the foreign currency forward or exchange contracts, our exposure is limited to the aggregate foreign currency rate differential with such institutions.

Metals Contracts.  From time to time, we have entered into contracts to manage our exposure to increases in the prices of copper and zinc. Gains (losses) related to these contracts are recorded in our condensed consolidated statements of operations in cost of sales.

The pre-tax gains (losses) included in our condensed consolidated statements of operations are as follows, in millions:
 
Three Months Ended
March 31,
 
2017
 
2016
Metals contracts
$
—

 
$
2



We present our derivatives net by counterparty, due to the right of offset under master netting arrangements, in the condensed consolidated balance sheets.  The notional amounts being hedged and the fair value of those derivative instruments are as follows, in millions:
 
At March 31, 2017
 
Notional
Amount
 
Balance Sheet
Foreign currency contracts:
 

 
 

Exchange contracts
$
6

 
 

Accrued liabilities
 

 
$
—

Forward contracts
18

 
 

Accrued liabilities
 

 
(2
)
 
At December 31, 2016
 
Notional
Amount
 
Balance Sheet
Foreign currency contracts:
 

 
 

Forward contracts
$
21

 
 

Accrued liabilities
 

 
$
(2
)
Metals contracts
1

 
 

Accrued liabilities
 

 
—


 
The fair value of all foreign currency derivative contracts is estimated on a recurring basis, quarterly, using Level 2 inputs (significant other observable inputs).
Warranty Liability
Warranty Liability
WARRANTY LIABILITY
 
Changes in our warranty liability were as follows, in millions: 
 
Three Months Ended
March 31, 2017
 
Twelve Months Ended December 31, 2016
Balance at January 1
$
192

 
$
152

Accruals for warranties issued during the period
13

 
66

Accruals related to pre-existing warranties
3

 
33

Settlements made (in cash or kind) during the period
(14
)
 
(56
)
Other, net (including currency translation)
—

 
(3
)
Balance at end of period
$
194

 
$
192



In the second and third quarters of 2016, a business unit in the Windows and Other Specialty Products segment recorded $10 million and $21 million, respectively, for increases in its estimate of expected future warranty claims relating to previously sold windows and doors. The change in estimate resulted from the adoption of an improved warranty valuation model and the availability of additional information used to support the estimate of costs to service claims and recent warranty claims trends, including a shift to increased costs to repair.
Debt
Debt
DEBT

On March 28, 2013, we entered into a credit agreement (the “Credit Agreement”) with a bank group, with an aggregate commitment of $1.25 billion and a maturity date of March 28, 2018.  On May 29, 2015 and August 28, 2015, we amended the Credit Agreement with the bank group (the “Amended Credit Agreement”).  The Amended Credit Agreement reduced the aggregate commitment to $750 million and extended the maturity date to May 29, 2020.  Under the Amended Credit Agreement, at our request and subject to certain conditions, we can increase the aggregate commitment up to an additional $375 million with the current bank group or new lenders.

The Amended Credit Agreement provides for an unsecured revolving credit facility available to us and one of our foreign subsidiaries, in U.S. dollars, European Euro 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 $75 million and obtain letters of credit of up to $100 million; any outstanding letters of credit under the Amended Credit Agreement reduce our borrowing capacity. At March 31, 2017, we had no outstanding standby letters of credit under the Amended Credit Agreement.

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

The Amended Credit Agreement contains financial covenants requiring us to maintain (A) a maximum net leverage ratio, as adjusted for certain items, of 4.0 to 1.0, and (B) a minimum interest coverage ratio, as adjusted for certain items, equal to or greater than 2.5 to 1.0.

In order for us to borrow under the Amended Credit Agreement, there must not be any default in our covenants in the Amended 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 our representations and warranties in the Amended 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, 2014, in each case, no material ERISA or environmental non-compliance, and no material tax deficiency). We were in compliance with all covenants and no borrowings have been made at March 31, 2017. 

Fair Value of Debt.  The fair value of our short-term and long-term fixed-rate debt instruments is based principally upon modeled market prices for the same or similar issues. The aggregate estimated market value of short-term and long-term debt was approximately $3.3 billion, compared with the aggregate carrying value of $3.0 billion, at both March 31, 2017 and December 31, 2016.
Stock-Based Compensation
Stock-Based Compensation
STOCK-BASED COMPENSATION
 
Our 2014 Long Term Stock Incentive Plan provides for the issuance of stock-based incentives in various forms to our employees and non-employee Directors.  At March 31, 2017, outstanding stock-based incentives were in the form of long-term stock awards, stock options, restricted stock units, phantom stock awards and stock appreciation rights. 

Pre-tax compensation expense and the related income tax benefit for these stock-based incentives were as follows, in millions: 
 
Three Months Ended March 31,
 
2017
 
2016
Long-term stock awards
$
6

 
$
5

Stock options
1

 
1

Phantom stock awards and stock appreciation rights
2

 
3

Total
$
9

 
$
9


     
Long-Term Stock Awards.  Long-term stock awards are granted to our 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 in the open market.  We granted 770,870 shares of long-term stock awards in the three-month period ended March 31, 2017.
    
Our long-term stock award activity was as follows, shares in millions: 
 
Three Months Ended March 31,
 
2017
 
2016
Unvested stock award shares at January 1
4

 
5

Weighted average grant date fair value
$
20

 
$
17

 
 
 
 
Stock award shares granted
1

 
1

Weighted average grant date fair value
$
34

 
$
26

 
 
 
 
Stock award shares vested
2

 
2

Weighted average grant date fair value
$
18

 
$
16

 
 
 
 
Stock award shares forfeited
—

 
—

Weighted average grant date fair value
$
22

 
$
19

 
 
 
 
Unvested stock award shares at March 31
3

 
4

Weighted average grant date fair value
$
23

 
$
20


At March 31, 2017 and 2016, there was $63 million and $62 million, respectively, of total unrecognized compensation expense related to unvested stock awards; such awards had a weighted average remaining vesting period of 4 years at both March 31, 2017 and 2016.
 
The total market value (at the vesting date) of stock award shares which vested during the three-month periods ended March 31, 2017 and 2016 was $39 million and $36 million, respectively.
 
Stock Options.  Stock options are granted to certain 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 10 years after the grant date.
 
We granted 397,350 shares of stock options in the three-month period ended March 31, 2017 with a grant date weighted-average exercise price of approximately $34 per share. In the three-month period ended March 31, 2017, no stock option shares were forfeited (including options that expired unexercised).
G. STOCK-BASED COMPENSATION (Continued)

Our stock option activity was as follows, shares in millions: 

 
 
Three Months Ended March 31,
 
 
2017
 
 
2016
Option shares outstanding, January 1
 
7

 
 
12

Weighted average exercise price
$
15

 
$
17

 
 
 
 
 
 
Option shares granted
 
—

 
 
—

Weighted average exercise price
$
34

 
$
26

 
 
 
 
 
 
Option shares exercised
 
—

 
 
1

Aggregate intrinsic value on date of exercise (A) 
$
3 million

 
$
18 million

Weighted average exercise price
$
23

 
$
18

 
 
 
 
 
 
Option shares forfeited
 
—

 
 
—

Weighted average exercise price
$
—

 
$
—

 
 
 
 
 
 
Option shares outstanding, March 31
 
7

 
 
11

Weighted average exercise price
$
16

 
$
18

Weighted average remaining option term (in years)
 
4

 
 
4

 
 
 
 
 
 
Option shares vested and expected to vest, March 31
 
7

 
 
11

Weighted average exercise price
$
16

 
$
18

Aggregate intrinsic value (A) 
$
131 million

 
$
154 million

Weighted average remaining option term (in years)
 
4

 
 
4

 
 
 
 
 
 
Option shares exercisable (vested), March 31
 
6

 
 
10

Weighted average exercise price
$
13

 
$
17

Aggregate intrinsic value (A) 
$
120 million

 
$
138 million

Weighted average remaining option term (in years)
 
3

 
 
3

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

At March 31, 2017 and 2016, there was $10 million and $8 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 at both March 31, 2017 and 2016.

G. STOCK-BASED COMPENSATION (Concluded)    

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

 
Three Months Ended March 31,
 
2017
 
2016
Weighted average grant date fair value
$
9.68

 
$
6.43

Risk-free interest rate
2.16
%
 
1.41
%
Dividend yield
1.19
%
 
1.49
%
Volatility factor
30.00
%
 
29.00
%
Expected option life
6 years

 
6 years



Restricted Stock Units. In March 2017, our Organization and Compensation Committee ("Compensation Committee") of the Board of Directors approved a Long Term Incentive Program ("LTIP Program"). Under the LTIP Program, we granted restricted stock units to certain senior executives. These restricted stock units will vest and share awards will be issued at no cost, subject to our achievement of specified return on invested capital performance goals over a three-year period that have been established by the Compensation Committee for the performance period and the employee's continued employment through the share award date. Restricted stock units are granted at a target number; based on our performance, the number of restricted stock units that vest can be adjusted downward to zero and upward to a maximum of 200%. We granted 124,780 restricted stock units in the three-month period ended March 31, 2017, with a grant date fair value of approximately $34 per share. No restricted stock units were forfeited in the three-month period ended March 31, 2017.
Employee Retirement Plans
Employee Retirement Plans
EMPLOYEE RETIREMENT PLANS
 
Net periodic pension cost for our defined-benefit pension plans was as follows, in millions: 
 
Three Months Ended March 31,
 
2017
 
2016
 
Qualified
 
Non-Qualified
 
Qualified
 
Non-Qualified
Service cost
$
1

 
$
—

 
$
1

 
$
—

Interest cost
12

 
1

 
11

 
1

Expected return on plan assets
(12
)
 
—

 
(10
)
 
—

Amortization of net loss
5

 
1

 
4

 
1

Net periodic pension cost
$
6

 
$
2

 
$
6

 
$
2


We froze all future benefit accruals under substantially all of our domestic and foreign qualified and domestic non-qualified defined benefit pension plans several years ago.
Reclassifications From Accumulated Other Comprehensive Loss
Reclassifications From Accumulated Other Comprehensive Loss
RECLASSIFICATIONS FROM ACCUMULATED OTHER COMPREHENSIVE LOSS
 
The reclassifications from accumulated other comprehensive loss to the condensed consolidated statements of operations were as follows, in millions: 
 
 
Amounts Reclassified
 
 
Accumulated Other Comprehensive Loss
 
Three Months Ended
March 31,
 
Statement of Operations Line Item
 
2017
 
2016
 
Amortization of defined benefit pension and other postretirement benefits:
 
 

 
 

 
 
Actuarial losses, net
 
$
6

 
$
5

 
Selling, general and administrative expenses
Tax (benefit)
 
(2
)
 
(2
)
 
 
Net of tax
 
$
4

 
$
3

 
 
Segment Information
Segment Information
SEGMENT INFORMATION
 
Information by segment and geographic area was as follows, in millions: 
 
Three Months Ended March 31,
 
2017
 
2016
 
2017
 
2016
 
Net Sales(A)
 
Operating Profit
Operations by segment:
 

 
 

 
 

 
 

Plumbing Products
$
863

 
$
813

 
$
156

 
$
129

Decorative Architectural Products
505

 
493

 
101

 
105

Cabinetry Products
231

 
236

 
16


24

Windows and Other Specialty Products
178

 
178

 
6

 
3

Total
$
1,777

 
$
1,720

 
$
279

 
$
261

Operations by geographic area:
 

 
 

 
 

 
 

North America
$
1,411

 
$
1,350

 
$
239

 
$
215

International, principally Europe
366

 
370

 
40

 
46

Total
$
1,777

 
$
1,720

 
279

 
261

General corporate expense, net
 

 
 

 
(26
)
 
(27
)
Operating profit
 

 
 

 
253

 
234

Other income (expense), net
 

 
 

 
(40
)
 
(57
)
Income before income taxes
 

 
 

 
$
213

 
$
177

 
 
(A)
Inter-segment sales were not material.
Other Income (Expense), Net
Other Income (Expense), Net
OTHER INCOME (EXPENSE), NET
 
Other, net, which is included in other income (expense), net, was as follows, in millions: 
 
Three Months Ended
March 31,
 
2017
 
2016
Income from cash and cash investments and short-term bank deposits
$
1

 
$
1

Equity investment income, net
—

 
1

Realized gains from private equity funds
1

 
—

Foreign currency transaction gains
1

 
—

Other items, net
—

 
(3
)
Total other, net
$
3

 
$
(1
)
Earnings Per Common Share
Earnings Per Common Share
EARNINGS PER COMMON SHARE
 
Reconciliations of the numerators and denominators used in the computations of basic and diluted earnings per common share were as follows, in millions: 
 
Three Months Ended
March 31,
 
2017
 
2016
Numerator (basic and diluted):
 

 
 

Net income
$
140

 
$
109

Less: Allocation to unvested restricted stock awards
1

 
1

Net income available to common shareholders
$
139

 
$
108

 
 
 
 
Denominator:
 

 
 

Basic common shares (based upon weighted average)
317

 
330

Add: Stock option dilution
4

 
3

Diluted common shares
321

 
333


 
For the three-month periods ended March 31, 2017 and 2016, we allocated dividends and undistributed earnings to the unvested restricted stock awards.
 
Additionally, 221,000 and 1 million common shares for the three-month periods ended March 31, 2017 and 2016, respectively, related to stock options were excluded from the computation of diluted earnings per common share due to their antidilutive effect.

On September 30, 2014, we announced that our Board of Directors authorized the repurchase of up to 50 million shares for retirement of our common stock in open-market transactions or otherwise. In the first three months of 2017, we repurchased and retired 2.8 million shares of our common stock (including 0.8 million shares to offset the dilutive impact of long-term stock awards granted in the first quarter), for approximately $92 million, of which $87 million was paid in cash during the first three months of 2017. At March 31, 2017, we had 10.1 million shares remaining under the authorization.

On the basis of amounts paid (declared), cash dividends per common share were $0.100 ($0.100) and $0.095 ($0.095) for the three-month periods ended March 31, 2017 and 2016, respectively.
Other Commitments and Contingencies
Other Commitments and Contingencies
OTHER COMMITMENTS AND CONTINGENCIES
 
We are subject to claims, charges, litigation and other proceedings in the ordinary course of our business, including those arising from or related to contractual matters, intellectual property, personal injury, environmental matters, product liability, product recalls, construction defect, insurance coverage, personnel and employment disputes, anti-trust issues and other matters, including class actions.  We believe we have adequate defenses in these matters and that the likelihood that the outcome of these matters would have a material adverse effect on us is remote.  However, there is no assurance that we will prevail in these matters, and we could, in the future, incur judgments, enter into settlements of claims or revise our expectations regarding the outcome of these matters, which could materially impact our results of operations.
Income Taxes
Income Taxes
INCOME TAXES
 
Effective January 1, 2017, we adopted ASU 2016-09 which requires the tax effects related to employee share-based payments to be recorded to income tax expense, thus increasing the volatility in our effective tax rate.

Our effective tax rate was 30 percent and 33 percent for the three-month periods ended March 31, 2017 and 2016, respectively.  The decrease in the tax rate was primarily due to a $7 million income tax benefit on stock based compensation in the first quarter of 2017.
Accounting Policies (Policies)
Reclassification 
Reclassification. Certain prior year amounts have been reclassified to conform to the 2017 presentation in the condensed consolidated financial statements. 
Recently Issued Accounting Pronouncements 
Recently Issued Accounting Pronouncements.  In May 2014, FASB issued a new standard for revenue recognition, Accounting Standards Codification ("ASC") 606. The purpose of ASC 606 is to provide a single, comprehensive revenue recognition model for all contracts with customers to improve comparability across industries. The standard allows for either a full retrospective or modified retrospective method of adoption. We are finalizing our assessment of the impact of the adoption; however, currently, we do not expect the adoption will have a material impact on our financial position or results of operations. We currently anticipate adopting this standard on its effective date, January 1, 2018, under the full retrospective method of adoption. We have not experienced significant issues in our implementation process and we do not anticipate significant changes to our accounting policies.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities,” which primarily affects the accounting for equity investments, financial liabilities under the fair value option, and the presentation and disclosure requirements for financial instruments. ASU 2016-01 is effective for us for annual periods beginning January 1, 2018. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations.
    
In February 2016, the FASB issued a new standard for leases, ASC 842, which changes the accounting model for identifying and accounting for leases. ASC 842 is effective for us for annual periods beginning January 1, 2019 and requires retrospective application. We expect this standard to increase our total assets and total liabilities; however, we are currently evaluating the magnitude of the impact the adoption of this new standard will have on our financial position and results of operations.
    
    

A. ACCOUNTING POLICIES (Concluded)

In March 2017, the FASB issued ASU 2017-07, "Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," which modifies the presentation of net periodic pension and post-retirement benefit cost ("net benefit cost") in the income statement and the components eligible for capitalization as assets. ASC 2017-07 is effective for us for annual periods beginning January 1, 2018. We are currently evaluating the impact the adoption of this new standard will have on our financial position and results of operations; however, we expect the impact to be limited to the reclassification of non-service cost components of net benefit cost from operating profit to other income (expense), net, within our results of operations.
Goodwill and Other Intangible Assets (Tables)
Schedule of changes in carrying amount of goodwill
The changes in the carrying amount of goodwill for the three-month period ended March 31, 2017, by segment, were as follows, in millions: 
 
Gross Goodwill At March 31, 2017
 
Accumulated
Impairment
Losses
 
Net Goodwill At March 31, 2017
Plumbing Products
$
522

 
$
(340
)
 
$
182

Decorative Architectural Products
294

 
(75
)
 
219

Cabinetry Products
240

 
(59
)
 
181

Windows and Other Specialty Products
987

 
(734
)
 
253

Total
$
2,043

 
$
(1,208
)
 
$
835

 
Gross Goodwill At December 31, 2016
 
Accumulated
Impairment
Losses
 
Net Goodwill At December 31, 2016
 
Other(A)
 
Net Goodwill At March 31, 2017
Plumbing Products
$
519

 
$
(340
)
 
$
179

 
$
3

 
$
182

Decorative Architectural Products
294

 
(75
)
 
219

 
—

 
219

Cabinetry Products
240

 
(59
)
 
181

 
—

 
181

Windows and Other Specialty Products
987

 
(734
)
 
253

 
—

 
253

Total
$
2,040

 
$
(1,208
)
 
$
832

 
$
3

 
$
835

 
 
(A)    Other principally includes the effect of foreign currency translation.
Derivative Instruments and Hedging Activities (Tables)
Schedule of pre-tax (losses) gains included in the Company's condensed consolidated statements of operations 
The pre-tax gains (losses) included in our condensed consolidated statements of operations are as follows, in millions:
 
Three Months Ended
March 31,
 
2017
 
2016
Metals contracts
$
—

 
$
2

Schedule of notional amounts being hedged and the fair value of derivative instruments 
The notional amounts being hedged and the fair value of those derivative instruments are as follows, in millions:
 
At March 31, 2017
 
Notional
Amount
 
Balance Sheet
Foreign currency contracts:
 

 
 

Exchange contracts
$
6

 
 

Accrued liabilities
 

 
$
—

Forward contracts
18

 
 

Accrued liabilities
 

 
(2
)
 
At December 31, 2016
 
Notional
Amount
 
Balance Sheet
Foreign currency contracts:
 

 
 

Forward contracts
$
21

 
 

Accrued liabilities
 

 
$
(2
)
Metals contracts
1

 
 

Accrued liabilities
 

 
—

Warranty Liability (Tables)
Schedule of changes in the Company's warranty liability
Changes in our warranty liability were as follows, in millions: 
 
Three Months Ended
March 31, 2017
 
Twelve Months Ended December 31, 2016
Balance at January 1
$
192

 
$
152

Accruals for warranties issued during the period
13

 
66

Accruals related to pre-existing warranties
3

 
33

Settlements made (in cash or kind) during the period
(14
)
 
(56
)
Other, net (including currency translation)
—

 
(3
)
Balance at end of period
$
194

 
$
192

Stock-Based Compensation (Tables)
Schedule of pre-tax compensation expense and the related income tax benefit for these stock-based incentives 

Pre-tax compensation expense and the related income tax benefit for these stock-based incentives were as follows, in millions: 
 
Three Months Ended March 31,
 
2017
 
2016
Long-term stock awards
$
6

 
$
5

Stock options
1

 
1

Phantom stock awards and stock appreciation rights
2

 
3

Total
$
9

 
$
9

Schedule of the Company's long-term stock award activity 
Our long-term stock award activity was as follows, shares in millions: 
 
Three Months Ended March 31,
 
2017
 
2016
Unvested stock award shares at January 1
4

 
5

Weighted average grant date fair value
$
20

 
$
17

 
 
 
 
Stock award shares granted
1

 
1

Weighted average grant date fair value
$
34

 
$
26

 
 
 
 
Stock award shares vested
2

 
2

Weighted average grant date fair value
$
18

 
$
16

 
 
 
 
Stock award shares forfeited
—

 
—

Weighted average grant date fair value
$
22

 
$
19

 
 
 
 
Unvested stock award shares at March 31
3

 
4

Weighted average grant date fair value
$
23

 
$
20


Schedule of the Company's stock option activity 
Our stock option activity was as follows, shares in millions: 

 
 
Three Months Ended March 31,
 
 
2017
 
 
2016
Option shares outstanding, January 1
 
7

 
 
12

Weighted average exercise price
$
15

 
$
17

 
 
 
 
 
 
Option shares granted
 
—

 
 
—

Weighted average exercise price
$
34

 
$
26

 
 
 
 
 
 
Option shares exercised
 
—

 
 
1

Aggregate intrinsic value on date of exercise (A) 
$
3 million

 
$
18 million

Weighted average exercise price
$
23

 
$
18

 
 
 
 
 
 
Option shares forfeited
 
—

 
 
—

Weighted average exercise price
$
—

 
$
—

 
 
 
 
 
 
Option shares outstanding, March 31
 
7

 
 
11

Weighted average exercise price
$
16

 
$
18

Weighted average remaining option term (in years)
 
4

 
 
4

 
 
 
 
 
 
Option shares vested and expected to vest, March 31
 
7

 
 
11

Weighted average exercise price
$
16

 
$
18

Aggregate intrinsic value (A) 
$
131 million

 
$
154 million

Weighted average remaining option term (in years)
 
4

 
 
4

 
 
 
 
 
 
Option shares exercisable (vested), March 31
 
6

 
 
10

Weighted average exercise price
$
13

 
$
17

Aggregate intrinsic value (A) 
$
120 million

 
$
138 million

Weighted average remaining option term (in years)
 
3

 
 
3

 
 
(A)
Aggregate intrinsic value is calculated using our stock price at each respective date, less the exercise price (grant date price), multiplied by the number of shares.
Schedule of 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 
The weighted average grant date fair value of option shares granted and the assumptions used to estimate those values using a Black-Scholes option pricing model were as follows: 

 
Three Months Ended March 31,
 
2017
 
2016
Weighted average grant date fair value
$
9.68

 
$
6.43

Risk-free interest rate
2.16
%
 
1.41
%
Dividend yield
1.19
%
 
1.49
%
Volatility factor
30.00
%
 
29.00
%
Expected option life
6 years

 
6 years

Employee Retirement Plans (Tables)
Schedule of net periodic pension cost for the Company's defined-benefit pension plans
Net periodic pension cost for our defined-benefit pension plans was as follows, in millions: 
 
Three Months Ended March 31,
 
2017
 
2016
 
Qualified
 
Non-Qualified
 
Qualified
 
Non-Qualified
Service cost
$
1

 
$
—

 
$
1

 
$
—

Interest cost
12

 
1

 
11

 
1

Expected return on plan assets
(12
)
 
—

 
(10
)
 
—

Amortization of net loss
5

 
1

 
4

 
1

Net periodic pension cost
$
6

 
$
2

 
$
6

 
$
2


Reclassifications From Accumulated Other Comprehensive Loss (Tables)
Schedule of reclassifications from accumulated other comprehensive (loss) income to the condensed consolidated statements of operations
The reclassifications from accumulated other comprehensive loss to the condensed consolidated statements of operations were as follows, in millions: 
 
 
Amounts Reclassified
 
 
Accumulated Other Comprehensive Loss
 
Three Months Ended
March 31,
 
Statement of Operations Line Item
 
2017
 
2016
 
Amortization of defined benefit pension and other postretirement benefits:
 
 

 
 

 
 
Actuarial losses, net
 
$
6

 
$
5

 
Selling, general and administrative expenses
Tax (benefit)
 
(2
)
 
(2
)
 
 
Net of tax
 
$
4

 
$
3

 
 
Segment Information (Tables)
Schedule of information by segment and geographic area
Information by segment and geographic area was as follows, in millions: 
 
Three Months Ended March 31,
 
2017
 
2016
 
2017
 
2016
 
Net Sales(A)
 
Operating Profit
Operations by segment:
 

 
 

 
 

 
 

Plumbing Products
$
863

 
$
813

 
$
156

 
$
129

Decorative Architectural Products
505

 
493

 
101

 
105

Cabinetry Products
231

 
236

 
16


24

Windows and Other Specialty Products
178

 
178

 
6

 
3

Total
$
1,777

 
$
1,720

 
$
279

 
$
261

Operations by geographic area:
 

 
 

 
 

 
 

North America
$
1,411

 
$
1,350

 
$
239

 
$
215

International, principally Europe
366

 
370

 
40

 
46

Total
$
1,777

 
$
1,720

 
279

 
261

General corporate expense, net
 

 
 

 
(26
)
 
(27
)
Operating profit
 

 
 

 
253

 
234

Other income (expense), net
 

 
 

 
(40
)
 
(57
)
Income before income taxes
 

 
 

 
$
213

 
$
177

 
 
(A)
Inter-segment sales were not material.
Other Income (Expense), Net (Tables)
Schedule of components of other, net, which is included in other income (expense), net
Other, net, which is included in other income (expense), net, was as follows, in millions: 
 
Three Months Ended
March 31,
 
2017
 
2016
Income from cash and cash investments and short-term bank deposits
$
1

 
$
1

Equity investment income, net
—

 
1

Realized gains from private equity funds
1

 
—

Foreign currency transaction gains
1

 
—

Other items, net
—

 
(3
)
Total other, net
$
3

 
$
(1
)
Earnings Per Common Share (Tables)
Schedule of reconciliations of the numerators and denominators used in the computations of basic and diluted earnings per common share
Reconciliations of the numerators and denominators used in the computations of basic and diluted earnings per common share were as follows, in millions: 
 
Three Months Ended
March 31,
 
2017
 
2016
Numerator (basic and diluted):
 

 
 

Net income
$
140

 
$
109

Less: Allocation to unvested restricted stock awards
1

 
1

Net income available to common shareholders
$
139

 
$
108

 
 
 
 
Denominator:
 

 
 

Basic common shares (based upon weighted average)
317

 
330

Add: Stock option dilution
4

 
3

Diluted common shares
321

 
333

Accounting Policies - Narrative (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 12 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Mar. 31, 2016
New Accounting Pronouncement, Early Adoption, Effect
Accounting Standards Update 2016-09, Statutory Tax Withholding Component
Dec. 31, 2016
New Accounting Pronouncement, Early Adoption, Effect
Accounting Standards Update 2016-09, Statutory Tax Withholding Component
Dec. 31, 2015
New Accounting Pronouncement, Early Adoption, Effect
Accounting Standards Update 2016-09, Statutory Tax Withholding Component
Debt Instrument [Line Items]
 
 
 
 
 
Net cash from financing activities
$ (133)
$ 751 
$ (30)
 
 
Net cash for operating activities
$ (149)
$ (70)
$ (30)
$ (62)
$ (111)
Goodwill and Other Intangible Assets - Goodwill Rollforward (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Dec. 31, 2016
Goodwill [Roll Forward]
 
 
Goodwill, Gross
$ 2,043 
$ 2,040 
Accumulated Impairment Losses
(1,208)
(1,208)
Beginning balance
832 
 
Other
3 
 
Ending balance
835 
 
Plumbing Products
 
 
Goodwill [Roll Forward]
 
 
Goodwill, Gross
522 
519 
Accumulated Impairment Losses
(340)
(340)
Beginning balance
179 
 
Other
3 
 
Ending balance
182 
 
Decorative Architectural Products
 
 
Goodwill [Roll Forward]
 
 
Goodwill, Gross
294 
294 
Accumulated Impairment Losses
(75)
(75)
Beginning balance
219 
 
Other
0 
 
Ending balance
219 
 
Cabinetry Products
 
 
Goodwill [Roll Forward]
 
 
Goodwill, Gross
240 
240 
Accumulated Impairment Losses
(59)
(59)
Beginning balance
181 
 
Other
0 
 
Ending balance
181 
 
Windows and Other Specialty Products
 
 
Goodwill [Roll Forward]
 
 
Goodwill, Gross
987 
987 
Accumulated Impairment Losses
(734)
(734)
Beginning balance
253 
 
Other
0 
 
Ending balance
$ 253 
 
Goodwill and Other Intangible Assets - Narrative (Details) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Goodwill and Intangible Assets Disclosure [Abstract]
 
 
Other indefinite-lived intangible assets
$ 136 
$ 136 
Carrying value of definite-lived intangible assets
18 
18 
Accumulated amortization
$ 8 
$ 16 
Depreciation and Amortization (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Depreciation, Depletion and Amortization [Abstract]
 
 
Depreciation and amortization expense
$ 31 
$ 32 
Derivative Instruments and Hedging Activities (Details) (Derivatives designated as hedging instruments, Cash flow hedges, Interest Rate Swaps, USD $)
1 Months Ended 12 Months Ended 3 Months Ended
Mar. 31, 2012
3 month LIBOR interest rate swap, cash flow hedge terminated March 2012
Dec. 31, 2012
3 month LIBOR interest rate swap, cash flow hedge terminated March 2012
Dec. 31, 2012
Other, net
3 month LIBOR interest rate swap, cash flow hedge terminated March 2012
Mar. 31, 2017
Three Month London Interbank Offered Rate
Interest Rate Swap Agreements
 
 
 
 
Debt issued
 
$ 400,000,000 
 
 
Ineffective portion of the cash flow hedges
 
 
2,000,000 
 
Loss on termination of swaps being amortized
23,000,000 
 
 
 
Unrealized gain (loss) on interest rate cash flow hedges, AOCI
 
 
 
$ (12,000,000)
Derivative Instruments and Hedging Activities - Pre-tax Gains (Losses) (Details) (Metal contracts, Cost of sales, Not designated as a hedge, USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Metal contracts |
Cost of sales |
Not designated as a hedge
 
 
Derivative instruments and hedging activities
 
 
Total gain (loss)
$ 0 
$ 2 
Derivative Instruments and Hedging Activities - Fair Value of Derivative Instruments (Details) (USD $)
In Millions, unless otherwise specified
Mar. 31, 2017
Dec. 31, 2016
Foreign currency exchange contracts
 
 
Derivative instruments and hedging activities
 
 
Notional Amount
$ 6 
 
Foreign currency exchange contracts |
Accrued liabilities |
Recurring |
Level 2
 
 
Derivative instruments and hedging activities
 
 
Liabilities
0 
 
Foreign currency forward contracts
 
 
Derivative instruments and hedging activities
 
 
Notional Amount
18 
21 
Foreign currency forward contracts |
Accrued liabilities |
Recurring |
Level 2
 
 
Derivative instruments and hedging activities
 
 
Liabilities
(2)
(2)
Metal contracts
 
 
Derivative instruments and hedging activities
 
 
Notional Amount
 
1 
Metal contracts |
Accrued liabilities |
Recurring |
Level 2
 
 
Derivative instruments and hedging activities
 
 
Liabilities
 
$ 0 
Warranty Liability (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 12 Months Ended
Mar. 31, 2017
Dec. 31, 2016
Movement in Standard and Extended Product Warranty, Increase (Decrease) [Roll Forward]
 
 
Balance at the beginning of the period
$ 192 
$ 152 
Accruals for warranties issued during the year
13 
66 
Accruals related to pre-existing warranties
3 
33 
Settlements made (in cash or kind) during the year
(14)
(56)
Other, net (including currency translation)
0 
(3)
Balance at the end of the period
$ 194 
$ 192 
Warranty Liability - Narrative (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended 12 Months Ended 3 Months Ended
Mar. 31, 2017
Dec. 31, 2016
Sep. 30, 2016
Windows and Other Specialty Products
Jun. 30, 2016
Windows and Other Specialty Products
Product Warranty Liability [Line Items]
 
 
 
 
Increase in expected future warranty claims
$ 13 
$ 66 
$ 21 
$ 10 
Debt (Details) (USD $)
0 Months Ended 0 Months Ended
Mar. 28, 2013
Credit Agreement dated March 28, 2013
May 29, 2015
Credit agreement dated May 29, 2015 and August 28, 2015, as amended
Mar. 31, 2017
Credit agreement dated May 29, 2015 and August 28, 2015, as amended
May 29, 2015
Credit agreement dated May 29, 2015 and August 28, 2015, as amended
May 29, 2015
Credit agreement dated May 29, 2015 and August 28, 2015, as amended
Federal funds effective rate
May 29, 2015
Credit agreement dated May 29, 2015 and August 28, 2015, as amended
Libor rate
Mar. 31, 2017
Credit agreement dated May 29, 2015 and August 28, 2015, as amended
Revolver
Mar. 31, 2017
Credit agreement dated May 29, 2015 and August 28, 2015, as amended
Swingline loans
Mar. 31, 2017
Credit agreement dated May 29, 2015 and August 28, 2015, as amended
Letters of credit
Mar. 31, 2017
Estimate of Fair Value Measurement
Dec. 31, 2016
Estimate of Fair Value Measurement
Mar. 31, 2017
Carrying Value Reported Value Measurement
Dec. 31, 2016
Carrying Value Reported Value Measurement
Debt
 
 
 
 
 
 
 
 
 
 
 
 
 
Borrowing capacity, maximum
$ 1,250,000,000 
 
 
$ 750,000,000 
 
 
$ 500,000,000 
$ 75,000,000 
$ 100,000,000 
 
 
 
 
Increase in maximum borrowing capacity
 
 
 
375,000,000 
 
 
 
 
 
 
 
 
 
Outstanding and unused Letters of Credit
 
 
0 
 
 
 
 
 
0 
 
 
 
 
Interest rate, basis spread (as a percent)
 
 
 
 
0.50% 
1.00% 
 
 
 
 
 
 
 
Maximum net leverage ratio
 
4 
 
 
 
 
 
 
 
 
 
 
 
Minimum interest coverage ratio
 
2.5 
 
 
 
 
 
 
 
 
 
 
 
Estimated market value of long-term and short-term debt
 
 
 
 
 
 
 
 
 
3,300,000,000 
3,300,000,000 
 
 
Aggregate carrying value of long-term and short-term debt
 
 
 
 
 
 
 
 
 
 
 
$ 3,000,000,000 
$ 3,000,000,000 
Stock-Based Compensation (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Stock-based compensation
 
 
Pre-tax compensation expense
$ 9 
$ 9 
Long-term stock awards
 
 
Stock-based compensation
 
 
Pre-tax compensation expense
6 
5 
Stock Options
 
 
Stock-based compensation
 
 
Pre-tax compensation expense
1 
1 
Phantom stock awards and stock appreciation rights
 
 
Stock-based compensation
 
 
Pre-tax compensation expense
$ 2 
$ 3 
Stock-Based Compensation - Long-Term Stock Award (Details) (Long-term stock awards, USD $)
In Millions, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Long-term stock awards
 
 
Unvested stock award shares
 
 
Balance at the beginning of the period (in shares)
4,000,000 
5,000,000 
Granted (in shares)
770,870 
1,000,000 
Vested (in shares)
2,000,000 
2,000,000 
Forfeited (in shares)
0 
0 
Balance at the end of the period (in shares)
3,000,000 
4,000,000 
Weighted average grant date fair value
 
 
Balance at the beginning of the period (in dollars per share)
$ 20 
$ 17 
Granted (in dollars per share)
$ 34 
$ 26 
Vested (in dollars per share)
$ 18 
$ 16 
Forfeited (in dollars per share)
$ 22 
$ 19 
Balance at the end of the period (in dollars per share)
$ 23 
$ 20 
Additional disclosures
 
 
Total unrecognized compensation expense
$ 63 
$ 62 
Remaining weighted average vesting period
4 years 
4 years 
Total market value (at the vesting date) of stock award shares
$ 39 
$ 36 
Stock-Based Compensation - Stock Options (Details) (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Stock Options
 
 
Grant date exercise price
$ 34 
 
Stock Options
 
 
Stock Options
 
 
Vesting period
5 years 
 
Expiration period
10 years 
 
Shares
 
 
Outstanding at the beginning of the period (in shares)
7 
12 
Granted (in shares)
0 
0 
Exercised (in shares)
0 
1 
Forfeited (in shares)
0 
0 
Outstanding at the end of the period (in shares)
7 
11 
Option shares vested and expected to vest at the end of the period (in shares)
7 
11 
Option shares exercisable at the end of the period (in shares)
6 
10 
Weighted average exercise price
 
 
Outstanding at the beginning of the period (in dollars per share)
$ 15 
$ 17 
Granted (in dollars per share)
$ 34 
$ 26 
Exercised (in dollars per share)
$ 23 
$ 18 
Forfeited (in dollars per share)
$ 0 
$ 0 
Outstanding at the end of the period (in dollars per share)
$ 16 
$ 18 
Option shares vested and expected to vest at the end of the period (in dollars per share)
$ 16 
$ 18 
Option shares exercisable at the end of the period (in dollars per share)
$ 13 
$ 17 
Aggregate intrinsic value
 
 
Exercised
$ 3 
$ 18 
Option shares vested and expected to vest at the end of the period
131 
154 
Option shares exercisable at the end of the period
120 
138 
Weighted average remaining option term
 
 
Outstanding at the end of the period
4 years 
4 years 
Option shares vested and expected to vest at the end of the period
4 years 
4 years 
Option shares exercisable at the end of the period
3 years 
3 years 
Additional disclosures
 
 
Total unrecognized compensation expense
$ 10 
$ 8 
Weighted average remaining vesting period
3 years 
3 years 
Stock-Based Compensation - Option Pricing Assumptions and Estimates (Details) (Stock Options, USD $)
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Stock Options
 
 
Stock Options
 
 
Weighted average grant date fair value (in dollars per share)
$ 9.68 
$ 6.43 
Risk-free interest rate (as a percent)
2.16% 
1.41% 
Dividend yield (as a percent)
1.19% 
1.49% 
Volatility factor (as a percent)
30.00% 
29.00% 
Expected option life
6 years 
6 years 
Stock-Based Compensation - Restricted Stock Units (Details) (LTIP Program, Restricted Stock Units (RSUs), USD $)
3 Months Ended
Mar. 31, 2017
Stock-based compensation
 
Granted (in shares)
124,780 
Granted (in dollars per share)
$ 34 
Forfeited (in shares)
0 
Minimum
 
Stock-based compensation
 
Award vesting rights, percentage
0.00% 
Maximum
 
Stock-based compensation
 
Award vesting rights, percentage
200.00% 
Employee Retirement Plans (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Qualified
 
 
Net periodic pension cost for the company's defined-benefit pension plans
 
 
Service cost
$ 1 
$ 1 
Interest cost
12 
11 
Expected return on plan assets
(12)
(10)
Amortization of net loss
5 
4 
Net periodic pension cost
6 
6 
Non-Qualified
 
 
Net periodic pension cost for the company's defined-benefit pension plans
 
 
Service cost
0 
0 
Interest cost
1 
1 
Expected return on plan assets
0 
0 
Amortization of net loss
1 
1 
Net periodic pension cost
$ 2 
$ 2 
Reclassifications From Accumulated Other Comprehensive Loss (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Reclassifications from accumulated other comprehensive (loss) income
 
 
Actuarial losses, net of tax
$ (4)
$ (3)
Selling, general and administrative expenses
 
 
Reclassifications from accumulated other comprehensive (loss) income
 
 
Actuarial losses, net
6 
5 
Tax (benefit)
(2)
(2)
Actuarial losses, net of tax
$ 4 
$ 3 
Segment Information (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Segment Information
 
 
Net Sales
$ 1,777 
$ 1,720 
Operating Profit (Loss)
253 
234 
Other income (expense), net
(40)
(57)
Income before income taxes
213 
177 
Operating Segments
 
 
Segment Information
 
 
Net Sales
1,777 
1,720 
Operating Profit (Loss)
279 
261 
Operating Segments |
Plumbing Products
 
 
Segment Information
 
 
Net Sales
863 
813 
Operating Profit (Loss)
156 
129 
Operating Segments |
Decorative Architectural Products
 
 
Segment Information
 
 
Net Sales
505 
493 
Operating Profit (Loss)
101 
105 
Operating Segments |
Cabinetry Products
 
 
Segment Information
 
 
Net Sales
231 
236 
Operating Profit (Loss)
16 
24 
Operating Segments |
Windows and Other Specialty Products
 
 
Segment Information
 
 
Net Sales
178 
178 
Operating Profit (Loss)
6 
3 
Geographic Areas
 
 
Segment Information
 
 
Net Sales
1,777 
1,720 
Operating Profit (Loss)
279 
261 
Geographic Areas |
North America
 
 
Segment Information
 
 
Net Sales
1,411 
1,350 
Operating Profit (Loss)
239 
215 
Geographic Areas |
International, principally Europe
 
 
Segment Information
 
 
Net Sales
366 
370 
Operating Profit (Loss)
40 
46 
Corporate
 
 
Segment Information
 
 
General corporate expense, net
$ (26)
$ (27)
Other Income (Expense), Net (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Other Income and Expenses [Abstract]
 
 
Income from cash and cash investments and short-term bank deposits
$ 1 
$ 1 
Equity investment income, net
0 
1 
Realized gains from private equity funds
1 
0 
Foreign currency transaction gains
1 
0 
Other items, net
0 
(3)
Total other, net
$ 3 
$ (1)
Earnings Per Common Share (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Numerator (basic and diluted):
 
 
Income from continuing operations
$ 140 
$ 109 
Less: Allocation to unvested restricted stock awards
1 
1 
Net income available to common shareholders
$ 139 
$ 108 
Denominator:
 
 
Basic common shares (based upon weighted average) (in shares)
317 
330 
Add: Stock option dilution (in shares)
4 
3 
Diluted common shares (in shares)
321 
333 
Earnings Per Common Share - Narrative (Details) (USD $)
In Millions, except Share data, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Sep. 30, 2014
Antidilutive securities excluded from computation of earnings per share
 
 
 
Remaining number of shares authorized to be repurchased (in shares)
10,100,000 
 
50,000,000 
Stock repurchased and retired during period (in shares)
2,800,000 
 
 
Total consideration for repurchase of common stock
$ 92 
 
 
Payments for repurchase of common stock
$ 87 
$ 86 
 
Dividends
 
 
 
Cash dividends per common share paid (in dollars per share)
$ 0.1 
$ 0.095 
 
Cash dividends per common share declared (in dollars per share)
$ 0.1 
$ 0.095 
 
Stock Options
 
 
 
Antidilutive securities excluded from computation of earnings per share
 
 
 
Antidilutive effect on computation of diluted earnings per common share (in shares)
221,000 
1,000,000 
 
Long-term stock awards
 
 
 
Antidilutive securities excluded from computation of earnings per share
 
 
 
Stock repurchased And retired during period to offset dilutive impact of awards granted shares (in shares)
800,000 
 
 
Income Taxes (Details) (USD $)
In Millions, unless otherwise specified
3 Months Ended
Mar. 31, 2017
Mar. 31, 2016
Income Tax Disclosure [Abstract]
 
 
Effective tax rate (as a percent)
30.00% 
33.00% 
Tax benefit from share-based compensation
$ 7